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

April 29, 2020 4:10 PM

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:

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.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (a)

(In thousands)

3/31/2020

12/31/2019

Assets

Current assets:

Cash and cash equivalents

$

42,284

$

47,361

Short term investments

29,906

29,899

Accounts receivable, net

27,216

30,174

Prepaid expenses

8,411

7,517

Other current assets

2,433

2,714

Total current assets

110,250

117,665

Non-current assets:

Property and equipment, net

7,655

8,000

Operating lease right-of-use assets

15,591

16,317

Capitalized software development

1,705

—

Goodwill

124,182

124,182

Intangible assets, net

2,292

2,917

Deferred income tax assets

47,486

48,983

Other non-current assets

1,641

1,808

Total non-current assets

200,552

202,207

Total assets

$

310,802

$

319,872

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

4,003

$

3,615

Accrued compensation and benefits

10,403

11,680

Accrued taxes

1,419

1,529

Deferred revenue

25,265

25,944

Operating lease liabilities

5,236

5,437

Other current liabilities

3,629

2,978

Total current liabilities

49,955

51,183

Non-current liabilities:

Asset retirement obligations

6,109

6,061

Operating lease liabilities

10,972

11,575

Other non-current liabilities

986

959

Total non-current liabilities

18,067

18,595

Total liabilities

68,022

69,778

Commitments and contingencies

Stockholders' equity:

Preferred stock

$

—

$

—

Common stock

2

2

Additional paid-in capital

87,153

86,874

Accumulated other comprehensive loss

(1,821

)

(1,601

)

Retained earnings

157,446

164,819

Total stockholders' equity

242,780

250,094

Total liabilities and stockholders' equity

$

310,802

$

319,872

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

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (a)

(Unaudited and in thousands)

For the three months ended

3/31/2020

3/31/2019

Operating activities:

Net (loss) income

$

(4,539

)

$

742

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation, amortization and accretion

2,146

2,359

Deferred income tax expense

790

517

Stock based compensation

1,182

528

Provisions for doubtful accounts, service credits, and other

18

374

Changes in assets and liabilities:

Accounts receivable

2,441

(4,791

)

Prepaid expenses, inventory and other assets

964

2,216

Accounts payable, accrued liabilities and other

(1,143

)

(2,525

)

Deferred revenue

(542

)

1,803

Net cash provided by operating activities

1,317

1,223

Investing activities:

Purchases of property and equipment

(1,049

)

(1,287

)

Capitalized software development

(1,705

)

—

Purchase of short-term investments

(14,888

)

(14,824

)

Maturity of short-term investments

15,000

—

Net cash used in investing activities

(2,642

)

(16,111

)

Financing activities:

Cash distributions to stockholders

(2,629

)

(2,647

)

Purchase of common stock (including commissions)

—

(1,810

)

Purchase of common stock for tax withholding on vested equity awards

(903

)

(1,011

)

Net cash used in financing activities

(3,532

)

(5,468

)

Effect of exchange rate on cash

(220

)

(60

)

Net decrease in cash and cash equivalents

(5,077

)

(20,416

)

Cash and cash equivalents, beginning of period

47,361

83,343

Cash and cash equivalents, end of period

$

42,284

$

62,927

Supplemental disclosure:

Income taxes paid

$

—

$

80

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

SPOK HOLDINGS, INC.

CONSOLIDATED REVENUE

SUPPLEMENTAL INFORMATION (a)

(Unaudited and in thousands)

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

Paging

$

20,451

$

20,826

$

21,212

$

21,342

$

21,687

$

21,997

$

22,442

$

22,824

Non-paging

935

789

602

785

923

1,094

817

834

Total wireless revenue

$

21,386

$

21,615

$

21,814

$

22,127

$

22,610

$

23,091

$

23,259

$

23,658

License

955

1,711

2,723

1,676

2,840

3,496

3,175

1,993

Services

4,549

4,947

4,202

4,835

5,206

5,103

4,555

4,363

Equipment

725

1,125

689

842

963

1,568

1,296

1,107

Operations revenue

$

6,229

$

7,783

$

7,614

$

7,353

$

9,009

$

10,167

$

9,026

$

7,463

Maintenance revenue

$

9,652

$

10,150

$

10,025

$

10,045

$

10,145

$

9,998

$

10,191

$

9,507

Total software revenue

$

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

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

SPOK HOLDINGS, INC.

