Spok Holdings (SPOK) Q2 2022 Earnings Name Transcript


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Spok Holdings (SPOK 2.32%)
Q2 2022 Earnings Name
Jul 28, 2022, 8:30 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Greetings and welcome to Spok Holdings second quarter 2022 earnings name. [Operator instructions] It’s now my pleasure to introduce your host, Lisa Fortuna. Thanks. You could start.

Lisa FortunaManaging Director, Investor Relations

Howdy, everybody. And welcome to Spok Holdings second quarter 2022 earnings name. I’m joined by Vince Kelly, president and chief government officer; in addition to Mike Wallace, chief monetary officer and chief working officer. I wish to remind everybody that as we speak’s convention name might embody forward-looking statements which can be topic to dangers and uncertainties regarding Spok’s future monetary and enterprise efficiency.

Such statements might embody estimates of income, bills and earnings, in addition to different predictive statements or plans that are depending on future occasions or situations. These statements symbolize the corporate’s estimates solely on the date of this convention name and should not meant to offer any assurance as to the precise future outcomes. Spok’s precise outcomes might differ materially from these anticipated in these forward-looking statements. Though these statements are primarily based upon assumptions that the corporate believes to be affordable, they’re topic to dangers and uncertainties.

Please assessment the chance elements part regarding our operations and the enterprise atmosphere, that are contained in our second quarter 2022 Type 10-Q and associated paperwork with the Securities and Alternate Fee. Please notice that Spok assumes no obligation to replace any forward-looking statements from previous or current filings and convention calls. With that, I will flip the decision over to Vince.

Vince KellyPresident and Chief Govt Officer

Thanks and good morning, everybody. And thanks for becoming a member of us this morning for our second quarter 2022 earnings name. Immediately, we are going to share with you an replace on how our strategic marketing strategy is progressing, in addition to our monetary outcomes for the quarter. I will begin by reviewing the agenda for as we speak’s name.

The order will probably be as follows. We are going to start by offering an replace on our strategic marketing strategy. Subsequent, we are going to present an summary of our second quarter and year-to-date 2022 outcomes in addition to the year-to-date professional forma outcomes. Then we’ll cowl our up to date steering for 2022, in addition to onetime restructuring prices associated to our strategic enterprise shift.

And eventually, we’ll wrap up and take your questions. Because the implementation of our strategic marketing strategy 5 months in the past, we have been working money stream enterprise mannequin that includes our wi-fi service line and our Care Join Suite software program resolution choices with the purpose of returning capital to shareholders. I am pleased to announce as we speak that our strategic marketing strategy is monitoring effectively forward of schedule. The streamlining of administration and worker headcount that we beforehand introduced on February 17 is now considerably full.

Our 60-day WARN Act notification interval resulted in mid-April, so we had at the very least two months within the second quarter in our new working posture. Our working bills and capital expenditures are coming in favorable to our plan, and we’re assured they’ll proceed to take action within the second half. We delivered on our strategic aims of driving income from our two service strains and investing in a focused and restricted method such that we are able to return capital to shareholders. We anticipate to proceed to take action.

With our renewed deal with our Care Join Suite of software program options, we have been capable of enhance year-to-date software program bookings by 23% yr over yr, with 32 of those offers value over six figures every. Most of this optimistic variance got here within the second quarter as our software program salesforce was targeted 100% on our Care Join Suite options with no different distractions. Moreover, our clients have reacted very positively to our plans for investing in and enhancing our contact middle, alerting, and cellular options that they already use, know, and love. They’ve welcomed this information with open arms and, importantly, with gross sales orders.

Moreover, our gross sales representatives have been capable of go to many extra websites in individual this previous quarter relative to the final two years, and that’s having a optimistic impact. Briefly, our focus has resulted in our second quarter software program bookings rising by 51% over the identical interval a yr in the past. And there is lots extra within the pipeline. Whereas it takes time for these bookings to finish implementation and present up in income, we imagine this can be a good main indicator for the well being of the enterprise.

And as you will hear the main points from Mike in a few minutes, our wi-fi enterprise continues to realize plan with a record-low unit decline. Plus, we have opened up our new encrypted alphanumeric pager we have now named the GenA. Our purpose right here is to rejuvenate curiosity and cut back resistance to pagers. And whereas we’re within the early phases, to date so good.

We’ve roughly 2,400 models in service and rising. They’re commanding a a lot larger ARPU available in the market resulting from their elevated function set that features improved display decision, battery life, and a number of different options, capabilities, and advantages. Our wi-fi gross sales staff is happy about this providing, and our clients are, too. We anticipate to report additional progress on this initiative because the yr progresses.

