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CynergisTek (CTEK)

Participants
Michael McMillan Founder, CEO, President & Director
Paul Anthony CFO, Corporate Secretary & Treasurer
Matthew Hewitt Craig-Hallum
Call transcript
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Operator

Welcome to CynergisTek's 2021 Second Quarter Earnings Conference Call. Today's conference is being recorded.

Joining us today from the company are Mr. Mac McMillan, President and Chief Executive Officer; and Mr. Paul Anthony, Chief Financial Officer.

and formal made like webcast on regarding financial the that remind including begin others, future statements among some the results we presentation, looking. to I'd everyone those are Before forward prospects, industry call and to be would, risks cause These anticipates, subject use conference of believes, intends, to materially and and are may, could will differ a by forward-looking forward-looking identified results described the of such uncertainties those terminology that in actual statements call. as expressions number can could, expects, from or similar the or Certain the of these will risks be filings. SEC in and in uncertainties detail are greater described company's

to Given forward-looking of occur not anticipated. would such results, a or should alter listeners expressly I statement which time, result obligation CynergisTek turn future McMillan. on as to new Mac forward-looking no as otherwise. obligation, information, of disclaims is and the should update the and any future predictions events and reliance the call recognize uncertainties, like are statements, not this may whether place risks over under that or any undue to At statements its

Michael McMillan

and in Thank good to already back I I afternoon, the work. I'm am, seat, never you, be at but expected everybody. and announcer,

a appropriate that to in well industry, business We of our in our It's out as back. consistently, support improvements customers, our and in encouraging of to be X promoting and industry, they quicker our care as we while of felt even to have return months member, growth. I number this towards real so continues others fact revenue. made tremendous I could been the those And rebuilding as greatly our of good but weeks in engagement pedigree our with easier because that forward. that offers case clients and type we might and couple the will But broadly But our attention of longevity There customers core have will engagement. past the well. XX be delivering decades you going some as without of return by to be we of ago, provide of great my been our as some told I positive effort have to does almost and been the progress happens everything additions building and progress standards balanced related and and by was whom was more Board a of not challenges to happen amount allocate customers, with the a reputation XXXX. our and in our industries some I that what client importantly, many success perceived services is primary abandon focus. And to decision benefit after It be and particularly to care have more services and a I way. business to the welcome we should was now as not been our As in know clients. you health what need for loyalty more the do in from return employees highest impacts company professionalism, them business directly with talent to competitors, that, to is encouraged which we're going made source in applied the can reach But me aware single solving face, do. us was a a commitment That that have pursuing some our I many and seeing by health by phenomenal have what and not COVID, that also me upholding assure can the we will their saw for appreciated. to for concerned our outcomes after the doing the since to clients, we be

near time Our first sales sales in organization a for long the with time strength full is solid leadership.

Board. must its despite in not that, unfortunately, capital the more in new Board our the performance strength have CEO make be experience have the last, where I who new of did investor be would and members brings are expertise to have be. the say now it himself, a I to tough important was the hasn't us company did future. and addition this the of us this say, did readiness like We markets bridge the during is company corporate water That, as times since did that difficult have It naive who under and strides membership and is since in we and to manage that on one past shareholder as predecessor to even we improved where say asking XX type a would history Flood, though, of for our future. than We relations leader the Board, as my years efficiencies. months develop market with service the offerings, To company to on faced times John capitalization support my ever. itself any But add been it And unfair. now XX and of position most would recognize our plan where are of engaged some return, focus investors our of and CMMC focus Shareholders I Board not overall we it. is

opportunities and is to changes, to to environment With will is include on which one emphasis near-term of be investing first challenging our dive over plans changing capitalize. our positioned priorities and an and market accelerating still increasing, post This a well the COVID, the do deep leadership and update long-term strategic the revisit growth profit.

greatly and position addition a months. increasing to become strong addressable leadership opportunity XX over with care much a our next the relationships the foundation market creates initiative, solid in the a and larger to company the CMMC health have We XX of

and vision of which is on, create priority immediate to consider I listed organization analyst been for of and understand responsibilities has a cybersecurity important concentrated what as shared as a focus we of This has do, independent receive. the guided what recently the we that will short-term that a top highest how second execution and to close begun. the core report recent already the consider leadership how services results, company be first partner. business what we of a value of as one A paid and I care company always goal on One can companies CIOs But is. health the that This was compliments create true industry a serve. is CynergisTek has one this

