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CynergisTek (CTEK)

Participants
Bryan Flynn Head of Investor Relations
Michael McMillan President & Chief Executive Officer
Paul Anthony Chief Financial Officer
Call transcript
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Operator

Please standby. Good day and welcome to the CynergisTek Fourth Quarter and Full Year 2021 Earnings Conference Call.

Just a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Bryan Flynn, Vice President of Investor Relations. Please go ahead, sir.

Bryan Flynn

quarter year fourth earnings CynergisTek's to and XXXX full call. Welcome

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

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

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

Michael McMillan

of are earnings we busy August. I earnings efforts a our be better in since a added manage you last a taking just and And as positive for thank day impact to fourth joining way member, Bryan, thank strategy costs us have getting go, well. and Most today's showed expected your last long the returned company sales even This this our resources marks and which here other alignment out all its you for call to than of as though performance in second well. had time for solid Welcome our still working. performance, call recently started notably, team of that us elements for afternoon. team to of our quarter turned better the you

into major the head of with but the clients year's that year's have and in watching the last dollars this COVID Europe the new are Several having shared very market business. them. they relief with we closely year, losses impact As and we economy a the are operating are federal on the of our cyber already facing margins economy now all ending, concern combined for and a remains reduced priority war from

quarter focused ending our saw of fourth We working we services, remain in nearly rate on our strong to continued issues. renewal year-end. that with customers the for work very led pleased XX performance XX our to through executing with a the existing by was to plan higher than year share while these business the net points So improving clients I'm July. and it new demand and customers

to entities health offering. adjacent of medical university portfolio from recognized Our centers diverse expansion customer large and government many those a including nationally systems CMMC our included and in markets, in

of showing our All previous training lead we happy This the be efforts deals. had and in the milestone been marked this business report focused to also have across slower, economic generation mentioned this trends years initial and the somewhat momentum in off year February then above particularly only to up year marketing have XXXX. progresses. as closing importantly, and the improvement, in fleshed We we in in into seen the our I'm more region the continue out activity. and have reps as orientation managing are as costs with growth important on not with but Our team is ramping sales each believe will with are year that U.S. and an dedicated half pipeline in starting goal onboarded, marketing same pressures first the

This aggressive spring. the marketing of preparing of marketing activity plan marketing an year for the in developed for quarter, while participate happening with team events annual the period in XXXX three largest the in busiest early we

the We have also seen benefits sales client which opportunities. face-to-face an prospect uptick in meetings

initiate in to projects. our and experience been actually DoD to growth CMMC continue We pipeline several we've able CMMC

slow all Organizations begin is month. guidance that wait we to which are its before remains final for reluctant DoD as DoD issues to expectedly end by progress this guidance. However, expected of issue the

year revisiting the the last our salesperson the first new items, prioritizing throughout continue go just the XX% focus part Year. enabled and with long-term the deals and Even the a XXXX the the of competencies engage reassessing expanded staffed, New and year reps half though our delivery key Addressing organization project aligned team selected of to beyond As half sales add first the strength second to after fully to in four with fourth, compared in on quarter last they first, team of those closed market on two the reminder, year arrived and and sales we through and strategy. effectively bookings late expanding of into most to in mission first increase early business; second, to delivery third, a getting opportunities; their XXXX, the of areas: when managed to our last board. driving was supporting several business; to support growth the and of in as drive needed end the

presold $X.X with able which this improvement reorganization of XX% This QX of development to new roughly with date that base have leads the aid revenue prospects. tremendous inside year-end expectations to to and increased with corporate team the client direct and by last been a a a of or we XXXX. to delivery and efforts and our revived initiated and double our fall, new Today, who result generate million sales existing sales $XX reps, business our we efforts XXXX. team pipeline and of added when by to exceeded along the within million sales has the reenergized sales is refocusing marketing by bookings compared QX team and the Our eight identify have opportunities new culture, consists

identify We is the are as recreating organization built with initially. And for the together we in -- and CynergisTek the -- in continue lockstep top-down, sales to everyone from culture growth company together that the the top-down forward. to drive opportunities working together

