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CynergisTek (CTEK)

Participants
Caleb Barlow CEO and President
Paul Anthony CFO and Corporate Secretary
Avi Fisher Long Cast Advisors
William Bremer Vanquish Capital
Call transcript
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Operator

Good day, ladies and gentlemen. And welcome to CynergisTek's 2020 Third Quarter Earnings Conference Call. Today's conference is being recorded.

Joining us today from the company includes Mr. Caleb Barlow, President and Chief Executive Officer; and Mr. Officer. Financial Chief Anthony, Paul

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

Caleb Barlow

afternoon, a in assessment This to we're today, Cybersecurity year an as for A top second the and Market strategy proud the really for call industry. today; in early the Good breaking Black has of. start awarded little Consultants Research the CynergisTek well, Book healthcare audit, implementation row, news is everyone. award

demonstrates strategy tough working. to capabilities get industry from recognition the aggressively of on a a changing this all helping a crazy the front and of lines release our ransomware year it's been to add this address did a like and an in know the threat including As But year by assessment, Allen, fortifies a is to press we've further don't to we And to major attacks. it players we type clients, the of for Booz honor independent survey this. our of Clearwater, host been from not a deal worked these even frankly landscape, recognized new With saw coming providers, to recent bit industry everyone. for that We've real placement, validation, out XXXX others. clients XXX pay IBM our get healthcare Beating clients compromise and from really security was has in until morning. that including with continue UI, KPMG

I of So details the I make before wanted the to this get sure quarter. we into mentioned

Now, shown This see QX towards to recovery. and of the fourth market a signs of end into itself beginning has the quarter, we of of ways. in the number started

those move services, focus in was security security were family. on particularly releases two the a Health, increased to combination new an posture, from beyond just with telemedicine controls. interoperability pandemic, shoring highlighted contracts enter our go security mature for and posture. of both Fairview logos CynergisTek this new trends rapid term home, created deployment not that with a these Concluding clients, have temporary, security seeing that has more new are vulnerabilities of to we're into in expectations their created realizing long the First, willingness to world. have work the managed This interested our with and These Valley of up the along your into and defenses our the in the customers new core Health validation to recent assessments in strategy

new included We services, addition the some security. renewals long increasing customers also some recent to that their saw standing commitment with of these of

Department healthcare. our Coast. the of in progress example broader this A up beyond industry Health in to large our made of managed of and providers Public saw is efforts base, we into diversify is a good primarily West the healthcare with recent services Second, of the signing which state

manage contact imagine, and in track center front across the infections are health effort Now to departments as US and you can the traces.

be must I properly our such, healthcare of As and want suited traction also they're this organization security and recent ideally our to assessed, of secured. on focuses offensive brand market. [Red traditional are for outside All our all testing with mission. healthcare consultants in protected a own volumes CynergisTek that mention and generating information Skin],

strategic demonstrate companies, contracts rebuilding in early our one These team of now contract the electronics of imperatives One year company, new wins last which security offerings, us and do a upscaler and testing to consumer allowed penetration and we has Logitech. for to we well team, brought capabilities offensive are to win nation's our was they and is team, people largest the media expertise our when respite. known has consulting

our over our prove about the months, as optimistic broader in services we we're expand ability the capabilities opportunistically to coming these to Now continue market.

woods stepping And a long-term of Now, away it from can financial will impact revenue when the This the providers. run reduce had comes this a for are it our a clause, associated Paul they impact clients on situation to exercises effort an contract the a impacted instability, all pre included and sold into termination recent COVID-XX our discuss. This in healthcare of repercussions. during significant convenience out financial costs. as a When where has to not us. quarter, client

increasing the see next Now providers that generally represent debt important consequences, a not hospital pandemic, procedures they're losses patients, elective a pullback, but up rather capabilities. locked that attacks, essentially to we in down, budget diverting demand competition, through note when moving struggling limited operations continue. a to in attack. while increase operations into year, healthcare the canceling is technical Remember, Intuitive anticipate systems does of can due start we about experiencing, investments our in an drive crisis will services. just uncertainty with It's that few to debt COVID. right brazen, America's temporary wasn't take adversaries we believe to clients becoming and impact. hospitals financially are be for by security down of brazen In learned same and technical in But it Hospital growing and our privacy. Unfortunately, ransomware ransomware, footprint been impact and experienced with of weeks, effort middle with an regulatory also more a of an deferment in increasing devastating the the COVID. limited and past noted orchestrated the are dozen the increasing has this