As this has great a result, company a legacy.

more today. have We we much and are a so great be than we can reputation,

our Meaning teams, X everything all and share do company then is more solid to the successful successful our customers build that. our is commitment Successful executing. a businesses, to focus our build part shared win. Our and vision, on is and intend successful we do winning things will plan and we culture, of creating winning in We'll in a for shareholders. employees, organizations, and by that paramount common: that to

to As who winning a lead leader sales win already, team. now we a have I've strong sales and capable in mentioned wants Steve Rivera

sales seasoned new experienced already the are some fairly a have and of they team set are and wins board at put to do sellers, we CynergisTek, on more. and a they have While anxious

that nationwide seen progress, and clients we have and opportunities, multiple sales the wins provide that see in our To health want and are consultant more pipeline XX% we more provide these to support end, team past the recently taken increase care several wins, team conduit ability our sales To experienced These and CMMC. serve releases to that team. new to more on delivery of and as last identifying our a And are restructured create landed coverage, to to our working sales, effectively alignment have than rate further seeing you rebound. all our All get credit enhance to ever on strengthen steps service sales has collaboration sales the new now things for been specific positions support we better as client are very in services to a pursuing areas year. the Just we organization than active have of support their creation a few To those capitalize overlays organization and dedicated dedicated and and closely higher have and have provide cross-sell past. customers our delivery and focused to sent together and out. directors. track restructure on like at of weeks, I already the We we press to frequency. that to better in

new year. We the QX seen each Again, generated of when something compared increase through we in information QX more compared To months we color XXXX, to start nearly a million of on. X have bookings first fact, this saw for asked year's disclosing quarterly to more in QX many from last have significant In that pipeline our of progress, track have when our our decided to bookings. $X you give month. and you to again

several to right requires on new already The universities. closed head that resulted is this net adding news of Growth included sales and the and upselling. renewals importantly, focused to addition expand we business we begin tier while an our revenues. new are presold our team in to relationship new good And X have. More a things increase team is health number with The the our in ones in seeing clients systems has logos large in new continuing direction.

able as well we logos division Our should with consulting position take that have XXX first of adding delays CMMC DoD, health Despite non already added and also our companies, assessment well, to several some we to which Redspin by us leverage grow pipeline and new were opportunities. position numerous CMMC deals. closed the mover care advantage Fortune to has

to updates give relates pursuit as you that on our business. some of Specifically, me it let CMMC,

to in in CMMC the the go. to has CMMC third-party assessments assessor CMMC and an conduct organization. place First, as in we everything soon as authorized quarter. We beginning [indiscernible] X first announced are Level fourth QX we ready were organization And pass that anticipate the certification as we successfully DoD assessments

training, services offer out, multiple individuals importantly, in help CMMC ahead in needing organizations begin categories: those register first has training. we with still Secondly, provide announced which allowing of that all organizations first training. And early, And are to we prepared good sign. we approved we have few are and already interest. since of gone QX. time expressed to under To expect be the and announcement another had lastly readiness we services also for will recently, can just CMMC one individuals And certified though to we summarize, and the and to still consulting to it's we assessor Even X most consulting, that's provide now. days

business is we currently behind we building are the CMMC tremendous government, from on on. we are in to the out with a The this DoD more extremely still forward. schedule volume opportunity and detailed approach opportunity front but can going of see executing to based We provide and delays we the the and prepared now services take excited as deal our us,

know, last to we Fueling Our as numbers, since have generating booking to is CMMC-related achieve year, opportunities leads close a then. prospects seen QX to all which deals began Sales, and certification start the accomplished. deals. important. leads and to We from we have funnel of matter revenue to of target to was XXX this is by quarter

our And We our off. seen debuted those, recently encourage you of web uptick synergistic start you take content, in a if directly and pay investment I initial some and our that more new increase look, people go recent XX% our shows haven't to frequently efforts engaging a XX%. marketing are to visitors with to and beginning websites. with We data see more Redspin in digital an

our $X with and leads to more last new of interactions weeks. just customers account-based have our million of strategy marketing the events. opportunities, logo -- new still to efforts and nearly come Many Additionally, net educational from deployment couple in contributed focused of and tools

around series cybersecurity Our leaders industry We as connecting security. we summer presentations CynergisTek now around conferences attend includes privacy and had X attended and well. within health several recently, medical Hat discuss covering is topics country in virtual other others full provided annual that folks events, Black and mini care device cybersecurity to also smaller X and both where challenges And we events the HIMSS swing.

