News Release
Spok Reports 2016 Second Quarter Operating Results; Software Bookings Increase, Wireless Trends Improve
Board Declares Regular Quarterly Dividend
SPRINGFIELD, Va. (July 27, 2016) – Spok Holdings, Inc. (NASDAQ: SPOK), a global leader in critical communications, today announced operating results for the second quarter ended June 30, 2016. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on September 9, 2016 to stockholders of record on August 19, 2016.
2016 Second-Quarter Results:
In the 2016 second quarter, consolidated revenue was $44.6 million, compared to $48.0 million in the second quarter of 2015. Software revenue was $16.8 million in the second quarter of 2016, compared to $17.7 million in the second quarter of 2015. Wireless revenue totaled $27.8 million in the second quarter, compared to $30.3 million in the prior-year quarter.
Net income for the second quarter of 2016 was $3.5 million, or $0.17 per diluted share, up from $3.4 million, or $0.16 per diluted share, in the second quarter of 2015.
Second quarter EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) totaled $8.9 million, or 19.8 percent of revenue, compared to EBITDA of $9.1 million, or 18.9 percent of revenue, in the second quarter of 2015.
Other key results and highlights for the second quarter included:
- Software bookings for the 2016 second quarter were $20.1 million, in-line with the prior year quarter and up nearly 33 percent from the prior quarter. Second quarter bookings included $10.2 million of operations bookings and $9.9 million of maintenance renewals.
- Software backlog totaled $39.5 million at June 30, 2016, up from $36.8 million in the prior quarter.
- Of the $16.8 million in software revenue for the second quarter, $7.7 million was operations revenue and $9.1 million was maintenance revenue, compared to $9.3 million and $8.4 million, respectively, of the $17.7 million in software revenue in the second quarter of 2015.
- The renewal rate for software maintenance in the second quarter of 2016 continued at greater than 99 percent.
- The quarterly rate of paging unit erosion slowed to 0.8 percent in the second quarter of 2016, compared to 1.6 percent in the year-earlier quarter. Net paging unit losses were 9,000 in the second quarter of 2016, down from 19,000 in the second quarter of 2015 and less than half of net pager losses in the prior quarter. Paging units in service at June 30, 2016 totaled 1,144,000, compared to 1,211,000 at the end of the prior year quarter.
- The quarterly rate of wireless revenue erosion continued to slow to 1.1 percent in the second quarter of 2016 versus 1.5 percent in the year-earlier quarter.
- Total paging ARPU (average revenue per unit) was $7.71 in the second quarter of 2016, compared to $7.77 in the prior quarter and $7.86 in the year-earlier quarter.
- Consolidated operating expenses (excluding depreciation, amortization and accretion) totaled $35.8 million in the second quarter of 2016, down from $38.9 million in the year-earlier quarter, and $36.3 million in the prior quarter.
- Capital expenses were $1.5 million in the second quarter of 2016, compared to $2 million in the year-earlier quarter.
- The number of full-time equivalent employees at June 30, 2016 totaled 597, compared to 600 at year-end 2015 and 608 at June 30, 2015.
- Capital returned to stockholders in the second quarter of 2016 totaled $3.7 million, in the form of $2.6 million from dividends and $1.1 million from share repurchases.
- The Company’s cash balance at June 30, 2016 was $117.1 million, unchanged from June 30, 2015, and up from $111.3 million at December 31, 2015.
2016 Year-to-Date Results:
In the first half of 2016, consolidated revenue was $90 million, compared to $96.1 million in the first half of 2015. Software revenue was $34 million in the first half of 2016, compared to $35.2 million in the prior year period. Wireless revenue totaled $56 million in the first half of 2016, compared to $60.9 million in the year-to-date 2015 period.
Net income for the first half of 2016 was $6.9 million, or $0.33 per diluted share, compared to $7.3 million, or $0.33 per diluted share, in the 2015 year-to-date period.
First half 2016 EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) totaled $18.0 million, or 20 percent of revenues, compared to $19.1 million, or 19.9 percent of revenue, in the first half of 2015.
Management Commentary:
“We are pleased with our performance in the second quarter of 2016 and believe that we are beginning to see the benefits from the investments that we made to enhance and upgrade our product development team and tools, as well as our sales infrastructure and management,” said Vincent D. Kelly, chief executive officer. “We saw strong performance in a number of key operating measures and solid sequential improvements in sales bookings and backlog levels, operating expense management, cash flow and subscriber retention. We believe that continued investments will yield significant future benefits in the form of our improved, integrated communication platform, Spok Care Connect®, and continued momentum in bookings levels. Overall, we continued to operate profitably, enhance our product offerings, and further strengthen our balance sheet. Our ability to generate healthy cash flows allowed us to execute against our capital allocation strategy, returning capital to shareholders while adding more than $5 million to our cash balances.”
