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Spok Reports 2018 Third Quarter Operating Results; Software Revenue and Bookings Up on Both a Year-Over-Year and Sequential Basis

October 24, 2018 4:10 PM

Board Declares Regular Quarterly Dividend

SPRINGFIELD, Va.--(BUSINESS WIRE)-- Spok Holdings, Inc. (NASDAQ: SPOK), the global leader in healthcare communications, today announced operating results for the third quarter and year-to-date period ended September 30, 2018. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on December 10, 2018 to stockholders of record on November 16, 2018.

2018 Third-Quarter Results:
Consolidated revenue for the third quarter of 2018 under Generally Accepted Accounting Principles (“GAAP”) was $42.5 million compared to $43.6 million in the third 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 third quarter of 2018 was $41.0 million compared to the $43.6 million in the third quarter of 2017.

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For the three months ended

(Dollars in thousands)

September 30,
2018

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September 30,
2018(1)

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September 30,
2017

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Change (2)
(%)

Wireless revenue
Paging revenue $ 22,442 $ 22,442 $ 24,128 (7.0 )%
Product and other revenue � 817 � � 817 � � � 982 � (16.8 )%
Total wireless revenue $ 23,259 � $ 23,259 � � $ 25,110 � (7.4 )%
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Software revenue
Operations revenue $ 9,026 $ 7,852 $ 8,863 (11.4 )%
Maintenance revenue � 10,191 � � 9,924 � � � 9,663 � 2.7 %
Total software revenue � 19,217 � � 17,776 � � � 18,526 � (4.0 )%
Total revenue $ 42,476 � $ 41,035 � � $ 43,636 � (6.0 )%
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(1) Adjusted to exclude the adoption of ASC 606.

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

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GAAP net loss for the third quarter of 2018 was $0.5 million, or $0.02 per diluted share, compared to net income of $3.7 million, or $0.19 per diluted share, in the third quarter of 2017. In the third quarter of 2018, the Company generated $1.6 million of EBITDA (earnings before interest, taxes, depreciation and amortization), compared to EBITDA of $6.1 million in the prior year quarter.

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For the three months ended
(Dollars in thousands)

September 30,
2018

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September 30,
2018(1)

�

September 30,
2017

Net (loss) income $ (481 ) $ (2,142 ) $ 3,727
Diluted net (loss) income per share $ (0.02 ) $ (0.11 ) $ 0.19
EBITDA $ 1,584 $ (77 ) $ 6,100
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(1) Adjusted to exclude the adoption of ASC 606.

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Other key results and highlights for the third quarter included:

2018 Year-To-Date Results:
Consolidated revenue for the first nine months of 2018 was $126.2 million compared to $127.4 million in the first nine months of 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 the first nine months of 2018 was $125.3 million compared to the $127.4 million in the first nine months of 2017.

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For the nine months ended
(Dollars in thousands)

September 30,
2018

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September 30,
2018(1)

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September 30,
2017

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Change (2)
(%)

Wireless revenue
Paging revenue $ 68,574 $ 68,574 $ 73,672 (6.9 )%
Product and other revenue � 2,612 � � 2,612 � � � 2,937 � (11.1 )%
Total wireless revenue $ 71,186 � $ 71,186 � � $ 76,609 � (7.1 )%
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Software revenue
Operations revenue $ 25,961 $ 24,063 $ 21,945 9.7 %
Maintenance revenue � 29,071 � � 30,037 � � � 28,851 � 4.1 %
Total software revenue � 55,032 � � 54,100 � � � 50,796 � 6.5 %
Total revenue $ 126,218 � $ 125,286 � � $ 127,405 � (1.7 )%
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(1) Adjusted to exclude the adoption of ASC 606.

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

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GAAP net loss for the first nine months of 2018 was $0.9 million, or $0.05 per diluted share, compared to net income of $6.1 million, or $0.30 per diluted share, in the first nine months of 2017. In the first nine months of 2018, the Company generated $5.6 million of EBITDA (earnings before interest, taxes, depreciation and amortization), compared to EBITDA of $16.0 million in the prior year period.