this is to that's just patient Now In to ransomware, diverted we've of Vermont CEOs to the not infected is or today. we to remain operational seeing It's another be patients. another the happening. be still see we're in had attributed the and governor to this into died required to month, want similar do evolve, transit. investments Guard everything death but that last And in going perspective. is demand rapidly significant to it's assist to was boards, incident seen to very system new it first Healthcare put Vermont in well realizing incident that And of that a hospital and are deployed cybersecurity something attention ongoing ransomware. the open hospital That National recovery can with the investments help telemedicine. keep And the in positioned how American now masks, and world. of gowns I simply hospitals has in

and strategic a CEO, if our days to outlined guide ago, as I the I year a growth. my the first that strategy return imperatives would business of transform completed set XXX to it Now

some we imperatives decisions our hit. work true galvanize response. COVID-XX of this pandemic. before our had in held those found to own call we we as We we the through as face the helped It navigated Now challenges COVID us even

you year So stand. later which take would was

need first The was that our we both a overhead clear ago infrastructure. year costs thing very was to in rebalance and

significantly pipeline. on. to our our to an We still remote we're pull now is we entered just And and back opportunity reduced improved limited be go-to-market. [roll] cost discussed our marketing need influence, rebuilt structure standards Fast that with was COVID year, our XX% rebuild $X we could we're out and of million as last headcount starting year our expansion forward employees rebuild completely initiative, public we've as COVID. our pulled market virtual, our team all than front of annual to directly or is more our the running has of web A Over customers efforts reinvest today our costs, digitally. This of brand with promoting and than selling. XX. in which we lean presence shutdown ago, interaction an in sales to Other company and by activity go-to- face in also to the important face servicing gone we've

be web Over the to internal the Annual a Marketing. last source forward. of We will moving investment presence Customer candidate a conducted our VP a and of we month, promoted albeit virtually, be Conference,

were we're different a Now team, we than year company in turning ago. a many to ways, our

with Our faces both new security. executive coming a are great of has team to and for many expertise healths us depth

to skill very also And retool Our ago. our up team. it continue and different Board we was than a is year will

reduce not I but the handle to by ways us And of to our a engagement overhead ago about year the of ago. dis-satisfied also We front, the it ensuring And long management efficient the becoming has only to cross allowing year number by new dramatically We we hourly with tools. managers took project organization all of time our area half. This found far we're And management. also individuals, than capacity. of deliberate capable a On by major are new optimized more a deliver management concerned work the contracts, on of clients. to been backlog reduce talked providing using project with delivery more nearly acquired the a consultants training an that backlog, on focus. was surge size deliver

nearing QX, deferred go now returns. during that our has COVID is into capacity we shutdowns utilization been work As as

is pathway. our remaining new a performance. let imperative. team to out set to and that That remove Paul a we efficient importantly, this With us provides offerings, target cost to most and reduced last to several And our that, more turn with me over growth. return review Lastly with a financial it structure, significantly

Paul Anthony

Thanks, Caleb.

reduction at due services this to to managed the this $XX mentioned, with impact us some year seeing impact will had customer healthcare response better a time significant that from budget give million, of primarily felt end a to revenue, strides of during as Caleb $XX bookings. We larger providers. primarily sold this towards pre quarter, Again, contract its from COVID made on respond. which As one expected This issues. significant and an in QX still turn was our than the million dropped in we're result impact a

from you improvement forward going we below progress. QX, updated historical the will we an Although, steps it's to see as levels; which to in take signs positive macro continue and environment, things still keep

