News Release

Spok Reports Fourth Quarter and 2014 Operating Results; Consolidated Quarterly Revenue Increases

Software Revenue and Bookings Reach All-Time Highs;
Wireless Trends Continue to Improve; Balance Sheet Remains Strong

SPRINGFIELD, Va. (April 29, 2015)Spok Holdings, Inc. (NASDAQ:  SPOK), a global leader in critical communications, today announced operating results for the fourth quarter and year ended December 31, 2014.  In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on March 30, 2015 to stockholders of record on March 18, 2015.

For the fourth quarter, consolidated revenue was $51.3 million, compared to $54.7 million in the fourth quarter of 2013 and $49.8 million in the third quarter of 2014 and represented Spok’s second consecutive quarter of consolidated revenue growth.  Software revenue increased to a record high $19.6 million in the fourth quarter, compared to $18.9 million in the fourth quarter of 2013 and $16.9 million in the third quarter of 2014.  Wireless revenue totaled $31.7 million in the fourth quarter, compared to $35.8 million in the year-earlier quarter and $32.9 million in the prior quarter.

Fourth quarter EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) totaled $8.7 million, or 16.9 percent of revenue, compared to $16.0 million, or 29.2 percent of revenue, in the year-earlier quarter, and $12.3 million, or 24.7 percent of revenue, in the third quarter of 2014.

Net income for the fourth quarter was $6.9 million, or $0.31 per fully diluted share, compared to $8.0 million, or $0.36 per fully diluted share, in the fourth quarter of 2013.

For the full-year 2014, consolidated revenue was $200.3 million, compared to $209.8 million in 2013.  Of the total, wireless revenue was $132.4 million and software revenue was $67.9 million, compared to $149.5 million and $60.3 million, respectively, for 2013.  Software revenue increased 12.5 percent from 2013.

EBITDA for 2014 was $44.8 million, or 22.4 percent of revenue, compared to $60.7 million, or 28.9 percent of revenue, for 2013.

Net income for 2014 was $20.7 million, or $0.94 per fully diluted share, compared to net income of $27.5 million, or $1.25 per fully diluted share, for the previous year.

Other key results and highlights for the fourth quarter and 2014 included:

  • Software bookings for the fourth quarter increased to $22.3 million from $16.3 million in the year-earlier quarter, and reached an all-time high for the third consecutive quarter.  Fourth quarter bookings included $13.0 million of operations bookings and $9.3 million of maintenance renewals.  For 2014, bookings increased 23.7 percent to a record high $78.5 million from $63.5 million in 2013.  Operations bookings for 2014 also reached an all-time high of $45.1 million.
  • Software backlog totaled $42.4 million at December 31, 2014, compared to $42.1 million at September 30, 2014, and $40.2 million at year-end 2013.
  • Of the $19.6 million in software revenue for the fourth quarter, $11.6 million was operations revenue and $8.0 million was maintenance revenue, compared to $11.8 million and $7.1 million, respectively, of the $18.9 million in software revenue for the fourth quarter of 2013.
  • The renewal rate for software maintenance in the fourth quarter was 99.5 percent.
  • The quarterly rate of paging unit erosion improved to 1.4 percent in the fourth quarter, compared to 2.2 percent in the year-earlier quarter, and was the Company’s lowest net unit loss rate in more than a decade.  The annual rate of unit erosion improved to 8.7 percent in the quarter versus 9.2 percent in the year-earlier quarter.  Net paging unit losses were 18,000 in the fourth quarter versus 32,000 in the fourth quarter of 2013.  Paging units in service at December 31, 2014 totaled 1,256,000, compared to 1,376,000 a year earlier.
  • The quarterly rate of wireless revenue erosion was 3.6 percent in the fourth quarter versus 3.3 percent in the year-earlier quarter, while the annual rate of wireless revenue erosion was 11.6 percent versus 10.2 percent in the fourth quarter of 2013.
  • Total paging ARPU (average revenue per unit) was $7.92 in the fourth quarter, compared to $8.15 in the year-earlier quarter and $7.97 in the prior quarter.  For the year, ARPU totaled$7.93, compared to $8.20 in 2013.
  • Consolidated operating expenses (excluding depreciation, amortization and accretion) totaled $42.6 million in the fourth quarter, compared to $38.7 million in the year-earlier quarter.  For 2014, operating expenses were $155.4 million, compared to $149.1 million in 2013.
  • Capital expenses were $1.4 million in the fourth quarter, compared to $2.6 million in the year-earlier quarter.  For 2014, capital expenses totaled $7.7 million, compared to $10.4 million in 2013.
  • The number of full-time equivalent employees at December 31, 2014 totaled 587, compared to 631 at year-end 2013.
  • Capital returned to stockholders in 2014 in the form of dividends and share repurchases totaled $10.8 million and $4.3 million, respectively.
  • The Company’s cash balance at December 31, 2014 was $107.9 million, compared to $89.1 million a year earlier.

“We ended the fourth quarter and full-year 2014 on a very positive note,” said Vincent D. Kelly, president and chief executive officer, “meeting or exceeding our expectations on virtually all key operating measures, including revenue, cash flow, software bookings and subscriber churn.  Consolidated revenue increased for the second consecutive quarter, software revenue and bookings reached record highs, our backlog and pipeline remained strong, and paging unit churn improved to its best level in many years.  Overall, we continued to operate profitably, enhance our product offerings, expand our global market reach, strengthen our balance sheet, and generate sufficient cash flow to again return capital to stockholders in the form of cash dividends and share repurchases.”