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For the nine months ended

(Dollars in thousands)

September 30,
2018

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September 30,
2018(1)

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September 30,
2017

Net (loss) income $ (946 ) $ (1,768 ) $ 6,078
Diluted net (loss) income per share $ (0.05 ) $ (0.09 ) $ 0.30
EBITDA $ 5,568 $ 4,761 $ 15,967
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(1) Adjusted to exclude the adoption of ASC 606.

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Management Commentary:
“We are pleased with our performance in the third quarter of 2018 and believe that it provides Spok with momentum as we complete 2018 and position ourselves for next year” said Vincent D. Kelly, president and chief executive officer. “Software bookings and revenue levels grew by double-digits on a sequential basis. Coupled with continued strong maintenance renewals and low levels of wireless revenue attrition, total revenue grew by nearly 5 percent from the second quarter of 2018. Third quarter revenue performance and sustained expense management allowed us to return $3.1 million of capital to our stockholders in the form of dividends and share repurchases, while we continued to enhance our product offerings through our continued investments in our integrated communication platform, Spok Care Connect®.”

Kelly also noted that in addition to the Company’s quarterly financial performance, Spok made progress in several other areas, including product development, sales strategy and key strategic partnership agreements. “Earlier in October, we were excited to welcome more than 150 attendees to Connect 18, Spok’s annual conference for healthcare professionals. There, we brought together some of the industry’s leading innovators who are pushing the boundaries to advance and improve healthcare communications. We were particularly pleased to showcase what we believe is a game-changer in healthcare communication technology; the next generation of the Spok Care Connect platform. Our collaboration with hospital leaders at these conferences—and throughout the year—has helped us create an enterprise platform that positions healthcare providers for success today and supports them with faster, smarter clinical communications for the next decade.”

Business Outlook:
Michael W. Wallace, chief financial officer, said: “In 2018, continued expense management and strong financial discipline have allowed us to invest in our business for long-term growth and we are seeing the benefits from those investments. Based on our ability to align Spok's expense base with the market demand we are seeing, we are maintaining the 2018 guidance ranges that we outlined at the beginning of the year.” For the full-year 2018, adjusted for the adoption of ASC 606, the Company still expects total revenue to range from $161 million to $177 million, operating expenses (excluding depreciation, amortization and accretion) to range from $158 million to $165 million, and capital expenditures to range from $4 million to $8 million.

2018 Third-Quarter Call and Replay:
Spok plans to host a conference call for investors to discuss its 2018 third quarter results at 10:00 a.m. ET on Thursday, October 25, 2018. Dial-in numbers for the call are 323-994-2093 or 888-254-3590. The pass code for the call is 1552099. A replay of the call will be available from 1:00 p.m. ET on October 25, 2018 until 1:00 p.m. ET on Thursday, November 8, 2018. To listen to the replay, please register at http://tinyurl.com/Spok2018Q3earningsreplay. Please cut and paste this address into your browser, enter the registration information, and you will be given access to the replay.

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, future capital needs, competitive pricing pressures, competition from both traditional paging services and other wireless communications services, competition from other software providers, government regulation, 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, 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.

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SPOK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (a)
(Unaudited and in thousands except share, per share amounts and ARPU)
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For the three months ended For the nine months ended

