Spok Reports First-Quarter 2020 Operating Results; Wireless Trends Continue to Improve and Year-Over-Year Improvements in Software Revenue Bookings

Board Declares Regular Quarterly Dividend

SPRINGFIELD, Va.--(BUSINESS WIRE)--Spok Holdings, Inc. (NASDAQ: SPOK), a global leader in healthcare communications, today announced operating results for the first quarter ended March 31, 2020. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on June 24, 2020, to stockholders of record on May 25, 2020.


Key First-Quarter Operating Highlights:

  • Software bookings in the first quarter totaled $15.6 million, up from software bookings of $14.7 million in the prior year quarter. First quarter 2020 bookings included $5.9 million of operations bookings and $9.7 million of maintenance renewals, compared to $6.0 million and $8.7 million, respectively in the first quarter of 2019.
  • First quarter 2020 software revenue of $15.9 million, compared to software revenue of $19.2 million in the prior year quarter. Included in first quarter software revenue was $6.2 million of operations revenue and $9.7 million in maintenance revenue, compared to $9.0 million in operations revenue and $10.2 million in maintenance revenue in the first quarter of 2019.
  • The revenue renewal rate for software maintenance in the first quarter of 2020 continued to exceed 99 percent.
  • The quarterly rate of paging unit erosion was 1.3 percent in the first quarter of 2020, compared to 1.8 percent in the prior quarter and 1.0 percent in the year-earlier period. Net paging unit losses were 12,000 in the first quarter of 2020, compared to 17,000 in the prior quarter and 10,000 in the first quarter of 2019. Paging units in service at March 31, 2020, totaled 926,000, compared to 982,000 at March 31, 2019.
  • The quarterly rate of wireless revenue erosion was 1.1 percent in the first quarter of 2020, compared to 0.9 percent erosion in the prior quarter and 2.1 percent in the year-earlier quarter.
  • Total paging ARPU (average revenue per unit) was $7.31 in the first quarter of 2020, compared to $7.32 in the year-earlier quarter and $7.33 in the prior quarter.
  • Operating expenses in the first quarter of 2020 totaled $41.4 million, compared to $40.6 million in the prior year quarter. Adjusted operating expenses totaled $40.9 million in the first quarter of 2020, compared to $38.3 million in the year-earlier quarter.
  • Capital expenses were $1.1 million in the first quarter of 2020, compared to $1.3 million in the year-earlier quarter.
  • The number of full-time equivalent employees at March 31, 2020, totaled 620, compared to 591 in the prior year quarter.
  • Capital returned to stockholders in the first quarter of 2020 totaled $2.6 million, in the form of the regular quarterly dividend.
  • The Company’s cash, cash equivalents and short-term investments balance at March 31, 2020, was $72.2 million, compared to $77.3 million at December 31, 2019.

2020 First-Quarter Results:

Consolidated revenue for the first quarter of 2020 under Generally Accepted Accounting Principles (“GAAP”) was $37.3 million compared to $41.8 million in the first quarter of 2019.

 

For the three months ended

(Dollars in thousands)

March 31, 2020

March 31, 2019

Change
(%)

Wireless revenue

 

 

 

Paging revenue

$

 

20,451

 

$

 

21,687

 

(5.7

)%

Product and other revenue

 

935

 

 

923

 

1.3

%

Total wireless revenue

$

 

21,386

 

$

 

22,610

 

(5.4

)%

 

 

 

 

Software revenue

 

 

 

Operations revenue

$

 

6,229

 

$

 

9,009

 

(30.9

)%

Maintenance revenue

 

9,652

 

 

10,145

 

(4.9

)%

Total software revenue

 

15,881

 

 

19,154

 

(17.1

)%

Total revenue

$

 

37,267

 

$

 

41,764

 

(10.8

)%

GAAP net loss for the first quarter of 2020 was $4.5 million, or $0.24 per diluted share, compared to net income of $0.7 million, or $0.04 per diluted share, in the first quarter of 2019.

