Spok Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Spok provides healthcare communications software and services, including clinical communications solutions and wireless messaging.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $33.8 million | $36.0 million; down 6.1% |
| Wireless revenue | $18.8 million | $20.1 million; down 6.3% |
| Software revenue | $15.0 million | $15.9 million; down 5.9% |
| Operating loss | $8.7 million | $1.7 million |
| Net loss | $7.2 million; $0.37 per share | $2.3 million; $0.12 per share |
| Operating margin | Approximately -25.6% | Approximately -4.8% (calculated from reported revenue and operating loss) |
| Operating cash flow | $(4.9) million | $0.7 million provided |
| Cash and short-term investments | $46.3 million | Cash was $31.4 million; short-term investments were $15.0 million at quarter-end |
| Debt | No outstanding debt or revolving credit facility | — |
Total operating expenses rose 12.5% to $42.5 million. Q1 included $4.5 million of severance and restructuring costs. Research and development expense increased 46.2%, primarily because Spok capitalized no software development costs after deciding to discontinue Spok Go; it capitalized $2.9 million in Q1 2021. Depreciation, amortization and accretion fell to $0.9 million from $2.7 million, partly because Spok Go-related amortization had ended.
Cash and cash equivalents declined from $44.6 million at December 31, 2021, to $31.4 million at March 31, 2022. The company had $78.7 million in current assets and $54.1 million in current liabilities. Cash used in investing activities was $0.6 million; cash used in financing activities was $7.7 million, primarily reflecting $6.5 million of stockholder distributions. Spok declared a quarterly dividend of $0.3125 per share, up from $0.1250 in Q1 2021.
Material changes and management commentary
- Revenue declined in both principal business lines. Wireless paging revenue fell 5.4%, reflecting secular demand declines and fewer units in service; units were 0.8 million versus 0.9 million a year earlier. Software professional-services revenue fell 23.4%, while license revenue increased 17.5%.
- In February 2022, Spok announced it would discontinue Spok Go, refocus on its established Spok Care Connect Suite and wireless services, and eliminate approximately 175 positions. Management cited the ongoing COVID-19 challenge and insufficient customer traction for Spok Go.
- The company estimated total one-time restructuring charges of $6.2 million to $7.5 million, including $5.7 million to $6.6 million for severance and personnel costs. It recorded $4.5 million in Q1; actions were expected to be substantially complete in 2022.
- The board authorized a share repurchase program of up to $10 million; no shares were repurchased in Q1. Management said it expected quarterly dividends of $0.3125 per share for the remainder of 2022, subject to board declaration, and declared a further $0.3125 dividend on April 27.
- Management expects cash on hand and operating cash flows to cover anticipated short- and long-term needs. It anticipates cash balances will decline during 2022 due to restructuring payments, and said a return to historically positive operating cash flow depends on the restructuring succeeding.
Outlook, risks and contingencies
The filing provides no formal revenue or earnings guidance. Management expects research and development costs to decrease significantly in 2022 as Spok Go costs are eliminated. It expects wireless demand to continue declining and annual software maintenance revenue to be flat or slightly lower until product enhancements support additional revenue. Remaining performance obligations were $40.5 million at March 31, 2022; approximately $29.6 million was expected to be recognized over the following 12 months.
Risks include continued wireless-service substitution and attrition, hospital customer resource constraints and implementation delays related to COVID-19, and uncertainty in replacing maintenance-revenue churn with new business. Network-cost reductions may be constrained by FCC minimum frequency commitments. Management’s goodwill assessment found no impairment at quarter-end, but it noted that future impairment remains possible. The filing reported no material changes to previously disclosed commitments and contingencies.
Spok reported no material foreign-currency exposure. Operating lease obligations were $14.4 million and unconditional purchase obligations were $6.4 million. The company had a $1.0 million payroll-tax deferral due by December 31, 2022. Management concluded disclosure controls were effective as of March 31, 2022.
Important facts for investors to verify
- Whether the Spok Go exit and planned workforce reductions are completed on schedule and within the estimated $6.2 million–$7.5 million charge range.
- Whether operating cash flow returns to positive levels, given Q1 cash use and expected restructuring payments.
- Whether the increased dividend remains supportable from cash generation and available liquidity.
- Whether wireless subscriber declines and software maintenance churn accelerate, and whether license growth or product enhancements offset those trends.
- Whether hospital implementation constraints ease and remaining performance obligations convert to revenue as expected; also monitor future goodwill impairment assessments.