CynergisTek (CTEK) 14 Aug 192019 Q2 Earnings call transcript

Good day and welcome to the CynergisTek Second Quarter 2019 Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Mr. Bryan Flynn, CynergisTek Investor Relations. Please go ahead.

operator. you, Thank welcome call. to CynergisTek’s quarter second I everyone earnings XXXX want to

Joining Mr. Caleb company Mr. the Mr. us from today Financial Chief includes Chief Officer; Chief Officer. Officer Paul Anthony, and Mac Executive J.D. Emeritus; President Mr. Barlow, Executive and McMillan, Chairman: Abouchar,

forward-looking to SEC those new financial among expressly the begin webcast call differ alter are described with be like including presentation, a maybe results detail some its prospects that obligation and those described I any Certain formal of we the company’s everyone a under result as from of call. are greater materially such could statements events risks future or otherwise. and or CynergisTek to obligation and no others future industry these filings. uncertainties Before risks disclaims and to would is and will to forward-looking conference and update cause regarding number in the remind whether subject made on results or uncertainties actual the of information, statements that in in

this At would turn to call to I our J.D. like over Chairman, the time,

everyone the thought U.S. the into to in for and today. Mac’s healthcare call focused vision, leading the Thank Bryan healthcare industry you, compliance and leadership company services thanks commitment focused CynergisTek and joining the grew cybersecurity, privacy

his continued of future the thank to the our and throughout for forward his support want Mac to of leadership Board. I member and the dynamic remainder a as into year look

our that perfect lead a in the is diligence, succession jobs Caleb as and Mac of found a and of growth. CynergisTek next is in Barlow thoughtful important also significant plan Chairman One leadership stages the to the the ensure due to through candidate strong Board place. After most

to it him welcome With to to Mac. I’ll the you during hand that, to give over ask the questions want an we’ll team Caleb CynergisTek and opportunity Q&A. I

everyone. afternoon, Good

to you they’ve success let me who also to Congratulations to these first our are to have company. all a works for Bryan remarks, and informed. to around us Humphrey meetings tirelessly to many thank for yesterday. wife, start I to for James, while Flynn, Board come say J.D. to keeping you that have you of their you I they say today. letting second in and and my Bryan sure a little Before provided make his thank our Flynn, support who know, Welcome Henry, your dad and you son their had thank want of

start a details before arrival improvement story slight the few of of quarter-over-quarter the on execute seeing year-over-year real quarter and growth, its XX% a Barlow. business revenue plans, highlights I’ll growth to security with company margin for second I on The more QX. Caleb continued in today, provide the

very large forward to comparison a delays, we fluctuations we both to from in down professional in delivery QX where QX, and client remediation a significant be a of by contract. work also of budget Looking constraints expect result XXXX and amount experienced year-over-year caused of services to as

That company. the said, growth the of overall. positive and to XXth growth indicators marked quarter double-digit Xth we revenue see of for the This continue consecutive

achieved one of our the growth or XX% clients quarter consistent services focus, in approximately customer with in this primary penetration services. managed more Continued and managed managed are we to-date highest total services now

the plan CynergisTek addition of important success seasoned to future took the leadership my with successor, selection Security Barlow. of position transition of the with Managed steps for Caleb appointment and and implementing the We Director also the

its company’s evolution next plan expand critical and are succession While strategic easy, changes step like on this the these I’ll never a which later. represents in

assessment driven strategy The translate completing of understanding Medical and current service to demand sign of We’ve Medical recent device both clients in base. clients after growth first signings revenue projects. see assessments of a management offerings risks. is services. in area consulting for of success managed better current CAPP revenue this medical will great of building our them pipeline We we offerings our several that assessments will an services expanding managed have good a their and for increased our their our these medical second in from two giving believe is growth The complete continue security our and assessments Security a Device to increased Device seen Security device installed recurring as into

support those programs agreements to clients. expanded We cybersecurity saw existing or at program CAPP of our well within Security as requests Management managed multiple early development Service for as within both renewals services service

