SmartProtect Q2 2026 Revenue Rises 13% to $6.5M, Net Loss Widens to $1.4M

Smart Protection Company announced its second-quarter financial results on Tuesday. The following is the transcript of the company's second-quarter earnings call.

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Summary

Smart Protection Management reported Q2 2026 revenue growth of 13% to $6.5 million, driven by growth in managed IT services and procurement revenue.

The company faced supply chain disruptions that delayed revenue recognition and impacted margins, notably contributing to a net loss of $1.4 million in Q2 2026.

Deferred revenue increased to $4.5 million, indicating significant future revenue potential as orders are fulfilled.

Management highlighted strategic priorities to expand recurring revenue, customer lifetime value, and potential acquisitions to strengthen the technology platform.

The company targets positive adjusted EBITDA in Q4 2026, leveraging strong demand for cybersecurity, cloud environments, and AI infrastructure.

Smart Protection is positioned as a market consolidator, planning to leverage its strong balance sheet for strategic acquisitions.

Full Transcript

Operator

Good afternoon, and welcome to Smart Protection Management's Q2 2026 financial results conference call, covering the quarter ended June 30, 2026. At this time, all participants have been placed in listen-only mode. I will now turn the call over to Joe Diaz of Lytham Partners. Joe, please go ahead.

Joe Diaz, Lytham Partners

Good afternoon, and welcome to all participants on today's call to review IPM's financial and operational results for the second quarter ended June 30, 2026. As indicated by the operator, my name is Joe Diaz from Lytham Partners. We are the investor relations representatives for IPM. By now, everyone should have received the earnings press release issued after market close today. This call is being webcast and will be available for replay.

During the course of this call, management will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements regarding future operating results, business strategy and plans, IPM's relationships with customers, and market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions.

Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks, uncertainties, and assumptions that could cause actual results to differ materially from those expected in the forward-looking statements. These expectations and beliefs may ultimately not prove to be correct. A detailed discussion of such risks and uncertainties is contained in IPM's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2025.

In relying on such forward-looking information, you should refer to and consider these factors. The company undertakes no obligation and expressly disclaims any obligation to update or change its forward-looking statements, whether due to new information, future events, or otherwise, except as required by law. During this call, management will refer to adjusted EBITDA, a non-GAAP measure, which, when used in conjunction with GAAP results, provides investors with an additional analytical tool to understand the company's operations.

For adjusted EBITDA, management has provided a reconciliation to the most directly comparable GAAP financial measure in the earnings press release posted on the Investor Relations section of the company's website at www.ipm.com. Joining me today are Jason Katz, CEO of IPM; Jared Mills, President of IPM; and Kara Jenny, CFO of IPM. Following Jason's remarks, we will hear from Kara. We will then conclude with pre-submitted investor questions.

At this time, I would like to turn the call over to Jason Katz. Jason, please begin.

Jason Katz, Chief Executive Officer

Good afternoon, everyone, and thank you for joining us. Today we delivered another quarter of solid execution and continued momentum in our core business and strategic initiatives. Q2 2026 reinforced what we believe is an increasingly clear view: IPM is evolving into a higher-value enterprise infrastructure company centered on recurring managed services, enterprise cybersecurity, and cloud infrastructure. While the quarter's results reflected temporary supply chain disruptions that delayed revenue recognition and compressed margins on one large customer order, the fundamentals of the business continue to improve. During the quarter, demand remained healthy, new customer additions remained strong, the recurring revenue base continued to expand, and the customer pipeline continued to grow. Perhaps most importantly, the long-term trends driving our business have never been stronger. Today, organizations are simultaneously facing three transformative technology priorities. First, cybersecurity has become mission-critical. Second, enterprises continue to migrate workloads to secure cloud environments.

Third, artificial intelligence is fundamentally reshaping the enterprise computing landscape. We operate at the intersection of all three. Therefore, we believe our position in the enterprise infrastructure landscape creates a compelling long-term growth opportunity. In the second quarter, revenue grew nearly 13% to $6.5 million, while first-half 2026 revenue grew 14% to $12.8 million. This growth reflects continued demand for secure, scalable managed technology solutions in highly regulated industries.

