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Spok Reports Fourth-Quarter and Full-Year 2019 Operating Results; Wireless Trends Continue to Improve; Sequential Improvements in Software Operations Bookings and Expense Management Trends

February 26, 2020 4:10 PM

Board Declares Regular Quarterly Dividend

SPRINGFIELD, Va.--(BUSINESS WIRE)-- 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

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
(%)

Wireless revenue

Paging revenue

$

20,826

$

21,997

(5.3

)%

$

85,067

$

90,570

(6.1

)%

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

)%

Software revenue

Operations revenue

$

7,783

$

10,167

(23.4

)%

$

31,757

$

36,128

(12.1

)%

Maintenance revenue

10,150

9,998

1.5

%

40,365

39,069

3.3

%

Total software revenue

17,933

20,165

(11.1

)%

72,122

75,197

(4.1

)%

Total revenue

$

39,548

$

43,256

(8.6

)%

$

160,289

$

169,474

(5.4

)%

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

)

EBITDA

$

(9,989

)

$

2,750

$

(6,560

)

$

7,596

Management Commentary:

“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.”

Development Update:

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:

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.

Business Outlook:

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.

About Spok

Spok, Inc., a wholly owned subsidiary of Spok Holdings, Inc. (NASDAQ: SPOK), headquartered in Springfield, Virginia, is proud to be a 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® and Spok Go® platforms 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. Spok is making care collaboration easier. For more information, visit spok.com or follow @spoktweets on Twitter.

Spok is a trademark of Spok Holdings, Inc. Spok Care Connect and Spok Go 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, a decline in our stock price or other events or circumstances that result in future goodwill impairments, 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.

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 twelve months ended

12/31/2019

12/31/2018

12/31/2019

12/31/2018

Revenue:

Wireless

$

21,615

$

23,091

$

88,167

$

94,277

Software

17,933

20,165

72,122

75,197

Total revenue

39,548

43,256

160,289

169,474

Operating expenses:

Cost of revenue

8,051

8,772

30,072

32,408

Research and development

7,132

6,618

27,543

24,464

Technology operations

8,083

8,120

31,428

31,356

Selling and marketing

5,891

6,275

23,170

24,553

General and administrative

11,531

10,721

45,787

49,097

Depreciation, amortization and accretion

2,250

2,601

9,249

10,769

Goodwill impairment

8,849

—

8,849

—

Total operating expenses

51,787

43,107

176,098

172,647

% of total revenue

130.9

%

99.7

%

109.9

%

101.9

%

Operating (loss) income

(12,239

)

149

(15,809

)

(3,173

)

% of total revenue

(30.9

)%

0.3

%

(9.9

)%

(1.9

)%

Interest income

350

628

1,651

1,638

Other income (expense)

206

(593

)

735

(650

)

(Loss) income before income taxes

(11,683

)

184

(13,423

)

(2,185

)

Benefit from income taxes

2,172

5

2,658

706

Net (loss) income

$

(9,511

)

$

189

$

(10,765

)

$

(1,479

)

Basic and diluted net (loss) income income per common share

$

(0.50

)

$

0.01

$

(0.56

)

$

(0.08

)

Basic weighted average common shares outstanding

18,860,020

19,445,401

19,089,402

19,667,891

Diluted weighted average common shares outstanding

18,860,020

19,445,401

19,089,402

19,667,891

Cash dividends declared per common share

0.125

0.125

0.50

0.50

Key statistics:

Units in service

938

992

938

992

Average revenue per unit (ARPU)

$

7.33

$

7.36

$

7.34

$

7.39

Bookings

$

21,932

$

23,076

$

78,341

$

81,268

Backlog

$

50,553

$

40,422

$

50,553

$

40,422

(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

12/31/2019

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

3/31/2018

Revenue:

Wireless

$

21,615

$

21,814

$

22,127

$

22,610

$

23,091

$

23,259

$

23,658

$

24,269

Software

17,933

17,639

17,398

19,154

20,165

19,217

16,970

18,845

Total revenue

39,548

39,453

39,525

41,764

43,256

42,476

40,628

43,114

Operating expenses:

Cost of revenue (b)

