Q1 2022 CynergisTek Inc Earnings Call
Please standby.
Good day, everyone and welcome to the center, just Teck's first quarter 2022 earnings call.
To ask a question today, you can press star one.
Today's conference is being recorded.
No at this time I'd like to turn the conference over to Mr. Bryan Flynn. Please go ahead Sir.
Welcome to center, just six first quarter 2022 earnings call. Joining me today from the company are Mr. Mac, Mcmillan, President and Chief Executive Officer, and Mr. Paul Anthony Chief Financial Officer.
Before we begin the formal presentation I'd like to remind everyone that some statements made on the call and webcast, including those regarding future financial results and industry prospects among others are forward looking.
These forward looking statements can be identified by the use of forward looking terminology such as believes expects anticipates would good intends may will or similar expressions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in today's conference.
Certain of these risks and uncertainties are or will be described in greater detail in the company's public filings with the SEC.
Given these risks and uncertainties listeners should not place undue reliance on any forward looking statement and should recognized that the statements are predictions of future results, which may not occur as anticipated synergistic is under no obligation and expressly disclaims any such obligation to update or alter its forward looking statements whether as a result of new information.
Future events or otherwise at this time I'd like to turn the call over to Mac Mcmillan President and CEO .
Thank you, Brian Hello, everyone and welcome to our Q1 'twenty two call today will be brief as we just spoke a little over a month ago. During our Q4 and annual 2021 call synergistic kicked off 2022 was another quarter of sequential revenue growth Q1 was 22% over the last.
Two quarters, we have seen progress as we execute our plan and sales activity in Q3, and Q4 of 2021 has had a positive impact on revenue was 12% growth year over year, both sales and delivery teams efforts at the end of 2021 contributed to those results we saw strong.
So engagement engagement has managed service customers expanded their contracts by adding some of our new technology enabled services from a strong and growing.
Strategic partnership portfolio.
We see a long runway for customer expansion and upsell opportunity as we integrate these new partnership solutions with our services wrapped around their technologies.
Other innovation coming out of Q1 was our new continuous risk monitoring program or CRM P. A new managed services saw an immediate win as it launched this service continues our transformation to a managed service provider and address an immediate need that was identified in multiple customer sales discussion.
It also speaks to the caliber of security expertise, we have in our delivery team and their ability to turnaround a market ready solution and normally you know only a few short weeks.
We had been planning and talking about this service for some time, so when the environmental factors in both the current economic pressures as well as the emerging compliance requirements from insurance carriers.
<unk> to challenge our customers, we expedited development.
The result, a new service in our first win for that New program.
Three year contract, which provided continuous threat monitoring services.
The Atlas counter measures to combat ransomware, and malicious attacks and adequately address the cyber insurance requirements that will allow them to get to get in maintaining coverage, while ensuring lower premiums we heard from our clients. They need the technology solutions that will help them combat cyber threats, but with the.
Brokerage support with our strong technology partnerships, we were able to build the CRP program using the same approach we have taken with other managed services and fill yet another need in the market. This service has gained immediate traction.
<unk> already identified several multiple six figure managed service opportunities with both new and existing customers. This service adds another critical component to our managed service portfolio and our ability to support our clients' needs.
The legacy Capp service is focused on program building and meets the needs of those clients at the beginning of their journey or who are most interested in compliance. The resiliency partner program focuses on validation of controls and assist those clients most interested in determining the efficacy of their program, while reducing risk.
And in building resilience.
The vendor security management service focuses on third party supply chain and the risks that they present.
And the patient privacy monitoring service focuses on internal and external privacy threats from individuals with access to critical data.
And now with the CRM P. S. A tailored solution for those looking to complete gaps in their cyber technology stack and then.
An enhanced monitoring and response capabilities.
In concert with the services, we continue to offer consulting professional services and remediation support to assist our clients with all their privacy security and audit needs.
Renewals remained strong and we are on track to close greater than 90% of those renewals in the first six months of the year. We added 15, new clients in Q1, 37% of our annual goal, making a good start on that goal for the year. Many of these new customers bought managed services, which will contribute to both.