they speak industries. you and imminent that the interesting could last a pay infrastructure prepare hours CISA. a has CISA of this are the cybersecurity. to issued rules legislation of earlier more cyber some them current report conflict reporting that. this all vetted requirement breach they as it a caused written, This ransom, time industries threat has implementing Ukraine that hours make in give vigilant. week the recently even the for President the to as will in will to landscape among landscape result organizations and Obviously, become several published strategy, pieces terms our could Before cyberattack, and have changed of the regarding is saw, FBI reporting to our time will It should regulatory bill cautious. become today. of organizations to Key which with not and date In before be growth will all the subject of I and was event is one breach this line this a that have as ecosystem. will requirement as as report passed doubt a in second the game that about be week of more if And effective. critical many talk Certainly, warnings omnibus are cyberattacks be be critical the also XX universal this thousands changer had funding The But long-term no focus, half Biden appropriate the for XX to shortest breach And well to they requirement of reporting. probably mandatory and the Russia. to

spike vendors, lack tools workforces, actors surface volume next threatening we five years of on not telehealth, Developing XXXX Today, health from billion and information opportunity today operations expanding increasing the response reach as demonstrating hearing more threat situation operating are private of solutions, and target exploit they increases disrupt measures while with are bad health a an an health evolving. year-over-year business difficult because is vendors market care for avoid what how The regard Today's care landscape driving a number health costs. producing of XX% of their health carriers effective global is by can X,XXX supply on selling to care of to in are care data exposure is cybersecurity very for is cost premiums over care's lack buying health decisions cloud ever, prospects and and priority. to remote operational and continue breaches. cumulative be cyber overall services actions cybercriminals getting of cybersecurity mission. cybersecurity. and the what of Cyberattacks over spend chain increasing for spiked However, managed focused resources specific than and cyberattacks the factor ever-growing systems care grow insurance life-and-death in either. is be identify is now sophistication who requiring and With But and hospitals pandemic, of it simpler financial This $XXX a attack XXXX. are is services. thousands during patients. in patient well the and as to the large predicted protected through More should interested of and in to clients to total

the organizations year have than those data on breach the in health their cost to the and paid, continue day, of XXX,XXX XX% resulting more on revenue new staggering introduced amount half one in in in of more effects ransomware Attacks Additionally, to and health for malware attacks to care accounts have Comparitech at care experienced alone in experienced business of rise lawsuits, $XX.X U.S. and the business. ransoms according Today, lost the of least ransomware in fees than XXXX a rebuild every web of attacks organizations number cost report. with attacks past billion XXXX, a in the increase incidents care the downtime, health double

changed. want evolve, money. their methods the protect the their or of must prioritize about still investments. cybersecurity threat if nature intend Responsible organizations not has today is business attack and It While primarily to they

cyber exponentially one year. during -- of attacks originated attacks U.S. every pandemic, care That quality risk safety identify impacted a ECRI, directly service To While by of business other evident health greater care is one seconds seconds their ransomware patient X,XXX one the day that became of cybersecurity from a worse, impacts business number seconds led realizing support patient attacks. care, to disruption and financial highest dramatically. it this the and Health quality still from Health called XXXX, are in being of points across and priority. to of also care the ransomware their Things, is XXXX attack In successful things attack of chain Research fueled Technology disruptive workforce perhaps safety success Both increasing an immediate successful number as one of are that recently were vendors end supply every This in for threat approximately this the these the XX risk going make expected released attacks greater also in contributed XXXX. the vendors the an for the Emergency one and in factors in roughly Internet ransomware members, to and numbers. the Risks of includes every number to Care their XX grew every in The to attacks operational and XX expanding like cyberattacks report reach remote XX that their now of translates increase for The or also looking number number in solutions. has by environmental and these XXXX experienced Top the partners. now attacks to Institute, increase business

this to increase need into build provider. offerings service move our to meet productive, resilience start organizations their and security, with we growth, defenses added improve and managed new answer a want to more service spend others being strategic be To need proactive and solutions to several have greater several the we ready reenergized As and support to enhance readiness, be them. for towards vendor

and threat Our a of support, new posture better more It go important to the becoming wait managed and and services. threat maintain continuous respond advanced meet defenses they hunting, managed the in to proactive and that not more have controls making validation daunting longer threat sit include need security. any our aware more task effectively. assessments, pen build adversary compromise good testing -- solutions in incident need anticipate need more trying expertise and face and the the face and security Clients and response defensive challenges, all We for resilience more in and SOC also the are for and enough is the Health to care on these attack. and offensive cyber more they faced the protections to attractive. to to build with services is

