Spok Holdings, Inc Q2 FY2024 earnings

Spok Holdings reported second quarter revenue of $33.98 million, down 6.8% from the prior-year quarter, and year-to-date revenue of $68.89 million, down 1.1%. Profitability also declined. Operating income was $4.47 million in the quarter, down 28.0%, and $9.36 million for the first half, down 14.3%. Net income came to $3.42 million in the quarter, down 27.6%, while the year-to-date figure of $7.66 million slipped 2.4%. Diluted EPS was $0.17 for the quarter, down 26.1%, and $0.37 for the first six months, down 5.1%. Operating margin was 13.2% in the quarter, down 3.9 percentage points, and 13.6% year to date, down 2.1 percentage points.

Software operations bookings totaled $8.7 million in the quarter, up 10.3% from the first quarter of 2024. Management pointed to 18 six-figure customer contracts and one seven-figure contract in the period. Software backlog was $55.0 million at June 30, 2024, up 3.6% from a year earlier. That measure differs from remaining performance obligations, which were $55.00 million at June 30, 2024, down 3.5% from the prior-year quarter. The company describes software sales as lumpy and said third quarter sales were off to a very strong start.

Wireless remained the soft spot. Units in service fell to 747,000 at June 30, 2024 from 806,000 a year earlier. ARPU rose to $7.84 from $7.53, helped by price increases initiated in September of 2023. Net unit churn improved to 0.8% in the quarter from 1.6% in the prior quarter. Management expects demand for wireless services to keep declining as customers move to competing technologies, and it flagged regulatory minimum frequency commitments as a limit on further network consolidation.

Cash generation and stockholder returns drew attention too. Operating cash flow was $7.42 million in the quarter, down 13.6%, and $9.42 million for the first half, down 15.9%. Capital expenditures were $0.64 million in the quarter, down 45.0%, and $1.52 million year to date, down 16.5%. Deferred revenue was $25.75 million at June 30, 2024, up 6.3% from the prior-year quarter. Adjusted EBITDA, a non-GAAP measure, was $7.0 million in the quarter and $14.6 million for the first half. The company returned $6.3 million to stockholders in the quarter and declared a regular quarterly dividend of $0.3125 per share, payable on September 9, 2024, to stockholders of record on August 19, 2024.

Guidance was reiterated for the full year 2024. Spok continues to expect adjusted EBITDA of $27.5 million to $32.5 million for the year. At the midpoint, management said it is on track to grow consolidated revenue in 2024 on a year-over-year basis, with slight declines in wireless revenue more than offset by continued growth in software revenue. It also expects the midpoint of the adjusted EBITDA range to be consistent with 2023, with additional growth potential at the high end of the range.

Risks on the list include the ongoing decline in wireless units and revenue, competition from newer technologies, and a software sales cycle that can run from six to eighteen months, which makes bookings hard to forecast quarter to quarter. The company also cites reliance on third-party paging equipment vendors, dependence on the U.S. healthcare industry, cybersecurity and data breach exposure, and future impairment risk on long-lived assets or goodwill. The first half of 2024 produced lower operating income and lower operating cash flow than the same period a year earlier, so the second-half plan leans on software bookings and cost control.