spok-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-32358


SPOK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)


Delaware						16-1694797
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


5911 Kingstown Village Pkwy, 6th Floor
Alexandria,	Virginia	22315
(Address of principal executive offices)		(Zip Code)

(800) 611-8488

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	SPOK	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

19,385,155 shares of the registrant’s common stock (par value $0.0001 per share) were outstanding as of April 23, 2021.

SPOK HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX


			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets as of March 31, 2021, (Unaudited) and December 31, 2020	2
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 202 1, an d 2020 (Unaudited)	3
		Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31 , 202 1, and 20 20 (Unaudited)	4
		Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2021, and 2020 (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31 , 202 1, and 20 20 (Unaudited)	6
		Unaudited Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
	Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	30
	Item 1A.	Risk Factors	30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 6.	Exhibits	31
Signatures

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)	March 31, 2021		December 31, 2020

ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	41,646	$	48,729
Short-term investments	29,996		29,995
Accounts receivable, net	28,675		29,934
Prepaid expenses	8,284		8,958
Other current assets	1,681		1,269
Total current assets	110,282		118,885
Non-current assets:
Property and equipment, net	7,421		7,815
Operating lease right-of-use assets	17,636		14,016
Capitalized software development, net	12,064		10,179
Goodwill	99,175		99,175
Intangible assets, net	—		417
Deferred income tax assets, net	25,223		25,826
Other non-current assets	875		978
Total non-current assets	162,394		158,406
Total assets	$	272,676	$	277,291

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,451	$	6,685
Accrued compensation and benefits	13,084		14,103
Deferred revenue	26,743		27,686
Operating lease liabilities	6,037		5,264
Other current liabilities	3,923		3,702
Total current liabilities	54,238		57,440
Non-current liabilities:
Asset retirement obligations	7,402		7,289
Operating lease liabilities	12,640		9,456
Other non-current liabilities	1,824		2,493
Total non-current liabilities	21,866		19,238
Total liabilities	76,104		76,678
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock	$	—	$	—
Common stock	2		2
Additional paid-in capital	92,575		91,780
Accumulated other comprehensive loss	(1,438)		(1,452)
Retained earnings	105,433		110,283
Total stockholders’ equity	196,572		200,613
Total liabilities and stockholders' equity	$	272,676	$	277,291

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Three Months Ended March 31,
(Unaudited and in thousands except share and per share amounts)	2021		2020

Revenue:
Wireless	$	20,120	$	21,386
Software	15,916		15,881
Total revenue	36,036		37,267
Operating expenses:
Cost of revenue (exclusive of items shown separately below)	7,241		8,264
Research and development	4,506		5,449
Technology operations	7,252		7,904
Selling and marketing	4,900		6,361
General and administrative	11,150		11,251
Depreciation, amortization and accretion	2,727		2,146

Total operating expenses	37,776		41,375
Operating loss	(1,740)		(4,108)
Interest income	61		363
Other expense	(27)		(137)
Loss before income taxes	(1,706)		(3,882)
Provision for income taxes	(591)		(657)
Net loss	$	(2,297)	$	(4,539)
Basic and diluted net loss per common share	$	(0.12)	$	(0.24)

Basic and diluted weighted average common shares outstanding	19,272,786		18,958,716

Cash dividends declared per common share	$	0.125	$	0.125

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	For the Three Months Ended March 31,
(Unaudited and in thousands)	2021		2020

Net loss	$	(2,297)	$	(4,539)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	14		(220)
Other comprehensive income (loss)	14		(220)
Comprehensive loss	$	(2,283)	$	(4,759)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


(Unaudited and in thousands except share amounts)	Outstanding Common Shares	Common Stock		Additional Paid-In Capital & Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity

Balance, January 1, 2020	19,071,614	$	2	$	85,273	$	164,819	$	250,094
Net loss	—	—		—		(4,539)		(4,539)
Adoption of current expected credit loss ("CECL")	—	—		—		(365)		(365)
Purchase of common stock for tax withholding	(79,981)	—		(903)		—		(903)
Amortization of stock-based compensation	—	—		1,182		—		1,182
Cash dividends declared	—	—		—		(2,488)		(2,488)
Issuance of restricted stock under the 2012 Equity Plan and other	1,918	—		—		19		19
Cumulative translation adjustment	—	—		(220)		—		(220)
Balance, March 31, 2020	18,993,551	$	2	$	85,332	$	157,446	$	242,780




Balance, January 1, 2021	19,384,192	$	2	$	90,328	$	110,283	$	200,613
Net loss	—	—		—		(2,297)		(2,297)
Purchase of common stock for tax withholding	(132,281)	—		(1,444)		—		(1,444)
Amortization of stock-based compensation	—	—		2,239		—		2,239
Cash dividends declared	—	—		—		(2,553)		(2,553)
Issuance of restricted stock under the equity plans and other	20,952	—		—		—		—
Issuance of common stock in lieu of cash compensation	50,741	—		—		—		—
Cumulative translation adjustment	—	—		14		—		14
Balance, March 31, 2021	19,323,604	$	2	$	91,137	$	105,433	$	196,572

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Three Months Ended March 31,
(Unaudited and in thousands)	2021		2020

Operating activities:
Net loss	$	(2,297)	$	(4,539)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion	2,727		2,146