Commenting on software results, Kelly said: “As anticipated, software revenues were in-line with prior quarter levels as we positioned ourselves for the second half of the year, when software sales tend to be more robust.” Kelly attributed the ability to maintain sequential software revenue levels primarily to a more than 99 percent renewal rate on software maintenance contracts. Similar to Spok’s wireless revenue stream, software maintenance revenue is a largely recurring revenue stream that provides the Company with a more stable revenue and margin base.
Kelly said second quarter bookings of $20.1 million were up sharply from $15.1 million in the prior quarter, and included $9.9 million of maintenance renewals bookings, a record high for the second quarter. Additionally, software backlog of $39.5 million at June 30th was up more than 7 percent from the prior quarter level. “We will continue to build on the sequential momentum we saw in the second quarter. We are encouraged as bookings included sales to both new and current customers, with existing customers adding products and applications to expand their portfolio of communications solutions. Customer demand remained strongest for upgrades to call center solutions, healthcare applications to increase patient safety, and improved nursing workflows.” Kelly added: “We continue to see growing demand for our software solutions for critical smartphone communications, secure texting, and emergency management, as well as clinical alerting, and we are proud to be working with more than 2,000 hospitals world-wide, including all of the best adult and children’s hospitals as defined by U.S. News & World Report.”
Kelly also noted that in addition to the Company’s quarterly financial performance, progress was made in several other areas, including product development, sales strategy and key strategic partnership agreements. “Spok continues to generate activity and sales momentum at the conferences we attend,” commented Kelly. “In June, we saw tremendous interest at those conferences, which included the Call Center Conference & Expo, as well as the National Emergency Number Association (NENA) conference earlier in the month. Early in May, we were also pleased to publish the results of a customer study demonstrating how Spok customers are achieving notable improvements in staff efficiency and patient care coordination workflows throughout their organizations using Spok Care Connect solutions. These hospitals and health systems are reporting improvements, including faster code call processes, compliance with Joint Commission standards, reduced patient discharge times, and increased patient satisfaction. Please visit our website to see these customer success statistics in our new infographic, The ROI of Communication Technology. We are confident that Spok is well positioned to capitalize on our sales and marketing efforts in order to stimulate long-term growth.”
The Company posted solid results for its wireless products and services in the second quarter. Gross pager placements of 39,000 were in-line with the year-earlier quarter, and the highest level in the past twelve months, while gross disconnects of 48,000 improved sharply from 59,000 in the second quarter of 2015. “As a result, annual net pager losses declined to an historical low of 5.5 percent from the prior year’s second quarter, and were 0.8 percent in the second quarter, down significantly from 1.6 percent in the prior-year quarter,” continued Kelly. “Overall, wireless sales efforts continued to focus primarily on our core market segments of Healthcare, Government and Large Enterprise, which represented approximately 91.6 percent of our subscriber base and 89.6 percent of our paging revenue at quarter end. Healthcare comprised 78.2 percent of our subscriber base, and continued to be our best performing market segment with the highest rate of gross placements and lowest rate of unit disconnects.”
Spok returned capital to stockholders, totaling $3.7 million, in the second quarter of 2016. During the period, the Company paid $2.6 million in dividends and repurchased 65,791 shares of common stock, totaling $1.1 million, under its stock buy-back program. Kelly added, “Throughout 2016, we will remain focused on returning value to our shareholders through our multi-faceted capital allocation strategy, which includes dividends, share repurchases and key strategic investments in our products and business designed to create sustainable growth.”
Shawn E. Endsley, chief financial officer, said: “Continued expense management and strong financial discipline have allowed us to invest in our business for long-term growth. Our ability to align our expense base with the market demand we are seeing and drive high renewal rates in our recurring revenue categories, helped Spok maintain solid operating cash flow and operating margins for the quarter. We also strengthened our balance sheet, recording a cash balance of $117.1 million at June 30, 2016, and continued to operate as a debt-free company at quarter-end.”
Business Outlook:
Commenting on the Company’s previously provided financial guidance for 2016, Endsley noted: “As a result of the solid performance we saw in the second quarter, we are maintaining the 2016 guidance range that we provided last quarter.” With regard to financial guidance for 2016, Endsley reiterated that the Company expects total revenue to range from $174 million to $192 million, operating expenses (excluding depreciation, amortization and accretion) to range from $153 million to $159 million, and capital expenditures to range from $6 million to $8 million.
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2016 Second-Quarter Call and Replay:
Spok plans to host a conference call for investors to discuss its 2016 second quarter results at 10:00 a.m. ET on Thursday, July 28, 2016. Dial-in numbers for the call are 719-325-2244 or 888-510-1786. The passcode for the call is 3269514. A replay of the call will be available from 1:00 p.m. ET on July 28, 2016 until 1:00 p.m. ET on Thursday, August 11, 2016. To listen to the replay, please register at http:tinyurl.com/spok2016Q2earningsreplay. Please enter the registration information, and you will be given access to the replay.
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