In the first quarter of 2020, the EBITDA (earnings before interest, taxes, depreciation and amortization) loss totaled $2.0 million. The first quarter 2020 EBITDA loss compares to EBITDA of $3.5 million in the prior year quarter. Spok presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate the Company’s operating results. Spok believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making.

 

For the three months ended

(Dollars in thousands)

March 31, 2020

March 31, 2019

Net (loss) income

$

 

(4,539

)

$

 

742

 

Basic and diluted net (loss) income per share

$

 

(0.24

)

$

 

0.04

 

EBITDA

$

 

(1,962

)

$

 

3,474

 

Management Commentary:

“We were negatively impacted in the first quarter, as the majority of our customer base struggled with the challenges presented by COVID-19,” said Vincent D. Kelly, president and chief executive officer. “We had over 100 meetings scheduled for our annual industry conference, HIMSS, as we were all set to roll out our new cloud native platform, Spok Go®. These meetings included both prospective customers for our Spok Go platform and strategic partners. It has been challenging to get the meetings rescheduled as the world has changed quickly. The pandemic has created an atmosphere of fear and uncertainty and our thoughts and prayers go out to those that have been both directly and indirectly affected by this tragedy. While the situation is fluid and no one is able to predict the duration and severity of this pandemic with a high degree of certainty, let me assure you that, as a company, in the near-term we are positioned to deal with the situation. We have taken the necessary steps to provide for the safety of our customers and employees in order to ensure the continuity of our operations and product development efforts. Spok has a stable revenue base, as approximately 83 percent of our revenues in the first quarter were recurring in nature, coming from either our legacy wireless business or software maintenance contracts. We provide a critical function, which we believe will become even more necessary in this environment, delivering reliable communications and clinical information to care teams when and where it matters most to improve patient outcomes.”

In the first quarter of 2020, Spok returned $2.6 million in capital to stockholders, in the form of its regular quarterly dividend. “We were proud to be able to execute against our capital allocation strategy in the first quarter, which included paying dividends to our stockholders and investing in our product platform and infrastructure,” continued Kelly. “Spok remains committed to paying our regular quarterly dividend. We believe we will be able to achieve this while continuing to support our Spok Care Connect® platform and in the near term investing in the evolution of our cloud-native and integrated communication platform, Spok Go. We are also taking immediate steps to put our operations on a positive free cash flow basis through a combination of furlough and other cost savings initiatives. We are evaluating our investment in development as hospitals represent one of the most impacted sectors of the economy from COVID-19. As part of our evaluation, we are focused on the investment in our cloud-native platform to ensure that shareholders realize the benefit of our investment. We will discuss this more in our outlook and in the coming quarters as we gain greater insight into the impact of COVID-19 on hospitals, including their budgets and perhaps even more importantly, their ability to interact with our sales and professional services teams.”

Business Outlook:

Michael W. Wallace, chief operating officer and chief financial officer, said: “Expense management and strong financial discipline have allowed us to continue to invest in our business. In the first quarter, operating expenses were in-line with the prior quarter, with improvements in several expense categories. Spok’s balance sheet remains strong, with a cash, cash equivalents and short-term investment balance of $72.2 million at March 31, 2020.”

Commenting on the Company’s previously provided financial guidance for 2020, Wallace noted: “Spok has been focused on understanding the impact of the pandemic on our business, particularly given the impact of COVID-19 on the roll-out of our Spok Go software business. Because of the uncertainty surrounding the duration and severity of this crisis and the extremely fluid nature of the situation, we, like many of our peer public companies, believe that it is most prudent to suspend our practice of providing annual guidance for revenues and expenses at this time. We look forward to returning to our normal guidance format after the crisis is over.

