Spok Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Spok provides healthcare communications software and services, paging and wireless messaging. Financial figures below are unaudited unless noted; dollar amounts are in millions except per-share data.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $33.7 | $35.7 | $67.5 | $71.8 |
| Operating income (loss) | $2.4 | $(1.6) | $(6.3) | $(3.3) |
| Net income (loss) | $1.9 | $(0.7) | $(5.3) | $(3.0) |
| Operating margin | 7.2% | (4.5%) | (9.3%) | (4.7%) |
| Net income (loss) per share | $0.10 | $(0.04) | $(0.27) | $(0.16) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(5.9) | $3.9 |
- Q2 wireless revenue fell 5.8% to $18.7 million and software revenue fell 5.4% to $15.0 million. For the first half, the respective declines were 6.1% and 5.6%.
- Q2 operating expenses declined 16.2% to $31.3 million, helping return quarterly operating results to a profit. First-half operating expenses decreased only 1.8% to $73.8 million; $4.9 million of restructuring expense contributed to the larger first-half operating loss.
- At June 30, cash and cash equivalents were $23.4 million and short-term investments were $15.0 million, totaling $38.4 million, versus $59.6 million at year-end 2021. Current assets were $73.0 million and current liabilities $51.9 million.
- Spok reported no outstanding debt or revolving credit facility. Total liabilities were $72.7 million, including operating lease liabilities of $18.7 million on the balance sheet.
- Six-month cash use included $1.2 million for investing activities and $13.9 million for financing activities, primarily stockholder distributions and tax withholding on vested equity awards. Cash declined $21.1 million during the half.
Material changes and management commentary
- In February 2022, Spok announced it would discontinue Spok Go, refocus on established products and services, and reduce costs. It now expects approximately 150 position eliminations, with most completed by June 30; the original estimate was approximately 175.
- Estimated total restructuring charges are $6.0–$6.5 million, including $5.5–$5.8 million for severance and personnel costs and $0.5–$0.7 million for contractual terminations. The program was substantially complete, with remaining work expected in the second half of 2022.
- Wireless paging revenue continues to face secular decline: units in service were 0.8 million versus 0.9 million a year earlier, and quarterly ARPU was $7.23 versus $7.32. Management expects demand to continue declining, citing replacement by competing technologies.
- Software revenue was pressured by lower professional-services revenue, partly offset by higher license revenue. Management said maintenance revenue is likely to be flat or slightly down until software enhancements support additional revenue.
- Management expects continued reductions in research and development costs as Spok Go costs are eliminated, and believes cash and operating cash generation should be adequate for short- and long-term needs. It expects quarterly dividends of $0.3125 per share for the remainder of 2022, subject to Board declaration; no formal earnings or revenue guidance was stated.
Risks, contingencies and unusual items
- Management cited hospital workforce shortages and resource constraints, lingering COVID-19 effects, lengthy software sales and implementation cycles, and the risk that project complexity may delay revenue recognition.
- Network cost savings may become harder to achieve as transmitter consolidation approaches minimum FCC frequency commitments. Management also noted potential future goodwill impairment, although its Q2 qualitative review found no triggering event.
- The company had a $26.2 million valuation allowance against deferred tax assets of $32.2 million. Approximately $1.0 million of deferred payroll taxes remained due by December 31, 2022.
- No material change in previously reported commitments or contingencies was disclosed. Contractual obligations totaled $24.1 million, including $17.3 million of operating lease obligations and $6.8 million of unconditional purchase obligations.
- The $10 million share repurchase authorization had no purchases through June 30, 2022. The shareholder rights plan expired June 15, 2022.
Important facts for investors to verify
- Whether wireless subscriber and revenue declines continue at the reported pace, and whether newer offerings such as the GenA pager meaningfully mitigate attrition.
- Whether discontinuing Spok Go and reducing headcount deliver sustainable cost savings and restore positive operating cash flow after restructuring payments.
- Whether software license bookings, services delivery and maintenance revenue stabilize, and how remaining performance obligations of $44.5 million convert to revenue; $33.5 million was expected within 12 months.
- Whether cash resources support the dividend and any share repurchases while cash flow is negative; dividends declared were $0.625 per share for the first half.
- Future valuation-allowance changes, goodwill impairment assessments, and the company’s progress in meeting its lease, purchase and restructuring obligations.