Spok Reports Fourth-Quarter and Full-Year 2018 Operating Results;

Solid Year-Over-Year Software Growth; Record-Low Wireless Revenue Erosion

Board Declares Regular Quarterly Dividend 
 

SPRINGFIELD, Va. (February 27, 2019) - Spok Holdings, Inc. (NASDAQ: SPOK), a global leader in healthcare communications, today announced operating results for the fourth quarter and year ended December 31, 2018. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on March 29, 2019, to stockholders of record on March 15, 2019.

 

Key Fourth-Quarter and Full-Year Operating Highlights

  • Software bookings in the fourth quarter increased to $23.1 million, from $19.2 million in the prior year quarter. Fourth quarter bookings included $12.1 million of operations bookings and $11.0 million of maintenance renewals. For 2018, software bookings totaled $81.3 million, up nearly 4.6 percent from $77.7 million in 2017. Software backlog totaled $40.4 million at December 31, 2018, compared to $42.3 million at the end of 2017.
  • Of the $20.2 million in software revenue for the fourth quarter, $10.2 million was operations revenue and $10.0 million was maintenance revenue, compared to $9.4 million and $9.8 million, respectively, of the $19.2 million in software revenue for the fourth quarter of 2017.
  • The renewal rate for software maintenance revenue in 2018 continued to exceed 99 percent.
  • The quarterly rate of paging unit erosion was 0.7 percent in the fourth quarter of 2018, compared to 2.4 percent in the prior quarter and 1.3 percent in the year-earlier period. Net paging unit losses were 7,000 in the fourth quarter of 2018, down from 25,000 in the prior quarter and 14,000 in the fourth quarter of 2017. Annual unit erosion totaled 57,000 units, or 5.4 percent, in 2018, down from the prior year level of unit erosion of 62,000 units. Paging units in service at December 31, 2018, totaled 992,000, compared to 1,049,000 at the end of the prior year.
  • The quarterly rate of wireless revenue erosion was 0.7 percent in the fourth quarter of 2018, less than half of the erosion in the prior quarter and down substantially from 2.1 percent in the year-earlier quarter, while the annual rate of wireless revenue erosion in 2018 slowed to 6.8 percent versus 7.7 percent in 2017.
  • Total paging ARPU (average revenue per unit) was $7.36 in the fourth quarter of 2018, compared to $7.46 in the year-earlier quarter and $7.40 in the prior quarter. For the year, ARPU totaled $7.39, compared to $7.51 in 2017.
  • Consolidated operating expenses (excluding depreciation, amortization and accretion) totaled $40.5 million in the fourth quarter of 2018, compared to $37.4 million in the year-earlier quarter. In 2018, consolidated operating expenses totaled $161.9 million, compared to $148.8 million in 2017.
  • Capital expenses were $0.8 million in the fourth quarter of 2018, compared to $2.2 million in the year-earlier quarter. For 2018, capital expenses totaled $5.9 million, compared to $9.2 million in 2017.
  • The number of full-time equivalent employees at December 31, 2018, totaled 596, the same as year-end 2017.
  • Capital returned to stockholders in 2018 totaled $23.6 million. This came in the form of approximately $10.1 million from the regular quarterly dividend and approximately $13.5 million from share repurchases.
  • The Company’s cash, cash equivalents and short-term investments balance at December 31, 2018, was $87.3, compared to $107.2 million at December 31, 2017.

 

2018 Fourth-Quarter Results:

Consolidated revenue for the fourth quarter of 2018 under Generally Accepted Accounting Principles (“GAAP”) was $43.3 million compared to $43.8 million in the fourth quarter of 2017. On January 1, 2018, Spok adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Unless otherwise stated, results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted, and continue to be reported in accordance with the Company’s historic accounting under ASC 605. As such, adjusted to exclude the adoption of ASC 606, consolidated revenue for the fourth quarter of 2018 was $42.3 million compared to the $43.8 million in the fourth quarter of 2017.