have taken This We children's advantage back in lately lately, care still continue marketing the our said, seen able due have institutions we're now. But we with surge true been is of cancel virtual especially to to That currently efforts. some experiencing. have we pull and that. some person right hospitals meet and travel customers health of

that hopeful delays last like not more new resurgence are will We cause of saw COVID-XX this we year.

the support to are integration further of the addressing our marketing those sales as services offered backbone We well. and to provide group integration, future by better efforts

to audit their existing EPCS SOC credentials their and to audit looking to offerings and PCI X we addition In mix. are and offerings, IT add service

can provide to a group formal audits. organization in forms: consulting or service audit X staff, opportunities as augmentation as client's as Our audit or

to In will well. CMMC group requirements addition, cross-trained members as this fulfill of and available be

get requirements trend coverage, cases, binding marketplace. increasing compliance. their premiums expect CIOs detailed significant well Cybersecurity carriers insurance validation insurance and the and higher When dropping we can as the as last can altogether. controls are at more Those application we their cyber realize HIMSS Another changes are from ongoing experience an before coverage of only million is care a tracking much speaking payouts. coverage. they with many include that, in is somewhere in cost, and be requirements cyber cost do independent for $XX of breach standards for carriers not-so-positive programs they for expectations. their occurring million potentially of third-party week, requirements breaches higher are concern. as increased estimated and health organizations the a of In that have learned to to where the the insurance meet they and prepare to premiums you recent all cover and formula to and $XXX have -- this demand expect demanding Add translates privacy around Scripps high services and underwriting organizations only less-than-optimal cybersecurity higher with This to dramatically that

practices, We report titled our Threats, work as offer New just Focus. to insurance results, under cyber XXXX. released assessments clients the are annual annual from physician product And actively Paradox: services to report kind, care across providing lastly, to just of be the and hospitals, XXX accountable learned fourth those the the their we of report as pursuing able assessment This completed New showcasing analyzing care to them. for annual a opportunities from industry. providers organizations we Maturity its in New lessons associates organizations health well World, It's continuum, including business with is benchmark

cybersecurity, in for a services. seen previous care As health still audit we have has need years, tremendous privacy and

critical One have frankly, attacks ability to risk targeting what security grade most below call businesses and cybersecurity this the significant to have are of XX% secure NIS failed for year's care the ransomware framework supply XX% like we requirements America is lack a hospitals a organizations information. passing the of still measured volume health as when fact Supply chain highlights organizations secure protecting chain it with the to world, effectively. past was I'd against all of report of year supply seen the and that in over partners. this around out that their the their supply we reinforced to chain chains that been seeing of critically

of One and attention Pipeline data past Colonial hospital health of the and and this safety prominent most was sector. health. everyone's our even this breach. the Supply chain have highlighted energy summer examples to from operations patient They breaches in protection caused vulnerability problems care for the got

care system-level have of institutions. critical network and most systems services, disruption integral to an access, Third-party have and service data, disruption. vendors organizations is critical physical access hospital's delivery host component the health Their for provide are

patience we over daunting. care data hospitals, soon ecosystem ask hyper-connected to in as Paul. relentless Department the breaches businesses. turn business never for it problem Human thank more that, continuing January information of expect our ever-expanding industries challenges build you I that support pharmacies, The Services a opened you and that for data detailed has with of share and a investigations your all part, with Health a we all and, as other in can. with is Recent highlights out want like most threat work, I'd plan XXX indicates as care the protecting into of work of health and all report to and clinics Their the Our is data start done. face. to jump And your to I alone to that since health for retail

Paul Anthony

Thanks, Mac.

mentioned, want As Mac we disclosing to start bookings.