seen Our our managed Management of release to Privacy one relationships into have who them This clients expanding an us may is years around fourth discussions which testament spoke program Security more service. which XX expanding which a press has example client one adding Security is in current our a is service. quality services managed you of be its This Patient our about Monitoring with Device client Vendor Medical third its long-term of now than for managed and its also CAPP the adding would of service. recent

clients’ and strategic cybersecurity our Continued identifying, addressing a threats expanding of of to risks. adoption of our and importance partner offerings the recognition having and aid managing and highlights value

operation XX Security the leadership, I her Security growth to growth taken the strategies appointment Whysall healthcare said Ms. have the be Carrie business. management Device experience Whysall the responsible Security as as Vendor the veteran Management, e-forensics as implemented or -- important will Managed training Director expertise first response health the of Health, Ascension with knowledge the XXX company’s was team growth and system center business in IT the Service executing incident strategic recently security years device part other Security steps the not-for-profit offerings Her as leadership of managed most ensure programs. success with and recent or States than first awareness, be Security. Managed earlier, Ascension’s management, a for security was driving well with and hospitals. and United Medical in initiatives security the as more largest services. to the of Security Services. SOC Whysall over well The SOC we invaluable of that position will and was This Managed launched aiding of of our future Device Service medical and the company’s for As Medical

Executive The plan strategy that plan recognizing execution and thoughtfully next do Two in step of top our was the our in leadership Barlow years Chief succession ago, to strategic beginning August succession the strategic a Caleb which plan a big X. was leadership and deliberately implemented of as Officer we President that culminated appointment our priority. and

our knew and launch time the business make With the of the MPS sure the growth. it thought right would was of to the prepare we stage the helm, right in for the person the next new determined I business services, business for have at was position growth. managed the disposition I direction headed and secure of and who

my of attracted to We a we that myself, executive executive lead by four leadership After as the plenty a one to are choice XX Caleb, and stand our month number mind. on of us Caleb search with team, the Board unanimously things There CynergisTek. picked a all candidate. members out our landed in interviews the Chairman,

new presence Congress, the in has is the in First, held a is many has well in of to discussing face at front has CynergisTek. been speaker the a positioned and He regards he become credible in the He conferences country industry. testified news has around and high keynote consistently cybersecurity. of

the has technical his that being Board industry. Second, of deep to aspects level. knowledge into a business, at the is cybersecurity He dive ability the while of also to forefront do of to translate the the able the

be in lead acquisition He delivery of he him stuff. customers, want his the investors service and teams has industry. our product who across a and strategy, broad product Caleb management, in credible experiences development, of integration employees, to front know all that knows giving range will Additionally, marketing

on our be make he He focused needed successful. relationships with wanted and understood the employees to employees. is and current he what customers customers to sure completely Next,

that is speak our Caleb we built industry shares and many this You close appreciation. that long heard our with the others to me in and success, times that important customers and have relationships how

an background given partnerships large him in in M&A and and which both extensive has leading activity, he small experience has organizations. Finally,

As knowledge to forward. the CynergisTek someone grows acquisitions success. as integrate This a that business, Having M&A need will company into moving with become more will is experience increasingly we Caleb the to will successfully important. our possesses and the critical be

always this of know strategic execute and to soon succession that, that expect for accomplish goals and important but we many been so organizational me did an day to not I develop plans part plan. has come

will position growth we’ve well place ago. to has able were X.X the background execute necessary and that in who on a strategies Fortunately, leader we experience to attract that put years our us

give time of support the it As what I here for we're off to I publicly would for a last all CynergisTek. hand for building summary at to of and QX him me Paul like dedication his to thank to first his financials, the

Paul, go ahead.