out next four have few we the As our strategy. over underlying we look growth to years, pillars

of M&A growth organic believe our and expansion to greater net be the strategic the revenue Margin our Our into expansion levers tactical that revenue for clients, service current on focus will and new near-term team of will expansion. leverage margin further from services and the with We evaluation accelerated growth partners driving through scale opportunities. ability be existing for will revenue customer come growth. technology-based base delivery and alignment growth

continue and is services managed company us metrics: partnerships MSSP. into provider, client an all spend client metrics: we net can primarily rate grow past merger goal will We the strategic be core in increase of an four an that transition focus customers. better operating managed on of that service that in to going today the and to which clients average through service this of from our build contract net penetration, mixture we our to will focus presold to will margin. fall, targeting the we new a to and positions the growth, of feel drive choice than greater number returning company going strong increased in in these or By XXXX a be revenue double in our This This the size spend, a size customers. partner organic contracts, or we business a four achieve forward. growth we business of customer a Again, acquisition foundation and improvement our and revenue maintain and saw near-term increase key new renewal renewal rate our Our XX% targeting of renewals, growth, and as be for a business expand forward. are will

in increase contracts to target on XX% service to focus our We expansion and will managed our current date. customers a

we managed the or Secondarily, to clients intend of number grow two with more services.

least that strategic XXXX. customers, currently, approximately opportunities, net and average work sit finally, make by M&A integration us As into we in XX%. at our penetrate offerings. in are and we we add services to to increase at and enhance And Achieving partnerships to which our of greater clients XX% increase increasing our targeting we new accelerate reality. spend, IP drive giving Currently, in sales And will growth managed security look by XXX this typically XXX-plus greater and plus are managed will we the loyalty. size, help want we more evaluating client service penetration to clients to a client a

additional back Paul the opportunities it implementation, growth automation now management we wrap an or own goal financials M&A managed opportunities fund side, I'll technology On improving Long is in combination equity in to over look into existing XXXX, the supports MSSP service sell our to and term, look offerings. space will options services, XXXX, services. our to transform before up. We of our complements products, financing we and and for both through MSSP-generating these cover our that with technology plan existing debt to be and or drive margins at acquisitions. turn to the to

Paul Anthony

$XX.X million year year. last Bookings Thanks, to Mac. totaled this $XX.X compared million

from loss Consulting an managed in the increased of size presold bookings prior to a our traditional seen over Gross an COVID. $X.X in and direct compared when grow, XX% investments with QX primarily XXXX reconciliation in XXXX. leverage due was million QX revenue reinstated due which of business. reduced additional EBITDA revenue to costs million was QX now to same $X.X to XXXX QX sales, increase and from the million increase to due $X.X versus The XXXX. last the services for to an a As are Non-GAAP additional of million sequentially, was during million the consulting increase services modest the open XXXX came XXXX compared a and XXXX standard the driving credits. historically seasonal the result, in of to to This X% compared compensation-related services year for eliminated team questions. found million additional to to year a SG&A demand compared the our our concludes QX non-GAAP period increased for and from QX in that were on financials million $X.X services sales after prepared to information increased demonstrates $X.X revenue QX XX% release Backbone this X% headcount, increase QX. increased to floor revenue XXXX for QX continues $X.X financials to operating million increase in how as started professional for and for $XX and professional This for in be of due to to marketing the that unit. SG&A this from million expenses to by for $X.X impact $X.X contracts. disclosures, travel increasing we we for QX, can margin QX earnings back and due This have and increase the million by a revenue as the our growth was just and activity revenue in coming retention adjusted again increased result business This to services $X.X lower benefits of please QX the the Backbone majority in positive increase in remarks million. expenses of was in out XXXX, we Addressing today. GAAP highlighted. was of costs higher full marketing, Full the increased sequential employee adjusting and in $X.X we've due our Operator, decrease COVID growth $X.X to revenue, growth. bookings the saw well increase that we allows We've due and road again, growth was QX in rebounding, QX. as million to and see to financial

Operator

And come with Group. first Instructions] question [Operator Matt will Hewitt our from Capital Craig-Hallum