Top-line growth itself is extremely important, and the quality of growth continues to be driven by new customer additions and expanded services sold to existing customers. It is important to remember that bookings, billings, and GAAP revenue each measure different aspects of our business. Bookings reflect customer commitments, and billings reflect amounts invoiced to customers. However, under GAAP, revenue is only recognized when we satisfy performance obligations and transfer control of the promised goods or services to the customer.

Therefore, there can be a timing difference between when we book or bill customers and when that activity is recognized as revenue. These amounts are recorded on our balance sheet as deferred revenue and are recognized as GAAP revenue over time as the related services are delivered or contractual obligations are fulfilled. As of June 30, 2026, deferred revenue was $4.5 million, compared to $3.9 million as of December 31, 2025. Our managed IT business grew more than 8% year-over-year.

We believe this recurring revenue business generates long-term customer relationships, predictable cash flows, and multiple opportunities to expand wallet share over time. At this time, let me turn the call over to our Chief Financial Officer, Kara Jenny, to review the three-month and six-month financial results.

Kara Jenny, Chief Financial Officer

Thank you, Jason. For the three months ended June 30, 2026, total revenue increased approximately 13% to $6.5 million, compared to $5.7 million for the three months ended June 30, 2025. This growth was driven by an increase in managed IT revenue, which was attributable to new customers and expanded services sold to existing customers, as well as an increase in procurement revenue related to AI-related equipment sold to customers, partially offset by declines in professional services revenue and subscription revenue.

The revenue composition for the second quarter ended June 30, 2026, of total revenue is as follows: Managed IT technology revenue was $3.8 million, up 8.4% from Q2 2025. Procurement revenue was $2.0 million, up 64% from Q2 2025. Professional services revenue was $363,000, down 47.3% from Q2 2025, and subscription revenue was $249,000, down 10.5% from Q2 2025.

Revenue from NewtekOne was impacted by its ongoing initiatives to reduce information technology spending. We partially offset this revenue decline through recurring revenue growth from non-affiliated customers, including new customer relationships and expanded service contracts during the period. During the three months ended June 30, 2026, we experienced supply chain constraints affecting the availability of memory, storage, CPU, and GPU components.

These constraints extended product delivery lead times compared to historical levels, resulting in delays between customer bookings and product shipments. Consequently, a portion of orders booked during the quarter remained unrecognized as revenue, pending fulfillment and delivery, which we expect to recognize in future quarters as the underlying products and services are shipped and installed. Additionally, during the quarter, one significant customer order was delayed and fulfilled over two reporting periods due to supply chain constraints affecting our suppliers and distribution channels.

These constraints altered the cost structure associated with fulfilling the order. The initial shipment completed in Q1 2026 was recognized at expected margins, while the subsequent shipment completed in Q2 2026 incurred higher component and freight costs, resulting in a loss on that portion of the order. As a result, the combined order generated a loss, which contributed to the cost of revenue for the three months ended June 30, 2026, and negatively impacted our operating results.

Net loss for the three months ended June 30, 2026, totaled $1.4 million, compared to a net loss of $1.1 million for the three months ended June 30, 2025. Adjusted EBITDA for the three months ended June 30, 2026, totaled negative $0.6 million, compared to negative for the three months ended June 30, 2025. Operating cash used for the three months ended June 30, 2026, was $0.6 million, compared to operating cash used of $0.9 million for the three months ended June 30, 2025, primarily related to our inventory purchases associated with increased procurement revenue.