Unsolicited Offer from B. Riley:

On March 17, 2020, the Company announced that it had been made aware of a public announcement from B. Riley Financial, Inc. (NASDAQ: RILY) of an unsolicited offer to acquire all of the outstanding shares of Spok’s common stock for $12 per share in cash. “I’d like to take this opportunity to remind stockholders that after careful evaluation the Board of Directors believes that the indication of interest from B. Riley severely undervalues Spok’s business,” said Kelly. “Given our strong cash reserves, our lucrative legacy wireless business, our valuable software business with a highly profitable maintenance base and revenue renewal rates in excess of 99 percent, our Spok Go software platform that is poised for growth and has been developed by Spok with significant customer interest prior to COVID-19 and the value of our deferred tax assets, the Board of Directors does not believe that the unsolicited, conditional and incomplete proposal from B. Riley provides adequate value for our stockholders.

“Further, we believe this is not the time to start a sale process for Spok for the following reasons:

1. M&A activity is severely depressed due to disruptions to the debt and equity markets, strict restrictions on travel and the inability to conduct meaningful due diligence on any proposed transaction, and the significant distractions affecting private equity and potential strategic counterparties due to COVID-19;

2. We are currently unable to predict or quantify the impact of COVID-19 on our business, particularly the impact of COVID-19 on the roll-out of our Spok Go software business;

3. Our customers are large and mid-size hospitals and systems which are focused on patient care during this challenging time, which will affect our near-term financial results;

4. Our Board of Directors continues to believe that, over the long term, our customers will further appreciate the value that our businesses bring to caregivers getting the right message to the right person on the right device at the right time;

5. We are focused on ensuring that our shareholders realize the appropriate value for the investment in Spok Go, despite its rollout being affected by the COVID-19 pandemic;

6. We want to provide feedback today on what we are seeing as our board considers the long-term interests of all our shareholders:

A. Recurring Revenues: We have two very valuable recurring revenue streams in our wireless business and software maintenance contracts, each with significant margins that together represented approximately 83% of revenues in our first quarter;

B. Wireless: Our wireless customer base over the next ten years is expected to generate approximately $597 million in revenue based on existing trends in Units In Service, ARPU and Churn, and we expect this business has a useful life of thirty years;

C. Software: We have a valuable software business that has approximately $72 million of annual revenue, including a high margin maintenance revenue stream of approximately $40 million of annual revenue with a 99% renewal rate; and

D. Cash: We expect a modest investment in the continued refinement of Spok Go for the remainder of 2020 and the continued payment of quarterly dividends, while maintaining a strong cash, cash equivalents and short-term investments balance throughout the year.

7. To date we have spent approximately $55 million developing Spok Go over the last 4.5 years. That is under $3 per share. We have distributed $84.8 million to our shareholders in dividends and share buybacks over the same timeframe. That is over $4 per share. We intend to run the business in a cash flow positive mode for the balance of 2020, as we enact cost savings measures to mitigate the impact of COVID-19 on our businesses. We will watch the market closely as the year progresses for signs it is opening back up for the sale and installation of our software solutions. If we don’t see significant progress in the market opportunity and the ability to continue to generate positive cash flow in the future while still investing in our platform, we can aggressively right size our operations to a cash flow maximization model and revert to paying a consistent regular dividend and year end special dividends with excess cash.

“Finally, on this matter, we believe the indication of interest by B. Riley substantially undervalues our business given (1) our cash and short-term investments on the balance sheet of approximately $3.50 per share at year end after continuing to pay our regular quarterly dividend of $0.125 per share for each quarter of fiscal 2020; (2) our valuable wireless business that remains a critical tool for hospitals and emergency response and that we conservatively expect will generate significant cash flow over a projected useful life of thirty years with a discounted present value, based on prevailing discount rates for the business, of approximately $6.50 per share; (3) a valuable and highly profitable software maintenance business with a $40 million annual recurring revenue stream; and (4) the growth potential of our Spok Go software platform that displayed significant customer interest prior to COVID-19. We will continue to evaluate ways to deliver value to our shareholders from our software business and our investment in Spok Go and as we indicated ‘intend to carefully evaluate good faith proposals from financially capable parties that fairly value Spok and the potential for stockholder value represented by the Company’s long-term investment in its enterprise, cloud-native Spok Go platform.’”