Our topline revenue as well as pre sold revenues in years to follow our audit team saw continued success in Q1 and helped drive our professional and consulting services revenue to a healthy growth of 32% year over year although.
Although bookings for the quarter were down $2 4 million due to some deals pushing out into Q2 as a result of the current economic uncertainties sales pipeline continued to grow healthcare entities are challenged as they grapple with inflation rising interest rates and shrinking operating margins. While this did not result.
And cancellations in Q1, it did contribute to changes in the industry spend with some shrinkage and or delays. We continue to still see new pipeline created as I mentioned with both Upsells and new customers. So the requirement is still there the need is still there the concern is still there.
New opportunities are being identified as a reminder, we traditionally see seasonality in sales with Q1 being slower.
We've consistently shared our strategy to be a market leader in healthcare cyber security privacy and audit and our desire to transition to a managed service provider platform.
As you may have seen we recently strengthened our leadership team with the addition of Jamie rentals, our new Vice President of business development and strategy.
She brings two decades of health care, and cyber security sales and business development expertise as well as the successful track record of building and executing go to market sales strategies early in her career, Jamie develop the healthcare vertical.
<unk> North America, Europe , Middle East and Africa regions for a global media consultancy, which is where her passion for solving challenges in healthcare began Jamie.
Jamie has since held various leadership roles in sales business development and strategy.
Herskovitz group Blueprint H I T now enterprise health and fortified health secured.
Jamie will be responsible for driving growth with our managed services and in particular, the new CRM P polling firm experience and taking similar services to market previously.
Jamie knows healthcare as you know cyber security she knows the MSP space and she has an excellent reputation in the industry strong track record of performance and she joins our team just in time to drive our go to market strategy with these services.
Our biggest challenge in 2022 should not be any surprise to anyone who has been paying attention to the markets the world stage or the economy.
But health care organizations like other industries have another significant headwind.
That is being resource constrained.
This coupled with the continued high scrutiny around security and a growing lack of resources means that customers of all sizes and levels of sophistication there will be a need of the security expertise that we can provide.
This factor more than any other he is driving the transformation towards managed service providers and solutions.
Our organizations cannot find and retain the expertise they need to accomplish this critical mission internally.
Our business is taking the steps necessary to drive both topline growth and margin improvement as.
As always we continue to assess our strategic options, which includes evaluating our expense profile relationships with our strategic partners and transactions with the potential to drive enhanced shareholder value as we ourselves go through this transformation.
With that let me turn it over to Paul now to cover the financials and be back before we wrap it up.
Thank you Mac addressing Q1 standard financial disclosures revenue increased by 12% to $4 7 million compared to $4 $2 million last year.
<unk> professional services revenue increased $5.
<unk> 6 billion to $2 3 million compared to Q1 of 2021, and we saw sequential revenue growth in Q1, 5% compared to Q4.
These increases are due to the strong bookings from the end of the year.
Gross margin increased by 2% to 40% for Q1 2022, when compared to the same period last year. After adjusting Q1 for the employee retention tax credits. This margin increase was due to the increased revenue.
SG&A expenses decreased to $2 7 million for Q1, 2022, compared with $2 9 million the same period in 'twenty one.
The decrease is due to point Onemain lessened professional fees 1 million lower stock based compensation.
non-GAAP adjusted EBIT loss was unchanged at <unk> 6 million for Q1 2022 compared to the same period last year.
Although our cash balance at March 31 was $1 2 million due to a number of annual seasonal cash outlays, we did receive our tax refund of $1 4 million in April this year shoring up our short term cash position longer term, we do anticipate we may need additional growth capital.
We have a number of options we are looking at working with our board investors banking partners.
The full financials and reconciliation of GAAP to non-GAAP can be found in the earnings release that came out today.
This concludes the financials prepared remarks for Q1, operator, you can open the floor to questions.
Thank you and we will take our first question from Matt Hewitt with Craig Hallum Capital Group.
Good afternoon, gentlemen, thank you for taking the questions maybe the first one up and I think Mark you mentioned this it was just a month ago. We were speaking last when you reported Q4.