increased about The for operations. second for that only Security $X.X discontinued $X.X XXXX and it is security provide to Mac. $X.X was revenue million. Consulting services Breaking revenue Professional Managed includes Thanks, quarter an XX% $X.X I'm million. versus financial to continuing increase business the and unless information for mentioned the 'XX to QX of XX% down the revenue million, million Services increased specifically

were margins to second XX% the XXXX. in XX% compared quarter for XXXX, Gross of

As and gross decline with to talented is we've margin reflective implementation of services mentioned of costs and the cybersecurity business. quarters, in of in retaining our employees, over up the advanced the new associated systems the last slight support ramping attracting couple investment

of to the $X.X million the driven of tax diluted EBITDA for by XX% quarter of share cash a of was MPS for revenues million $X.X Non-GAAP per the company $X.XX or adjusted 'XX million or quarter consideration cash for compared sale to taking for second loss into loss of or loss X% million Non-GAAP of and before $X.X gain million The million loss XXXX. $XX.X and was approximately $X.XX equivalents of business. $X.X compared basic liability basic per second diluted adjusted share of and on XXXX. 'XX, primarily the had $X.X a of the revenues

We saw full out release of deferred to yesterday. GAAP and $X.X reconciliation found earnings can about an be came The of information that in financials increase in the million. non-GAAP revenues

a to in MPS an not versus the did financial before the future QX. provide capital The adjustments. of update consideration $X.X items, million on sales to million business I'd regard of in few materialize the $XX.X reducing like sale activity paid additional working subject

cybersecurity now complete picture financial Additionally and for security are I’d XXXX solely to break business for focused revenue investors and margin down QX and components, we a the the privacy gross on give that like to QX.

million, $X.X million. Equipment Managed in same Software ‘XX, security for For million, was XX%. margin Professional Services and $X.X and was was the QX period revenue $X.X of was Consulting Gross

For Professional in security XXXX, million. $X.X of was and was of Equipment million, the revenue million ‘XX period for and QX Consulting Software Gross XX%. $X.X same margin Services $X was Managed and was

for and the with Lastly, associated fees we’ll general of see hiring of CEO. million administrative approximately the additional executive recruiting $X.X new in fees QX our

going G&A As to into a we next expect expenses our year, result decrease.

concludes the Barlow. for Caleb CEO, like QX. the over to now This call I’d hand new Caleb? financial our to

Thank afternoon. you, of start I'm part I’ll excited and company. to saying by incredible this good that be Paul,

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saw of I I had the at As more problem, in a to CynergisTek, this approach look these with and destructive all place the components that responding these to company opportunity attacks. coming address of challenges

the the trusted regulatory security and complex the many and cases, there, healthcare. They of CynergisTek just most for Directors. their the succeeding the but one not advisor CEO of was by environments operating in became Board out in team clients,

infinitive to in are which magnitude. an required of respond All

As not devices, station, the be work identify leading the it vulnerabilities IoT is only and server grow, other CynergisTek to but on complete picture. will to and your monitor the way

also CynergisTek Did with response of has capability company to to business. scale everything not from jump successful swim. learning to is more incident large day. but analogous much coach. you’re to look that to reading not pool the need an incident going on have going the the It’s to you’re learn and instructor an how skill a a security plan a worse likelihood book. To vulnerabilities a or to help to will to ability how in a only be Knowing company’s understand security the necessary the for impact their at it to

a swimming, security executives build decisions plans going in occurs. they different which not CEOs, boards thorough by operate, just you’re to understanding likely a their to trusted if type different. worse make the of them the posture, a book drown. that of risk knows coming a organization you’re going to it that side, for regulatory the is to and how day security one reading has the help on attacks and partner to any environment partner and in If crisis need Respond are their their

to I take has came it. the DNA what can CynergisTek and I problem this solve company learnt here that to do right build to I’ve the and believe

a very coming even big large focus be My over see has company, in to start opportunity company the on with from I on innovate but resilient small been quickly, that’s organizations. to clients years to help services by managed assessment adding a incident. another large what tremendous businesses CynergisTek small. expand more large a may has very to the the to be I a in Now, cybersecurity teams that ideas driving running layer built

of and two I thing CynergisTek for initial plan here full them noticed to teams fantastic is future. company engage been in to short team only with leadership country, visit the Mac the One built that’s work is around I’ve solidify leading smooth our my I’ve a Now clients our weeks, and to the working experts. has forward my the team and a all in time that look with cybersecurity transition. throughout privacy

my leadership his and to his CynergisTek both in whole. In congratulations here extend closing, as on the I a at want to industry Mac career,

