Business context and reporting period
Spok Holdings, Inc. filed this Form 10-K for the fiscal year ended December 31, 2020. The company provides healthcare-focused clinical communications and collaboration software, wireless paging services, and related support, primarily to U.S. customers. It launched its cloud-based Spok Go platform in early 2020 and is transitioning toward a SaaS model.
Financial results and position
Amounts are in millions of dollars except per-share data and where noted.
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $148.2 | $160.3 |
| Wireless revenue | $83.6 | $88.2 |
| Software revenue | $64.6 | $72.1 |
| Operating loss | $(22.7) | $(15.8) |
| Net loss | $(44.2) | $(10.8) |
| Net loss per share | $(2.32) | $(0.56) |
| Cash provided by operating activities | $26.2 | $11.7 |
| Cash and cash equivalents | $48.7 | $47.4 |
| Short-term investments | $30.0 | $29.9 |
| Total liabilities | $76.7 | $69.8 |
Operating cash flow rose despite the net loss, substantially reflecting non-cash goodwill impairment and tax valuation-allowance charges. The company reported no outstanding borrowings or debt-service requirements. Current assets were $118.9 million and current liabilities were $57.4 million at year-end.
Material changes versus the prior comparable period
- Total revenue fell 7.6%, with wireless revenue down 5.2% and software revenue down 10.4%. Management cited ongoing paging-market erosion and COVID-19-related delays in software purchasing and implementation.
- Software license revenue declined 42.1% to $5.2 million. Maintenance revenue declined 4.4% to $38.6 million; subscription revenue was $0.07 million in its first reported year.
- Net loss widened to $44.2 million. The 2020 results included a $25.0 million non-cash goodwill impairment charge, compared with $8.8 million in 2019, and a $22.1 million deferred-tax valuation allowance.
- Excluding goodwill impairment, operating expenses decreased 12.8%, or $21.4 million, according to management; lower costs included temporary pandemic-related reductions and capitalization of eligible Spok Go development costs.
- Year-end goodwill declined to $99.2 million from $124.2 million. Net deferred tax assets declined to $25.8 million from $49.0 million.
Outlook, management commentary and risks
- Management expects lingering COVID-19 effects during 2021, but anticipated sequential improvement and cautiously expected a return toward normal customer operating levels in the second half of 2021. It did not provide specific revenue or earnings guidance.
- Management expects wireless subscribers and revenue to continue declining. Wireless units in service fell to 885,000 from 938,000; average revenue per user was $7.30 versus $7.34.
- Spok Go sales are expected to be driven mainly by new customers in 2021; management does not expect significant existing-customer transitions that year. It expects development costs to normalize, while recognizing that adoption and revenue growth will take time.
- To conserve cash, the company expected reduced work schedules in 2021, estimated to save $4.5–$6.5 million in compensation expense; stock compensation in lieu of cash, estimated to save $2.0–$3.0 million; and director deferrals estimated to save $0.3–$0.5 million.
- Management stated that available cash and anticipated operating cash flow should meet foreseeable requirements, while warning cash may decline significantly as it invests in Spok Go and wireless revenue contracts. The company expected to continue a quarterly dividend of $0.125 per share, subject to board approval; the February 2021 dividend was declared.
- Key risks include COVID-19 effects on healthcare spending and project delivery; execution and customer adoption of Spok Go and the SaaS transition; continued wireless declines and the ability to reduce related costs; competition and long software sales cycles; cybersecurity, privacy and service reliability; reliance on AWS for cloud hosting; and possible further impairment or reduced realization of tax assets.
- Contractual obligations at year-end included $19.8 million of operating lease obligations and $6.5 million of unconditional purchase obligations. The company reported that routine-course litigation was not expected to materially affect its financial position or results.
Important facts for investors to verify
- Whether Spok Go bookings, customer adoption and recurring subscription revenue grow enough to offset declining legacy software and paging revenue.
- Whether pandemic-related delays ease as expected, and whether implementation capacity and customer budgets recover.
- Whether wireless cost reductions keep pace with subscriber and revenue erosion without disrupting service.
- Whether cash generation supports planned product investment and dividends; operating cash flow included substantial non-cash adjustments.
- Whether assumptions underlying goodwill valuation and deferred-tax-asset recoverability change; management disclosed potential for additional impairment.
- Whether cloud security, privacy, AWS continuity and regulatory compliance risks are effectively managed.