Spok Holdings, Inc Q3 FY2023 earnings

Spok Holdings reported third quarter 2023 revenue of $35.4 million, up 5.0% from the prior-year quarter. Operating income rose 75.6% to $6.2 million, and operating margin reached 17.5%, up 7.0 percentage points from a year earlier. Net income increased 52.4% to $4.5 million, or $0.22 per diluted share, up 46.7%. Operating cash flow for the quarter was $3.2 million, down 44.4%, while capital expenditures rose 4.0% to $0.6 million. Deferred revenue slipped 3.6% to $25.5 million, but remaining performance obligations climbed 33.4% to $58.7 million, which points to booked work that has not yet been recognized. For the first nine months of 2023, revenue was $105.1 million, up 3.7%, net income was $12.3 million, a swing to a profit, and operating cash flow was $14.4 million, up sharply from the prior-year period.

Software bookings carried the operating story. Third quarter software operations bookings included 11 six-figure contracts and one seven-figure new customer contract, and bookings through the first nine months were up more than 38% from the same period in 2022. Management noted that new customer contracts expected to close in the third quarter had already closed in the second quarter, yet the team still produced solid bookings in the quarter. On the wireless side, average revenue per unit increased on a year-over-year basis, and units in service fell 4.7% from a year earlier to 785 thousand. Price increases initiated in September 2023 and the newer GenA pager are designed to slow that attrition. Management still expects demand for wireless services to decline for the foreseeable future as customers replace paging with competing technologies.

Non-GAAP adjusted EBITDA was $8.4 million, up 24.8% from the prior-year quarter, and adjusted operating expenses were $27.9 million, essentially flat. The company returned $6.2 million to stockholders through its regular dividend in the quarter, and the board declared a quarterly dividend of $0.3125 per share, payable December 8, 2023, to stockholders of record on November 16, 2023. Spok ended the quarter with no debt, according to the release. Management said the balance between investing in future growth and generating cash, along with returning capital, remains the priority.

Guidance for the full fiscal year 2023 was raised for both revenue and adjusted EBITDA. Management also increased the midpoint of its adjusted EBITDA guidance by $1.75 million. The low end of the revenue guidance still reflects year-over-year growth, and management said Spok is on track to grow consolidated revenue for 2023 on a year-over-year basis for the first time in the company's history. The outlook covers the full fiscal year, not the next quarter alone.

Risks stay tied to the wireless franchise and its customer base. The MD&A cites the secular decline in wireless units, competition from new technologies and from larger rivals with greater resources, and the possibility that network consolidation stalls once Spok reaches minimum frequency commitments set by the Federal Communications Commission. Spok also depends on the U.S. healthcare industry, where sales cycles can run from six to eighteen months, which makes bookings uneven from quarter to quarter. Other named risks include cyber attacks and security vulnerabilities, reliance on third-party vendors for paging equipment, and cash deposits that exceed insured limits at the institutions holding them. Maintenance revenue is expected to keep decreasing until new software sales can offset churn. Management said software revenue can fluctuate in the short term and that it evaluates longer-term trends when managing that business. The restructuring program tied to the February 2022 plan is complete, so cost savings from eliminated positions are largely in the run rate already.