News Release

Spok Reports 2020 Fourth Quarter and Full Year Operating Results

Improved Software Revenue Levels, Continued Strong Wireless Trends, and Expense Management Contribute to Operating Performance

Board Declares Regular Quarterly Dividend

Springfield Va. (February 17, 2021) – Spok Holdings, Inc. (NASDAQ: SPOK), a global leader in healthcare communications, today announced operating results for the fourth quarter ended December 31, 2020. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on March 30, 2021, to stockholders of record on March 16, 2021.

 Key Fourth Quarter and Full Year Operating Highlights:

  • Fourth quarter 2020 software revenue of $17.2 million included $9.9 million of maintenance revenue and $7.3 million of operations revenue. This compares to third quarter software revenue of $16.9 million, which included $9.5 million of maintenance revenue and $7.4 million of operations revenue.
  • Software bookings in the fourth quarter totaled $16.5 million, compared to $21.4 million in the prior quarter and $21.9 million in the fourth quarter of 2019. Fourth quarter bookings included Spok Go® deals with an aggregate total contract value of $255,000. Fourth quarter software bookings included $7.2 million of operations bookings and $9.3 million of maintenance renewals. At December 31, 2020, the software revenue backlog totaled $50.5 million, compared to the backlog of $50.6 million at December 31, 2019.
  • The quarterly rate of paging unit erosion was 1.4% in the fourth quarter of 2020, down from paging unit erosion of 1.9% in the prior quarter. Gross disconnects were down on both a sequential and year-over-year basis.
  • The rate of wireless revenue erosion in the fourth quarter was 2.5%, compared to a revenue erosion rate of 1.2% in the prior quarter. For the full year 2020, the wireless revenue erosion rate was 5.2%, down 130 basis points from the revenue erosion rate of 6.5% in 2019.
  • Total paging ARPU (average revenue per unit) in 2020 totaled $7.30, down slightly from ARPU of $7.34 in 2019.
  • Operating expenses in 2020 totaled $170.8 million, down from $176.1 million in 2019. Adjusted operating expenses (which excludes goodwill impairment, depreciation, amortization and accretion charges, and includes capitalized software development costs) totaled $148.0 million in 2020, down more than 6% from adjusted operating expenses of $158.0 million in 2019.
  • Capital expenses were $3.5 million in 2020, compared to $4.8 million 2019.
  • The number of full-time equivalent employees at December 31, 2020 totaled 602, compared to 638 at December 31, 2019.
  • Capital paid to stockholders in 2020 aggregated $9.8 million. This came in the form of the Company’s regular quarterly dividend.
  • The Company’s cash, cash equivalents and short-term investments balance at December 31, 2020, was $78.7 million, up from $77.3 million at December 31, 2019.

 2020 Fourth Quarter and Full Year Results:

Consolidated revenue for the fourth quarter of 2020 under Generally Accepted Accounting Principles (“GAAP”) was $37.5 million compared to $39.5 million in the fourth quarter of 2019. For the year ended December 31, 2020, consolidated revenue totaled $148.2 million, compared to $160.3 million in the prior year.

For the three months ended For the year ended
(Dollars in thousands) December 31, 2020 December 31, 2019 Change

(%)

December 31, 2020 December 31, 2019 Change
(%)
Wireless revenue
Paging revenue $ 19,513 $ 20,826 (6.3) % $ 79,916 $ 85,067 (6.1) %
Product and other revenue 787 789 (0.3) % 3,677 3,100 18.6 %
Total wireless revenue $ 20,300 $ 21,615 (6.1) % $ 83,593 $ 88,167 (5.2) %
Software revenue
Operations revenue $ 7,268 $ 7,783 (6.6) % $ 25,996 $ 31,757 (18.1) %
Maintenance revenue 9,913 10,150 (2.3) % 38,591 40,365 (4.4) %
Total software revenue 17,181 17,933 (4.2) % 64,587 72,122 (10.4) %
Total revenue $ 37,481 $ 39,548 (5.2) % $ 148,180 $ 160,289 (7.6) %

