Spok Holdings, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparisons are primarily with FY2020. Dollar amounts are in millions unless stated otherwise.
Business context
Spok provides clinical communications and collaboration software, wireless paging and related services, primarily to U.S. healthcare providers. Wireless services were 55% of FY2021 revenue; software was 45%. The company reported one operating segment. More than 75% of revenue comes from U.S. healthcare providers.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $142.2 | $148.2 | Down 4.1% |
| Wireless revenue | $78.8 | $83.6 | Down 5.7% |
| Software revenue | $63.3 | $64.6 | Down 2.0% |
| Operating loss | $(27.7) | $(22.7) | Loss widened |
| Net loss | $(22.2) | $(44.2) | Loss narrowed |
| Net cash from operating activities | $8.0 | $26.2 | Down $18.2 |
| Cash, cash equivalents and short-term investments at year-end | $59.6 | $78.7 | Down $19.1 |
- Operating margin was approximately -19.5% and net margin approximately -15.6%, calculated from reported revenue and losses.
- FY2021 diluted loss per share was $1.14, compared with $2.32 in FY2020. The FY2021 tax benefit was $5.2 million; FY2020 had a $22.5 million tax provision.
- Spok had no outstanding borrowings at December 31, 2021. Current assets were $94.1 million and current liabilities $55.0 million. Deferred revenue was $25.6 million.
- Operating cash flow was $8.0 million versus $26.2 million. Cash dividends paid were $10.0 million in FY2021. The company capitalized $10.8 million of software development costs and spent $4.4 million on property and equipment.
- Wireless units in service were approximately 0.8 million, down from 0.9 million; monthly ARPU was $7.30, unchanged. Recurring paging revenue declined 5.1%.
Material changes and unusual items
- Revenue fell $6.0 million, mainly from ongoing paging attrition. Software revenue also declined, as lower professional services, hardware and maintenance revenue exceeded growth in license and subscription revenue.
- FY2021 included a $15.7 million impairment of capitalized software development costs associated with Spok Go. The company reported no goodwill impairment in 2021; FY2020 included a $25.0 million goodwill impairment.
- Operating expenses excluding impairment charges increased $8.4 million, reflecting reduced pandemic cost-mitigation savings, CARES Act benefits unavailable in 2021, and costs of the strategic alternatives review.
- A $0.9 million loss contingency was recorded for a license and service contract expected to provide no future benefit.
- Management maintained a $24.2 million valuation allowance against deferred tax assets at year-end, citing cumulative losses and uncertainty about future taxable income.
Outlook, management commentary and risks
- In February 2022, after the reporting year, the board announced a plan to discontinue Spok Go, eliminate associated costs and refocus on established software and wireless businesses. The company intends to eliminate approximately 175 positions. Expected one-time pretax restructuring charges are $6.4 million to $10.2 million, with actions expected to be substantially complete in 2022. The filing gives inconsistent estimates for contractual termination costs: $1.4–$3.4 million in one disclosure and $1.4–$3.6 million in another.
- The board increased the quarterly dividend from $0.125 to $0.3125 per share, subject to declaration, and authorized repurchases of up to $10 million. The company expected restructuring payments to reduce cash in 2022, while asserting existing cash and expected operating cash flow should meet near- and longer-term requirements.
- Management anticipated a return toward pre-pandemic operating levels in 2022 and expected software revenue to resume pre-pandemic growth, while acknowledging continued uncertainty from COVID-19. These are expectations, not quantified revenue or earnings guidance.
- Wireless revenue and subscribers are expected to continue declining. Network rationalization may reduce costs but could disrupt service; savings are expected to diminish. GenA pagers, launched in late 2021, were presented as a potential way to slow attrition, not a guaranteed offset.
- The company was reviewing strategic alternatives, including a potential sale, following an unsolicited acquisition proposal in August 2021. A stockholder rights plan adopted in September 2021 had a 10% ownership trigger, with specified exceptions, and was set to expire August 31, 2022 unless earlier terminated.
- Principal risks include healthcare customer budget and implementation delays, competition and technology substitution, cybersecurity and privacy exposure, supply-chain constraints affecting pagers, and uncertainty over restructuring execution and retention of personnel.
Important facts for investors to verify
- Whether the Spok Go exit, planned workforce reductions and $6.4–$10.2 million restructuring estimate were completed on schedule and within cost expectations.
- Whether software bookings, maintenance revenue and implementation activity improved after pandemic-related delays, and whether wireless attrition remained manageable.
- Whether operating cash flow can support the higher dividend and any share repurchases while funding restructuring and ongoing operations.
- The status and outcome of the strategic alternatives review, rights plan, and any potential transaction.
- The recoverability of deferred tax assets and the assumptions behind the $24.2 million valuation allowance, as well as the disclosed Spok Go impairment.