This floor open concludes the prepared remarks. Operator, please the for questions.

question [Operator Instructions]. Matt And with from we’ll Hewitt take our first Craig-Hallum.

that you’re of expectations. up you best a a couple Mac, to team. welcome came it’s was last our of bit couple working of years business? questions, Caleb what if Barlow perspective Professional then Consulting with I’m future just a function first a little wondering the of that timing consulting. or seeing short from been of for the and pleasure wishes and and these and demand A piece endeavours,

area its that and that paying of in advantage revenue the attention professional is the that can services an certainly short-term. to we’re recognize of obviously it’s Well, we a lot

of it do the is of is So to focus continued a and up. to those there things sales bolster numbers continue area we get to one need

of about then years? next Got we that. sequential thinking But it. some And sure gross the be how say margin, improvement. couple there mix trending should over metric And to components that I’m nice is

let Paul you. me to defer that

X margins we as revenue as the XX probably to XXs I sitting our in in range, to of plus X up the we’re million, ramp that that start to Yes. and middle Matt. at in pretty we we’re to million these a quarter at to in back I think mean that consistent. high going it's expecting I those and range. -- getting see we’re we high see X in the X X going expectation the will levels think we’re That’s in what is -- least range low start But the short-term uptick the revenue be start

commented consulting and Understood. Are and into prepared offerings. mix you bring high for areas a hardware, for there software, Thank that other thinking maybe that ended to going are level or a or last opportunities looking on In you is more of attach today, your an areas the of where where from the open expand opportunities current opportunities of even release And maybe other question you’re people then you kind overview of see seeing Caleb. for and more service in maybe remarks you to the -- the company one press you. just kind you forward?

managed is Matt predominantly of things more biggest frankly associated certainly So, to are There that will and think intriguing which the focus services that here here. couple be people our services professional this came areas of very of are and I why a I goes faced.

first that, these the you is responding, business you're realize operating. security run ultimately you The you which in And an more means just it’s vendor, to don't environment pervasive, have more what of is no business if a into when understand thing it’s just attacks, that the destructive response. all that, you're team that's tool longer

You going they're of to in. heritage that incident. can't I assessments an to is respond the understand at which CynergisTek better and very because that providing done the secret advisor. their And that prepared believe is and guidance many they the very better be has operating level, that in deep provide trusted a be the help not thing in just in sauce business part companies, unique, of that's And healthcare,

doing it at centers areas look expansion, around key the potential you if all things. So, the of opportunities two and

there. to base first, healthcare have and in segment our on focused growth The built we continuing good the

just across at services industry and healthcare. forward bringing us in is beyond second The move

FBR. our We with D'Silva from next Andrew question will B. Riley take

time call. we previous you like this get And a last echo might as talk be Caleb been to a great It's on finally chance to join Mac, conference to -- I'd pleasure. the a to comments, And well.

to first it throughout maybe of break maybe And then how far? thus rates. a just customer good down between you customer XXXX consulting Has bit retention. managed works a and Can So, been and little out very in little maintained related retention professional? services that a question Historically it’s between that bit? break

if in is And my ways. the you good in tracking about And customers, how have. all customers it has rate is ways was news is, number many Andy, we're across of the least time many now tracking of just strong we're all remained service of we over a customers what board. managed So, of at retention heard the look up that our talk the you me the that that first picked different remarks our total XX% across opening for have -- one of for and that

services secondarily, past, and in that how we me if you service about our heard many well. is as up look then ticking two have of at, number actually talk the more managed managed or customers And

customer me of about have them. already added our talking their absolutely And it’s our heard fourth. third of possibly one can our the have customers talk You their as goal to managed adding many many as as is us that to to about we and sell services

trending very good and is that right direction news all a statistics those are is that, the strong. strong in remain still of So, And the focus.

labor would than is segment. the stronger of half economies And 'XX? the But in back how margin gross XX%, tighter this questions. in much 'XX for expected 'XX that? of to much And just obviously caller’s in is then be getting back you moving scale, year on your half year has to just is market been little to previous compression are over margins about of to know I the you kind of talked How of the Okay. a the related bit in gross Great. being say about related