GAAP net loss for the fourth quarter of 2020 was $46.6 million, or a loss of $2.44 per basic share, compared to a net loss of $9.5 million, or a loss of $0.50 per basic share, in the fourth quarter of 2019. Based on the Company’s annual assessment of goodwill, largely driven by the Company’s stock price in October when the assessment was completed, the 2020 fourth quarter net loss included a non-cash goodwill impairment charge of $25.0 million, which increased the fourth quarter net loss per basic share by $1.31. Additionally, in the fourth quarter, the Company completed a review to assess the recoverability of its deferred income tax assets, which represent tax benefits of future tax deductions. Based on uncertainty created by COVID-19 to project future profitability and growth and the cumulative loss incurred by the Company over the three-year period ended December 31, 2020, Spok recorded a $22.1 million valuation allowance to reduce net deferred income tax assets, which increased the fourth quarter net loss per basic share by $1.16.

GAAP net loss for the for the year ended December 31, 2020, was $44.2 million, or a loss of $2.32 per basic share, compared to a net loss of $10.8 million, or a loss of $0.56 per basic share, in the prior year. As discussed above, the 2020 full year net loss included a non-cash goodwill impairment charge of $25.0 million, which increased the full year net loss per basic share by $1.31, and the valuation allowance for the recoverability of the Company’s deferred income tax assets, which increased the full year net loss per basic share by an additional $1.16. The Company remains confident in the ultimate market demand for Spok Go despite the non-cash goodwill impairment charge and the valuation allowance on the recoverability of the Company’s deferred income tax assets.

In the fourth quarter of 2020, the Company generated $1.4 million of adjusted EBITDA compared to no adjusted EBITDA in the fourth quarter of 2019. For the year ended December 31, 2020, the Company generated $5.7 million of adjusted EBITDA, compared to $5.9 million in the prior year.

For the three months ended For the year ended
(Dollars in thousands) December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Net loss $ (46,610) $ (9,511) $ (44,225) $ (10,765)
Basic and diluted net loss per common share $ (2.44) $ (0.50) $ (2.32) $ (0.56)
Adjusted EBITDA $ 1,362 $ (19) $ 5,654 $ 5,932

Management Commentary:

“In most respects, 2020 was the most challenging year in our history from both a management and operational perspective,” said Vincent D. Kelly, president and chief executive officer. “However, in the face of a 100-year global pandemic our team was able to accomplish a lot.  Though the spread of the virus impeded the many customer meetings we had set up early in the year to introduce Spok Go, our new cloud-native platform, our team was able to stay focused, delivering five new customer relationships for our new platform in the second half of the year, while building the pipeline into 2021. In the fourth quarter we added three of these Spok Go wins; two with existing customers and one new customer joining the Spok family. We also made significant progress in clinical innovation partner development, while adding hundreds of new features to our platform. And that progress continues into 2021.  We continue to believe Spok Go is set to meet significant need in the healthcare marketplace and will create significant value for our shareholders in the coming years.  Once again Spok Customers received Top rankings from U.S. News & World report’s annual honor roll. In August Spok solutions achieved SOC 2 Type II Compliance. In September our team completed our tenth annual survey on the State of Healthcare Communications. In October we hosted our very well attended user conference, Connect, highlighting the importance of care team communication amidst COVID-19.  And in November for the fourth consecutive year Spok was rated as the #1 Secure Healthcare Communications Platform for the fourth consecutive year by Black Book Research. I am particularly proud of our Spok team and their ability to adapt and change under challenging circumstances. We broke a five-year record on selling console licenses last year and also provided over 360 remote license seats at no charge so our customer’s operators could be reconfigured to work from home.  Our team has already begun converting these to paid seats and we expect that to continue throughout 2021.  This momentum gives us confidence as we enter the new year and an eventual resolution to the global pandemic. We expect as the year progresses that our business will continue to pick up each quarter, building momentum and ending the year on a very positive footing.