Commenting on software results, Kelly said:  “Total software revenue increased 15.7 percent in the fourth quarter from the prior quarter — the second consecutive quarter of revenue growth – and grew 12.5 percent in 2014 to $67.9 million from $60.3 million in 2013.”   Kelly attributed higher fourth quarter software revenue primarily to increased deliveries of software, hardware and professional services to the Company’s expanding worldwide customer base.  He also noted that higher software revenue was due in part to the completion of numerous projects with larger contract values than in previous quarters.  “Overall, both operations and maintenance revenue remained strong throughout the year,” he added, “with the 10.6 percent increase in maintenance revenue reflecting our continued success in achieving maintenance renewals rates in excess of 99 percent.”

Kelly said record high bookings of $22.3 million for the quarter included $13.0 million of operations bookings, which reached an all-time high for the third straight quarter.  For the year, bookings increased 23.7 percent to a record high $78.5 million.  “Bookings included sales to both new and existing customers, with many existing customers upgrading applications as well as adding products to expand their portfolio of communications solutions.  Demand remained strong for upgrades and installations of call center solutions, along with healthcare applications to increase patient safety, improve nursing workflows and enhance organizational efficiencies.”  Kelly added:  “Customer demand also remained strong for such software solutions as critical smartphone communications, secure texting, emergency management, and clinical alerting.   Our public safety sector also grew substantially during the quarter as our software sales team added 13 new accounts.”

Kelly said software sales continued to increase throughout both North American and international markets.  “We continued to make significant inroads in Europe, the Middle East and the Asia-Pacific region where our healthcare solutions continue to attract significant interest.  At the same time, we continued to build a solid pipeline of new business leads throughout targeted markets worldwide.”  Kelly added that Spok’s sales team pursued numerous combined software and wireless sales initiatives during the quarter, resulting in 30 new accounts that represented more than $1.8 million in software bookings.

The Company also posted solid results for its wireless products and services in the fourth quarter.  “Gross pager placements totaled 35,000 versus 36,000 in the year-earlier quarter, while gross disconnects of 53,000 improved from 68,000 in the fourth quarter of 2013,” Kelly said.  “As a result, quarterly net pager losses declined to historically low levels.  Overall, wireless sales efforts continued to focus primarily on our core market segments of Healthcare, Government and Large Enterprise, which represented approximately 93.5 percent of our direct subscriber base and 90.2 percent of our direct paging revenue at year end.  Healthcare comprised 77.4 percent of our direct subscriber base, and continued to be our best performing market segment with the highest rate of gross placements and lowest rate of unit disconnects.”

Kelly noted the Company successfully completed several other major initiatives in 2014, including the integration of its two operating subsidiaries and its name change to Spok.  “We believe the consolidation our of software and wireless businesses in January 2014 not only created major operating efficiencies but allowed us to better serve all of our customers as a single source provider of their critical communications needs.  Similarly,” Kelly added, “changing our corporate name to Spok in July was very well received by customers along with others both inside and outside the Company.  As part of a global rebranding initiative, we believe the name change better reflects our identity as a leader in critical communications and has already resulted in new business opportunities for us in various geographic and vertical markets worldwide.”

The Company’s business transition and global expansion in 2014 also resulted in several key additions to senior management during the year.  Among them, Hemant Goel joined Spok as Chief Operating Officer, Donna Scott was named Senior Vice President of Marketing, Kyle Gunderson was appointed Vice President Development and Chief Technology Officer, and Danielle Brogan joined the Company as Controller and Chief Accounting Officer.  “We believe the addition of these experienced business executives is another important step as we continue to grow our business over time,” said Kelly.

Kelly also noted that Spok returned capital to stockholders in the fourth quarter in the form of quarterly cash dividends totaling $2.8 million and repurchased 263,772 shares of common stock totaling $4.3 million, or $16.36 per share, under its stock buy-back program.  “Over the past 10 years,” he added, “we have generated $913.5 million in free cash flow, paid $428.4 million to our stockholders in cash dividends, and repurchased $64.1 million of our common stock.”

Shawn E. Endsley, chief financial officer, said:   “Strong revenue from both software and wireless, combined with focused expense management, helped us maintain solid operating cash flow, EBITDA and operating margins for the quarter even as we continued to invest in resources and opportunities for long-term growth.   We also strengthened our balance sheet, recording a cash balance of $107.9 million at December 31, and continued to operate as a debt-free company at year end.”

Commenting on the Company’s previously provided financial guidance for 2014, Endsley noted:  “We are pleased that 2014 results were largely consistent with our guidance.  For the year, total revenue of $200.3 million was within our guidance range of $183 million to $201 million, operating expenses of $155.4 million were within our guidance range of $147 million to $156 million, and capital expenses of $7.7 million were within our guidance range of $7 million to $9 million.”  With regard to financial guidance for 2015, Endsley said the Company expects total revenue to range from $183 million to $201 million, operating expenses (excluding depreciation, amortization and accretion) to range from $145 million to $154 million, and capital expenses to range from $5.5 million to $7.5 million.

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Spok plans to host a conference call for investors on its fourth quarter and 2014 operating results at 10:00 a.m. Eastern Time on Thursday, March 5, 2015.  Dial-in numbers for the call are 785-830-7992 or 800-768-6569.  The pass code for the call is 7872653.  A replay of the call will be available from 1:00 p.m. ET on March 5 until 1:00 p.m. on Thursday, March 19.  Replay numbers are 719-457-0820 or 888-203-1112.  The pass code for the replay is 7872653.

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