New Directors:

During the first quarter the Company also announced that the Board of Directors appointed Dr. Bobbie Byrne and Christine Cournoyer to join the Board of Directors. Also, Samme Thompson, a director of Spok since 2004, will be stepping down from the Board of Directors at Spok’s annual meeting later this year and will not stand for re-election. “We are excited to have Bobbie and Chris join our Board and look forward to the depth of experience that these software and healthcare IT industry veterans bring. I also want to take this opportunity to say that it has been an honor and privilege to have worked with and learned from Samme over the years. I am grateful to have worked alongside him to realize our mission to become a global leader in healthcare communications,” continued Kelly.

2020 First-Quarter Call and Replay:

Spok plans to host a conference call for investors to discuss its 2020 first-quarter results at 10:00 a.m. ET on Thursday, April 30, 2020. Dial-in numbers for the call are 1-323-794-2551 or 866-575-6539. The pass code for the call is 5307999. A replay of the call will be available from 1:00 p.m. ET on April 30, 2020 until 1:00 p.m. ET on Thursday, May 14, 2020. To listen to the replay, please register at http://tinyurl.com/Spok2020Q1earningsreplay. Please enter the registration information, and you will be given access to the replay.

About Spok

Spok, Inc., a wholly owned subsidiary of Spok Holdings, Inc. (NASDAQ: SPOK), headquartered in Springfield, Virginia, is proud to be a global leader in healthcare communications. We deliver clinical information to care teams when and where it matters most to improve patient outcomes. Top hospitals rely on the Spok Care Connect® and Spok Go® platforms to enhance workflows for clinicians, support administrative compliance, and provide a better experience for patients. Our customers send over 100 million messages each month through their Spok® solutions. Spok is making care collaboration easier. For more information, visit spok.com or follow @spoktweets on Twitter.

Spok is a trademark of Spok Holdings, Inc. Spok Care Connect and Spok Go are trademarks of Spok, Inc.

Safe Harbor Statement under the Private Securities Litigation Reform Act: Statements contained herein or in prior press releases which are not historical fact, such as statements regarding Spok’s future operating and financial performance and statements relating to the unsolicited takeover bid from B. Riley Financial, Inc., are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that may cause Spok’s actual results to be materially different from the future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expectations include, but are not limited to, declining demand for paging products and services, continued demand for our software products and services, our ability to develop additional software solutions for our customers and manage our development as a global organization, the ability to manage operating expenses, particularly third party consulting services and research and development costs, future capital needs, competitive pricing pressures, competition from traditional paging services, other wireless communications services and other software providers, many of which are substantially larger and have much greater financial and human capital resources, changes in customer purchasing priorities or capital expenditures, government regulation of our products and services and the healthcare and health insurance industries, reliance upon third-party providers for certain equipment and services, unauthorized breaches or failures in cybersecurity measures adopted by us and/or included in our products and services, the effects of changes in accounting policies or practices, adverse economic, political or market conditions in the U.S. and international markets and other factors such as natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as coronavirus disease 2019 (COVID-19), the outcome of the unsolicited takeover bid from B. Riley Financial, Inc., as well as other risks described from time to time in our periodic reports and other filings with the Securities and Exchange Commission. Although Spok believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Spok disclaims any intent or obligation to update any forward-looking statements.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (a)

(Unaudited and in thousands except share, per share amounts and ARPU)

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

3/31/2019

Revenue:

 

 

 

 

Wireless

 

$

 

21,386

 

 

$

 

22,610

 

Software

 

 

15,881

 

 

 

19,154

 

Total revenue

 

 

37,267

 

 

 

41,764

 

Operating expenses:

 

 

 

 

Cost of revenue

 

 

8,264

 

 

 

7,592

 

Research and development

 

 

5,449

 

 

 

6,167

 

Technology operations

 

 

7,904

 

 

 