“In the second half of 2020 we saw a more than 22% increase in software bookings from the first half of the year, as well as continued solid trends in our wireless business. Sustained expense management drove a sharp reduction in full year 2020 operating expenses and adjusted operating expenses from the prior year, even after adding back capitalized software development costs. A big part of those expense savings came from the commitment, support and sacrifices of our employees, who along with the entire leadership team including me, accepted furloughs to contribute to our savings goals. Our software revenue backlog continues at record levels, and we generated nearly $5.7 million of adjusted EBITDA in 2020. We were also able to grow our cash, cash equivalents and short-term investments balance from the prior year-end level, even after capital expenditures and paying our quarterly dividend. We are focused on driving positive free cash flow for 2021, and 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 innovation and the evolution of our cloud-native and integrated communication platform, Spok Go.

“Finally, continuing our promise to add clinical talent to our team in order to support our customers and facilitate our transition, in late November we announced the appointment of our new Chief Product Officer, Kristen Lalowski. Kristen brings over 20 years of experience in healthcare and healthcare IT, specifically in the areas of nursing, product management and marketing, operations, sales and client services. We believe that Spok provides a critical function that has become even more important in this environment, and the addition of leaders like Kristen to our management team is key to our success. Spok’s clinical communications platform provides hospitals with a system of action, delivering reliable communications and clinical information, including clinical test results, to care teams when and where it matters most to improve patient outcomes. We are proud to be leaders in this mission,” concluded Kelly.

Business Outlook:

Michael W. Wallace, chief operating officer and chief financial officer, said, “Expense management and strong financial discipline have always been critical in aligning our expense levels with anticipated near- and long-term demand for our products, and that was especially the case throughout 2020. During the year, operating expenses were down nearly 3% and adjusted operating expenses were down more than 6% from prior year levels, with improvements in all expense categories over that period.  Spok’s balance sheet remains strong, as the cash, cash equivalents and short-term investment balance grew to $78.7 million at December 31, 2020.”

Regarding financial guidance for 2021, Wallace said that the Company expects total revenue to range from $132.2 million to $147.2 million. Included in that total, Spok expects software revenue to comprise $58.2 million to $67.2 million. Also, the Company expects adjusted operating expenses to range from $142.7 million to $150.7 million, and capital expenses to range from $2.7 million to $6.7 million.

* * * * * * * * *

2020 Fourth Quarter and Full Year Call and Replay:

Spok plans to host a conference call for investors to discuss its 2020 fourth quarter and full year results at 10:00 a.m. ET on Thursday, February 18, 2021.  Dial-in numbers for the call are 1 929-477-0577 or 866-248-8441.  The confirmation code for the call is 6764724.  A replay of the call will be available from 1:00 p.m. ET on February 18, 2021 until 1:00 p.m. ET on Thursday, March 4, 2021. To listen to the replay, please register at http://tinyurl.com/Spok2020Q4earningsreplay. Please cut and paste this address into your browser, enter the registration information, and you will be given access to the replay.