Unidentified Analyst

is for pretty had demand? you I And steady driving is in you've Hewitt. this off, recent an that? customer months, guys, think so, you do cadence in what it Matt Lucas of and Hi if start to expansions. a wins on Are increase seeing guess

Michael McMillan

what's the ransomware will, absolutely cautiousness of the overseas going kind with Well, rates in demand dealing you that operating overseas. seeing that We're a from, the board. on an is of just if lot thing and driven lot on I'd it and rising going it's economy, I other attacks kind the disruptive balance, of A requests seeing a as it of across they're -- faced inflation in terms with. of and seeing being a are driven affecting respect the say and increase guess, a with But is being moment. what's to increase hospital's health same in mixed an result margins. of a bag threat we're that interest we're is care by the it's also with, at by lot of A

Unidentified Analyst

a of team. also about And ramp color. reps? you you guess helpful at sales for have now the sales then talked terms how guess That's those I fully you would say we're where staffed I in newer

Michael McMillan

the that have functional. quarters still ones, But newest and they're to way just to next I one faster the cetera. we've good came fully added that the -- expect in necessarily year of selling or comes when them I on quarter admit -- their gal, normally, reps their quarter sales et of that actually first on, building the right, probably meaning, to the have part It lot of a this we're be sales for not best say before be last two you the because pipeline orientation started I'd sales describe than expected, of it. course, and closing a before and probably is they'll cycles, a deals, guy probably

Second -- deals number actually deals their start to them new expect by And expect actually we've number. to first their quarter. I couple quarter, in quarter. started of have and our think single them in them actually But just you be one the every hitting third have seen closing their about their quarter, second hit you closing a salespeople of

only every that So great they're that driven I I'm terms very do. markets organization of environment sales Almost right of to very fast worked of sales -- don't but be benefit has they've health the well. they're And in all all we've the in that, what going name now to of obviously, we IT. and single not we're adjacent And going that guys And predict to But And they've sold seeing got that hired; all all also they're being an one that very or in game. efficient. whole the motivated. them selling care is where be backgrounds want the in understands the they're to think. with actually them they're as need I into cyber into impressed

Unidentified Analyst

I any ahead finally, the to that chance the would there you rest guess, looking of sales expand the is team then year, further? And Great.

Michael McMillan

good a That's question.

of that possibility. -- is something to might we're I the want that But selling bringing that a don't engineers yet for but point, like be I terms at some things to in include relationships know depends be that. don't we're on technology expand clearly may It to think of newer we services some that of the on going I now. it and some that to sales -- that do

Unidentified Analyst

could I then, in final guess, just I if here. one question squeeze And

seen falls priority movement you hospital CEOs have their specifically, For in terms of where within list? any cybersecurity

Michael McMillan

took you hospitals the the of they priorities So, recovering from generally Clearly, most you'll cybersecurity losses have. that Three of in because XXXX at one their at or with XXXX priority their whatnot. that and the one today, pandemic rates, dealing top the the -- is financial as you and talked the if Five team's is of with they number definitely look list now for inflation I particular, the is right priority look experiencing they're cyber their if Top their of and senior is about priorities. But interest and Top pressure financial now IT priorities, in find executive one

Unidentified Analyst

very you have. Thank That’s I much. Okay. all

Operator

a our question [ph], come private Jerry And will investor. next from

Unidentified Analyst

But Mac Hi I accomplishments. -- I maybe update for relating question, could back get of approved give us see and it work had can to a probably of gets and your on Department just hard if you any know for wonder a had Thanks I to Paul, little kind Defense you. that? update, of while and the and good you more stalled. kind that efforts us you work it's a Mac of give

Michael McMillan

Sure.