9/30/2018

9/30/2017

9/30/2018

9/30/2017

Revenue:
Wireless $ 23,259 $ 25,110 $ 71,186 $ 76,609
Software � 19,217 � � 18,526 � � 55,032 � � 50,796 �
Total revenue � 42,476 � � 43,636 � � 126,218 � � 127,405 �
Operating expenses:
Cost of revenue 7,782 7,069 22,914 21,295
Research and development 5,934 5,001 17,845 13,768
Service, rental and maintenance 7,787 7,875 23,235 23,885
Selling and marketing 5,716 5,533 18,279 16,784
General and administrative 13,673 12,058 38,377 35,706
Depreciation, amortization and accretion � 2,785 � � 2,775 � � 8,168 � � 8,849 �
Total operating expenses � 43,677 � � 40,311 � � 128,818 � � 120,287 �
% of total revenue 102.8 % 92.4 % 102.1 % 94.4 %
Operating (loss) income (1,201 ) 3,325 (2,600 ) 7,118
% of total revenue (2.8 )% 7.6 % (2.1 )% 5.6 %
Interest income 384 214 1,009 490
Other (expense) income � (110 ) � 359 � � (56 ) � 415 �
(Loss) income before income taxes (927 ) 3,898 (1,647 ) 8,023
Benefit from (provision for) income taxes � 446 � � (171 ) � 701 � � (1,945 )
Net (loss) income $ (481 ) $ 3,727 � $ (946 ) $ 6,078 �
Basic and diluted net (loss) income per common share $ (0.02 ) $ 0.19 � $ (0.05 ) $ 0.30 �
Basic weighted average common shares outstanding � 19,456,149 � � 19,977,263 � � 19,742,869 � � 20,285,240 �
Diluted weighted average common shares outstanding � 19,456,149 � � 20,008,321 � � 19,742,869 � � 20,362,774 �
Cash dividends declared per common share � 0.125 � � 0.125 � � 0.375 � � 0.375 �
Key statistics:
Units in service 999 1,063 999 1,063
Average revenue per unit (ARPU) $ 7.40 $ 7.48 $ 7.44 $ 7.53
Bookings $ 21,580 $ 18,327 $ 58,192 $ 58,519
Backlog $ 36,366 $ 46,900 $ 36,366 $ 46,900
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(a) Slight variations in totals are due to rounding.

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SPOK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (a)
(Unaudited and in thousands except share, per share amounts and ARPU)
� � � � � � � �
For the three months ended

9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

Revenue:
Wireless $ 23,259 $ 23,658 $ 24,269 $ 24,579 $ 25,110 $ 25,639 $ 25,860 $ 26,535
Software � 19,217 � � 16,970 � � 18,845 � � 19,191 � � 18,526 � � 16,686 � � 15,584 � � 17,649 �
Total revenue � 42,476 � � 40,628 � � 43,114 � � 43,770 � � 43,636 � � 42,325 � � 41,444 � � 44,184 �
Operating expenses:
Cost of revenue 7,782 7,400 7,712 7,122 7,069 7,190 7,036 7,482
Research and development 5,934 6,177 5,735 4,934 5,001 4,662 4,105 3,702
Service, rental and maintenance 7,787 7,698 7,750 7,617 7,875 7,944 8,066 7,989
Selling and marketing 5,716 6,093 6,490 6,039 5,533 5,329 5,922 5,855
General and administrative 13,673 12,741 11,964 11,695 12,058 11,939 11,710 11,277
Depreciation, amortization and accretion � 2,785 � � 2,669 � � 2,713 � � 2,774 � � 2,775 � � 2,851 � � 3,223 � � 3,176 �
Total operating expenses � 43,677 � � 42,778 � � 42,364 � � 40,181 � � 40,311 � � 39,915 � � 40,062 � � 39,481 �
% of total revenue 102.8 % 105.3 % 98.3 % 91.8 % 92.4 % 94.3 % 96.7 % 89.4 %
Operating (loss) income (1,201 ) (2,150 ) 750 3,589 3,325 2,410 1,382 4,703
% of total revenue (2.8 )% (5.3 )% 1.7 % 8.2 % 7.6 % 5.7 % 3.3 % 10.6 %
Interest income 384 342 283 229 214 154 122 99
Other (expense) income � (110 ) � 102 � � (47 ) � (282 ) � 359 � � 89 � � (30 ) � 100 �
(Loss) income before income taxes (927 ) (1,706 ) 986 3,536 3,898 2,653 1,474 4,902
Benefit from (provision for) income taxes � 446 � � 730 � � (475 ) � (24,920 ) � (171 ) � (1,155 ) � (620 ) � (1,876 )
Net (loss) income $ (481 ) $ (976 ) $ 511 � $ (21,384 ) $ 3,727 � $ 1,498 � $ 854 � $ 3,026 �
Basic and diluted net (loss) income per common share $ (0.02 ) $ (0.05 ) $ 0.03 � $ (1.07 ) $ 0.19 � $ 0.07 � $ 0.04 � $ 0.15 �
Basic weighted average common shares outstanding � 19,456,149 � � 19,750,941 � � 20,027,800 � � 19,987,763 � � 19,977,263 � � 20,353,801 � � 20,530,739 � � 20,529,958 �
Diluted weighted average common shares outstanding � 19,456,149 � � 19,750,941 � � 20,153,291 � � 19,987,763 � � 20,008,321 � � 20,366,102 � � 20,585,542 � � 20,529,958 �
Key statistics:
Units in service 999 1,024 1,030 1,049 1,063 1,086 1,091 1,111
Average revenue per unit (ARPU) $ 7.40 $ 7.41 $ 7.47 $ 7.46 $ 7.48 $ 7.52 $ 7.56 $ 7.59
Bookings $ 21,580 $ 18,488 $ 18,124 $ 19,190 $ 18,327 $ 20,405 $ 19,788 $ 20,025
Backlog $ 36,366 $ 36,295 $ 35,930 $ 42,305 $ 46,900 $ 43,455 $ 40,555 $ 38,295
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(a) Slight variations in totals are due to rounding.
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SPOK HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (a)
(In thousands)
� �

9/30/2018

12/31/2017

(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 95,233 $ 107,157
Accounts receivable, net 34,440 32,279
Prepaid expenses and other 7,928 5,752
Inventory � 1,663 � � 1,672 �
Total current assets � 139,264 � � 146,860 �
Non-current assets:
Property and equipment, net 12,655 13,399
Goodwill 133,031 133,031
Intangible assets, net 6,042 7,917
Deferred income tax assets 46,970 47,679
Other non-current assets � 1,401 � � 1,675 �
Total non-current assets � 200,099 � � 203,701 �
Total assets $ 339,363 � $ 350,561 �
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,070 $ 1,305
Accrued compensation and benefits 11,584 11,018
Accrued taxes 2,587 2,547
Deferred revenue 32,299 31,414
Other current liabilities � 3,464 � � 4,610 �
Total current liabilities � 51,004 � � 50,894 �
Non-current liabilities:
Deferred revenue 705 1,063
Other long-term liabilities � 8,545 � � 8,075 �
Total non-current liabilities � 9,250 � � 9,138 �
Total liabilities � 60,254 � � 60,032 �
Commitments and contingencies
Stockholders' equity:
Preferred stock $ — $ —
Common stock 2 2
Additional paid-in capital 92,880 99,819
Accumulated other comprehensive loss (2,217 ) (1,088 )
Retained earnings � 188,444 � � 191,796 �
Total stockholders' equity � 279,109 � � 290,529 �
Total liabilities and stockholders' equity $ 339,363 � $ 350,561 �
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(a) Slight variations in totals are due to rounding.
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SPOK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (a)
(Unaudited and in thousands)
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For the nine months ended

9/30/2018

9/30/2017

Cash flows provided by operating activities:
Net (loss) income $ (946 ) $ 6,078
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, amortization and accretion 8,168 8,849
Deferred income tax (benefit) expense (1,000 ) 1,118
Stock based compensation 3,922 2,815
Provisions for doubtful accounts, service credits and other 1,681 767
Adjustments of non-cash transaction taxes (156 ) (754 )
Changes in assets and liabilities:
Accounts receivable (2,534 ) (4,156 )
Prepaid expenses, inventory and other assets (1,160 ) (1,726 )
Accounts payable, accrued liabilities and other (546 ) (230 )
Deferred revenue � 5,198 � � 1,313 �
Net cash provided by operating activities � 12,627 � � 14,074 �
Cash flows from investing activities:
Purchases of property and equipment � (5,094 ) � (7,034 )
Net cash used in investing activities � (5,094 ) � (7,034 )
Cash flows from financing activities:
Cash distributions to stockholders (7,631 ) (12,733 )
Purchase of common stock for tax withholding on vested equity awards (978 ) —
Purchase of common stock (including commissions) (10,026 ) (10,024 )
Proceeds from issuance of common stock under the Employee Stock Purchase Plan � 143 � � 130 �
Net cash used in financing activities � (18,492 ) � (22,627 )
Effect of exchange rate on cash � (965 ) � (89 )
Net decrease in cash and cash equivalents (11,924 ) (15,676 )
Cash and cash equivalents, beginning of period � 107,157 � � 125,816 �
Cash and cash equivalents, end of period $ 95,233 � $ 110,140 �
Supplemental disclosure:
Income taxes paid $ 726 � $ 2,300 �
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(a) Slight variations in totals are due to rounding.
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SPOK HOLDINGS, INC.
CONSOLIDATED REVENUE
SUPPLEMENTAL INFORMATION (a)
(Unaudited and in thousands)
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For the three months ended

