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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 might start.
Lisa Fortuna — Managing Director, Investor Relations
Whats up, 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 in the present day’s convention name could embody forward-looking statements which can be topic to dangers and uncertainties referring to Spok’s future monetary and enterprise efficiency.
Such statements could 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 characterize the corporate’s estimates solely on the date of this convention name and aren’t supposed to present any assurance as to the precise future outcomes. Spok’s precise outcomes may differ materially from these anticipated in these forward-looking statements. Though these statements are primarily based upon assumptions that the corporate believes to be cheap, they’re topic to dangers and uncertainties.
Please assessment the chance components part referring to our operations and the enterprise surroundings, that are contained in our second quarter 2022 Kind 10-Q and associated paperwork with the Securities and Trade Fee. Please word that Spok assumes no obligation to replace any forward-looking statements from previous or current filings and convention calls. With that, I am going to flip the decision over to Vince.
Vince Kelly — President 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 am going to begin by reviewing the agenda for in the present day’s name.
The order will likely be as follows. We’ll 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 steerage for 2022, in addition to onetime restructuring prices associated to our strategic enterprise shift.
And at last, 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 answer choices with the purpose of returning capital to shareholders. I am blissful to announce in the present day that our strategic marketing strategy is monitoring nicely 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 led to mid-April, so we had a minimum of 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 are going to proceed to take action within the second half. We delivered on our strategic goals of driving income from our two service traces 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 in a position to improve 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 prospects have reacted very positively to our plans for investing in and enhancing our contact heart, 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 in a position to 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 growing by 51% over the identical interval a yr in the past. And there is loads extra within the pipeline. Whereas it takes time for these bookings to finish implementation and present up in income, we consider it is a good main indicator for the well being of the enterprise.
And as you may hear the main points from Mike in a few minutes, our wi-fi enterprise continues to attain plan with a record-low unit decline. Plus, we have opened up our new encrypted alphanumeric pager we’ve named the GenA. Our purpose right here is to rejuvenate curiosity and scale back resistance to pagers. And whereas we’re within the early phases, to date so good.
We’ve got roughly 2,400 models in service and rising. They’re commanding a a lot larger ARPU out there attributable to their elevated function set that features improved display decision, battery life, and a number of different options, features, and advantages. Our wi-fi gross sales workforce is happy about this providing, and our prospects are, too. We anticipate to report additional progress on this initiative because the yr progresses.
You will additionally hear from Mike with respect to our year-to-date professional forma outcomes, however the high-level reply is, we’d have generated nicely 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 web working capital gadgets within the first half of the yr, assuming we’ve applied the plan on January 1st. Our expectation mirrored in our steerage to attain plan this yr and proceed making progress on money stream era and income stabilization into 2023 and past. This can take time, however we have gotten off to an awesome begin.
We anticipate to generate more money this yr than we anticipated once we introduced the plan within the first quarter. And we proceed to make progress constructing our partnership, relationships, and alternatives. Subsequent to the tip 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 help implementation companies and a 24/7 help desk made the corporate an ideal distribution accomplice for Spok.
We consider 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 understand, we introduced our strategic marketing strategy in February. We elevated our quarterly dividend cost 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 contains distributing our annual money stream, which is able to proceed to fund nearly all of our dividend distribution going ahead, supplemented by money on our steadiness sheet. As all the time, the declaration and cost of future dividends is topic to the board’s discretion and can rely on monetary and authorized necessities and different issues.
At the moment, the corporate has not repurchased any shares utilizing the board licensed 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 awesome begin.
As we have beforehand talked about, we proceed to anticipate that this transition will likely be accomplished by the tip 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’ll attain our full money stream run price by the tip of 2022 as we head into 2023 as we transfer by this transition, we are going to proceed to replace shareholders on our progress. Spok has a wonderful observe report of driving income from our enterprise traces and enjoys the market management place in hospital name heart software program options and narrowband private communication wi-fi companies.
We’ve got over 2,200 healthcare organizations as prospects, representing the who’s who of hospitals in america. We have constructed our options over a few years and have long-standing, priceless 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 gives us important flexibility. We proceed to stay targeted on investing and enhancing our built-in Care Join ecosystem in an effort to proceed our long-standing relationships with the nation’s main healthcare suppliers. We consider these attributes, mixed with our devoted and dedicated worker base, are what permits us to generate important money stream into the longer term and return capital to our shareholders.
And with that, I am going to 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 Wallace — Chief 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 contains 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 according to 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. Actually, the online pager decline through 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%. Because of this, wi-fi income for the second quarter remained strong, 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 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 strong gross additions from our gross sales group, continued minimization of churn with present prospects, in addition to steady 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 prospects primarily based on quarterly charges set by the FCC and may fluctuate from one quarter to the subsequent. These charges don’t materially affect the underside line as they’re collected from prospects 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 offered to prospects. We anticipate that the GenA pager will likely be an necessary think about our skill to reduce future unit churn and ARPU degradation.
