Spok Reports Fourth Quarter and 2015 Operating Results; Software Revenue and Bookings Increase From Prior Quarter

Wireless Trends Continue to Improve;
Board Declares Regular Quarterly Dividend

SPRINGFIELD, Va. (Feb. 24, 2016) – Spok Holdings, Inc. (NASDAQ:  SPOK), a global leader in critical communications, today announced operating results for the fourth quarter and year ended December 31, 2015. In addition, the Company’s Board of Directors declared a regular quarterly dividend of $0.125 per share, payable on March 30, 2016 to stockholders of record on March 18, 2016.

In the 2015 fourth quarter, consolidated revenue was $47.3 million, compared to $51.3 million in the fourth quarter of 2014 and $46.2 million in the third quarter of 2015. Software revenue increased 10.7 percent from the prior quarter to $18.6 million in the fourth quarter of 2015, compared to $19.6 million in the fourth quarter of 2014 and $16.8 million in the third quarter of 2015. Wireless revenue totaled $28.7 million in the fourth quarter, compared to $31.7 million in the year-earlier quarter and $29.4 million in the prior quarter.

Fourth quarter EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) totaled $9.9 million, or 20.9 percent of revenue, compared to $8.7 million, or 16.9 percent of revenue, in the year-earlier quarter, and $10.1 million, or 21.8 percent of revenue, in the third quarter of 2015.

Net income for the fourth quarter of 2015 was $72.7 million, or $3.53 per diluted share, compared to $6.9 million, or $0.31 per diluted share, in the fourth quarter of 2014. In the fourth quarter of 2015, net income included a non-cash income tax benefit of $68.4 million. The income tax benefit resulted from the reduction of the deferred income tax asset valuation allowance reflecting the Company’s fourth quarter analysis of its future operations. In accordance with applicable accounting standards that analysis determined that more of the Company’s deferred income tax assets are recoverable in future periods and this quarter’s income tax benefit reflects that adjustment. Excluding this benefit, fourth quarter 2015 net income would have totaled $4.3 million or $0.21 per diluted share.

For the full-year 2015, consolidated revenue was $189.6 million, compared to $200.3 million in 2014. Wireless revenue was $119.0 million and software revenue was $70.6 million, compared to $132.4 million and $67.9 million, respectively, for 2014. Software revenue increased 4 percent from the prior year.

EBITDA for 2015 was $39.1 million, or 20.6 percent of revenue, compared to $44.8 million, or 22.4 percent of revenue, for 2014.

Net income for 2015 was $84.2 million, or $3.98 per diluted share, compared to net income of $20.7 million, or $0.94 per diluted share, for the previous year. In 2015, net income included a non-cash income tax benefit related to the reduction of the valuation allowance associated with the Company’s deferred income tax assets.  In the fourth quarter the Company determined that more of the deferred income tax assets are recoverable in future periods and the 2015 income tax benefit reflects that adjustment. Excluding this income tax benefit, full year 2015 net income would have totaled $15.9 million, or $0.75 per diluted share.

Other key results and highlights for the fourth quarter and 2015 included:

• Software bookings for the fourth quarter increased to $18.5 million, from $16.7 million in the prior quarter. Fourth quarter bookings included $10.0 million of operations bookings and $8.5 million of maintenance renewals. For 2015, bookings totaled $74.0 million, compared to $78.5 million in 2014. Maintenance bookings for 2015 totaled $35.4 million.
• Software backlog totaled $38.7 million at December 31, 2015, compared to $41.6 million at September 30, 2015, and $42.4 million at year-end 2014.
• Of the $18.6 million in software revenue for the fourth quarter, $9.6 million was operations revenue and $9.0 million was maintenance revenue, compared to $11.6 million and $8.0 million, respectively, of the $19.6 million in software revenue for the fourth quarter of 2014.
• The renewal rate for software maintenance in the fourth quarter was 99.7 percent.
• The quarterly rate of paging unit erosion was 1.6 percent in the fourth quarter of 2015, compared to 1.4 percent in the year-earlier quarter. The annual rate of unit erosion improved to 6.6 percent in 2015 versus 8.7 percent in the prior year. Net paging unit losses were 19,000 in the fourth quarter of 2015, versus 18,000 in the fourth quarter of 2014. Paging units in service at December 31, 2015 totaled 1,173,000, compared to 1,256,000 at the end of the prior year.
• The quarterly rate of wireless revenue erosion slowed to 2.2 percent in the fourth quarter of 2015 versus 3.6 percent in the year-earlier quarter, while the annual rate of wireless revenue erosion slowed to 10.1 percent versus 11.6 percent in 2014.
• Total paging ARPU (average revenue per unit) was $7.79 in the fourth quarter of 2015, compared to $7.92 in the year-earlier quarter and $7.82 in the prior quarter. For the year, ARPU totaled $7.90, compared to $7.93 in 2014.
• Consolidated operating expenses (excluding depreciation, amortization and accretion) totaled $37.4 million in the fourth quarter of 2015, compared to $42.6 million in the year-earlier quarter. For 2015, operating expenses totaled $150.6 million, compared to $155.4 million in 2014.
• Capital expenses were $2.0 million in the fourth quarter of 2015, compared to $1.4 million in the year-earlier quarter. For 2015, capital expenses totaled $6.4 million, compared to $7.7 million in 2014.
• The number of full-time equivalent employees at December 31, 2015 totaled 600, compared to 587 at year-end 2014.
• Capital returned to stockholders in 2015 totaled $28.3 million. This came in the form of $13.3 million from dividends and $15.0 million from share repurchases.
• The Company’s cash balance at December 31, 2015 grew to $111.3 million, from $107.9 million at December 31, 2014.