9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

Revenue
Paging $ 22,442 $ 22,824 $ 23,308 $ 23,624 $ 24,128 $ 24,572 $ 24,972 $ 25,441
Non-paging � 817 � � 834 � � 961 � � 955 � � 982 � � 1,067 � � 888 � � 1,094
Total wireless revenue $ 23,259 � $ 23,658 � $ 24,269 � $ 24,579 � $ 25,110 � $ 25,639 � $ 25,860 � $ 26,535
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Subscription 1,779 441 420 559 577 623 543 551
License 1,396 1,552 3,956 2,431 1,995 1,641 1,171 1,594
Services 4,555 4,363 4,071 5,437 5,189 3,650 3,354 4,500
Equipment � 1,296 � � 1,107 � � 1,024 � � 945 � � 1,102 � � 1,127 � � 973 � � 1,402
Operations revenue $ 9,026 � $ 7,463 � $ 9,471 � $ 9,372 � $ 8,863 � $ 7,041 � $ 6,041 � $ 8,047
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Maintenance revenue $ 10,191 � $ 9,507 � $ 9,374 � $ 9,819 � $ 9,663 � $ 9,645 � $ 9,543 � $ 9,602
Total software revenue $ 19,217 � $ 16,970 � $ 18,845 � $ 19,191 � $ 18,526 � $ 16,686 � $ 15,584 � $ 17,649
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Total revenue $ 42,476 � $ 40,628 � $ 43,114 � $ 43,770 � $ 43,636 � $ 42,325 � $ 41,444 � $ 44,184
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(a) Slight variations in totals are due to rounding.
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SPOK HOLDINGS, INC.
CONSOLIDATED OPERATING EXPENSES
SUPPLEMENTAL INFORMATION (a)
(Unaudited and in thousands)
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For the three months ended