 

Three months ended
(Dollars in thousands) December 31, 2018 December 31, 2018 December 31, 2017 Change (2) (%)
Wireless revenue        
Paging revenue $21,997 $21,997 $23,624 (6.9%)
Product and other revenue 1,094 1,094 955 14.6%
Total wireless revenue $23,091 $23,091 $24,576 (6.1%)
         
Software revenue        
Operations revenue $10,167 $8,919 $9,372 (4.8%)
Maintenance revenue 9,998 10,246 9,819 4.3%
Total software revenue 20,165 19,165 19,191 (0.1%)
Total revenue $43,256 $42,256 $43,770 (3.5%)

(1) Adjusted to exclude the adoption of ASC 606.

(2) As compared against results adjusted to exclude the adoption of ASC 606.


GAAP net income for the fourth quarter of 2018 was $0.2 million, or $0.01 per diluted share, compared to a net loss of $21.4 million, or $1.07 per diluted share, in the fourth quarter of 2017. In the fourth quarter of 2017, the net loss included a non-cash income tax charge of $24.2 million. The income tax charge resulted from the reduction of the deferred tax asset, or DTA, subsequent to the Company's fourth quarter analysis of the impact of the changes from The Tax Cuts and Jobs Act of 2017. Excluding this charge, fourth quarter 2017 net income would have totaled $2.9 million, or $0.14 per diluted share.

In the fourth quarter of 2018, the Company generated $2.8 million of EBITDA (earnings before interest, taxes, depreciation and amortization), compared to EBITDA of $6.4 million in the prior year quarter.

Three months ended
(Dollars in thousands) December 31, 2018 December 31, 2018 December 31, 2017
Net (loss) income $(189) $(632) $(21,384)
Diluted net (loss) income per share $(0.01) $(0.03) $(1.07)
EBITDA $2,750 $1,928 $6,636

(1) Adjusted to exclude the adoption of ASC 606.
 

2018 Full-Year Results:

Consolidated revenue for 2018 was $169.5 million compared to $171.2 million in 2017. As discussed above, unless otherwise stated, results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted, and continue to be reported in accordance with the Company’s historic accounting under ASC 605. As such, adjusted to exclude the adoption of ASC 606, consolidated revenue for 2018 was $167.5 million compared to the $171.2 million in 2017.

For the twelve months ended
(Dollars in thousands) December 31, 2018  December 31, 2018 (1) December 31, 2017  Change (2) (%)
Wireless revenue        
Paging revenue $90,570 $90,570 $97,296 (6.9)%
Product and other revenue 3,707 3,707 3,892 (4.8)%
Total wireless revenue $94.277 $94.277 $101.188 (6.8)%
         
Software revenue        
Operations revenue $36,128 $32,982 $31,318 5.3%
Maintenance revenue 39,069 40,283 30,669 4.2%
Total software revenue 75.197 73.265 69.987 4.7%
Total revenue $169,474 $167,542 $171,175 (2.1)%

(1) Adjusted to exclude the adoption of ASC 606.

(2) As compared against results adjusted to exclude the adoption of ASC 606.

GAAP net loss for 2018 was $1.5 million, or $0.08 per diluted share, compared to a net loss of $15.3 million, or $0.76 per diluted share, in 2017. In the fourth quarter of 2017, the net loss included a non-cash income tax charge of $24.2 million. The income tax charge resulted from the reduction of the DTA, as previously discussed. Excluding this charge, 2017 net income would have totaled $8.9 million, or $0.44 per diluted share.

In 2018, the Company generated $7.6 million of EBITDA, compared to EBITDA of $22.3 million in the prior year.

For the twelve months ended

(Dollars in thousands) December 31, 2018 December 31, 2018(1) December 31, 2017 
Net (loss) income $(1,479) $(3,122) $(15,306)
Net loss per common share  $(0.08) $(0.16) $(0.76)
EBITDA $7,596 $5,967 $22,330

(1) Adjusted to exclude the adoption of ASC 606.

 

Management Commentary:

“We are encouraged with our performance in the fourth quarter of 2018 and believe it provides a solid basis for continued improvement in 2019,” said Vincent D. Kelly, president and chief executive officer. “We were particularly pleased with our growth in software bookings and the continued improvement in our wireless trends. Noteworthy was our performance in the second half of the year, as software revenue grew nearly 10 percent, compared to the first half of 2018, and fourth quarter sequential wireless revenue declines slowed to a record low 0.7 percent. These metrics give us confidence as we enter the new year and launch what we believe is a game changer for future healthcare communication technology: the next evolution of our Spok Care Connect® platform.”