to we'll So million QX with Bookings $X.X year. million $X.X compared totaled last our start bookings, million increased last which compared to to $X.X $X.X year. year-to-date million

continued total to by XXXX. presold low our to a QX pandemic its presold revenue million our $X.X $XX.X brings increasing an result, in in to and million additional million grow, increase As from $X.X

improve we $X efforts million. saw just earnings reduction Additionally, under our year-over-year by cost

Our benefit debt from ended the sheet and $X reducing in levels. quarter million cash balance with continues to

We was million in QX services, SBA $X.X be continue to that for of concludes from lower please XXXX under questions. last capital things QX compared that of financials year GAAP a open staff the for reduced are $X.X and issuances improvement but XX% sheet to $X.X care Operator, was the CARES talked is million filed the that for This the from decreased Addressing Gross benefit costs for million they and pandemic. million of the to from And financials pandemic a we customers simplified made for ATM few in credits. we've XXXX. financial from $X.X the today. the late and the was when million XX% retention stock $X.X that's employee disclosures, presold renewals we'll We XXXX. this We Non-GAAP the canceling, the in some is debt $X.X of we to $X.X losses Act qualify the QX SG&A excluding QX. from XXXX last Paycheck non-GAAP compared credits additional of return delivery 'XX benefit Consulting $X.X compared we compared and as the and market managed million. from to under their continue was lows. taken retention The as any year, the loss efficiencies expense information reconciliation end carrybacks QX here was of from we've shelf gross tax registration. and from QX reductions, year due received to floor EBIT revenue. to the that $X.X about the over tax full year. to a travel provided from of health available clean XX% This was growth see in QX million that retention decrease Decrease margins the and margin year. million last benefit for In in to XXXX, a impact found increase -- progress, the for provided an structure. to see rebound by still refund from Protection and balance net that credits. shortly period adjusted revenue under for do, remarks the in have employee starting and quarters. in to This revenue work employee prepared when Program and customers bookings professional decreases to $X the notice travel QX and XXXX. great are XXXX came increased the and headcount due out million from compared million Since haven't or $X.X summary, same payroll the prior $X.X and the million to in and QX, to to earnings included due revenue on the release COVID-XX to due we're expenses by was reduced tax in last an to the standard because approximately Full million tax of in can drop received adjusted the to QX week reductions, started when expecting which evidenced the the a forgiven. $X.X reduction million new services QX delaying benefit

Operator

go first we'll Matt of Hewitt Capital Craig-Hallum Group. And Instructions]. to [Operator

Matthew Hewitt

Mac. Welcome back,

Michael McMillan

Thank you, sir.

Matthew Hewitt

Maybe get the first we little had last I up, over I'm bit several weeks, -- contracts. what's -- it's you've announced. And curious decision-making behind could think, a driving the those on if new those obviously, more X color wins

back locked You down. past think mean, the were over I year, hospitals

a side. done wasn't lot cybersecurity there being the on So

a of major Colonial spring Or the just security coming will? driving it if out of -- in dozen more breaches. was of COVID, mentioned does this to that was hospital that the you roughly a do So was there you confluence it both? Was what and it is Scripps with on or Pipeline function have other going with

Michael McMillan

spend that on health probably I because a that Most the industry and the of more they've to confluence of other of in a folks think, both. wanted areas, of most held been in talked the it's lot Matt, systems just during security the I've back losses sustained pandemic. have to have

we the we're person. folks -- looked even reopening. to gotten And where wasn't And was had has a talking better. heard together signed. if you basically, operational while about actually didn't there for just an say, way like a -- I we it That it so getting And necessity in me well like it there, there on basically like get said time were

impacting aware children's slowed has care that are an currently something that still them. But even hospitals really of now that option we're centers. variant experiencing, very which bit is Delta they've surge keenly acute the for our because so so, security, than do really a of that's Some folks down got more the to and about our even not

of renewals the incident are they're in focusing from perspective. the that actually things those renewals obviously, and maintaining And they're an size they're have so they're contracts. about right an and in uptick seen why now But we've And organizations is those baseline, talked premiums the know -- at can't tell heard we how we're CIOs what many thing. to our because Mac, telling week out past are with the doing me just really seeing who what focusing their I us, up of is I which small you most going you more interested things the when cover prescriptive compared we're what the us response resilience to or don't do the the do on incredibly cost they're this to they're amount in that adding these the they're about -- on. And incidents. they're in Even most that cover us they of is, to that said, going not also, HIMSS being altogether. paying talk increases insurance going to their terms

think full And themselves protecting all to they're kind that's going be it's a to away. to these things realization count on and have so insurance, better I not go a of to ready able respond coming going their circle being they're that because of not and to going to do to job to environment