9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

Cost of revenue
Payroll and related $ 4,923 $ 4,853 $ 4,874 $ 4,374 $ 4,330 $ 4,613 $ 4,490 $ 4,611
Cost of sales 2,264 1,923 2,309 1,990 2,228 1,904 1,995 2,415
Stock based compensation 75 75 55 58 4 60 58 (108 )
Other � 520 � � 549 � � 474 � � 700 � � 507 � � 613 � � 493 � � 564 �
Total cost of revenue � 7,782 � � 7,400 � � 7,712 � � 7,122 � � 7,069 � � 7,190 � � 7,036 � � 7,482 �
Research and development
Payroll and related 4,709 4,506 4,002 3,521 4,005 3,807 3,405 3,195
Outside services 1,040 1,481 1,513 1,361 849 659 516 511
Stock based compensation 71 90 71 (71 ) 43 65 55 (82 )
Other � 114 � � 100 � � 149 � � 123 � � 104 � � 131 � � 129 � � 78 �
Total research and development � 5,934 � � 6,177 � � 5,735 � � 4,934 � � 5,001 � � 4,662 � � 4,105 � � 3,702 �
Service, rental and maintenance
Payroll and related 2,866 2,618 2,693 2,413 2,582 2,607 2,665 2,687
Site rent 3,482 3,538 3,496 3,471 3,534 3,604 3,620 3,618
Telecommunications 950 935 898 979 1,060 1,001 1,081 1,096
Stock based compensation 24 24 24 20 20 20 20 (29 )
Other � 465 � � 583 � � 639 � � 734 � � 679 � � 712 � � 680 � � 617 �
Total service, rental and maintenance � 7,787 � � 7,698 � � 7,750 � � 7,617 � � 7,875 � � 7,944 � � 8,066 � � 7,989 �
Selling and marketing
Payroll and related 3,401 3,311 3,294 2,573 3,113 3,039 3,071 3,556
Commissions 1,225 1,397 1,774 1,634 1,234 1,121 1,202 1,248
Stock based compensation 135 135 135 93 84 99 101 (131 )
Advertising and events 857 996 1,158 1,481 952 840 1,281 889
Other � 98 � � 254 � � 129 � � 258 � � 150 � � 230 � � 267 � � 293 �
Total selling and marketing � 5,716 � � 6,093 � � 6,490 � � 6,039 � � 5,533 � � 5,329 � � 5,922 � � 5,855 �
General and administrative
Payroll and related 4,834 4,340 4,416 3,649 4,569 4,420 4,439 4,426
Stock based compensation 1,118 943 949 774 711 755 722 (863 )
Bad debt 513 279 528 143 184 107 94 137
Facility rent and office costs 1,235 1,743 1,941 1,865 2,013 1,995 1,838 1,694
Outside services 3,554 3,023 2,122 2,924 2,351 2,507 2,627 2,430
Taxes, licenses and permits 1,081 1,024 1,080 1,120 1,077 1,034 989 976
Other � 1,338 � � 1,389 � � 928 � � 1,220 � � 1,153 � � 1,121 � � 1,001 � � 2,477 �
Total general and administrative � 13,673 � � 12,741 � � 11,964 � � 11,695 � � 12,058 � � 11,939 � � 11,710 � � 11,277 �
Depreciation, amortization and accretion � 2,785 � � 2,669 � � 2,713 � � 2,774 � � 2,775 � � 2,851 � � 3,223 � � 3,176 �
Operating expenses $ 43,677 � $ 42,778 � $ 42,364 � $ 40,181 � $ 40,311 � $ 39,915 � $ 40,062 � $ 39,481 �
Capital expenditures $ 1,630 $ 2,299 $ 1,164 $ 2,179 $ 1,816 $ 2,353 $ 2,851 $ 1,878
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(a) Slight variations in totals are due to rounding.

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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

9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

Paging units in service

Beginning units in service (000's) 1,024 1,030 1,049 1,063 1,086 1,091 1,111 1,124
Gross placements 31 35 25 26 30 42 28 36
Gross disconnects � (56 ) � (41 ) � (44 ) � (40 ) � (53 ) � (47 ) � (48 ) � (49 )
Net change � (25 ) � (6 ) � (19 ) � (14 ) � (23 ) � (5 ) � (20 ) � (13 )
Ending units in service � 999 � � 1,024 � � 1,030 � � 1,049 � � 1,063 � � 1,086 � � 1,091 � � 1,111 �
End of period units in service % of total (b)
Healthcare 81.7 % 81.5 % 81.1 % 80.7 % 80.4 % 80.4 % 79.7 % 79.3 %
Government 5.8 % 5.7 % 5.9 % 6.0 % 6.1 % 6.3 % 6.4 % 6.5 %
Large enterprise 6.0 % 6.0 % 6.0 % 6.0 % 6.0 % 6.1 % 6.1 % 6.2 %
Other(b) � 6.5 % � 6.8 % � 7.0 % � 7.2 % � 7.4 % � 7.3 % � 7.7 % � 8.0 %
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 81 85 88 92 95 98 102 106
101 to 1,000 units 192 197 198 198 201 204 214 217
>1,000 units � 726 � � 742 � � 744 � � 759 � � 767 � � 784 � � 775 � � 788 �
Total � 999 � � 1,024 � � 1,030 � � 1,049 � � 1,063 � � 1,086 � � 1,091 � � 1,111 �
Account size net loss rate(c)
1 to 100 units (4.3 )% (3.8 )% (4.7 )% (3.6 )% (2.8 )% (3.7 )% (3.4 )% (3.9 )%
101 to 1,000 units (2.7 )% (0.6 )% (10.0 )% (1.1 )% (1.8 )% (4.5 )% (1.3 )% (2.3 )%
>1,000 units � (2.2 )% � (0.2 )% � (1.9 )% � (1.1 )% � (2.2 )% � 1.1 % � (1.7 )% � (0.5 )%
Total � (2.5 )% � (0.6 )% � (1.8 )% � (1.3 )% � (2.2 )% � (0.4 )% � (1.8 )% � (1.2 )%
Account size ARPU
1 to 100 units $ 11.33 $ 12.04 $ 12.13 $ 12.11 $ 12.23 $ 12.16 $ 12.22 $ 12.25
101 to 1,000 units 8.19 8.34 8.47 8.58 8.62 8.61 8.66 8.63
>1,000 units � 6.74 � � 6.62 � � 6.65 � � 6.59 � � 6.59 � � 6.64 � � 6.64 � � 6.67 �
Total $ 7.40 � $ 7.41 � $ 7.47 � $ 7.46 � $ 7.48 � $ 7.52 � $ 7.56 � $ 7.59 �
�
(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 FROM NET (LOSS) INCOME TO EBITDA (a)
(Unaudited and in thousands)
� � � � � � � �
For the three months ended

