Wireless Trends Continue to Improve; Sequential Improvements in Software Operations Bookings and Expense Management Trend
Board Declares Regular Quarterly Dividend
SPRINGFIELD, Va. (February 26, 2020) – Spok Holdings, Inc. (NASDAQ: SPOK), a global leader in healthcare communications, today announced operating results for the fourth quarter and year ended December 31, 2019. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on March 30, 2020, to stockholders of record on March 16, 2020.
Key Fourth-Quarter and Full-Year Operating Highlights
- Software bookings in the fourth quarter totaled $21.9 million, compared to $23.1 million in the prior year quarter. Fourth quarter bookings included $11.5 million of operations bookings and $10.4 million of maintenance renewals. For the full year 2019, software bookings totaled $78.3 million, compared to $81.3 million in 2018. Software backlog totaled $50.6 million at December 31, 2019, compared to $40.4 million at the end of 2018.
- Of the $17.9 million in software revenue for the fourth quarter, $7.8 million was operations revenue and $10.1 million was maintenance revenue, compared to $10.2 million and $10.0 million, respectively, of the $20.2 million in software revenue for the fourth quarter of 2018.
- The renewal rate for software maintenance revenue in 2019 continued to exceed 99 percent.
- The quarterly rate of paging unit erosion was 1.8 percent in the fourth quarter of 2019, compared to 2.3 percent in the prior quarter and 0.7 percent in the year-earlier period. Net paging unit losses were 17,000 in the fourth quarter of 2019, compared to 22,000 in the prior quarter and 7,000 in the fourth quarter of 2018. Annual unit erosion totaled 54,000 units, or 5.4 percent, in 2019, down from the prior year level of unit erosion of 57,000 units. Paging units in service at December 31, 2019, totaled 938,000, compared to 992,000 at the end of the prior year.
- The quarterly rate of wireless revenue erosion was 0.9 percent in the fourth quarter of 2019, down from 1.4 percent in the prior quarter and consistent with 0.7 percent in the year-earlier quarter, while the annual rate of wireless revenue erosion in 2019 slowed to 6.5 percent versus 6.8 percent in 2018.
- Total paging ARPU (average revenue per unit) was $7.33 in the fourth quarter of 2019, compared to $7.36 in the year-earlier quarter and $7.32 in the prior quarter. For the year, ARPU totaled $7.34, compared to $7.39 in 2018.
- Operating expenses in the fourth quarter of 2019 increased to $51.8 million, compared to $43.1 million in the prior year quarter, due entirely to the non-cash goodwill impairment charge of $8.8 million taken in the fourth quarter of 2019. For the full year 2019, operating expenses increased to $176.1 million, compared to $172.6 million in 2018, as the full year increase in operating expenses was due entirely to the previously mentioned non-cash goodwill impairment charge of $8.8 million.
- Adjusted operating expenses (excludes depreciation, amortization, accretion and goodwill impairment charge) totaled $40.7 million in the fourth quarter of 2019, compared to $40.5 million in the year-earlier quarter. For the full year 2019, adjusted operating expenses totaled $158.0 million, compared to $161.9 million 2018.
- Capital expenses were $0.7 million in the fourth quarter of 2019, compared to $0.8 million in the year-earlier quarter. For 2019, capital expenses totaled $4.8 million, compared to $5.9 million in 2018.
- The number of full-time equivalent employees at December 31, 2019, totaled 638, up from 596 at year-end 2018.
- Capital returned to stockholders in 2019 totaled $16.4 million. This came in the form of approximately $9.8 million from the regular quarterly dividend and approximately $6.6 million from share repurchases.
- The Company’s cash, cash equivalents and short-term investments balance at December 31, 2019, was $77.3 million, compared to $87.3 million at December 31, 2018.