7,674

 

Selling and marketing

 

 

6,361

 

 

 

6,110

 

General and administrative

 

 

11,251

 

 

 

10,747

 

Depreciation, amortization and accretion

 

 

2,146

 

 

 

2,359

 

Total operating expenses

 

 

41,375

 

 

 

40,649

 

% of total revenue

 

 

111.0

%

 

 

97.3

%

Operating (loss) income

 

 

(4,108

)

 

 

1,115

 

% of total revenue

 

 

(11.0

)%

 

 

2.7

%

Interest income

 

 

363

 

 

 

449

 

Other expense

 

 

(137

)

 

 

(236

)

(Loss) income before income taxes

 

 

(3,882

)

 

 

1,328

 

Provision for income taxes

 

 

(657

)

 

 

(586

)

Net (loss) income

 

$

 

(4,539

)

 

$

 

742

 

Basic and diluted net (loss) income per common share

 

$

 

(0.24

)

 

$

 

0.04

 

Basic weighted average common shares outstanding

 

 

18,958,716

 

 

 

19,196,970

 

Diluted weighted average common shares outstanding

 

 

18,958,716

 

 

 

19,356,712

 

Cash dividends declared per common share

 

 

0.125

 

 

 

0.125

 

Key statistics:

 

 

 

 

Units in service

 

 

926

 

 

 

982

 

Average revenue per unit (ARPU)

 

$

 

7.31

 

 

$

 

7.32

 

Bookings

 

$

 

15,639

 

 

$

 

14,654

 

Backlog

 

$

 

49,052

 

 

$

 

37,392

 

 

 

 

 

 

(a) Slight variations in totals are due to rounding.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (a)

(Unaudited and in thousands except share, per share amounts and ARPU)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

3/31/2020

 

12/31/2019

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

 

6/30/2018

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wireless

 

$

21,386

 

 

$

21,615

 

 

$

21,814

 

 

$

22,127

 

 

$

22,610

 

 

$

23,091

 

 

$

23,259

 

 

$

23,658

 

Software

 

 

15,881

 

 

 

17,933

 

 

 

17,639

 

 

 

17,398

 

 

 

19,154

 

 

 

20,165

 

 

 

19,217

 

 

 

16,970

 

Total revenue

 

 

37,267

 

 

 

39,548

 

 

 

39,453

 

 

 

39,525

 

 

 

41,764

 

 

 

43,256

 

 

 

42,476

 

 

 

40,628

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (b)

 

 

8,264

 

 

 

8,051

 

 

 

7,190

 

 

 

7,239

 

 

 

7,592

 

 

 

8,772

 

 

 

8,141

 

 

 

7,596

 

Research and development

 

 

5,449

 

 

 

7,132

 

 

 

7,437

 

 

 

6,807

 

 

 

6,167

 

 

 

6,618

 

 

 

5,934

 

 

 

6,177

 

Technology operations

 

 

7,904

 

 

 

8,083

 

 

 

7,805

 

 

 

7,866

 

 

 

7,674

 

 

 

8,120

 

 

 

7,787

 

 

 

7,698

 

Selling and marketing

 

 

6,361

 

 

 

5,891

 

 

 

5,595

 

 

 

5,574

 

 

 

6,110

 

 

 

6,275

 

 

 

5,716

 

 

 

6,093

 

General and administrative

 

 

11,251

 

 

 

11,531

 

 

 

11,813

 

 

 

11,696

 

 

 

10,747

 

 

 

10,721

 

 

 

13,673

 

 

 

12,741

 

Depreciation, amortization and accretion

 

 

2,146

 

 

 

2,250

 

 

 

2,305

 

 

 

2,335

 

 

 

2,359

 

 

 

2,601

 

 

 

2,785

 

 

 

2,669

 

Goodwill impairment

 

 

 

 

8,849

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

41,375

 

 

 

51,787

 

 

 

42,145

 

 

 

41,517

 

 

 

40,649

 

 

 

43,107

 