On a year-to-date foundation, wi-fi income noticed comparable 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 biggest 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’ve mentioned in earlier quarterly calls and as we proceed by 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 in step with prior quarters. Nonetheless, with larger anticipated license bookings as we transfer by this pivot, licensing will serve to drive inflows to upkeep income, as licensed bookings present the premise for brand spanking new upkeep.
Skilled companies 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 steerage, we assumed an intentional discount in companies income that we deliberate discount in personnel to higher align with our present backlog and to drive the next price of web money stream in alignment with the strategic shift in our marketing strategy. And once more, it is necessary to keep in mind that companies 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 buyer engagement, in addition to to meet improve obligations underneath our upkeep contracts, which is vital in sustaining our present prospects. 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 strong 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 according to 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 companies down 27.7% as a result of intentional discount in skilled companies assets to higher align with backlog and which was offset by larger license income of 53.3%, pushed by the sturdy bookings through 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 had 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 are actually within the closing phases of paying the severance price 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 growth prices, and together with capital expenditures is our non-GAAP calculation of money stream generated by the corporate earlier than web working capital gadgets. Within the second quarter, adjusted EBITDA was a optimistic 3.7 million in contrast with a unfavourable 1.5 million in the identical quarter of 2021 and displays the progress made to this point with our strategic pivot. On a year-to-date foundation. Our adjusted EBITDA was unfavourable 3.6 million in comparison with a unfavourable 2 million in 2021.
And in a couple of minutes, I am going to stroll you thru our professional forma year-to-date adjusted EBITDA outcomes, which is able to exclude the one-time prices associated to the strategic pivot. However with our strategic pivot progressing as anticipated, our adjusted EBITDA that we’ve seen over the previous a number of quarters has begun to reverse and enhance. We anticipate this extra normalized pattern to proceed going ahead. Subsequent, I want to talk about our year-to-date professional forma affect for the unfavourable 3.6 million in adjusted EBITDA beforehand talked about.
Had the strategic modifications 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 contains 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 steerage for our full fiscal yr 2022.
As a reminder, the figures I’m going to debate in the present day are included in our steerage desk within the earnings launch which have been up to date from the beforehand supplied 2022 monetary steerage 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 predicted to vary from 56.5 million to 60.5 million. We anticipate adjusted working bills for the total yr of 2022 to be within the vary of 123.3 million to 126.1 million.
And capex will likely be within the vary of three.2 million to three.9 million with nearly all of capex associated to our wi-fi enterprise. These modifications to our 2022 steerage serve to considerably slim the ranges beforehand supplied and largely point out midpoints in step with our unique steerage. Now, turning to our forecast for restructuring prices for 2022. As you possibly can see from the slide, we’ve 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 am going to flip the decision again over to Vince earlier than Q&A. Vince?
Vince Kelly — President and Chief Govt Officer
Thanks, Mike. I might 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 biggest in america, which continues to generate sturdy outcomes.
Moreover, Spok continues to offer a priceless and demanding service to our prospects, 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 spanking new license gross sales and a priceless upkeep stream. Upkeep continues to offer a basis underneath our legacy software program enterprise, and it is necessary to take care of as we shortly transitioned to deal with money stream era. As mirrored in our steerage, we’re persevering with to take a position extra in our legacy merchandise as we progress to our strategic pivot.
We consider this may drive future gross sales and improve alternatives and enhance our outcomes going ahead on this necessary enterprise line, whereas producing money stream on a go-forward foundation. We’ve got a world-class buyer base and a big market share in health-care contact heart options. And we consider this represents important alternative for the longer term. Spok continues to display 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 offers us confidence that we aren’t solely on the precise path ahead for executing our strategic pivot, but in addition to maximise worth for all shareholders. We consider that, going ahead, we are going to return important money stream to our shareholders and that our present inventory valuation represents a pretty alternative for share appreciation as nicely. Now with that, I am going to flip the decision over to the operator for Q&A. Operator?
Questions & Solutions:
Operator
[Operator instructions]
Vince Kelly — President and Chief Govt Officer
Operator, I do not assume —
Operator
There are not any questions in queue.
Vince Kelly — President 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 in the present day. We recognize your help and your curiosity in Spok.
As you possibly can see by our outcomes for the second quarter, we have gotten off to a unbelievable 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 await appreciation.
And we predict appreciation will likely be coming. So, thanks, all. Have an awesome day, and we stay up for chatting with you once more subsequent quarter.
Operator
[Operator signoff]
Length: 0 minutes
Name contributors:
Lisa Fortuna — Managing Director, Investor Relations
Vince Kelly — President and Chief Govt Officer
Mike Wallace — Chief Monetary Officer and Chief Working Officer