2019 Fourth Quarter and Full Year Results:
Consolidated revenue for the fourth quarter of 2019 under Generally Accepted Accounting Principles (“GAAP”) was $39.5 million compared to $43.3 million in the fourth quarter of 2018. For the full year 2019, consolidated revenue totaled $160.3 million, compared to $169.5 million in 2018.
|For the three months ended||For the twelve months ended|
|(Dollars in thousands)||December 31, 2019||December 31, 2018||Change (%)||December 31, 2019||December 31, 2018||Change (%)|
|Product and other revenue||789||1,094||(27.9)%||3,100||3,707||(16.4)%|
|Total wireless revenue||$||21,615||$||23,091||(6.4)%||$||88,167||$||94,277||(6.5)%|
|Total software revenue||17,933||20,165||(11.1)%||72,122||75,197||(4.1)%|
GAAP net loss for the fourth quarter of 2019 was $9.5 million, or $0.50 per diluted share, compared to net income of $0.2 million, or $0.01 per diluted share, in the fourth quarter of 2018. Based on the Company’s annual assessment of goodwill, the 2019 fourth quarter net loss included a non-cash goodwill impairment charge of $8.8 million, which increased the fourth quarter net loss per diluted share by $0.46.
GAAP net loss for the full year 2019 was $10.8 million, or $0.56 per diluted share, compared to a net loss of $1.5 million, or $0.08 per diluted share, in 2018. As discussed above, the 2019 full year net loss included a non-cash goodwill impairment charge of $8.8 million, which increased the full year net loss per diluted share by $0.46.
In the fourth quarter of 2019, the EBITDA (earnings before interest, taxes, depreciation and amortization) loss totaled $10.0 million. As discussed above, the fourth quarter EBITDA loss included a non-cash goodwill impairment charge of $8.8 million. The fourth quarter 2019 EBITDA loss compares to EBITDA of $2.8 million in the prior year quarter. For the full year 2019, the EBITDA loss totaled $6.6 million, including the aforementioned non-cash goodwill impairment charge of $8.8 million. The 2019 EBITDA loss compares to EBITDA of $7.6 million in the prior year.
|For the three months ended||For the twelve months ended|
|(Dollars in thousands)||December 31, 2019||December 31, 2018||December 31, 2019||December 31, 2018|
|Net (loss) income||$||(9,511)||$||189||$||(10,765)||$||(1,479)|
|Basic and diluted net (loss) income per share||$||(0.50)||$||0.01||$||(0.56)||$||(0.08)|
“We are encouraged with our performance in the fourth quarter of 2019 and believe we are positioned well for sustained improvement in 2020, as we begin to market and sell our new cloud-native and integrated communication platform,” said Vincent D. Kelly, president and chief executive officer. “We were particularly pleased with the sequential growth in software bookings, including a more than 17 percent sequential growth in software operations bookings. The continued yearly improvement in our wireless trends included a reduction in paging unit erosion as well as continued slowing of wireless revenue declines. These metrics, along with the significant progress our R&D team made in 2019 on our new platform, Spok Go®, give us confidence as we enter the new year and begin to sell the evolution of our enterprise software solution.”
In 2019, Spok returned $16.4 million in capital to stockholders. During the year, the Company paid approximately $9.8 million in regular quarterly dividends and repurchased 532,354 shares of common stock, totaling approximately $6.6 million. “In 2019, 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 more than 50 consecutive quarters of paying a dividend. In fact, we have returned over $600 million in dividends and share repurchases over that timeframe. We remain committed to paying our quarterly dividend in 2020 and have been able to return value to our stockholders through our dividend program while continuing to invest in our integrated communication platform and remaining a debt-free company.”
Kelly noted that in addition to the financial performance the Company was able to achieve in 2019, 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 did more than thirty new six-figure installations of Spok solutions for our customers. For the full year 2019, we added more than 160 new accounts primarily in the healthcare and government sectors, including modernizing communications for new customers such as Toronto-based North York General Hospital and the Colorado-based Vail Health System. Additionally, during the year we announced key strategic partnerships, most notably with Amazon Web Services (AWS) for a complete cloud services infrastructure, giving Spok enterprise customers excellence in security, agility, and breadth and depth of services with a cloud-native communication solution. Again, in 2019, our management were keynote speakers at numerous C-suite conferences; Spok received recognition as the #1 secure communications platform for hospitals and health systems by Black Book Market Research; and we continue to work with all of the U.S. News & World Report Best Adult Hospitals. During the year, we also continued to add depth and experience to the Spok management team, with our new Chief Medical Officer, Dr. Matt Mesnik, and Chief Information Officer, Tim Tindle. We intend to carry all this momentum into 2020 to stimulate long-term growth.”