CONSOLIDATED OPERATING EXPENSES

SUPPLEMENTAL INFORMATION (a)

(Unaudited and in thousands)

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

Cost of revenue

Payroll and related

$

5,785

$

5,222

$

5,099

$

4,749

$

4,931

$

4,868

$

4,923

$

4,853

Cost of sales

1,940

2,278

1,567

1,900

2,080

3,349

2,623

2,119

Stock-based compensation

119

42

21

97

107

44

75

75

Other

420

509

503

493

474

511

520

549

Total cost of revenue (b)

8,264

8,051

7,190

7,239

7,592

8,772

8,141

7,596

Research and development

Payroll and related

4,761

5,056

5,083

4,639

4,263

4,350

4,709

4,506

Outside services

1,584

1,742

2,027

1,912

1,745

2,115

1,040

1,481

Capitalized software development

(1,705

)

—

—

—

—

—

—

—

Stock-based compensation

236

113

102

84

11

5

71

90

Other

573

221

225

172

148

148

114

100

Total research and development

5,449

7,132

7,437

6,807

6,167

6,618

5,934

6,177

Technology operations

Payroll and related

2,712

2,656

2,823

2,662

2,647

2,616

2,866

2,618

Site rent

3,398

3,669

3,269

3,480

3,296

3,432

3,482

3,538

Telecommunications

1,001

1,026

1,016

1,019

996

1,021

950

935

Stock-based compensation

43

32

30

30

30

24

24

24

Other

750

700

667

675

705

1,027

465

583

Total technology operations

7,904

8,083

7,805

7,866

7,674

8,120

7,787

7,698

Selling and marketing

Payroll and related

3,583

3,382

3,524

3,329

3,273

3,047

3,401

3,311

Commissions

1,212

1,158

1,114

1,298

1,424

1,759

1,225

1,397

Stock-based compensation

172

164

137

128

161

99

135

135

Advertising and events

784

1,034

703

656

933

1,236

857

996

Other

610

153

117

163

319

134

98

254

Total selling and marketing

6,361

5,891

5,595

5,574

6,110

6,275

5,716

6,093

General and administrative

Payroll and related

4,134

3,974

4,220

4,136

4,041

4,087

4,834

4,340

Stock-based compensation

612

770

674

690

219

860

1,118

943

Bad debt

43

56

402

(96

)

308

303

513

279

Facility rent, office, and technology costs

2,068

1,952

2,369

2,485

2,294

2,072

2,925

2,323

Outside services

2,036

2,350

2,004

2,306

1,776

2,062

1,864

2,443

Taxes, licenses and permits

859

1,000

888

863

921

111

1,081

1,024

Other

1,499

1,429

1,256

1,312

1,188

1,226

1,338

1,389

Total 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

—

—

—

—

—

—

Operating expenses

$

41,375

$

51,787

$

42,145

$

41,517

$

40,649

$

43,107

$

44,036

$

42,974

Capital expenditures

$

1,063

$

679

$

1,378

$

1,495

$

1,287

$

830

$

1,630

$

2,299

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

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

SPOK HOLDINGS, INC.

UNITS IN SERVICE ACTIVITY, MARKET SEGMENT, CHURN

AND AVERAGE REVENUE PER UNIT (ARPU) (a)

(Unaudited and in thousands)

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

Paging units in service

Beginning units in service (000's)

938

955

977

982

992

999

1,024

1,030

Gross placements

24

22

28

35

27

30

31

35

Gross disconnects

(36

)

(39

)

(50

)

(40

)

(37

)

(37

)

(56

)

(41

)

Net change

(12

)

(17

)

(22

)

(5

)

(10

)

(7

)

(25

)

(6

)

Ending units in service

926

938

955

977

982

992

999

1,024

End of period units in service % of total (b)

Healthcare

82.6

%

82.4

%

81.7

%

81.7

%

81.6

%

81.4

%

81.7

%

81.5

%

Government

5.4

%

5.4

%

5.5

%

5.6

%

5.8

%

5.8

%

5.8

%

5.7

%

Large enterprise

5.5

%

5.5

%

6.1

%

5.9

%

5.9

%

5.9

%

6.0

%

6.0

%

Other(b)

6.5

%

6.6

%

6.7

%

6.8

%

6.7

%

6.9

%

6.5

%

6.8

%

Total

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Account size ending units in service (000's)

1 to 100 units

67

69

72

74

77

78

81

85

101 to 1,000 units

171

173

175

179

186

190

192

197

>1,000 units

688

696

708

724

719

724

726

742

Total

926

938

955

977

982

992

999

1,024

Account size net loss rate(c)