Tables to Follow

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 For the year ended
12/31/2020 12/31/2019 12/31/2020 12/31/2019
Revenue:
Wireless $ 20,300 $ 21,615 $ 83,593 $ 88,167
Software 17,180 17,933 64,587 72,122
Total revenue 37,480  39,548  148,180  160,289 
Operating expenses:
Cost of revenue 7,833 8,051 28,542 30,072
Research and development 4,166 7,132 15,828 27,543
Technology operations 7,371 8,083 29,843 31,428
Selling and marketing 5,004 5,891 19,467 23,170
General and administrative 10,046 11,531 43,102 45,787
Depreciation, amortization and accretion 2,503 2,250 9,056 9,249
Goodwill impairment 25,007 8,849 25,007 8,849
Total operating expenses 61,930  51,787  170,845  176,098 
% of total revenue 165.2 % 130.9 % 115.3 % 109.9 %
Operating loss (24,450) (12,239) (22,665) (15,809)
% of total revenue (65.2) % (30.9) % (15.3) % (9.9) %
Interest income 51 350 687 1,651
Other income 95 206 208 735
Loss before income taxes (24,304) (11,683) (21,770) (13,423)
(Provision for) benefit from income taxes (22,306) 2,172 (22,455) 2,658
Net loss $ (46,610) $ (9,511) $ (44,225) $ (10,765)
Basic and diluted net loss per common share $ (2.44) $ (0.50) $ (2.32) $ (0.56)
Basic and diluted weighted average common shares outstanding 19,088,329 18,860,020 19,028,918 19,089,402
Cash dividends declared per common share 0.125 0.125 0.50 0.50
Key statistics:
Units in service 885 938 885 938
Average revenue per unit (ARPU) $ 7.30 $ 7.33 $ 7.30 $ 7.34
Bookings $ 16,528 $ 21,932 $ 68,994 $ 78,341
Backlog $ 50,504 $ 50,553 $ 50,504 $ 50,553
(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
12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Revenue:
Wireless $ 20,300 $ 20,828 $ 21,078 $ 21,386 $ 21,615 $ 21,814 $ 22,127 $ 22,610
Software 17,180 16,865 14,661 15,881 17,933 17,639 17,398 19,154
Total revenue 37,480  37,693  35,739  37,267  39,548  39,453  39,525  41,764 
Operating expenses:
Cost of revenue 7,833 6,544 5,901 8,264 8,051 7,190 7,239 7,592
Research and development 4,166 3,459 2,754 5,449 7,132 7,437 6,807 6,167
Technology operations 7,371 7,357 7,212 7,904 8,083 7,805 7,866 7,674
Selling and marketing 5,004 4,272 3,831 6,361 5,891 5,595 5,574 6,110
General and administrative 10,046 10,994 10,810 11,251 11,531 11,813 11,696 10,747
Depreciation, amortization and accretion 2,503 2,335 2,072 2,146 2,250 2,305 2,335 2,359
Goodwill impairment 25,007 8,849
Total operating expenses 61,930  34,961  32,580  41,375  51,787  42,145  41,517  40,649 
% of total revenue 165.2 % 92.8 % 91.2 % 111.0 % 130.9 % 106.8 % 105.0 % 97.3 %
Operating (loss) income (24,450) 2,732  3,159  (4,108) (12,239) (2,692) (1,992) 1,115 
% of total revenue (65.2) % 7.2 % 8.8 % (11.0) % (30.9) % (6.8) % (5.0) % 2.7 %
Interest income 51 127 146 363 350 399 452 449
Other income (expense) 95 151 101 (137) 206 163 602 (236)
(Loss) income before income taxes (24,304) 3,010  3,406  (3,882) (11,683) (2,130) (938) 1,328 
(Provision for) benefit from income taxes (22,306) 155 353 (657) 2,172 804 268 (586)
Net (loss) income $ (46,610) $ 3,165  $ 3,759  $ (4,539) $ (9,511) $ (1,326) $ (670) $ 742 
Basic net (loss) income per common share $ (2.44) $ 0.17 $ 0.20 $ (0.24) $ (0.50) $ (0.07) $ (0.03) $ 0.04
Diluted net (loss) income per common share (2.44) 0.16 0.20 (0.24) (0.50) (0.07) (0.03) 0.04
Basic weighted average common shares outstanding 19,088,329 19,051,502 19,016,853 18,958,716 18,860,020 19,086,811 19,217,866 19,196,970
