Spok Reports 2017 Third Quarter Operating Results; Software Revenue Improves Both Sequentially and Year-Over-Year, Stable Wireless Trends
Board Declares Regular Quarterly Dividend
SPRINGFIELD, Va. (October 24, 2017) – Spok Holdings, Inc. (NASDAQ: SPOK), a global leader in critical communications, today announced operating results for the third quarter ended September 30, 2017. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on December 8, 2017 to stockholders of record on November 17, 2017.
2017 Third-Quarter Results:
In the 2017 third quarter, consolidated revenue was $43.6 million, up from $42.3 million in the second quarter of 2017. Software revenue was $18.5 million in the third quarter of 2017, up from $16.7 million in the prior quarter. Wireless revenue totaled $25.1 million in the third quarter, compared to $25.6 million in the prior quarter.
Net income for the third quarter of 2017 was $3.7 million, or $0.19 per diluted share, compared to $1.5 million, or $0.07 per diluted share, in the second quarter of 2017.
Third quarter EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) totaled $6.1 million, or 14.0 percent of revenue, compared to EBITDA of $5.3 million, or 12.4 percent of revenue, in the second quarter of 2017.
Other key results and highlights for the third quarter included:
- Software bookings for the 2017 third quarter were $18.3 million, in line with $18.7 million in the prior year quarter. Third quarter bookings included $9.0 million of operations bookings and $9.3 million of maintenance renewals.
- Software backlog totaled $46.9 million at September 30, 2017, up nearly 8 percent from $43.5 million in the prior quarter, and up nearly 21 percent from $38.8 million in the third quarter of 2016.
- Of the $18.5 million in software revenue for the third quarter, $8.8 million was operations revenue and $9.7 million was maintenance revenue, compared to $7.0 million and $9.7 million, respectively, of the $16.7 million in software revenue in the prior quarter.
- The renewal rate for software maintenance in the third quarter of 2017 continued at greater than 99 percent.
- The quarterly rate of paging unit erosion was 2.2 percent in the third quarter of 2017, compared to 1.7 percent in the year-earlier quarter. Net paging unit losses were 23,000 in the third quarter of 2017, up from 20,000 in the third quarter of 2016. Paging units in service at September 30, 2017 totaled 1,063,000, compared to 1,124,000 at the end of the prior year quarter.
- The quarterly rate of wireless revenue erosion was just over 2 percent in the third quarter of 2017 down from nearly 3 percent in the year-earlier quarter.
- Total paging ARPU (average revenue per unit) was $7.48 in the third quarter of 2017, compared to $7.52 in the prior quarter and $7.63 in the year-earlier quarter.
- Consolidated operating expenses (excluding depreciation, amortization and accretion) totaled $37.5 million in the third quarter of 2017, compared to $36.1 million in the year-earlier quarter, and in-line with $37.1 million in the prior quarter.
- Capital expenses were $1.8 million in the third quarter of 2017, compared to $1.4 million in the year-earlier quarter.
- The number of full-time equivalent employees at September 30, 2017 totaled 599, compared to 587 at year-end 2016 and 598 at September 30, 2016.
- Capital returned to stockholders in the third quarter of 2017 totaled $2.5 million, in the form of dividends.
- The Company’s cash balance at September 30, 2017 was $110.1 million, compared to $122.5 million at September 30, 2016, and $125.8 million at December 31, 2016.
“We are pleased with our performance in the third quarter of 2017. We generated strong levels of software revenue, maintained our industry-high renewal rates on maintenance contracts and saw stable performance in wireless revenue. We achieved this while making tremendous progress executing on our long-term strategy to move from offering our customers ‘point solutions’, or single-product solutions, for call center software, alarm management and secure messaging to offering them a single integrated platform called Spok Care Connect®,” said Vincent D. Kelly, chief executive officer. “Third quarter performance benefited from the investments we made to enhance and upgrade our product development team and tools, as well as our sales infrastructure and management. Throughout the remainder of 2017, and over the next several years, Spok will continue to make the necessary investments in the people, technology and marketing programs that positions the company for sustainable growth to generate long-term shareholder value.
“During the quarter, we saw strong performance in a number of key operating measures, sequential and year-over-year improvements in software revenue levels, and historical high revenue backlog levels. Noteworthy in the third quarter, was a more than 3 percent increase in total revenue from the prior quarter, as software revenue growth outpaced the anticipated decline in wireless revenue. This represents our second consecutive quarter of total revenue growth. Overall, we continued to operate profitably, enhance our product offerings, and further strengthen our balance sheet. In the third quarter, strong cash flow generation allowed us to execute against our capital allocation strategy while adding to our cash balances. We are excited by the momentum that our team generated in the period and remain confident as we head into the fourth quarter.”