9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

Reconciliation of net (loss) income to EBITDA (b):
Net (loss) income $ (481 ) $ (976 ) $ 511 $ (21,384 ) $ 3,727 $ 1,498 $ 854 $ 3,026
Less (plus): Benefit from (provision for) income taxes (446 ) (730 ) 475 24,920 171

1,155

620 1,876
Plus (less): Other (expense) income 110 (102 ) 47 282 (359 ) (89 ) 30 (100 )
Less: Interest income � (384 ) � (342 ) � (283 ) � (229 ) � (214 ) � (154 ) � (122 ) � (99 )
Operating (loss) income (1,201 ) (2,150 ) 750 3,589 3,325 2,410 1,382 4,703
Plus: depreciation, amortization and accretion � 2,785 � � 2,669 � � 2,713 � � 2,774 � � 2,775 � � 2,851 � � 3,223 � � 3,176 �
EBITDA (as defined by the Company) $ 1,584 � $ 519 � $ 3,463 � $ 6,363 � $ 6,100 � $ 5,261 � $ 4,605 � $ 7,879 �
�

For the nine months
ended

9/30/2018

9/30/2017

Reconciliation of net (loss) income to EBITDA (b):
Net (loss) income $ (946 ) $ 6,078
Less (plus): Benefit from (provision for) income taxes (701 ) 1,945
Plus (less): Other income (expense) 56 (415 )
Less: Interest income � (1,009 ) � (490 )

�

Operating (loss) income (2,600 ) 7,118
Plus: depreciation, amortization and accretion � 8,168 � � 8,849 �
EBITDA (as defined by the Company) $ 5,568 � $ 15,967 �
�

For the
three
months
ended

For the
nine
months
ended

9/30/2018

9/30/2018

Reconciliation of EBITDA to EBITDA adjusted to exclude the adoption of ASC 606 (b):
EBITDA (as defined by the Company) $ 1,584 $ 5,568
(Less) plus: Software revenue (1,441 ) (932 )
(Less) plus: Cost of revenue — 4
(Less) plus: Selling and marketing � (220 ) � 121 �
Adjusted EBITDA (c) $ (77 ) $ 4,761 �
�
(a) Slight variations in totals are due to rounding.
(b) EBITDA or earnings before interest, taxes, depreciation, amortization and accretion is a non-GAAP measure and is presented for analytical purposes only. Management and the Board of Directors rely on EBITDA for purposes of determining the Company’s capital allocation policies. EBITDA is also the starting point for the calculation of operating cash flow for purposes of determining whether management has achieved certain performance objectives in the Company’s short term and long term incentive plans.
(c) Adjusted EBITDA represents EBITDA adjusted to exclude the adoption of ASC 606. Adjusted EBITDA is used by the Company for purposes of comparison to prior period results during its year of transition (2018) under the modified retrospective approach.
�

Spok Holdings, Inc.

Al Galgano, 952-567-0295

[email protected]

Source: Spok Holdings, Inc.

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