Spok Holdings, Inc Q2 FY2022 earnings

Spok Holdings reported second quarter 2022 revenue of $33.71 million, down 5.6% from the prior-year quarter, and revenue of $67.54 million for the six months ended June 30, 2022, down 5.9%. Profitability moved the other way on a leaner cost base. Net income was $1.92 million for the quarter, a swing to a profit from a net loss a year ago, and diluted earnings per share were $0.10. Operating income of $2.41 million likewise swung to a profit from an operating loss, and the operating margin was 7.2%. Adjusted EBITDA, a non-GAAP measure, was $3.70 million against a loss of $1.55 million in the prior-year quarter.

The revenue mix reflects the February 2022 decision to discontinue Spok Go and refocus on the Spok Care Connect Suite and the wireless base. License revenue rose 116.1% to $1.96 million. Professional services revenue fell to $3.33 million as billable resources declined after the restructuring, and maintenance revenue slipped to $9.21 million. Management says maintenance churn now outpaces the inflow from new license bookings. Wireless units in service were 835,000 at June 30, 2022, down 3,000 from March 31, 2022 and below the 869,000 reported a year earlier. ARPU was $7.23. Software bookings rose 51.3% to $19.73 million in the quarter and 23.2% to $34.05 million year to date, including thirty-two deals worth more than six figures each.

The six-month picture is weaker than the quarter. The net loss of $5.29 million widened from a year earlier, the operating loss of $6.26 million widened, and the diluted loss per share was $0.27. Cash generation reversed as well. Operating cash flow was negative $5.90 million year to date, against positive operating cash flow a year earlier, and negative $1.02 million for the quarter. Capital expenditures were $1.19 million year to date, down 45.8%, and $0.51 million in the quarter, down 65.1%. Deferred revenue was $26.24 million, down 3.9%, and remaining performance obligations were $44.50 million, down 2.4%. Cash, cash equivalents and short-term investments totaled $38.4 million at June 30, 2022, with no debt.

Guidance for the full fiscal year 2022 covers total revenue, wireless revenue, software revenue, adjusted operating expenses and capital expenditures, and it updates the ranges given previously. Adjusted operating expenses are forecast at $123.3 million to $126.1 million, and capital expenditures at $3.2 million to $3.9 million. Restructuring under the strategic plan is substantially complete. The company now expects about 150 position eliminations, down from an initial estimate of roughly 175 positions, and pre-tax restructuring charges of $6.0 million to $6.5 million. As of June 30, 2022, $4.3 million of severance and personnel costs and $0.6 million of contractual termination costs had been incurred. The Board declared a regular quarterly dividend of $0.3125 per share, payable September 9, 2022 to stockholders of record on August 17, 2022, and authorized a share repurchase program of up to $10 million. Capital returned to stockholders totaled $12.7 million year to date.

Wireless is the structural problem. Management expects demand to keep falling as customers move to competing technologies, and network rationalization gets harder as the company approaches minimum frequency commitments set by the Federal Communications Commission. Maintenance revenue should stay flat or slightly down until the software portfolio is enhanced. Hospitals, the core customer base, are still working through pandemic-driven staffing and budget strain. Spok also cites dependence on the U.S. healthcare industry, competition from larger wireless and software providers, cybersecurity risk, and macroeconomic pressure from inflation and higher interest rates. Management expects cash flow generation to largely cover the dividend in the second half of 2022.