1 to 100 units

(3.0

)%

(3.8

)%

(2.1

)%

(3.2

)%

(2.3

)%

(1.7

)%

(4.3

)%

(3.8

)%

101 to 1,000 units

(1.0

)%

(1.0

)%

(2.4

)%

(3.9

)%

(2.3

)%

—

%

(2.7

)%

(0.6

)%

>1,000 units

(1.2

)%

(1.8

)%

(2.2

)%

0.7

%

(1.1

)%

(0.1

)%

(2.2

)%

(0.2

)%

Total

(1.3

)%

(1.8

)%

(2.2

)%

(0.5

)%

(1.1

)%

(0.2

)%

(2.5

)%

(0.6

)%

Account size ARPU

1 to 100 units

$

12.01

$

11.99

$

11.84

$

12.00

$

11.90

$

11.61

$

11.33

$

12.04

101 to 1,000 units

8.34

8.31

8.41

8.47

8.35

8.28

8.19

8.34

>1,000 units

6.59

6.62

6.59

6.47

6.57

6.69

6.74

6.62

Total

$

7.31

$

7.33

$

7.32

$

7.26

$

7.32

$

7.36

$

7.40

$

7.41

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

(b) Other includes hospitality, resort and indirect units

(c) Net loss rate is net current period placements and disconnected units in service divided by prior period ending units in service.

SPOK HOLDINGS, INC.

RECONCILIATION FROM NET (LOSS) INCOME TO EBITDA (a)

(Unaudited and in thousands)

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

Reconciliation of net (loss) income to EBITDA (b):

Net (loss) income (c)

$

(4,539

)

$

(9,511

)

$

(1,326

)

$

(670

)

$

742

$

189

$

(840

)

$

(1,172

)

Plus (less): (benefit from) provision for income taxes

657

(2,172

)

(804

)

(268

)

586

(5

)

(446

)

(730

)

Plus (less): Other expense (income)

137

(206

)

(163

)

(602

)

236

593

110

(102

)

Less: Interest income

(363

)

(350

)

(399

)

(452

)

(449

)

(628

)

(384

)

(342

)

Operating (loss) income

(4,108

)

(12,239

)

(2,692

)

(1,992

)

1,115

149

(1,560

)

(2,346

)

Plus: depreciation, amortization and accretion

2,146

2,250

2,305

2,335

2,359

2,601

2,785

2,669

EBITDA (as defined by the Company)

$

(1,962

)

$

(9,989

)

$

(387

)

$

343

$

3,474

$

2,750

$

1,225

$

323

RECONCILIATION FROM OPERATING EXPENSES TO ADJUSTED OPERATING EXPENSES (a)(d)

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

(Dollars in thousands)

Operating expenses

$

41,375

$

51,787

$

42,145

$

41,517

$

40,649

$

43,107

$

44,036

$

42,974

Less: depreciation, amortization and accretion

2,146

2,250

2,305

2,335

2,359

2,601

2,785

2,669

Less: goodwill impairment

$

—

$

8,849

$

—

$

—

$

—

$

—

$

—

$

—

Add: capitalized software costs

$

1,705

$

—

$

—

$

—

$

—

$

—

$

—

$

—

Adjusted operating expenses

$

40,934

$

40,688

$

39,840

$

39,182

$

38,290

$

40,506

$

41,251

$

40,305

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

(b) EBITDA or earnings before interest, taxes, depreciation, amortization and accretion is a non-GAAP measure and is presented for analytical purposes only. Management and the Board of Directors rely on EBITDA for purposes of determining the Company’s capital allocation policies. EBITDA is also the starting point for the calculation of operating cash flow for purposes of determining whether management has achieved certain performance objectives in the Company’s short-term and long-term incentive plans.

(c) An adjustment to cost of revenue identified in the fourth quarter of 2018 of $771 has been reflected in this table as a reduction of Net (loss) income of $166, $196, $359, and $771 in the first, second, third, and fourth quarters respectively.

(d) Adjusted operating expenses is a non-GAAP measure and is presented for analytical purposes only. Management and the Board of Directors rely on adjusted operating expenses for purposes of assessing our core operating results based on expenses incurred within a period that directly drive operating income in that period. Management adjusts for certain items because we do not regard these costs as reflective of normal costs related to the ongoing operation of the business in the ordinary course. In general, these items possess one or more of the following characteristics; non-cash expenses, factors outside of our control, items that are non-operational in nature, and unusual items not expected to occur in the normal course of business.

Al Galgano

952-567-0295

[email protected]

Source: Spok Holdings, Inc.

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