 

 

44,036

 

 

 

42,974

 

% of total revenue

 

 

111.0

%

 

 

130.9

%

 

 

106.8

%

 

 

105.0

%

 

 

97.3

%

 

 

99.7

%

 

 

103.7

%

 

 

105.8

%

Operating (loss) income

 

 

(4,108

)

 

 

(12,239

)

 

 

(2,692

)

 

 

(1,992

)

 

 

1,115

 

 

 

149

 

 

 

(1,560

)

 

 

(2,346

)

% of total revenue

 

 

(11.0

)%

 

 

(30.9

)%

 

 

(6.8

)%

 

 

(5.0

)%

 

 

2.7

%

 

 

0.3

%

 

 

(3.7

)%

 

 

(5.8

)%

Interest income

 

 

363

 

 

 

350

 

 

 

399

 

 

 

452

 

 

 

449

 

 

 

628

 

 

 

384

 

 

 

342

 

Other (expense) income

 

 

(137

)

 

 

206

 

 

 

163

 

 

 

602

 

 

 

(236

)

 

 

(593

)

 

 

(110

)

 

 

102

 

(Loss) income before income taxes

 

 

(3,882

)

 

 

(11,683

)

 

 

(2,130

)

 

 

(938

)

 

 

1,328

 

 

 

184

 

 

 

(1,286

)

 

 

(1,902

)

(Provision for) benefit from income taxes

 

 

(657

)

 

 

2,172

 

 

 

804

 

 

 

268

 

 

 

(586

)

 

 

5

 

 

 

446

 

 

 

730

 

Net (loss) income

 

$

(4,539

)

 

$

(9,511

)

 

$

(1,326

)

 

$

(670

)

 

$

742

 

 

$

189

 

 

$

(840

)

 

$

(1,172

)

Basic and diluted net (loss) income per common share

 

$

(0.24

)

 

$

(0.50

)

 

$

(0.07

)

 

$

(0.03

)

 

$

0.04

 

 

$

0.01

 

 

$

(0.04

)

 

$

(0.06

)

Basic weighted average common shares outstanding

 

 

18,958,716

 

 

 

18,860,020

 

 

 

19,086,811

 

 

 

19,217,866

 

 

 

19,196,970

 

 

 

19,445,401

 

 

 

19,456,149

 

 

 

19,750,941

 

Diluted weighted average common shares outstanding

 

 

18,958,716

 

 

 

18,860,020

 

 

 

19,086,811

 

 

 

19,217,866

 

 

 

19,356,712

 

 

 

19,445,401

 

 

 

19,456,149

 

 

 

19,750,941

 

Key statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Units in service

 

 

926

 

 

 

938

 

 

 

955

 

 

 

977

 

 

 

982

 

 

 

992

 

 

 

999

 

 

 

1,024

 

Average revenue per unit (ARPU)

 

$

7.31

 

 

$

7.33

 

 

$

7.32

 

 

$

7.26

 

 

$

7.32

 

 

$

7.36

 

 

$

7.40

 

 

$

7.41

 

Bookings

 

$

15,639

 

 

$

21,932

 

 

$

20,421

 

 

$

21,334

 

 

$

14,654

 

 

$

23,076

 

 

$

21,580

 

 

$

18,488

 

Backlog

 

$

49,052

 

 

$

50,553

 

 

$

42,604

 

 

$

39,718

 

 

$

37,392

 

 

$

40,422

 

 

$

36,366

 

 

$

36,295

 

(a) Slight variations in totals are due to rounding.

(b) An adjustment of $771 to cost of revenue, identified in the fourth quarter of 2018, has been reflected in this table as an increase to cost of revenue of $166, $196 and $359 in the first, second and third quarters of 2018, respectively. Total operating expenses, operating income (loss), income (loss) before income taxes, Net (loss) income and net (loss) income per share have been adjusted accordingly to reflect these changes.


Contacts

Al Galgano
952-567-0295
Al.Galgano@spok.com


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