You may additionally hear from Mike with respect to our year-to-date professional forma outcomes, however the high-level reply is, we might have generated effectively over $10 million in adjusted EBITDA, which is outlined within the earnings launch tables. That is our non-GAAP calculation of money stream generated by the corporate for internet working capital objects within the first half of the yr, assuming we have now applied the plan on January 1st. Our expectation mirrored in our steering to realize plan this yr and proceed making progress on money stream era and income stabilization into 2023 and past. This may take time, however we have gotten off to an important begin.

We anticipate to generate extra cash this yr than we anticipated after we introduced the plan within the first quarter. And we proceed to make progress constructing our partnership, relationships, and alternatives. Subsequent to the top of the second quarter, we signed a distribution settlement with inTechnology, a number one worth added IT distributor, driving applied sciences into the Pacific Asia IT channel. inTechnology’s distribution skill to offer pre- and post-sales assist implementation providers and a 24/7 assist desk made the corporate an ideal distribution accomplice for Spok.

We imagine that inTechnology and its accomplice community will improve Spok’s skill to offer significant outcomes for our purchasers within the Asia Pacific area. As you recognize, we introduced our strategic marketing strategy in February. We elevated our quarterly dividend fee by 150 % from $0.125 per share to $0.3125 per share. We’re returning a $1.25 per share this yr in dividends to our shareholders.

And we’re already midway there. Because the implementation of the plan in February, 12.7 million in cumulative capital has now been returned to Spok’s shareholders. This return of capital consists of distributing our annual money stream, which can proceed to fund nearly all of our dividend distribution going ahead, supplemented by money on our stability sheet. As at all times, the declaration and fee of future dividends is topic to the board’s discretion and can rely upon monetary and authorized necessities and different issues.

Presently, the corporate has not repurchased any shares utilizing the board approved share repurchase program of as much as $10 million of the corporate’s widespread inventory. Together with our advisors, we are going to proceed to judge our capital allocation technique as Spok continues its transition to our strategic pivot this yr and past. Fiscal yr 2022 continues to stay a transition yr for Spok given the implementation time required to execute and operationalize our strategic shift to a money flow-focused mannequin. Once more, the excellent news is we have gotten off to an important begin.

As we have beforehand talked about, we proceed to anticipate that this transition will probably be accomplished by the top of 2022, with nearly all of our rightsizing already behind us. We anticipate the corporate to be adjusted EBITDA-positive going ahead and can cowl a good portion of the third and fourth quarter dividends to money stream. We are going to attain our full money stream run fee by the top of 2022 as we head into 2023 as we transfer by means of this transition, we are going to proceed to replace shareholders on our progress. Spok has a superb observe report of driving income from our enterprise strains and enjoys the market management place in hospital name middle software program options and narrowband private communication wi-fi providers.

We’ve over 2,200 healthcare organizations as clients, representing the who’s who of hospitals in the USA. We have constructed our options over a few years and have long-standing, worthwhile buyer relationships. We honor and respect our customer support by offering world-class healthcare. We worth our place of their communications ecosystem.

The overwhelming majority, or over 80% of our income, is recurring in nature. We’re an organization with no debt, which offers us vital flexibility. We proceed to stay targeted on investing and enhancing our built-in Care Join ecosystem with a view to proceed our long-standing relationships with the nation’s main healthcare suppliers. We imagine these attributes, mixed with our devoted and dedicated worker base, are what permits us to generate vital money stream into the long run and return capital to our shareholders.

And with that, I will now flip the decision over to Mike Wallace, our chief monetary officer and chief working officer, who will assessment our second quarter monetary outcomes. Mike?

Mike WallaceChief Monetary Officer and Chief Working Officer

Thanks, Vince. And good morning, everybody. I might now wish to take a couple of minutes and supply a recap of our second quarter and year-to-date 2022 monetary efficiency, which we reported yesterday. I encourage you to assessment our 10-Q when filed, because it consists of considerably extra details about our enterprise operations and monetary efficiency than we are going to cowl on this name.

For the second quarter of 2022, complete GAAP income was 33.7 million in comparison with income of 35.7 million in 2021. Income for the quarter consisted of wi-fi income of 18.7 million, which was down 5.8% from 19.9 million, and software program income of 15 million down 5.4% from 15.9 million, largely in keeping with our expectations. With respect to wi-fi income, second quarter 2022 efficiency was pushed by a continued decline in pager unit churn on a year-over-year foundation. The truth is, the web pager decline in the course of the trailing 12 months was 3.9%, one other report low.