Diluted weighted average common shares outstanding 19,088,329 19,208,452 19,115,148 18,958,716 18,860,020 19,086,811 19,217,866 19,356,712
Key statistics:
Units in service 885 898 915 926 938 955 977 982
Average revenue per unit (ARPU) $ 7.30 $ 7.34 $ 7.24 $ 7.31 $ 7.33 $ 7.32 $ 7.26 $ 7.32
Bookings $ 16,528 $ 21,414 $ 15,411 $ 15,639 $ 21,932 $ 20,421 $ 21,334 $ 14,654
Backlog $ 50,504 $ 51,708 $ 48,441 $ 49,052 $ 50,553 $ 42,604 $ 39,718 $ 37,392
(a) Slight variations in totals are due to rounding.
SPOK HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (a)
(In thousands)
12/31/2020 12/31/2019
ASSETS
Current assets:
Cash and cash equivalents $ 48,729 $ 47,361
Short term investments 29,995 29,899
Accounts receivable, net 29,934 30,174
Prepaid expenses 8,958 7,517
Other current assets 1,269 2,714
Total current assets 118,885  117,665 
Non-current assets:
Property and equipment, net 7,815 8,000
Operating lease right-of-use assets 14,016 16,317
Capitalized software development, net 10,179
Goodwill 99,175 124,182
Intangible assets, net 417 2,917
Deferred income tax assets, net 25,826 48,983
Other non-current assets 978 1,808
Total non-current assets 158,406  202,207 
Total assets $ 277,291  $ 319,872 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 6,685 $ 3,615
Accrued compensation and benefits 14,103 11,680
Deferred revenue 27,686 25,944
Operating lease liabilities 5,264 5,437
Other current liabilities 3,702 4,507
Total current liabilities 57,440 51,183
Non-current liabilities:
Asset retirement obligations 7,289 6,061
Operating lease liabilities 9,456 11,575
Other non-current liabilities 2,493 959
Total non-current liabilities 19,238 18,595
Total liabilities 76,678  69,778 
Commitments and contingencies
Stockholders’ equity:
Preferred stock $ $
Common stock 2 2
Additional paid-in capital 91,780 86,874
Accumulated other comprehensive loss (1,452) (1,601)
Retained earnings 110,283 164,819
Total stockholders’ equity 200,613  250,094 
Total liabilities and stockholders’ equity $ 277,291  $ 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 year ended
12/31/2020 12/31/2019
Operating activities:
Net loss $ (44,225) $ (10,765)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and accretion 9,056 9,249
Goodwill impairment 25,007 8,849
Valuation allowance 22,108
Deferred income tax expense (benefit) 438 (3,253)
Stock based compensation 5,508 3,643
Provisions for doubtful accounts, service credits, and other 1,212 694
Changes in assets and liabilities:
Accounts receivable (1,588) 964
Prepaid expenses, inventory and other assets 1,445 2,913
Accounts payable, accrued liabilities and other liabilities 4,027 (643)
Deferred revenue 3,175 42
Net cash provided by operating activities 26,163  11,693 
Investing activities:
Purchases of property and equipment (3,455) (4,837)
Capitalized software development (11,252)
Purchase of short-term investments (59,864) (59,385)
Maturity of short-term investments 60,000 34,000
Net cash used in investing activities (14,571) (30,222)
Financing activities:
Cash distributions to stockholders (9,771) (9,819)
Purchase of common stock (including commissions) (6,575)
Proceeds from issuance of common stock under the Employee Stock Purchase Plan 301 258
Purchase of common stock for tax withholding on vested equity awards (903) (1,017)
Net cash used in financing activities (10,373) (17,153)