Deferred revenue was $4.5 million as of June 30, which will be recognized as revenue in future quarters as products are installed. As of June 30, we had $7.5 million in cash and cash equivalents on our balance sheet and no long-term debt. For the six months ended June 30, 2026, total revenue increased 14% to $12.8 million, compared to $11.2 million in the comparable six-month period in 2025. This growth was driven by an increase in managed IT revenue, which was attributable to new customers and expanded services sold to existing customers, as well as an increase in procurement revenue related to AI-related equipment sold to customers, partially offset by declines in professional services revenue and subscription revenue. For the six months ended June 30, 2026, revenue totaled $12.8 million, compared to $11.2 million for the six months ended June 30, 2025, an increase of 14%, primarily attributable to our managed IT services growing 9% compared to the prior period, as well as an increase in procurement revenue compared to the prior year period. Net loss for the six months ended June 30, 2026, totaled $2.0 million, compared to a net loss of $0.2 million for the six months ended June 30, 2025.

Adjusted EBITDA for the six months ended June 30, 2026, totaled negative $0.8 million, compared to negative $0.9 million for the six months ended June 30, 2025. Operating cash used for the six months ended June 30, 2026, was $0.8 million, compared to operating cash provided of $0.9 million for the six months ended June 30, 2025, primarily related to our inventory purchases related to increased procurement revenue. That concludes my review.

I will now turn the call back over to

Jason Katz, Chief Executive Officer

Our goal has never been to simply sell technology. The goal is to be a strategic technology partner, managing an increasingly larger portion of our customers' IT environments. This creates recurring revenue, higher customer retention, stronger operating leverage, and greater customer lifetime value. These are the characteristics that build durable enterprise value. Another major growth driver is infrastructure. We continue to see customers accelerate investments in the computing infrastructure required to deploy their applications.

Procurement revenue grew 64% in the quarter compared to the prior year period, primarily driven by customer investments in servers, storage, and infrastructure supporting business and AI applications. While procurement revenue is project-based in nature, it often serves as an entry point into long-term managed service relationships. As customers expand their technology footprint, they increasingly require ongoing cybersecurity, cloud management, monitoring, disaster recovery, and managed IT support.

In other words, today's infrastructure deployments frequently become tomorrow's recurring revenue customers. This is exactly the type of customer lifecycle we are building. As Kara mentioned, one issue impacting the industry this quarter was supply chain availability. Demand far exceeded component availability for memory, CPU, and GPU. Importantly, customer demand has not weakened. Orders have been booked. Customers remain committed.

Revenue recognition was simply delayed because products could not be delivered and installed before the end of the quarter. These revenues remain in our pipeline and will be recognized in future quarters as fulfillment occurs. We have responded by expanding our supplier ecosystem, extending relationships with distributors and manufacturers, and improving procurement flexibility. These actions should reduce execution risk while improving our ability to respond as AI infrastructure demand continues to accelerate.

The quarter also included an unusual margin impact related to a large customer order fulfilled over two reporting periods. Changes in component pricing and freight costs resulted in lower-than-expected gross margins on that project. We view this as an isolated operational event, not a structural change in our pricing model or competitive position. Our balance sheet remains another important differentiator. We ended the quarter with approximately $7.5 million in cash and no long-term debt.

In today's environment, financial flexibility is a competitive advantage. It allows us to invest organically while evaluating strategic acquisitions that can accelerate our growth strategy. Capital allocation remains disciplined and focused on maximizing long-term shareholder returns. Our priorities are straightforward. First, invest in initiatives that expand recurring revenue and increase customer lifetime value. Second, pursue strategic acquisitions that strengthen our technology platform, expand geographic reach, or add complementary capabilities.

Third, maintain a conservative balance sheet that preserves financial flexibility. We believe this disciplined approach allows us to create value for shareholders over time. As we have discussed previously, consolidation opportunities continue to emerge in the managed services, cybersecurity, and cloud infrastructure markets. Many smaller providers have attractive customer relationships but lack the scale, infrastructure, and capital required to compete effectively.

With our strong balance sheet, proven operating platform, and integration experience, we believe IPM is well-positioned as a consolidator when attractive opportunities arise. We are interested in businesses that add recurring revenue, enhance our technology capabilities, and generate attractive long-term returns on invested capital. Our goal with acquisitions is not simply to become bigger, but to become a higher-quality business. Ultimately, we believe investors should evaluate IPM based on the long-term trajectory of the business rather than quarterly fluctuations.