Maybe if you could elaborate a little bit on how the market has changed over the past months, we've seen several companies and in health systems quite frankly have announced cyber security events, whether it's ransomware hacks or whatnot and I'm just curious what you're seeing in the market, what you're hearing from customers and how that's translating into.
The pipeline.
Sure well I think from a threat perspective.
It hasn't changed much at all meaning they were already being highly targeted theres still be highly targeted.
And they are feeling.
The impact of that I think what's what's changed the most is because obviously as they've they've started to deal with what's going on around them with respect to the economic pressures they've kind of sort of begun to re prioritize what theyre looking at in terms of how they're going to spend their dollars and.
And a lot of the compliance related.
Assessment type stuff that they.
I do.
Do has kind of sort of taken a back seat to the requirement to acquire.
Acquire the technologies that theyre being pushed to acquire not only by the threat, but also by the end by folks like the insurance carriers, who are coming out with very specific requirements for these folks.
With with of course, the added impact of if you don't do this you're either neither going too it's either going to result in no coverage or it's going to result in coverage at a much higher premium.
Which is one of the reasons why we pivoted very quickly and accelerated.
The development of the CRP program, because we had already begun putting in place the various partnerships that we needed to be able to offer a $24 seven sock.
As well as Edr and.
Hum.
MFA and other solutions that these folks are being pushed to acquire.
We just had rolled it out yet but when this when when we saw things began to slow down in Q1 as a result of all of this.
Began to try to figure out what where is their attention going to move to and we began to have these conversations with our customers.
What was what was in front of them and what they were most concerned about you know a loud and clear it came back we got to fix the technical side of this we need to have the right solutions to to be able to block these attacks or recognize these attacks.
And deal with them a lot quicker.
And so we'd be we basically accelerated that program and it's and it's actually been very well received and and we have multiple opportunities out there now and so it's kind of it it actually kind of caused the you know it you know a.
A lot of times necessity. They say is is that the seat of innovation. The innovation had already begun but in this case it just it just accelerated it and.
It's actually a good thing in the long run.
That's great. Thank you for the color there.
Regarding the pipeline and I realize that Q1 traditionally have a little bit of seasonality from a bookings perspective, but maybe you could elaborate a little bit on how things have moved here so far in Q2.
Being a month and a half through I'm. Just curious have you been able to close any of those deals that pushed out from Q1, what you're hearing from customers this quarter.
Sure. So we were able to close some of the deals.
That that were pushed out from Q1.
It's still you know this there still are dealing.
Dealing with with the secondary pressure, it's still slower.
I would say is unusual but we are beginning to see a little bit more activity as we move through the move through the second quarter.
And it seems like there is still.
Still a lot of need out there, they're still creating a lot of a lot of pipeline in terms of opportunity, there's still talking about things that they want to do.
We're just dealing with a little a little slowness. If you will on the financial side in terms of getting deals approved and actually through signature.
Got it and then I guess regarding the gross margin, obviously, a nice little pop there how should we be thinking about that as the year progresses is that a sustainable level or do you think you could see further expansion any color there would be helpful.
Yeah, well I think a lot of that's going to go to really be due to how how sales comes along.
Through the year right because basically what you saw there was at the end of the year last year, we had we actually sales were actually growing.
And we were closing deals a lot quicker towards the end of the year, which was raising the amount of.
Out of our revenue that was coming in which was somewhat somewhat riding the ship. If you will in terms of in terms of driving those margins in the right direction. So I think it's a lot of it is going to a lot of it is going to.
It depends on on how this year plays out with respect to the ultimately where sales goes in terms of how the margins stay or or grow or what or what they do.
Got it alright, thank you very much.
Thank you Matt.
Yeah.
And we have no further questions queued at this time I will turn things back over to Mr. Mcmillan for any additional or closing remarks.
Thank you operator, and thank you everybody for coming today again I want to thank everyone for joining the call. It took the time to do that and we look forward to talking to you in the future.
That ends the call.
Thank you and that does conclude today's conference call. Thanks, everyone for joining US you may now disconnect.
We still on there operator.
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