Effect of exchange rate on cash 149 (300)
Net increase (decrease) in cash and cash equivalents 1,368 (35,982)
Cash and cash equivalents, beginning of period 47,361 83,343
Cash and cash equivalents, end of period $ 48,729  $ 47,361 
Supplemental disclosure:
Income taxes paid $ 1 $ 901
(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
12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Revenue
Paging $ 19,513 $ 19,961 $ 19,990 $ 20,451 $ 20,826 $ 21,212 $ 21,342 $ 21,687
Non-paging 787 $ 867 $ 1,088 $ 935 $ 789 $ 602 $ 785 $ 923
Total wireless revenue $ 20,300  $ 20,828  $ 21,078  $ 21,386  $ 21,615  $ 21,814  $ 22,127  $ 22,610 
License $        1,486 $ 1,988 $ 749 $ 955 $ 1,711 $ 2,723 $ 1,676 $ 2,840
Services $        4,778 $ 4,772 $ 3,812 $ 4,549 $ 4,947 $ 4,202 $ 4,835 $ 5,206
Equipment $           961 $ 554 $ 601 $ 725 $ 1,125 $ 689 $ 842 $ 963
Subscription $             42 $ 24 $ $ $ $ $ $
Operations revenue $ 7,267  $ 7,338  $ 5,162  $ 6,229  $ 7,783  $ 7,614  $ 7,353  $ 9,009 
Maintenance revenue $ 9,913  $ 9,527  $ 9,499  $ 9,652  $ 10,150  $ 10,025  $ 10,045  $ 10,145 
Total software revenue $ 17,180  $ 16,865  $ 14,661  $ 15,881  $ 17,933  $ 17,639  $ 17,398  $ 19,154 
Total revenue $ 37,480  $ 37,693  $ 35,739  $ 37,267  $ 39,548  $ 39,453  $ 39,525  $ 41,764 
(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
12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Cost of revenue
Payroll and related $ 5,447 $ 4,941 $ 4,350 $ 5,785 $ 5,222 $ 5,099 $ 4,749 $ 4,931
Cost of sales 1,740 1,064 1,098 1,940 2,278 1,567 1,900 2,080
Stock-based compensation 136 148 134 119 42 21 97 107
Other 510 391 319 420 509 503 493 474
Total cost of revenue 7,833  6,544  5,901  8,264  8,051  7,190  7,239  7,592 
Research and development
Payroll and related 4,358 4,147 4,115 4,761 5,056 5,083 4,639 4,263
Outside services 2,358 2,113 1,803 1,584 1,742 2,027 1,912 1,745
Capitalized software development (3,046) (2,906) (3,596) (1,705)
Stock-based compensation 246 240 243 236 113 102 84 11
Other 250 (135) 189 573 221 225 172 148
Total research and development 4,166  3,459  2,754  5,449  7,132  7,437  6,807  6,167 
Technology operations
Payroll and related 2,467 2,246 2,213 2,712 2,656 2,823 2,662 2,647
Site rent 3,313 3,467 3,399 3,398 3,669 3,269 3,480 3,296
Telecommunications 857 949 961 1,001 1,026 1,016 1,019 996
Stock-based compensation 48 52 47 43 32 30 30 30
Other 686 643 592 750 700 667 675 705
Total technology operations 7,371  7,357  7,212  7,904  8,083  7,805  7,866  7,674 
Selling and marketing
Payroll and related 2,912 2,773 2,538 3,583 3,382 3,524 3,329 3,273
Commissions 1,178 1,059 852 1,212 1,158 1,114 1,298 1,424
Stock-based compensation 192 208 194 172 164 137 128 161
Advertising and events 539 151 160 784 1,034 703 656 933
Other 183 81 87 610 153 117 163 319
Total selling and marketing 5,004  4,272  3,831  6,361  5,891  5,595  5,574  6,110 
General and administrative
Payroll and related 3,373 3,476 3,355 4,134 3,974 4,220 4,136 4,041
Stock-based compensation 726 968 744 612 770 674 690 219
Facility rent, office, and technology costs 2,412 178 628 43 56 402 (96) 308
Outside services 1,584 2,259 2,276 2,068 1,952 2,369 2,485 2,294
Taxes, licenses and permits 484 2,148 2,043 2,036 2,350 2,004 2,306 1,776
Bad debt 202 994 804 859 1,000 888 863 921
Other 1,265 971 960 1,499 1,429 1,256 1,312 1,188
Total general and administrative 10,046  10,994  10,810  11,251  11,531  11,813  11,696  10,747 