Covid to to impact from improved operating reducing continue further. our first reduce to in year. QX a to This margins we on and driver Additionally, half key expenses, react gross and compared the focusing margins the by when this to was of opportunities

to the And at burn took back at the exceed around $XXX QX, permanent reduce result measures which expenses to steps loan reminders, in point CARES under will other Protection a forgiven. we received tax have expect the we we our expecting $X highlighted temporary significantly from the losses operating both Couple Paycheck and levels. we we think cash month of this to as that million. we're possible, revenue also relief and Act, per the million year be As these reduced majority Program carry with which of will extent the will available $X.X this

$X.X financial $X Board the the to from total discretion. shares growth and $X.X million at to reduction equity of for used just of initiatives. and public the due services expect of due standard QX COVID. to though which and that The COVID acquisition in starting was funds to revenue decreased renewals, lower $X.X due and $X.X in company revenue historical a revenues Backbone's of will compared million consulting stock customers them and aftermarket to offset year. customers last to common business million million We're disclosures, addition, to company's the levels delaying company's will recovered to in consulting $X.X result operations or COVID new ongoing XX% in some QX to QX Gross to and business the XXXX, year. by QX XX% next from Professional of time allow million to due managed to approved Outlined year. million to be million the for professional to from issue time million the reduced by growing synergistic In revenue from program lower increased the as impact in services this our be net up Backbone impact canceling back $X.X services, new raised XX% XXXX to the see margin and for by the an a in of $X.X

is the staff marketing in to the is in COVID made reaction revenue expenses related mentioned XXXX efforts in compared Backbone. Backbone. in highlights XXXX. million decreased floor in $X.X last QX million found reduced restrictions. out Non-GAAP margins, reductions the information million I Operator, of financials improvement in travel XXXX travel $X.X to $X.X million over today. this the As taken we XXXX. XXXX questions. expense due GAAP full couple million Sales loss release concludes was reduction decrease quarters, and QX the my cost remarks for can The $X.X and $X.X million compared $X.X offset financials for and can and gross and XXXX with lower you improve the to to non-GAAP The due be by and for this This expense and margin for to addition of to open the due year. $X.X period This of $X.X came increased million in period adjusted that QX same same for reconciliation was XXXX. in to $X.X million compared for earnings expense million QX QX operating increase additional by for QX, EBITDA G&A along to the prepared

Operator

is first from Fin-Tech] with Our question Instructions] Bash [Operator [Jeff

UnidentifiedAnalyst

Good afternoon, gentlemen.

mentioned this end incident? in trends of you publicized QX. extent incidents. what do reflecting cyber more To described that striking the were the you think So You just sales is

CalebBarlow

Jeff, had two now robust than are team significantly to components more a ago. right. this, reliable that have much go- to-market mean, one there and is year retooled Well, sales we our pipeline a I we and

the that basic tackling. call blocking and I'll So

while that midst retool; and trying of March, out jam was the in that switch February, when everyone's really an especially all we to is this were opportunity in figure use methodology. COVID, we of of piece second kind locked The to agile April-ish down, up. what management We to

as met that several day assessments And with continue and we and new compromise to forward use every Our such Awake to Security, single we bring today. time validation partnership were team unfortunately, we run offerings time biggest right. public the we to enough, Interestingly was and that knew and assessments, going And books. we're likely that review ransomware healthcare. for some threat were security impact

So and as figuring mean, has my last clients myself to And team, well we they very days, in to through see these helping started to in last of back only attacks this to couple not positioned. need this back weeks, really, were brazen I our do. and what work the back the to we back been for few calls crisis out

long to answer a and it's out of winded for your to is I the to of positioned going all is being So guess figure the question it. lot But this be, well trying puck is that. where

UnidentifiedAnalyst

thought? otherwise phase There's to health affects about you United increasing been couple a I'm of your shutdown much weathering now better you which in adversely the concerning small systems COVID business? lab, the it And hospitals about have that's as affect wondering or set might in lot up if as of weeks you and do Or last rapidly other think not are a you Okay. outbreaks so another to press States.