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 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 more than offset the 12.6 percent increase in research and development expenses over the past year to support the strategic investments we are making in our sales and product platforms.
“In the fourth quarter of 2019, we recognized non-cash pre-tax goodwill impairment charges of $8.8 million,” continued Wallace. “This goodwill impairment relates to impairment charges recognized in the fourth quarter of 2019 as a result of the Company’s annual goodwill impairment testing and, in our belief, does not reflect management’s confidence in the future value of our business. Our outlook for the business continues to remain strong. We believe Spok Go is set to meet a significant need in the healthcare marketplace and will create significant value for shareholders in the coming years.
“Finally, Spok’s balance sheet remains strong, with a cash, cash equivalents and short-term investment balance of $77.3 million at December 31, 2019. Despite the continued investment in our technology platform and infrastructure, during the year, Spok generated more than $11 million of net cash provided by operating activities that partially offset cash returned to shareholders and capital expenditures.”
Earlier this week, the Company announced a new name and advanced capabilities for its integrated, cloud-native communication platform. The newly named Spok Go® platform drives action by dynamically connecting clinical teams with the people and information they need when and where it matters most. “Our mission is to build communications capabilities that help save lives and solve multiple challenges facing healthcare systems today,” commented Kelly. “The complex needs of our healthcare customers are not just a priority, but our driving force for innovation.”
New capabilities in the most recent release of Spok Go include:
- Native HL7 services with easy to use browser-based site configuration
- Clinical workflow templates for orders, lab results and critical test results
- Role-based multi-site enterprise on-call scheduling with ability to view personal schedules in Spok Go
- Priority-based enterprise messaging for groups, roles and individual users
- Role-based multi-site nursing staff assignment
- Innovative activity feeds capability introduced for web and mobile applications
Spok will showcase the newest capabilities of Spok Go at HIMSS20 (booth #2579) in Orlando, Florida, March 9 – 13, 2020. Learn more at spok.com/HIMSS.
Commenting on the Company’s previously provided financial guidance for 2019, Wallace noted: “We are pleased that 2019 results were consistent with the guidance ranges we had provided. For the year, total revenue of $160.3 million was slightly below the midpoint of our guidance range of $156 million to $174 million, adjusted operating expenses (excluding depreciation, amortization and accretion and the goodwill impairment) of $158.0 million were also slightly below the midpoint of our guidance range of $155 million to $165 million, and capital expenses of $4.8 million were slightly below the midpoint of our guidance range of $3.0 million to $7.0 million.”
Regarding financial guidance for 2020, Wallace said the Company expects total revenue to range from $149 million to $165 million. Included in that total, the Company expects software revenue to comprise $72 million to $80 million, consistent with 2019 levels at the low end of the guidance range and a 10.9 percent improvement from 2019 at the high end of the guidance range. Also, Spok expects adjusted operating expenses (excluding depreciation, amortization and accretion) to range from $158 million to $167 million, and capital expenses to range from $2.3 million to $6.3 million.
2019 Fourth-Quarter and Full-Year Call and Replay:
Spok plans to host a conference call for investors to discuss its 2019 fourth-quarter and full-year results at 10:00 a.m. ET on Thursday, February 27, 2020. Dial-in numbers for the call are 1-334-323-0501 or 800-353-6461. The pass code for the call is 3488038. A replay of the call will be available from 1:00 p.m. ET on February 27, 2020 until 1:00 p.m. ET on Thursday, March 12, 2020. To listen to the replay, please register at http://tinyurl.com/Spok2019Q4earningsreplay. Please enter the registration information, and you will be given access to the replay.