We believe IPM is positioned to generate sustainable growth, expand profitability over time, and create meaningful long-term value for our shareholders. Based on our current outlook and the execution plan we laid out at the beginning of the year, we remain on track to achieve positive adjusted EBITDA in Q4. I want to thank our employees for their outstanding execution, our customers for their continued confidence, and our shareholders for their continued support.

We are excited about the opportunities ahead and remain confident in our ability to build a significantly larger and more valuable company.

Joe Diaz, Lytham Partners

We will now answer a few questions submitted by investors via email. The first question is: Demand remains healthy, and new customer additions are strong. Could you provide more detail on the types of customers driving that growth? Could you talk about your progress in developing new accounts in areas including legal, healthcare, and other highly regulated industries? I will send this question to Jared.

Jared Mills, President

Thank you, Joe. We continue to successfully leverage our existing customers to acquire customers, utilizing our strength in highly regulated industries and our current customer base. We have leveraged customer case studies and referrals to pursue additional accounts in each vertical. During the reporting period, we achieved specific success in the legal and financial sectors, with a strong pipeline in healthcare, energy, private equity, manufacturing, and retail.

Joe Diaz, Lytham Partners

Second question: Revenue continues to grow, but it appears revenue from related parties has declined. How should we think about this going forward, and what does it mean for the business? I will send this to Jason.

Jason Katz, Chief Executive Officer

Revenue from related party NewtekOne declined in the quarter, related to their ongoing initiatives to reduce IT spending. While they are a very important customer, they are only part of the business, and we proved that in this quarter. We remain committed to not only meeting their evolving needs but also growing the overall business.

Joe Diaz, Lytham Partners

And you mentioned supply chain constraints delayed revenue recognition. Have these constraints eased in Q3? When do you expect normalization?

Jason Katz, Chief Executive Officer

The constraints impacted procurement revenue, which, as we mentioned earlier, is inherently an unpredictable business with lower gross margins than the rest of the business. We have ample capacity in all other areas of the business, and there are no supply chain concerns from a services perspective. Additionally, we have recently diversified our distributor, supplier, partner, and manufacturer relationships to better address any future constraints on the procurement side.

As I also mentioned, it is important to remember that bookings, billings, and GAAP revenue each measure different aspects of our business. Amounts recorded as deferred revenue on our balance sheet are recognized as GAAP revenue over time as the related services are delivered or contractual obligations are satisfied. As of June 30, 2026, deferred revenue was $4.5 million, an increase of $0.6 million or $600,000 compared to December 31, 2025.

Joe Diaz, Lytham Partners

Professional services declined 47%. Is this a structural or timing-related issue?

Jared Mills, President

Professional services bookings are strong and growing. However, customer timing and resource constraints can sometimes cause delays in customer engagements, which can impact billings in any given period. The good news is that IPM has a significant pipeline, and we expect timing issues to ease as the summer months conclude.

Joe Diaz, Lytham Partners

Jared, the Phoenix data center agreement has been extended to 2032. How much capacity does this provide, and what utilization do you expect?

Jared Mills, President

Our Phoenix data center is Tier 3 and Institute certified, with a 100% uptime guarantee. IPM was able to negotiate a significant discount rate for a substantial amount of capacity, and we are seeing steady customer growth in our private cloud, dedicated private cloud, private cloud AI, and managed backup and disaster recovery business segments. IPM is able to leverage hyper-converged assets to maximize our power and space usage, providing significant leverage for future customer onboarding.

Joe Diaz, Lytham Partners

Alright, that concludes today's Q&A session. We look forward to speaking with you again after the third quarter. Have a great day.

Operator

Thank you very much. That is the conclusion of today's call, and you may disconnect your lines at this time. Thank you for your participation.

Disclaimer: This transcript is for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Statements made by company participants and analysts reflect their views as of the date of this call and are subject to change without notice.