CalebBarlow

there's right. here, two dynamics Well, I think

least of March, at in at still kind hospitals February, back moment right. first So, online elected the seeing all, are patients, of

So completely get continuing; elective down found to I in lot shut are through of surge. not ways just we've handle surgeries And to COVID hospitals a think ways this. have they're

isn't face little would to normal, if has because I to And to impacted. because see completely a processing that meet are capabilities. of answer have don't go is being going think figure can with with I go happened same they're is all procurement we can't started areas need out wouldn't are we're off; face this, impact. also anyone are say waves. But I than places at But see shut not to And to the things you deals, not slower everything true some clients. in a look we that the return, this we're started that that severely to we've are Now, that you client. like to going seem the departments, country, that in there certain in does think What

hard this. defenses, do, shutting This devastating. a It's the move you that their different the can incidents, the that speaking, not invest up have anything data adversarial represents it I point, the wearing a shore seen hospitals might these here were is analogy this ransomware to not potentially difference those bit of soil frankly, But hospital these their on pretty comment this different. before. if few express those kind is lock second your And impacted property. patients. US and change impact bad of day, defenses, Up a that way late the generally it's a that knowingly don't to we've soil, is in open. my of take is to the from seen escalation in few find with we've a Now, website, be attacks intellectual system, a analogous, by the lot where that them you that they a in the all to but people involve And we down you don't a devastating, security very than the factor means that's call hours weeks guys be this systems realized mask is a hospital attack large maybe denial get to US and what something up intent, whole little hospital healthcare remain don't it's But That for and them a of the intent, of perspective. going on from people in a in if they stealing saying intent ransomware and of if recent out reality service with last in also to all targeting sound impact. simple ever data significant prevent want harm alarmist, attacks, in kinetic safety in is tamper I it records, adversarial could are to This directly electronic right? life what to is seeing but in but stealing

UnidentifiedAnalyst

of runs urgency lot a to Yes, it issue. the

CalebBarlow

That's right.

UnidentifiedAnalyst

I of Okay, couple Paul. have a questions for

margin being you It's delayed reaching end was on the wondering XXs but I'm possibility still been high to mentioned it deferred, business two goal. achieve of as quarters the think the eventually to gross of or year. the obviously I see mid able ago, had you if by that

PaulAnthony

definitely term, Jeff, the been short in on We've that. impacted

get not we which this our there. But $X.X is year. get from do critical and anticipate we'll to at that million kind of rate, to run that going we to there back getting us. least It's million growth, So getting level to that $X perspective, can revenue back take for

that's we XX So why plus get I have back to we'll ability in margin back the ranges. to as get those there, think

UnidentifiedAnalyst

what's and they arrangement the those once referred was Okay, of $X you owner, -- were with respect already some and issued worth size shares to think, had, million with a large the you've of I to it institutional warrants, earlier where

PaulAnthony

for that on Yes, work We'll hold ATM. hold put through the put that we on now. as we'll

the that, need that revisit results So for ATM. we'll on of then if the necessary based the

UnidentifiedAnalyst

a Okay, the respect this on stand million with back dollars and for earnout. sheet do the think that? you you Backbone to Where your lastly, have couple balance at

PaulAnthony

in not did the initial year hit year the one earnout. At least

And and three. their and opportunity so still working hit two we're to and years ability evaluating

in it just which right status of the And there books the is kind ended month year. closed the now. first of October, for so We which that's

So working we're steps next evaluating through still our and there.

Operator

our Avi We'll next Advisors. Cast Long from question Fisher with take

AviFisher

at XX were over I had can quick XX% -- the obligations Q. recognize I million, I looked months. performance Paul, question. Hey, $XX.X the already And a you

and wondered a obligations performance least infers the disclose you've over more quarter, be that Thank at where the sequentially you prior visibility that given So have little I if strength we just sequentially. quarter could today. seen that last would you. those

PaulAnthony

understand Avi, may I'm have I you, your maybe. not completely I sure if question.

AviFisher

Yes, sure.

long-term correct? which the So contracts, forward performance you disclose obligations, are

PaulAnthony

Yes.