Yes. as in looking additional tie the to those of primarily We as at from be some we the impact estimate of as implemented well X% managed around in that service, new we’ve a headcount, may we’re the case new it. worse the some that when side X%, is the is tools what it -- services, of

the with associated so. is levels, revenue balance the So

your a Okay, but it okay it’s obviously, question done me, well. as curious maybe run and first role initial at And but already a you done what be me -- previously M&A the you expand was correctly, changing just dramatically from not be position can little correctly. just Caleb, what company, were very the as bit me I'm you accretive a obviously the a And through company headwind how perfect. to big answered, on and pardon size shift view is huge can the attraction if run you then, or also brought if

your particular fundamental versus process thought be down? actual So avenues might just useful would go

Okay.

point a the a pivot, kind can right? job, learn human of concept back. in I is face are come ways. metaphorical take in keep foreign face And it, going role to breaches not and obviously no a the thing advisory, thing really punch business until you’re often well the that, the headlines, you getting So, executive in as human first the do. but first epicenter getting I mean believe doing, average that executive kind is than the to my them and breach and And in about and kind along the understand statement way you time major they very hit literally most against you’re punched of you That it, I damage on sitting you at major of punched look was it’s I actually actually this equivalent if you the see think scientific the how right a past would and at breach, point that you that -- to can isn’t have for up most the of corporate tell to different breaches what people your more knowing causes of to school what at the response it’s if occur. of many to

got One, these things breaches, to boards started I these plan to way I things as And that realize required. and really you to this and during in were see for advance. two CEOs worked started with

was things Google environment, getting of exercise of this could on as you built first if actually and missing to in because in So, not built things front the I’ve And was company to even IBM understand the were the can cyber one and and we’ve you’re such commercial it, building we truck. you back out the in built interested world’s range, incredibly these one in an every get in how happen. the successful weaknesses going has, security which what those it still that link to also I But only but understanding business. impact couldn’t weaknesses,

So risk that risks exploited. that is taking on business and the to connection if you’re the how going cybersecurity between operate, vulnerabilities were with our those

first So, is I that was of got all, where interested this.

other the all But And is actually Security through opportunities then M&A. the executive, one in acquisition, is and more or what of of process interesting the work combination our many part hand-in-hand running they was question if many leaves, acquisitions. the call are to there is acquisitions, where executive CEO an second then it the the a one the kind actually roles company. way IBM you around work working of had with on the of for integration lead CEO, And different I your XX actually you great either cases

it are try have And acquisitions that your case business that to many their and figure to acquisitions struggle to many you there exactly and point, meet out. you

out have try You scale. to to to how figure

the course interesting, is, of lot So a it’s used of that great discipline about CynergisTek I thing and CynergisTek in public. it’s same evaluating

the hidden lot in of a to you part ego that just isn’t something and Not get driving X can plus picking other us it to future I that give growth, helping to us well think see about that actually have work revenues grow. along advantage needed our away already things. off this point, going lot the organic of information, of with X the your you maybe of plays towards but very but So doing. we’re M&A very carefully are is be to But synergy equals that X a

Capital take Gibson Partners. ROTH question with we’ll William And from next our

about it and for to, And Caleb new and Security relates be? of Thank that about you. big areas your Mac question what you could I it. what’s talked beyond A Device into I Medical sense know But thinks moving the think healthcare. how

Well, XX,XXX look X,XXX look realize I company And devices network. all have have if you that employees type connected you at challenge to think workstations, mean you’ve with if the the space typical general, might that but that in the is IoT adding with to you got maybe medical for of a just at but any actually you’re X,XXX we might on a data can of than in a valve. real course then a kinetic to pump on database a device of a people. and kinetic the opportunity impact more or action or the building actually And impact impact top this, devices you have IoT

protected. operating that with they may be systems, combine these not last Now things XX fact the that often well XX, at older plus years, are may they running be

is a about think impact, way, address it it framework. large if landscape, regulated, about door not we regulatory and intriguing on threat this only IoT if large focus us but which has has larger has medical space that a it to of is this we can a figure opens this wild significant that But what the the west. a less less So also devices, it is bit general opportunity space it in bit a harness for that totally out complex, a

the again? street go potentially quarters third of that you. over the you Could statement, second follow-up I in quarter Thank breaking XXth consecutive question think early ‘XX. in you over the of Mac is, then And went