And on a sequential foundation, models and repair declined by solely 3,000 models or 0.4%. In consequence, wi-fi income for the second quarter remained stable, declining 5.8% in comparison with the prior yr and within the vary of our expectations, with the month-to-month paging income part of wi-fi, which represents 97% of general wi-fi income declining by solely 5.2% on a year-over-year foundation. The rest of wi-fi income pertains to product gross sales, primarily by means of misplaced pager charges, that are one-time in nature and are far much less impactful to the continuing worth of this enterprise. These continued sturdy developments in our wi-fi enterprise are being pushed by the mixture of stable gross additions from our gross sales group, continued minimization of churn with current clients, in addition to secure unit pricing, the place common income per unit, or ARPU, was $7.23 for the quarter versus $7.25 within the year-ago interval, when adjusted for roughly $0.07 of decline attributable to decreases in common service fund income.

These charges are charged to clients primarily based on quarterly charges set by the FCC and may fluctuate from one quarter to the subsequent. These charges don’t materially impression the underside line as they’re collected from clients to offset prices owed to the FCC. Moreover, ARPU was favorably impacted by our beforehand introduced GenA pager, which is now within the early phases of being bought to clients. We anticipate that the GenA pager will probably be an essential think about our skill to reduce future unit churn and ARPU degradation.

On a year-to-date foundation, wi-fi income noticed related dynamics to the second quarter as simply mentioned, declining 6.1% in comparison with the prior yr and once more within the vary of our expectations, with the month-to-month paging income part of wi-fi declining solely 5.3% on a yr over yr foundation. Turning to the second quarter software program income, particularly upkeep income, which is the most important part of the software program income, was 9.2 million versus 9.6 million in the identical interval of the prior yr, or 4.2% decrease. As we have now mentioned in earlier quarterly calls and as we proceed by means of this pivot with the main focus being introduced again to our Care Join Suite software program merchandise, our expectation is for upkeep income to be down barely yr over yr, given gross churn and uplift ranges stay according to prior quarters. Nonetheless, with larger anticipated license bookings as we transfer by means of this pivot, licensing will serve to drive inflows to upkeep income, as licensed bookings present the premise for brand new upkeep.

Skilled providers income was 3.3 million versus 4.9 million within the second quarter of 2021. As we said in our earnings name in February associated to our 2022 monetary steering, we assumed an intentional discount in providers income that we deliberate discount in personnel to raised align with our present backlog and to drive a better fee of internet money stream in alignment with the strategic shift in our marketing strategy. And once more, it is essential to do not forget that providers has not traditionally pushed significant money stream on a stand-alone foundation however has been considered as a possibility to increase our license footprint by means of buyer engagement, in addition to to satisfy improve obligations below our upkeep contracts, which is important in sustaining our current clients. Lastly, license and {hardware} income was 2.5 million in contrast with 1.4 million in the identical interval of the prior yr, or 79% larger, as we noticed larger bookings within the second quarter and a stable mixture of license and {hardware} in these bookings.

On a year-to-date foundation, complete GAAP income was 67.5 million in comparison with income of 71.8 million in 2021. Wi-fi income was 37.5 million in comparison with 40 million, reflecting paging income churn in keeping with the developments seen within the second quarter, and year-to-date software program income of 30 million in comparison with 31.8 million within the prior interval. This was pushed by upkeep income being down 3% on a year-over-year foundation. Skilled providers down 27.7% because of the intentional discount in skilled providers sources to raised align with backlog and which was offset by larger license income of 53.3%, pushed by the sturdy bookings in the course of the first half of the yr.

Second quarter adjusted working bills, which excludes depreciation, amortization, and accretion of 0.9 million and severance and restructuring prices of 0.5 million totaled 30 million within the second quarter, in comparison with 37.4 million in 2021. And on a year-to-date foundation, adjusted working bills have been 67 million in comparison with 75.4 million. As Vince talked about earlier, the streamlining of worker and administration headcount discount is now considerably full. And we at the moment are within the closing phases of paying the severance value related to our strategic marketing strategy.

Adjusted EBITDA, which is outlined in our earnings launch tables and represents EBITDA above earlier than stock-based compensation expense, impairment of intangible property, results of capitalized software program improvement prices, and together with capital expenditures is our non-GAAP calculation of money stream generated by the corporate earlier than internet working capital objects. Within the second quarter, adjusted EBITDA was a optimistic 3.7 million in contrast with a destructive 1.5 million in the identical quarter of 2021 and displays the progress made up to now with our strategic pivot. On a year-to-date foundation. Our adjusted EBITDA was destructive 3.6 million in comparison with a destructive 2 million in 2021.

And in a couple of minutes, I will stroll you thru our professional forma year-to-date adjusted EBITDA outcomes, which can exclude the one-time prices associated to the strategic pivot. However with our strategic pivot progressing as anticipated, our adjusted EBITDA that we have now seen over the previous a number of quarters has begun to reverse and enhance. We anticipate this extra normalized development to proceed going ahead. Subsequent, I want to focus on our year-to-date professional forma impression for the destructive 3.6 million in adjusted EBITDA beforehand talked about.

