Spok Holdings, Inc Q3 FY2024 earnings

Spok Holdings reported third quarter revenue of $34.87 million, down 1.6% from $35.43 million in the prior year quarter. Wireless revenue declined while software revenue was roughly flat, so the top line again leaned on a shrinking pager base. Operating income fell 20.2% to $4.96 million from $6.21 million. Operating margin was 14.2%, down from 17.5%. Net income was $3.66 million, down 17.8% from $4.45 million, and diluted earnings per share were $0.18, down from $0.22.

The nine month results follow the same pattern. Revenue for the year to date was $103.76 million, down 1.2% from $105.07 million. Net income was $11.32 million, down 8.0% from $12.30 million, and diluted earnings per share slipped to $0.55 from $0.61. Year to date operating margin was 13.8%, down from 16.3%. Higher cost of revenue, research and development, and general and administrative spending all weighed on profitability as the company kept investing in its software products.

Operations news was brighter than the income statement. Software operations bookings totaled $10.4 million, up 64.4% from the prior year quarter, which the company called the highest third quarter total in the past six years. Bookings included 24 six-figure customer contracts, double the amount generated in the prior year quarter. Software backlog rose more than 19% from a year earlier. Software revenue was about even with the prior year quarter, with professional services growth offsetting lower license and hardware sales. Remaining performance obligations were $63.60 million, up 8.3% from $58.70 million, and deferred revenue was $29.29 million, up 14.8%. Wireless units in service fell to 730 thousand from 785 thousand, offset in part by higher pricing. Average revenue per unit was $7.95, up from $7.59.

Cash generation was the clearest positive in the quarter. Operating cash flow was $11.10 million, up 246.9% from $3.20 million, and $20.52 million for the year to date, up 42.5% from $14.40 million. Capital expenditures were $0.83 million in the quarter, up 37.7%, and $2.35 million for the nine months, down 2.9%. Cash and cash equivalents totaled $27.8 million at September 30, 2024, up nearly $4.0 million in the quarter. Adjusted EBITDA was $7.53 million, down 10.5%, but the company said it covered the quarterly dividend payment and capital spending needs. Capital returned to stockholders was $6.3 million, and the board declared a quarterly dividend of $0.3125 per share, payable December 9, 2024 to stockholders of record on November 18, 2024. Technology operations costs declined as network consolidation continued, and active transmitters were down 5.6% from a year earlier.

Management reiterated full year 2024 guidance for revenue and adjusted EBITDA and framed the first nine months as a solid base for the rest of the year. A reconciliation of adjusted EBITDA guidance to net income was not provided because of the variability of the items excluded from that measure. The risks are familiar. Wireless demand keeps eroding as customers migrate to other technologies. Spok depends on the U.S. healthcare industry for most of its business, and software sales cycles can run six to eighteen months, which makes bookings lumpy from quarter to quarter. The company also said that reaching minimum frequency commitments set by the Federal Communications Commission could limit further network rationalization and the cost savings that come with it. Cyberattacks and data breaches, impairments of long-lived assets or goodwill, and cash held at banks above insured limits round out the list of concerns.