8,051

7,190

7,239

7,592

8,772

8,141

7,596

7,878

Research and development

7,132

7,437

6,807

6,167

6,618

5,934

6,177

5,735

Technology operations

8,083

7,805

7,866

7,674

8,120

7,787

7,698

7,750

Selling and marketing

5,891

5,595

5,574

6,110

6,275

5,716

6,093

6,490

General and administrative

11,531

11,813

11,696

10,747

10,721

13,673

12,741

11,964

Depreciation, amortization and accretion

2,250

2,305

2,335

2,359

2,601

2,785

2,669

2,713

Goodwill impairment

8,849

Total operating expenses

51,787

42,145

41,517

40,649

43,107

44,036

42,974

42,530

% of total revenue

130.9

%

106.8

%

105.0

%

97.3

%

99.7

%

103.7

%

105.8

%

98.6

%

Operating (loss) income

(12,239

)

(2,692

)

(1,992

)

1,115

149

(1,560

)

(2,346

)

584

% of total revenue

(30.9

)%

(6.8

)%

(5.0

)%

2.7

%

0.3

%

(3.7

)%

(5.8

)%

1.4

%

Interest income

350

399

452

449

628

384

342

283

Other income (expense)

206

163

602

(236

)

(593

)

(110

)

102

(47

)

Loss (income) before income taxes

(11,683

)

(2,130

)

(938

)

1,328

184

(1,286

)

(1,902

)

820

Benefit from (provision for) income taxes

2,172

804

268

(586

)

5

446

730

(475

)

Net (loss) income

$

(9,511

)

$

(1,326

)

$

(670

)

$

742

$

189

$

(840

)

$

(1,172

)

$

345

Basic and diluted net (loss) income per common share

$

(0.50

)

$

(0.07

)

$

(0.03

)

$

0.04

$

0.01

$

(0.04

)

$

(0.06

)

$

0.02

Basic weighted average common shares outstanding

18,860,020

19,086,811

19,217,866

19,196,970

19,445,401

19,456,149

19,750,941

20,027,800

Diluted weighted average common shares outstanding

18,860,020

19,086,811

19,217,866

19,356,712

19,445,401

19,456,149

19,750,941

20,153,291

Key statistics:

Units in service

938

955

977

982

992

999

1,024

1,030

Average revenue per unit (ARPU)

$

7.33

$

7.32

$

7.26

$

7.32

$

7.36

$

7.40

$

7.41

$

7.47

Bookings

$

21,932

$

20,421

$

21,334

$

14,654

$

23,076

$

21,580

$

18,488

$

18,124

Backlog

$

50,553

$

42,604

$

39,718

$

37,392

$

40,422

$

36,366

$

36,295

$

35,930

(a) Slight variations in totals are due to rounding.

(b) An adjustment of $771 to cost of revenue, identified in the fourth quarter of 2018, has been reflected in this table as an increase to cost of revenue of $166, $196 and $359 in the first, second and third quarters of 2018, respectively. Total operating expenses, operating income (loss), income (loss) before income taxes, Net (loss) income and net (loss) income per share have been adjusted accordingly to reflect these changes.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (a)

(In thousands)

12/31/2019

12/31/2018

Assets

Current assets:

Cash and cash equivalents

$

47,361

$

83,343

Short term investments

29,899

3,963

Accounts receivable, net

30,174

32,386

Prepaid expenses

7,517

6,906

Other current assets

1,710

2,672

Inventory

1,004

1,708

Total current assets

117,665

130,978

Non-current assets:

Property and equipment, net

8,000

10,354

Operating Lease right-of-use assets

16,317

—

Goodwill

124,182

133,031

Intangible assets, net

2,917

5,417

Deferred income tax assets

48,983

46,484

Other non-current assets

1,808

1,448

Total non-current assets

202,207

196,734

Total assets

$

319,872

$

327,712

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

3,615

$

2,010

Accrued compensation and benefits

11,680

11,348

Accrued taxes

1,529

1,822

Deferred revenue

25,944

26,106

Operating lease liabilities

5,437

—

Other current liabilities

2,978

3,662

Total current liabilities

51,183

44,948

Non-current liabilities:

Asset retirement obligations

6,061

6,513

Operating lease liabilities

11,575

—

Other long-term liabilities

959

1,697

Total non-current liabilities

18,595

8,210

Total liabilities

69,778

53,158

Commitments and contingencies

Stockholders' equity:

Preferred stock

$

—

$

—

Common stock

2

2

Additional paid-in capital

86,874

90,559

Accumulated other comprehensive loss

(1,601

)

(1,301

)

Retained earnings

164,819

185,294

Total stockholders' equity

250,094

274,554

Total liabilities and stockholders' equity

$

319,872

$

327,712

(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 twelve months ended

12/31/2019

12/31/2018

Cash flows provided by operating activities:

Net loss

$

(10,765

)

$

(1,479

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation, amortization and accretion

9,249

10,769

Goodwill impairment

8,849

—

Deferred income tax expense

(3,253

)

(1,692

)

Stock based compensation

3,643

4,954

Provisions for doubtful accounts, service credits, adjustments of non-cash transaction taxes and other

694

1,922

Changes in assets and liabilities:

Accounts receivable

964

(915

)

Prepaid expenses, inventory and other assets

2,913

(646

)

Accounts payable, accrued liabilities and other

(643

)

(1,732

)

Deferred revenue

42

(866

)

Net cash provided by operating activities

11,693

10,315

Cash flows from investing activities:

Purchases of property and equipment

(4,837

)

(5,915

)

Purchase of short-term investments

(59,385

)

(3,911

)

Maturities of short-term investments

34,000

4,000

Net cash used in investing activities

(30,222

)

(5,826

)

Cash flows from financing activities:

Cash distributions to stockholders

(9,819

)

(10,064

)

Purchase of common stock (including commissions)

(6,575

)

(13,483

)

Proceeds from issuance of common stock under the Employee Stock Purchase Plan

258

247

Purchase of common stock for tax withholding on vested equity awards

(1,017

)

(976

)

Net cash used in financing activities

(17,153

)

(24,276

)

Effect of exchange rate on cash

(300

)

(49

)

Net decrease in cash and cash equivalents

(35,982

)

(19,836

)

Cash and cash equivalents, beginning of period

83,343

103,179

Cash and cash equivalents, end of period

$

47,361

$

83,343

Supplemental disclosure:

Income taxes paid

$

901

$

1,061

(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

12/31/2019

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

3/31/2018

Revenue

Paging

$

20,826

$

21,212

$

21,342

$

21,687

$

21,997

$

22,442

$

22,824

$

23,308

Non-paging

789

602

785

923

1,094

817

834

961

Total wireless revenue

$

21,615

$

21,814

$

22,127

$

22,610

$

23,091

$

23,259

$

23,658

$

24,269

License

1,711

2,723

1,676

2,840

3,496

3,175

1,993

4,376

Services

4,947

4,202

4,835

5,206

5,103

4,555

4,363

4,071

Equipment

1,125

689

842

963

1,568

1,296

1,107

1,024

Operations revenue

$

7,783

$

7,614

$

7,353

$

9,009

$

10,167

$

9,026

$

7,463

$

9,471

Maintenance revenue

$

10,150

$

10,025

$

10,045

$

10,145

$

9,998

$

10,191

$

9,507

$

9,374

Total software revenue

$

17,933

$

17,639

$

17,398

$

19,154

$

20,165

$

19,217

$

16,970

$

18,845

Total revenue

$

39,548

$

39,453

$

39,525

$

41,764

$

43,256

$

42,476

$

40,628

$

43,114

(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

12/31/2019

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

3/31/2018

Cost of revenue

Payroll and related

$

5,222

$

5,099

$

4,749

$

4,931

$

4,868

$

4,923

$

4,853

$

4,874

Cost of sales

2,278

1,567

1,900

2,080

3,349

2,623

2,119

2,475

Stock based compensation

42

21

97

107

44

75

75

55

Other

509

503

493

474

511

520

549

474

Total cost of revenue (b)