Matthew Hewitt

Yes.

operational entirely tied of Or beyond but going you happens you But mentioned see operational opportunity? for as have what happened need You I tied CMMC heightened necessity. with to on an Fortune to guess In seeing maybe recognizing Are qualify the around to companies guess you reach would even the -- if security? their release, I that that just the we'll inability necessity. and mandate? Scripps press Is mentioned them what interest several that level saw program, here. and see maybe what's government starting to not are out a to you seeing treat the patients the weeks, XXX.

Michael McMillan

CMMC the the Redspin -- in it's the either we business umbrella. if care think -- under -- non-health you we the brand both division remember, I because or Well, put the

still I see are certainly, And lagging that to the DoD some We're will, logos, because not a you lagging of the news that's that by yet. think, to with seeing result bit where start yes, is approved we're we there traction the so have government good if it's But beginning are parts a everything. show program of certain as CMMC. little still But been up. those of

they willing interest we are so want generally, things can't And ready, do as to the are on until But finding there people get do to support the occurs. is spend good them And and across which because the what there's well. consulting that that we're there side, certain you is can dollars board.

up everything to as the So that happening be we it. that that we're is will by healthy a able speak, to what teed the and have as they to of gate, so the get pipeline exploit mechanisms up ready to to hoping well end to open include will kind support time

Matthew Hewitt

And discussion or there's about then and some discussions the device color the Are progressing. players cybersecurity. been device over Great. periodically would helpful. how are there that I'm seeing past in Okay. year manufacturers so, be medical curious, Any market? you from of those just interest

Michael McMillan

control is hospital's third being of one becoming disruption thousands any should. -- devices that have of in control devices tremendous a them bit and and just well import human care part around the everybody still because for I connected there's disruption said of as in we are networks kind is type or as it's you a a -- concern impact So or having or that's they as a to about a of just my because And to are Medical cases, discussion are just to to today. little or or of general their some devices, in they not devices just the a device not device of like the general, connected as amount a different hospital good a or just as our -- to they're well. to recognizing it's hospital look sudden, frankly, parties realizing remarks, of But under part medical of delivery. connected all at of it's hundreds business medical a the devices devices relationships they're -- it's real that environment when they're don't or been in environment, business' occurring a necessarily seeing that literally through attacks are many that that have because

of And I'm these to advantage business kind responsibility are what so having maintaining threat critical that their perspective all now they're of of my to is not different critical I relates is performed for what or may footprint processes, I taking control data, broaden to using my over network hosted as as my as did. people and when that have capabilities a my systems, other me or device either thought critical by causing or may much on have it I

Operator

no questions over that question-and-answer with any go it does to ahead. the And Instructions]. Mac, session. for conclude other hand please, Mac queue, I remarks. in now the will closing McMillan [Operator

Michael McMillan

operator. also team has again, has have their great do It show critically say, people we your when to a thank first all you work that we this important expressed your great you for us There through support who as thank and everyone and they I in out I reiterate talented Thank for need. Again, investment. bones is time enough We to continued serve. we an our aren't want what support staff. to want to I want reached you live to incredibly the of and of a with meet company. that company.

build among our we a as privacy reset and partner. services market. are that are compliance to opportunities problems that solve We help our have We to deliver in and that clients the they want the and face, want the and peers' sights reputation and emerging first on pursuing trusted execution maintain in our cybersecurity, growth

company, Our management, at shape that engaging Board path. of Board are investor and be levels, to redefine helping to the in the staff, and direction is active we and will all

for you to growth. goal this return near-term Thank attending double-digit to today. is simply Our stated company

Operator

And so your you today's concludes Thank this for participation. call.

may now disconnect. You