Had the strategic adjustments that we made been in impact as of January 1, 2022, our adjusted EBITDA would have been $14.4 million larger than the primary six months of 2022. This 14.4 million consists of severance and restructuring prices of roughly 4.9 million, prices associated to personnel reductions of 6.8 million, nonpayroll Spok Go prices of roughly 1.3 million, and roughly 1.4 million in different prices. Inclusive of those changes, our year-to-date adjusted EBITDA for the six months ended June 30, 2022 would have been 10.8 million. Now, turning to our steering for our full fiscal yr 2022.

As a reminder, the figures I’m going to debate as we speak are included in our steering desk within the earnings launch which were up to date from the beforehand offered 2022 monetary steering in our February and April earnings calls. We now anticipate complete income to be within the vary of 130 million to 136 million, of which we anticipate wi-fi income to vary between 73.5 million to 75.5 million. Software program income is anticipated to vary from 56.5 million to 60.5 million. We anticipate adjusted working bills for the complete yr of 2022 to be within the vary of 123.3 million to 126.1 million.

And capex will probably be within the vary of three.2 million to three.9 million with nearly all of capex associated to our wi-fi enterprise. These adjustments to our 2022 steering serve to considerably slender the ranges beforehand offered and largely point out midpoints according to our unique steering. Now, turning to our forecast for restructuring prices for 2022. As you’ll be able to see from the slide, we have now additional lowered our vary for complete restructuring prices from 6.2 million to 7.5 million within the first quarter to our up to date vary of 6 million to six.5 million.

Breaking this down, we now anticipate severance and restructuring prices to be within the vary of 5.5 million to five.8 million and contractual terminations to be within the vary of 0.5 million to 0.7 million. This narrowing of the vary displays our consolation that these prices are largely behind us at this level. With that, I will flip the decision again over to Vince earlier than Q&A. Vince?

Vince KellyPresident and Chief Govt Officer

Thanks, Mike. I would like to finish by reminding everybody that we proceed to stay dedicated to our mission of being a strategic accomplice of alternative for enterprise grade, scientific communications, and affected person and care coordination. This dedication has allowed Spok to create a big market place with long-standing relationships with the nation’s main health-care suppliers. Spok has a best-in-class paging community, at present the most important in the USA, which continues to generate sturdy outcomes.

Moreover, Spok continues to offer a worthwhile and significant service to our clients, delivering data to care groups when and the place it issues most to enhance affected person outcomes. As beforehand mentioned, our Spok Care Join Options present a collection of merchandise with potential for brand new license gross sales and a worthwhile upkeep stream. Upkeep continues to offer a basis below our legacy software program enterprise, and it is essential to keep up as we rapidly transitioned to deal with money stream era. As mirrored in our steering, we’re persevering with to take a position extra in our legacy merchandise as we progress to our strategic pivot.

We imagine this can drive future gross sales and improve alternatives and enhance our outcomes going ahead on this essential enterprise line, whereas producing money stream on a go-forward foundation. We’ve a world-class buyer base and a big market share in health-care contact middle options. And we imagine this represents vital alternative for the long run. Spok continues to reveal a really predictable income base with over 80% of our income being recurring in nature coming from both our legacy wi-fi choices or software program upkeep contracts.

This provides us confidence that we’re not solely on the correct path ahead for executing our strategic pivot, but additionally to maximise worth for all shareholders. We imagine that, going ahead, we are going to return vital money stream to our shareholders and that our present inventory valuation represents a lovely alternative for share appreciation as effectively. Now with that, I will flip the decision over to the operator for Q&A. Operator?

Questions & Solutions:

Operator

[Operator instructions]

Vince KellyPresident and Chief Govt Officer

Operator, I do not assume —

Operator

There are not any questions in queue.

Vince KellyPresident and Chief Govt Officer

Yeah. I do not see any questions within the queue. So, I simply — I wish to wrap up by simply thanking all people for becoming a member of us as we speak. We admire your assist and your curiosity in Spok.

As you’ll be able to see by our outcomes for the second quarter, we have gotten off to a implausible begin. We’re bullish on the second half of the yr. We predict our inventory represents a compelling worth. And you are going to receives a commission a really good yield when you look ahead to appreciation.

And we predict appreciation will probably be coming. So, thanks, all. Have an important day, and we stay up for chatting with you once more subsequent quarter.

Operator

[Operator signoff]

Length: 0 minutes

Name members:

Lisa FortunaManaging Director, Investor Relations

Vince KellyPresident and Chief Govt Officer

Mike WallaceChief Monetary Officer and Chief Working Officer

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