Depreciation, amortization and accretion 2,503 2,335 2,072 2,146 2,250 2,305 2,335 2,359
Goodwill impairment 25,007 8,849
Operating expenses $ 61,930  $ 34,961  $ 32,580  $ 41,375  $ 51,787  $ 42,145  $ 41,517  $ 40,649 
Capital expenditures $ 638  $ 934  $ 846  $ 1,063  $ 679  $ 1,378  $ 1,495  $ 1,287 
(a) Slight variations in totals are due to rounding.
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
12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Paging units in service
Beginning units in service (000’s) 898  915  926  938  955  977  982  992 
Gross placements 20 25 35 24 22 28 35 27
Gross disconnects (33) (42) (46) (36) (39) (50) (40) (37)
Net change (13) (17) (11) (12) (17) (22) (5) (10)
Ending units in service 885  898  915  926  938  955  977  982 
End of period units in service % of total (b)
Healthcare 83.6 % 83.7 % 83.6 % 82.6 % 82.4 % 81.7 % 81.7 % 81.6 %
Government 5.3 % 5.3 % 5.5 % 5.4 % 5.4 % 5.5 % 5.6 % 5.8 %
Large enterprise 4.3 % 4.3 % 4.4 % 5.5 % 5.5 % 6.1 % 5.9 % 5.9 %
Other(b) 6.8 % 6.6 % 6.6 % 6.5 % 6.6 % 6.7 % 6.8 % 6.7 %
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 61 63 65 67 69 72 74 77
101 to 1,000 units 167 167 165 171 173 175 179 186
>1,000 units 657 668 685 688 696 708 724 719
Total 885  898  915  926  938  955  977  982 
Account size net loss rate(c)
1 to 100 units (3.2) % (2.9) % (3.1) % (3.0) % (3.8) % (2.1) % (3.2) % (2.3) %
101 to 1,000 units % 1.5 % (4.2) % (1.0) % (1.0) % (2.4) % (3.9) % (2.3) %
>1,000 units (1.6) % (2.5) % (0.4) % (1.2) % (1.8) % (2.2) % 0.7 % (1.1) %
Total (1.4) % (1.9) % (1.3) % (1.3) % (1.8) % (2.2) % (0.5) % (1.1) %
Account size ARPU
1 to 100 units $ 11.62 $ 11.80 $ 11.65 $ 12.01 $ 11.99 $ 11.84 $ 12.00 $ 11.90
101 to 1,000 units 8.35 8.37 8.24 8.34 8.31 8.41 8.47 8.35
>1,000 units 6.62 6.67 6.57 6.59 6.62 6.59 6.47 6.57
Total $ 7.30  $ 7.34  $ 7.24  $ 7.31  $ 7.33  $ 7.32  $ 7.26  $ 7.32 
(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 OF NET (LOSS) INCOME TO EBITDA (a)
(Unaudited and in thousands)
For the three months ended
12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Reconciliation of net (loss) income to EBITDA:
Net (loss) income $ (46,610) $ 3,165  $ 3,759  $ (4,539) $ (9,511) $ (1,326) $ (670) $ 742 
Add back:
(Benefit from) provision for income taxes 22,306 (155) (353) 657 (2,172) (804) (268) 586
Other expenses (income) (95) (151) (101) 137 (206) (163) (602) 236
Interest (income) expenses (51) (127) (146) (363) (350) (399) (452) (449)
Operating (loss) income (24,450) 2,732  3,159  (4,108) (12,239) (2,692) (1,992) 1,115 
Depreciation, amortization and accretion 2,503 2,335 2,072 2,146 2,250 2,305 2,335 2,359
EBITDA $ (21,947) $ 5,067  $ 5,231  $ (1,962) $ (9,989) $ (387) $ 343  $ 3,474 
Capitalized software development costs (3,046) (2,906) (3,596) (1,705)
Stock-based compensation 1,348 1,616 1,362 1,182 1,121 964 1,029 528
Goodwill impairment 25,007 8,849
Adjusted EBITDA $ 1,362  $ 3,777  $ 2,997  $ (2,485) $ (19) $ 577  $ 1,372  $ 4,002 
For the year ended
Reconciliation of net loss to EBITDA: 12/31/2020 12/31/2019
Net loss $ (44,225) $ (10,765)
Add back:
Provision for (benefit from) income taxes 22,455 (2,658)
Other income (208) (735)
Interest income (687) (1,651)
Operating loss (22,665) (15,809)
Depreciation, amortization and accretion 9,056 9,249
EBITDA $ (13,609) $ (6,560)
Capitalized software development costs (11,252)