“We are encouraged with our performance in the fourth quarter of 2015 and for the full year”, said Vincent D. Kelly, chief executive officer. “We met or exceeded our expectations on a number of key operating measures, including revenue levels, operating expense management, cash flow and subscriber retention. We achieved these results, as we continued to invest in our future, enhancing and upgrading our operating platforms and sales infrastructure. We believe that these investments in our systems and people position us well for the future. For the full year, software revenue grew, while our backlog and pipeline remained strong and wireless revenue and paging unit attrition was slower than anticipated. Overall, we continued to operate profitably, enhance our product offerings, and further strengthen our balance sheet. Our ability to generate healthy cash flow levels allowed us to execute against our capital allocation strategy, make key strategic investments and return the majority of our cash flow to our stockholders in excess of our capital allocation commitment in the form of dividends and share repurchases.”

Commenting on software results, Kelly said: “Fourth quarter 2015 total software revenue increased nearly 11 percent from the prior quarter, and for the full year increased more than 4 percent from 2014.”   Kelly attributed higher fourth quarter and full year software revenue primarily to a continuing trend of a more than 99 percent renewal rate on software maintenance contracts. Maintenance revenue is a largely recurring revenue stream that provides Spok with a more stable revenue and margin base.

Fourth quarter 2015 software bookings of $18.5 million were up nearly 11 percent from the prior quarter. For the full year, bookings totaled $74.0 million, a slight decline from prior-year levels.  “Demand remained strong in the domestic markets for upgrades and installations of call center solutions, along with healthcare applications to increase patient safety, improve nursing workflows and enhance organizational efficiencies,” said Kelly. “While domestic markets performed well, we saw some sluggishness in the international markets of both EMEA and APAC.”

Continued Kelly, “We are focused on investments to grow our software solutions business, while maintaining our valuable wireless revenue stream. In 2015 we took steps to strengthen our leadership team, as Hemant Goel became president of Spok’s operating company and more recently with the addition of industry veteran Don Soucy as executive vice president of global sales. We also reorganized and augmented our sales team with key additions at all levels, focused on product development, and invested in our business operations platform and infrastructure. We believe that these investments will pay dividends in 2016 and beyond as we continue on a path toward sustainable growth.”

The Company posted solid results for its wireless products and services in the fourth quarter. Gross pager placements totaled 31,000 versus 35,000 in the year-earlier quarter, while gross disconnects of 50,000 improved from 53,000 in the fourth quarter of 2014. “As a result, annual net pager losses declined to a near historical low of 6.6 percent from the prior year-end and were down 1.6 percent for the fourth quarter, in line with prior-year results,” continued Kelly. “Overall, wireless sales efforts continued to focus primarily on our core market segments of Healthcare, Government and Large Enterprise, which represented approximately 94.3 percent of our direct subscriber base and 91.1 percent of our direct paging revenue at year end. Healthcare comprised 79.7 percent of our direct 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 $28.3 million, in 2015. During the year, the Company paid $13.3 million in dividends and repurchased 897,177 shares of common stock, totaling $15.0 million, under its stock buy-back program. “Over the past decade,” Kelly added, “we have generated nearly $1 billion in free cash flow, paid nearly $500 million to our stockholders in cash dividends, and repurchased nearly $80 million of our common stock. In 2016, we remain focused on returning value to our shareholders through our comprehensive capital allocation strategy.”

Kelly noted that in addition to the financial performance the Company was able to achieve in 2015, progress was made in several other areas, including product development, sales strategy and key strategic partnership agreements. “Spok continues to build an industry-leading reputation,” commented Kelly. “We are generating tremendous attention and high approval ratings at the conferences we attend. Last year’s Connect Conference was the most successful ever, with record attendance, and the RSNA Conference was a great venue to showcase our CTRM solution and secure text messaging platform. We intend to carry the momentum generated at these conferences into 2016 in order to stimulate long-term growth. We remain committed to our core values of putting the customer first, creating solutions that matter, innovation and accountability. Combined with our strong team, solid financial platform and industry-leading products and services, Spok is well positioned to meet the challenges in 2016 and generate future growth.”

Shawn E. Endsley, chief financial officer, said: “Revenue contribution from both software and wireless, combined with focused expense management, helped maintain solid operating cash flow, EBITDA and operating margins for the quarter, as we continued to invest in our business for long-term growth.  We also strengthened our balance sheet, recording a cash balance of $111.3 million at December 31, 2015 and continued to operate as a debt-free company at year end.”

Commenting on the Company’s previously provided financial guidance for 2015, Endsley noted: “We are pleased that 2015 results were consistent with our guidance. For the year, total revenue of $189.6 million was within our guidance range of $183 million to $201 million, operating expenses of $150.6 million were within our guidance range of $145 million to $154 million, and capital expenses of $6.4 million were within our guidance range of $5.5 million to $7.5 million.” With regard to financial guidance for 2016, Endsley said 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 expenses to range from $6 million to $8 million.

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Spok plans to host a conference call for investors on its fourth quarter and 2015 operating results at 10:00 a.m. Eastern Time on Thursday, February 25, 2016. Dial-in numbers for the call are 785-830-1924 or 800-533-7954. The passcode for the call is 974643. A replay of the call will be available from 1:00 p.m. ET on February 25, 2016 until 1:00 p.m. on Thursday, March 10, 2016. Replay numbers are 719-457-0820 or 888-203-1112. The passcode for the replay is 974643.

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