Commenting on software results, Kelly said: “We were very pleased to see year-over-year and sequential improvements in software revenue levels in the third quarter. We believe that results such as these validate our transition strategy as we pivot to a company that offers industry-leading software solutions.” Kelly attributed the ability to improve from prior quarter and year software revenue levels to improvements in sales, product and software initiatives as well as a more than 99 percent renewal rate on software maintenance contracts. Similar to Spok’s wireless revenue stream, software maintenance revenue is a largely recurring revenue stream that provides the Company with a more stable revenue and margin base. Combining software maintenance and wireless revenue, nearly 80 percent of Spok’s revenue is recurring in nature.
Kelly said third quarter bookings of $18.3 million were in-line with bookings of $18.7 million in the prior year quarter, and included $9.0 million of operations bookings, up from $8.5 million in the year-earlier period. Additionally, software backlog of $46.9 million at September 30th was up on both a sequential and year-over-year basis and represents an historical high. “We are encouraged as bookings included sales to both new and current customers, with existing customers adding products and applications to expand their portfolio of communications solutions. Customer demand remained strongest for upgrades to call center solutions, healthcare applications to increase patient safety, and improved nursing workflows.” Kelly added: “We continue to see growing demand for our software solutions for critical smartphone communications, secure texting, and emergency management, as well as clinical alerting, and we are proud to be working with more than 1,900 hospitals.”
“During the quarter, we also initiated several new client relationships and were pleased to welcome nearly 20 new customers to the Spok family. Our success in generating new customer relationships is due in large part to our marketing efforts. In late September we participated in the Becker’s Hospital Review 3rd Annual Health IT & Revenue Cycle Conference, in Chicago. With more than 3,000 participants, Spok senior management, participated on speaking panels and continued to enhance our reputation with hospital C-Suites. We generated more than 160 new leads from the conference, a sharp increase from last year. Also, last week, Spok welcomed leaders from more than 100 hospitals to Connect 17, our annual conference for healthcare professionals. The event took place in New Orleans, providing a setting for healthcare clinicians, IT experts, and C-suite executives to explore the challenges and opportunities of using communication technology to improve patient outcomes. These conferences and the tradeshows we attend continue to be valuable opportunities for us to grow our brand, demonstrate thought-leadership and showcase the benefits of our integrated platform, Spok Care Connect.”
The Company posted solid results for its wireless products and services in the third quarter. Gross pager disconnects of 53,000 were down from the year-earlier quarter, while gross placements of 30,000 were down from 34,000 in the third quarter of 2016. “As a result of this performance and stable ARPU levels over the past few quarters, wireless revenue, on a trailing twelve-month basis, is down only 8 percent from last year. This compares favorably to the guidance range we had provided at the beginning of the year,” continued Kelly. “Overall, wireless sales efforts continued to focus primarily on our core market segments of Healthcare, Government and Large Enterprise, which represented 92.6 percent of our subscriber base and 91.2 percent of our wireless revenue in the third quarter. Healthcare comprised just over 80 percent of our subscriber base, and continued to be our best performing market segment with the highest rate of gross placements and lowest rate of unit disconnects.”
Spok returned capital to stockholders, totaling $2.5 million, in the third quarter of 2017, in the form of its regular quarterly dividend. Kelly added, “We are proud to continue our tradition of returning cash to our shareholders. Thus far, in 2017, we have returned nearly $23 million, in the form of dividends and share repurchases. We remain committed to our multi-faceted capital allocation strategy, which includes returning cash to shareholders and strategic investments in our business to generate long-term growth.”
Michael W. Wallace, chief financial officer, said: “Continued expense management and strong financial discipline have allowed us 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 more than 40 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 balance of $110.1 million at September 30, 2017, a nearly $3 million increase from the prior quarter. Also, we continue to operate as a debt-free company.”
Commenting on the Company’s previously provided financial guidance for 2017, Wallace noted: “As a result of the solid performance we saw in the third quarter, we are maintaining the 2017 guidance range that we provided at the beginning of the year. However, based on our year-to-date performance, we believe that we will come in at, or above, the midpoint of the revenue range and at the low-end of the expense range. We look forward to presenting our expectations for 2018 when we release our 2017 fourth quarter results.” Regarding financial guidance for 2017, Wallace reiterated that the Company expects total revenue to range from $161 million to $177 million, operating expenses (excluding depreciation, amortization and accretion) to range from $153 million to $159 million, and capital expenditures to range from $8 million to $12 million.
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2017 Third-Quarter Call and Replay:
Spok plans to host a conference call for investors to discuss its 2017 third quarter results at 10:00 a.m. ET on Thursday, October 26, 2017. Dial-in numbers for the call are 888-349-9618 or 323-794-2093. The pass code for the call is 5731175. A replay of the call will be available from 1:00 p.m. ET on October 26, 2017 until 1:00 p.m. on Thursday, November 9, 2017. To listen to the replay, please register at http://tinyurl.com/spokQ32017earningsreplay. Please enter the registration information, and you will be given access to the replay.
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