8,051

7,190

7,239

7,592

8,772

8,141

7,596

7,878

Research and development

Payroll and related

5,056

5,083

4,639

4,263

4,350

4,709

4,506

4,002

Outside services

1,742

2,027

1,912

1,745

2,115

1,040

1,481

1,513

Stock based compensation

113

102

84

11

5

71

90

71

Other

221

225

172

148

148

114

100

149

Total research and development

7,132

7,437

6,807

6,167

6,618

5,934

6,177

5,735

Technology operations

Payroll and related

2,656

2,823

2,662

2,647

2,616

2,866

2,618

2,693

Site rent

3,669

3,269

3,480

3,296

3,432

3,482

3,538

3,496

Telecommunications

1,026

1,016

1,019

996

1,021

950

935

898

Stock based compensation

32

30

30

30

24

24

24

24

Other

700

667

675

705

1,027

465

583

639

Total technology operations

8,083

7,805

7,866

7,674

8,120

7,787

7,698

7,750

Selling and marketing

Payroll and related

3,382

3,524

3,329

3,273

3,047

3,401

3,311

3,294

Commissions

1,158

1,114

1,298

1,424

1,759

1,225

1,397

1,774

Stock based compensation

164

137

128

161

99

135

135

135

Advertising and events

1,034

703

656

933

1,236

857

996

1,158

Other

153

117

163

319

134

98

254

129

Total selling and marketing

5,891

5,595

5,574

6,110

6,275

5,716

6,093

6,490

General and administrative

Payroll and related

3,974

4,220

4,136

4,041

4,087

4,834

4,340

4,416

Stock based compensation

770

674

690

219

860

1,118

943

949

Bad debt

56

402

(96

)

308

303

513

279

528

Facility rent, office, and technology costs

1,952

2,369

2,485

2,294

2,072

2,925

2,323

2,641

Outside services

2,350

2,004

2,306

1,776

2,062

1,864

2,443

1,422

Taxes, licenses and permits

1,000

888

863

921

111

1,081

1,024

1,080

Other

1,429

1,256

1,312

1,188

1,226

1,338

1,389

928

Total general and administrative

11,531

11,813

11,696

10,747

10,721

13,673

12,741

11,964

Depreciation, amortization and accretion

2,250

2,305

2,335

2,359

2,601

2,785

2,669

2,713

Goodwill impairment

8,849

—

—

—

—

—

—

—

Operating expenses

$

51,787

$

42,145

$

41,517

$

40,649

$

43,107

$

44,036

$

42,974

$

42,530

Capital expenditures

$

679

$

1,378

$

1,495

$

1,287

$

830

$

1,630

$

2,299

$

1,164

(a) Slight variations in totals are due to rounding.

(b) An adjustment of $771 to cost of sales, identified in the fourth quarter of 2018, has been reflected in this table as an increase to cost of sales of $166, $196 and $359 in the first, second and third quarters of 2018, respectively. Total cost of revenue and operating expenses have been adjusted accordingly to reflect these changes.

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

12/31/2019

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

3/31/2018

Paging units in service

Beginning units in service (000's)

955

977

982

992

999

1,024

1,030

1,049

Gross placements

22

28

35

27

30

31

35

25

Gross disconnects

(39

)

(50

)

(40

)

(37

)

(37

)

(56

)

(41

)

(44

)

Net change

(17

)

(22

)

(5

)

(10

)

(7

)

(25

)

(6

)

(19

)

Ending units in service

938

955

977

982

992

999

1,024

1,030

End of period units in service % of total (b)

Healthcare

82.4

%

81.7

%

81.7

%

81.6

%

81.4

%

81.7

%

81.5

%

81.1

%

Government

5.4

%

5.5

%

5.6

%

5.8

%

5.8

%

5.8

%

5.7

%

5.9

%

Large enterprise

5.5

%

6.1

%

5.9

%

5.9

%

5.9

%

6.0

%

6.0

%

6.0

%

Other(b)

6.6

%

6.7

%

6.8

%

6.7

%

6.9

%

6.5

%

6.8

%

7.0

%

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

69

72

74

77

78

81

85

88

101 to 1,000 units

173

175

179

186

190

192

197

198

>1,000 units

696

708

724

719

724

726

742

744

Total

938

955

977

982

992

999

1,024

1,030

Account size net loss rate(c)