QX you I take saw that in large last mean that. we if and can effort QX significant who and year customer professional had had I Yes. services Yes, remember remediation which the revenue. large

level we quarter on or this third least remediation now. that of the are so going And at year this don’t have same right effort

And number. see in a drop so that we QX will

still We’re We lot QX. looking a the still pipeline. at got in

our looking function last finger professional to are a at large year, this at that’s still of so. drop comparison least we we we entirely crossed, a point, had got And deal so at the services in

correct? X.X that’s from so, a drop And million

Yes. that would right. Yes, be

with Van Clarkson take Clemens Instructions]. we next [Operator Tim will Capital. from And our question

I'm kind of this to new call.

more specifically just I'm ones going are the define which How one-time which basic ones services you were repeatable they cybersecurity? Managed are and Consulting a between So, of Professional would and question. difference ask Services terms and and to involved with in

So, exactly like, professional services, of it sounds what is course, right.

is here to doing there Services what for a Managed a very analogous subscription. model, model the up having is CynergisTek unique. company However, you're that, a very In software-as-a-service sign at

Now remember, done are healthcare that field, the assessments are in these required.

than year So, potentially your be a healthy. often business got and cybersecurity in you've more once go every even a assess which certainly year,

up so packaged CynergisTek go, it take is year. a a find have these repeating you couple vendor have a benefit to to has of what we every One, that. to sell out it go of with things as and don't and done RFP kind So, service don't

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the but gets as packaging that a Managed find. a interesting where is also that we posture monitoring this Service, So, in

continue validate that and where we're hopefully So, now helping place. the in for example the what monitoring posture see environment in those also a in are to all if effectively patient an controls those of on controls privacy is. company are in Like monitoring place to going service, operating top environment with

reassess to as perspective, you service back with a of contract aspects take of a very from you all from care think constantly we're think coming if the this at look you to need and in analogous -- to monitor based us, we that SaaS that and a of this continue environment. So, I financial

Professional services the yourself in the and Consulting that, what cybersecurity? you’re doing and of Sure. Would also say Managed you Services involve on with terms both

Yes.

big course a it this here transition, interested take brand that any to to as parts a that pureplay allows pureplay businesses that company that on well us be is this frankly and moved of as not other the cybersecurity of distraction to out any a have perspective messaging business. start company what from of a coming as those of right, all part now cybersecurity is our So in other is a and part of me big

that, we repeatable. our I'll bit little consider relates consulting recurrent add a Services as where consider it that's to and to Managed

So the are done basis, your that services a annually. but traditionally many services there that are in are one-off contracted consulting same of still types services on cases for

those are repeating with And us. people still back so, the coming services

aspect to consulting it. that So has

Services So, be the more could... even Managed and predictable would

a three year It’s contract. Yes.

is obviously professional those revenue versus And recognition the very contract as different well. on services

Exactly.

this Mac [Operator like I'd ahead. at there’s to go over other questions the time. McMillan. Instructions]. call And back to Please hand no

past, company and belongs successful genuine by want time Today is for thank success our for future. and were the present the thoughts our last with of you it success I shareholders, your way. in along and interest your But thank. and to for I'm within asset many the me on engage No company, generally represents to today better-sweet to extremely of who support, your you operator. share thoughtful and you, me its moment our many become. enough for humbled to this which has is there Thank that stakeholders my as proud own are

know expect looking back say component at I of what honestly advice. and a and when did are can the the a experience, source tremendous world employees, clients our but private I I valuable public business now our and of wisdom shareholders company transitioned to our like one, from not to our

company As I team rose will that several I of mentioned on confident I value the focused and this leave the same. on I'm everyday do behind occasions, growing

you, in forward operator. Thank have Paul Caleb, look I speaking and day. you with a the to Thank future. and all you great

Thank today’s participation. you concludes your for That call.

may now You disconnect.