In 2018, Spok returned $23.6 million in capital to stockholders. During the year, the Company paid approximately $10.1 million in regular quarterly dividends and repurchased 929,116 shares of common stock, totaling approximately $13.5 million. “In 2018, we were proud to be able to execute against our capital allocation strategy, returning capital through dividends and share repurchases," continued Kelly. "This quarter represents our 50th consecutive quarter of paying a dividend. We have been able to achieve this milestone while continuing to invest in the evolution of our integrated communication platform, Spok Care Connect®, and remaining a debt-free company."

Kelly noted that in addition to the financial performance the Company was able to achieve in 2018, progress was made in several other areas, including product development, sales strategy and key strategic partnership agreements. “Spok continues to build an industry-leading reputation,” commented Kelly. “During the quarter, we added approximately two dozen new customers to the Spok family.  For the full year, we added more than 70 new customers primarily in the healthcare and government sectors, including modernizing communications in the Veterans Affairs hospital network. Additionally, during the year we announced key strategic partnerships with companies such as Spectralink and Bernoulli Health; our management were keynote speakers at numerous C-suite conferences; Spok received recognition as the #1 provider of secure communications by Black Book Market Research; and we continue to work with all of the U.S. News & World Report Best Adult and Children's Hospitals. We intend to carry that momentum throughout 2019 to stimulate long-term growth."

Michael W. Wallace, chief financial officer, said: “Expense management and strong financial discipline have allowed us to continue to invest in our business for long-term growth. Our ability to align our expense base with the market demand we are seeing and drive high renewal rates in our recurring revenue categories has helped Spok to mostly offset the 30.8 percent increase in research and development expenses over the past year to support the investments we are making in our sales and product platforms.  Spok’s balance sheet remains strong, with a cash, cash equivalents and short-term investment balance of $87.3 million at December 31, 2018. Despite the continued investment in our technology platform and infrastructure, during the year, Spok generated more than $10 million of net cash provided by operating activities that partially offset cash returned to shareholders and capital expenditures.”

 

Business Outlook:

Commenting on the Company’s previously provided financial guidance for 2018, Wallace noted: “We are pleased that 2018 results were consistent with the guidance we had provided. For the year, total revenue of $169.5 million was at the midpoint of our guidance range of $161 million to $177 million, operating expenses of $161.9 million were also at the midpoint of our guidance range of $158 million to $165 million, and capital expenses of $5.9 million were slightly below the midpoint of our guidance range of $4.0 million to $8.0 million.” Regarding financial guidance for 2019, Wallace said the Company expects total revenue to range from $156 million to $174 million. Included in that total, the Company expects software revenue to comprise $75 million to $85 million. Also, Spok expects operating expenses (excluding depreciation, amortization and accretion) to range from $155 million to $165 million, and capital expenses to range from $3 million to $7 million.
 

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2018 Fourth-Quarter and Full-Year Call and Replay:

Spok plans to host a conference call for investors to discuss its 2018 fourth-quarter and full-year results at 10:00 a.m. ET on Thursday, February 28, 2019.  Dial-in numbers for the call are 785-424-1802 or 877-830-2636.  The pass code for the call is 6706226.  A replay of the call will be available from 1:00 p.m. ET on February 28, 2019 until 1:00 p.m. ET on Thursday, March 14, 2019.  To listen to the replay, please register at http://tinyurl.com/spok2018Q4earningsreplay. Please enter the registration information, and you will be given access to the replay.

View Financial Statements.

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About Spok

Spok Holdings, Inc. (NASDAQ: SPOK), headquartered in Springfield, Va., is proud to be the 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® platform 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. When seconds count, count on Spok. For more information, visit spok.com or follow @spoktweets on Twitter.

Spok is a trademark of Spok Holdings, Inc. Spok Care Connect and Spok Mobile 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, 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, 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.

Media Inquiries:

Al Galgano
(952) 567-0295 
al.galgano@spok.com