1 to 100 units

(3.8

)%

(2.1

)%

(3.2

)%

(2.3

)%

(1.7

)%

(4.3

)%

(3.8

)%

(4.7

)%

101 to 1,000 units

(1.0

)%

(2.4

)%

(3.9

)%

(2.3

)%

—

%

(2.7

)%

(0.6

)%

(10.0

)%

>1,000 units

(1.8

)%

(2.2

)%

0.7

%

(1.1

)%

(0.1

)%

(2.2

)%

(0.2

)%

(1.9

)%

Total

(1.8

)%

(2.2

)%

(0.5

)%

(1.1

)%

(0.2

)%

(2.5

)%

(0.6

)%

(1.8

)%

Account size ARPU

1 to 100 units

$

11.99

$

11.84

$

12.00

$

11.90

$

11.61

$

11.33

$

12.04

$

12.13

101 to 1,000 units

8.31

8.41

8.47

8.35

8.28

8.19

8.34

8.47

>1,000 units

6.62

6.59

6.47

6.57

6.69

6.74

6.62

6.65

Total

$

7.33

$

7.32

$

7.26

$

7.32

$

7.36

$

7.40

$

7.41

$

7.47

(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 INCOME (LOSS) TO EBITDA (a)

(Unaudited and in thousands)

For the three months ended

12/31/2019

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

3/31/2018

Reconciliation of net income (loss) to EBITDA (b):

Net (loss) income (c)

$

(9,511

)

$

(1,326

)

$

(670

)

$

742

$

189

$

(840

)

$

(1,172

)

$

345

Plus (less): (benefit from) provision for income taxes

(2,172

)

(804

)

(268

)

586

(5

)

(446

)

(730

)

475

Plus (less): Other expense (income)

(206

)

(163

)

(602

)

236

593

110

(102

)

47

Less: Interest income

(350

)

(399

)

(452

)

(449

)

(628

)

(384

)

(342

)

(283

)

Operating (loss) income

(12,239

)

(2,692

)

(1,992

)

1,115

149

(1,560

)

(2,346

)

584

Plus: depreciation, amortization and accretion

2,250

2,305

2,335

2,359

2,601

2,785

2,669

2,713

EBITDA (as defined by the Company)

$

(9,989

)

$

(387

)

$

343

$

3,474

$

2,750

$

1,225

$

323

$

3,297

For the twelve months ended

12/31/2019

12/31/2018

Reconciliation of net income (loss) to EBITDA (b):

Net loss

$

(10,765

)

$

(1,479

)

(Less) plus: (Benefit from) provision for income taxes

(2,658

)

(706

)

Plus (less): Other income (expense)

(735

)

650

Less: Interest income

(1,651

)

(1,638

)

Operating loss

(15,809

)

(3,173

)

Plus: depreciation, amortization and accretion

9,249

10,769

EBITDA (as defined by the Company)

$

(6,560

)

$

7,596

RECONCILIATION FROM OPERATING EXPENSES TO ADJUSTED OPERATING EXPENSES (a)

For the three months ended

12/31/2019

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

3/31/2018

(Dollars in thousands)

Operating expenses

$

51,787

$

42,145

$

41,517

$

40,649

$

43,107

$

44,036

$

42,974

$

42,530

Less: depreciation, amortization and accretion

2,250

2,305

2,335

2,359

2,601

2,785

2,669

2,713

Less: Goodwill impairment

$

8,849

$

—

$

—

$

—

$

—

$

—

$

—

$

—

Adjusted operating expenses

$

40,688

$

39,840

$

39,182

$

38,290

$

40,506

$

41,251

$

40,305

$

39,817

(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) An adjustment to cost of revenue identified in the fourth quarter of 2018 of $771 has been reflected in this table as a reduction of Net income (loss) of $166, $196 $359, and $771 in the first, second third, and fourth quarters respectively.

SPOK HOLDINGS, INC.

2020 FINANCIAL GUIDANCE

(Unaudited and in millions)

Guidance Range

From

To

Revenues

Wireless

77,000

85,000

Software

72,000

80,000

149,000

165,000

Adjusted Operating Expenses (a)

158,000

167,000

Capital Expenses

2,300

6,300

(a) Operating expenses exclude depreciation, amortization and accretion

Al Galgano

952-567-0295

[email protected]

Source: Spok Holdings, Inc.

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