AviFisher

could the at your started maybe be given disclose, available. $XX.X if disclose, you quarter, sales the don't you've the you where to out had would wondered end pipeline, can that I could X/XX, But have you the maybe strengthen of you million. strength And today. seen, you if And sales number

PaulAnthony

can't don't point. I That's right Oh, number give; a yes, provide I provide this traditionally now. we can't at that number

we So this the numbers don't at into Avi. point, get booking

AviFisher

it's end the Okay. from at disclose it up Could if you quarter? at of where was least the

PaulAnthony

of the quarter. you It is I up since that. tell can the end

Operator

Bremer We'll Capital. William with go to Vanquish next

WilliamBremer

good gentlemen, evening. Hi,

on field. quarter. adding at ever the visibility just how's sales in you I given what quicker to look though events we and Avi's your been announced Seems this So I mean, last has cycle right occurred as unprecedented guys now wins, assume what has have had two this question major than now? is occurred would articulated that

a how and close contract team So a quickly with your new entity?

PaulAnthony

is of done In a systems, give map week ask on you going then couple go haven't budgets. especially after Health Well, were Department the are saw a that what's And I'll in happened very the it say that's because the asking what's now. that got type couple hoops, weeks, all under go example of reinvestigate control. and that Public to that, after two last over a we see see prospecting There set incidents you kind and where historically COVID, causing forward that took weeks they West I hasn't procurement recent and draconian, last is of What days. costs on question. Coast, of clients lot in over deal that the we'll and finally are a winded levels the all I because some are is is stabilized have on and various some all muscles over took, on seen, a situations, my wherever other the a answer departments long ways XXXX Everything's also of cases, in good quarter requests, it in right of over will guess deal there, quarter in really do new that multiple deal to right forward the a the that map And temperature. of It's of release through the it's interesting just Bill. to we map, I all got many deal just to we go defer over And all it's emergency for now. to depending quarter, mean, budget approval. an with thing. close have

we're were Now I would in because But a that's definitely kind really take cases the to longer is And I say of you for still of have often or some one thing door it the overall still as deals seeing new longer, can new where us. anything able are matter can times because growth a those to in larger new opportunities get take the of services with public you imagine, a takes that's encouraging say logo week bid. out two. to

WilliamBremer

mistaken? How And first seen possibly maybe question on is there? close though get business, processed? seems am as an by are -- we we I headed $X.X mix, And It No, visibility. million your rate, upon $X take quicker right Paul articulated depending turn idea very it million, threshold. to course, when as look sales was that see that? is that just I just of that quarter, your Do the this I from that quick, my team agree you million; away I $X.X can you have I are now, completely. with what interesting. given Shane of run quite and And at wondering close, don't we're just it last far let's it's up

CalebBarlow

Go ahead, Paul.

PaulAnthony

-- I'll mentioned. just unfortunately managed a as us was customer we say early lost that of we one tell it's that a hit point services large the little kind for you to that

that And so up to make got we've ground.

and growth, the opportunities, bundle the some make have we growth impact. to of took the got ground business, the from from overall logos, COVID in hole we're seeing right, as we primarily because as large in we kind to here. seeing We've in it, where you're you perspective we and relates think did that that of new that net one though, issues. just QX of the on some dig new hits I got budget to So -- of we're that to But customer and it's all it QX had out this have with things renewals seeing again, have do the we're up recover in that

CalebBarlow

I think for right our is it. have we're that frustrating loss the going that's all comment two customers the thing took And opportunity It's of can one in was now grabbing convenience earlier exactly we to or and for just see make up that was we at kind you some on. what of I really clients to ground start year. around here, we thing it situation cases lost sitting And see I mean, clauses a where experienced pay it's to this those with seat an could interesting said, just longer that's these a when budgets they security provisions. return. literally decided not where really tough to These afford are digest. are client being may That I'm to cases hopeful also where that we the no competition. turn that

WilliamBremer

And events and tier the side, have think wish but when is the end top just Okay, given sales gentlemen, and best. here. that top entities the on in I budget ever cycle the the you the for that material probably than quicker your changed all I market And agreed sales country cycle and the the occurred landscape. changes has

I get Thanks. think that. we will

Operator

conclude today's today's this session will participation. conference. And appreciate ladies question-and-answer your gentlemen, and and We

now disconnect. You may