Stock-based compensation 5,508 3,643
Goodwill impairment 25,007 8,849
Adjusted EBITDA $ 5,654  $ 5,932 
(a) Slight variations in totals are due to rounding.
SPOK HOLDINGS, INC.
RECONCILIATION OF OPERATING EXPENSES TO ADJUSTED OPERATING EXPENSES (a)
(Unaudited and in thousands)
For the three months ended
12/31/2020 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
(Dollars in thousands)
Operating expenses $ 61,930  $ 34,961  $ 32,580  $ 41,375  $ 51,787  $ 42,145  $ 41,517  $ 40,649 
Add back:
Depreciation, amortization and accretion (2,503) (2,335) (2,072) (2,146) (2,250) (2,305) (2,335) (2,359)
Goodwill impairment (25,007) (8,849) —  —  — 
Capitalized software development costs 3,046 2,906 3,596 1,705 —  —  —  — 
Adjusted operating expenses $ 37,466  $ 35,532  $ 34,104  $ 40,934  $ 40,688  $ 39,840  $ 39,182  $ 38,290 
For the year ended
12/31/2020 12/31/2019
Operating expenses $ 170,845  $ 176,098 
Add back:
Depreciation, amortization and accretion (9,056) (9,249)
Goodwill impairment (25,007) (8,849)
Capitalized software development costs 11,252
Adjusted operating expenses $ 148,034  $ 158,000 
(a) Slight variations in totals are due to rounding.
SPOK HOLDINGS, INC.
2021 FINANCIAL GUIDANCE
(Unaudited and in millions)
Guidance Range
From To
Revenues
Wireless $ 74.0 $ 80.0
Software 58.2 67.2
Total Revenues $ 132.2  $ 147.2 
Adjusted Operating Expenses (a) $ 142.7  $ 150.7 
Capital Expenditures $ 2.7  $ 6.7 
RECONCILIATION OF OPERATING EXPENSES TO ADJUSTED OPERATING EXPENSES (a)
(Unaudited and in millions)
Guidance Range
From To
Operating expenses $ 141.4  $ 149.4 
Add back:
Depreciation, amortization and accretion (10.2) (10.2)
Goodwill impairment
Capitalized software development costs 11.5 11.5
Adjusted operating expenses $ 142.7  $ 150.7 
(a) Adjusted operating expenses exclude depreciation, amortization and accretion, goodwill impairment and capitalized software development costs.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: adjusted operating expenses and adjusted EBITDA. Adjusted operating expenses excludes depreciation, amortization and accretion, goodwill impairment and capitalized software development costs. Adjusted EBITDA represents net income/(loss) before interest income/expense, income tax expense/benefit, depreciation, amortization and accretion expense, goodwill impairment, stock based compensation expense, and capitalized software development costs.

We believe that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to Spok’s financial condition and results of operations. We use these non-GAAP measures for financial, operational and budgetary decision-making purposes, to understand and evaluate our core operating performance and trends, and to generate future operating plans. We believe that these non-GAAP financial measures permit us to more thoroughly analyze key financial metrics used to make operational decisions and allow us to assess our core operating results. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other software companies who present similar non-GAAP financial measures. We adjust 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.

We do not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. We urge investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures, which are included in this press release, and not to rely on any single financial measure to evaluate our business.