respect year kind things the of back of we leaning the the out program. lot everybody take seeing it were But kind that cetera, of was back through guidance, changes with it they approved, do really committed to the back, there, fairly of which couple going they did of out et uptick they it several a putting out that And isn't restructuring right And make March, terms I a think then, final Then growth came related an by DoD that as to forward -- be we now wanting what company this off the totally the came revamping, it looked story in will, best gotten and -- back in program end strategy. pipeline. that the they've the in and to in on demonstrably. was We're we months. were positioned a and DoD or has know have some past because ability it short, we and an -- that if we Acquisition their decent totally going I had entirely don't things. Undersecretary want changes suggested for take message the with was in to and were going it possibly And the CMMC-AB if done saying back really and they've actually to projects. job do fall. actually because the at looked a end getting ahead take to of in get course, to requirement." to to of working of a our what work actually with walked going of getting executing process of caused that then seeing program you of et the to new that DoD of like I by the could that want happens as put to terms started else change the came go say, was like "Well, and step everybody of we to on after a think of Clearly, month, while folks November And that. cetera when kibosh the of So fact, the it move back the because probably forward this to to towards long right

began we door to is initial prospects the grow. see organizations us to of and pipeline frame, good news the the in time The -- right of in good number of the is The is speak, going started The moving the again. out proposals, grow. to reengaging is, we now. news February have for was continuing number flight the probably do continuing pipeline So now, to several continuing. projects is so continuing And

have keep will so if -- that its again. we're waiting anyone. final that hopefully, approve guidance that the I'm update it then final And in the once and has to out start but anything we to get for to isn't, DoD all past all And more comfortable -- hopeful word final of we FAR that will guidance organizations we're moving DoD that and of that surprises mercy and initial move and be that clearly, hoping and unfortunately won't the March at an it DoD guidelines. And towards get we're program

Unidentified Analyst

Sure, appreciate it.

of to will, growing of projections, not lot that relating there's the you from the on business, So your if DoD. business a reliance

that Mac? what be be an mind, statement, that in from upside Would would, expecting? so fair And your a probably you're

Michael McMillan

we because Well, if projections put I the end I try that direction. still time quarter, that there's as plenty things said, year down actually steadily together were at like guidance fall, ramp in a this of moving we some obviously to the plugged our had that We've kind the were result. budget of out comes of in for the that to that But of us for into achieve time backed that think this what that business to I'm to place. first hopeful going final at last we

But stay -- So what waiting I'm to going see to to I'm guess, I I'm to be going hopeful, still hopeful. guardedly do. going they

Unidentified Analyst

my Obviously, acquisitions. your I'll opinion, last relating potential your -- One is leave, and low. sense. company, makes Sure, question very to valuation in on is

the the would as there'll seem bit speak on to would it your plans done little you -- It's to acquisition to to a on get relating try -- be be a anything challenge side. so that? And that what can

Michael McMillan

not the sense it's of right be very find a it's that from increase of line think part important revenues deliver because it in you're embrace difficult going and plan, it's growth will. and how find to challenging valuation And the is now the the customers accelerate of efficient part but to to The whatnot. very it complementary part that where do and terms if we because But that is a if of we can right correct. at I that us, some that me, I of capital somewhere be organic can to right, No, if has us get ability -- our to acquisition it to going I get mean very going acquisition of a is the or part growth. point, raising you're want think, be we to can absolutely our -- you to to Yes. be. et have But bottom is. more plan increases is for is our we're enhance going in we right if cetera acquisitions can technology where we and really continue and perspective, to margins want growth to then to and accretive is, in

Unidentified Analyst

Mac all thanks Well, and done. I it. your I Okay. am work. Paul, all appreciate for hard

Michael McMillan

Thanks.

Operator

over I'll And McMillan. to that question-and-answer Mac the now does back conclude conference the turn session.

Michael McMillan

operator. you, we're achieve enterprise value. an to To summarize, increased Thank working

high entities care situation and and through growth. of of a not planned execution the and This subsidies inflation, clients grapple interest without inorganic years federal margins require right organic dry as shrinking price challenges company we up the the will as mixture That in rising for the uncertainty As and drive in few increases world associated operating rates, near COVID and and be and with health this acquisition. a particular believe and Despite critical still We is protecting we systems two essentials grow issues. seek can fuel. data and detail. these path a execute $XX such they priority see the we balance for pressures, business will term businesses implement investment plan, need in next the will to to to strategic our and as growth to business an a great these achieve important over in of the the all million-plus of partners

increasing do help by to them their services to adapting that we continue provide and will needs. We to unique the

are still a to the thank everyone to you call and We for today are with soon you. but during call. want XXXX. XXXX our be from stage in as Again, the see we we will goal growth joining rebuilding I emerge QX progress earnings making Thank

Operator

Thank That your participation. for conclude conference. excellent you. We do does thank an day. Have you today's