Deferred income tax expense	510		790
Stock-based compensation	2,239		1,182
Provisions for doubtful accounts, service credits and other	215		18
Changes in assets and liabilities:
Accounts receivable	1,039		2,441
Prepaid expenses and other assets	457		238
Net operating lease liabilities	338		(77)
Accounts payable, accrued liabilities and other	(3,038)		(340)
Deferred revenue	(1,471)		(542)
Net cash provided by operating activities	719		1,317
Investing activities:
Purchases of property and equipment	(727)		(1,049)
Capitalized software development	(2,920)		(1,705)
Purchase of short-term investments	(14,995)		(14,888)
Maturity of short-term investments	15,000		15,000
Net cash used in investing activities	(3,642)		(2,642)
Financing activities:
Cash distributions to stockholders	(2,730)		(2,629)


Purchase of common stock for tax withholding on vested equity awards	(1,444)		(903)
Net cash used in financing activities	(4,174)		(3,532)
Effect of exchange rate on cash	14		(220)
Net decrease in cash and cash equivalents	(7,083)		(5,077)
Cash and cash equivalents, beginning of period	48,729		47,361
Cash and cash equivalents, end of period	$	41,646	$	42,284
Supplemental disclosure:

Income taxes paid	$	(118)	$	—

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Spok Holdings, Inc. (NASDAQ: SPOK) ("Spok," "we," "our" or the "Company"), through its wholly owned subsidiary Spok, Inc., is the global leader in healthcare communications. We deliver clinical information to care teams when and where it matters most to improve patient outcomes. Top hospitals rely on Spok products and services to enhance workflows for clinicians, support administrative compliance, and provide a better experience for patients.

We offer a focused suite of unified clinical communication and collaboration solutions that include call center operations, clinical alerting and notifications, one-way and advanced two-way wireless messaging services, mobile communications and public safety solutions.

We provide one-way and advanced two-way wireless messaging services, including information services, throughout the United States. These services are offered on a local, regional and nationwide basis employing digital networks. One-way messaging consists of numeric and alphanumeric messaging services. Numeric messaging services enable subscribers to receive messages that are composed entirely of numbers, such as a phone number, while alphanumeric messages may include numbers and letters, which enable subscribers to receive text messages. Two-way messaging services enable subscribers to send and receive messages to and from other wireless messaging devices, including pagers, personal digital assistants and personal computers. We also offer voice mail, personalized greetings, message storage and retrieval, and equipment loss and/or maintenance protection to both one-way and two-way messaging subscribers. These services are commonly referred to as wireless messaging and information services.

We also develop, sell and support enterprise-wide systems for hospitals and other organizations needing to automate, centralize and standardize clinical communications. These solutions are used for contact centers, clinical alerting and notification, mobile communications and messaging and for public safety notifications. We offer a variety of solutions in both on-premise and Software as a Service ("SaaS") delivery models. The Spok Go platform was made commercially available in early 2020. Spok Go features an integrated cloud-native platform that is built on a foundation of a single, best-in-class architecture with hosting and security handled through our partnership with Amazon Web Services®. These areas of market focus complement the market focus of our wireless services outlined above. These products and services are commonly referred to as software solutions and services.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements include our accounts and the accounts of our wholly owned direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In management's opinion, the unaudited Condensed Consolidated Financial Statements include all adjustments and accruals that are necessary for the presentation of the results of all interim periods reported herein and all such adjustments are of a normal, recurring nature.

Amounts shown on the Condensed Consolidated Statements of Operations within the operating expense categories of Cost of revenue; Research and development; Technology operations; Selling and marketing; and General and administrative are recorded exclusive of depreciation, amortization and accretion.

Certain immaterial prior period amounts in the Condensed Consolidated Financial Statements have been reclassified to conform to the current period's presentation. These reclassifications had no effect on the reported results of operations or the statement of financial position.

The financial information included herein, other than the Condensed Consolidated Balance Sheet as of December 31, 2020, is unaudited. The Condensed Consolidated Balance Sheet as of December 31, 2020, has been derived from, but does not include all, the disclosures contained in the audited Consolidated Financial Statements as of and for the year ended December 31, 2020.

These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”). The Condensed Consolidated Statement of Operations for the interim periods presented are not necessarily indicative of the results that may be expected for a full year.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Use of Estimates

The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, we evaluate estimates and assumptions, including, but not limited to, those related to the impairment of long-lived assets, intangible assets subject to amortization and goodwill, accounts receivable allowances, revenue recognition, determining standalone selling price of performance obligations, variable consideration, depreciation expense, asset retirement obligations, income taxes and capitalization of software costs. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

NOTE 2 - RISKS AND OTHER IMPORTANT FACTORS

See “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q (“Quarterly Report”) and "Item 1A. Risk Factors" of Part I of the 2020 Annual Report, which describe key risks associated with our operations and industry.

NOTE 3 - RECENT ACCOUNTING STANDARDS

The Company considers the applicability and impact of all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB"). The Company has determined that all recent ASUs issued by the FASB are either not applicable or are expected to have minimal impact on the Company's Condensed Consolidated Financial Statements.

NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES UPDATE

Our significant accounting policies are detailed in Note 1, “Organization and Significant Accounting Policies” of the 2020 Annual Report.

NOTE 5 - REVENUE, DEFERRED REVENUE AND PREPAID COMMISSIONS

Wireless Revenue

Wireless revenue consists of two primary components: paging revenue and product and other revenue. Paging revenue consists primarily of recurring fees associated with the provision of messaging services and fees for paging devices and is net of a provision for service credits. Product and other revenue reflects system sales, the sale of devices and charges for paging devices that are not returned and are net of anticipated credits. Our core offering includes subscriptions to one-way or two-way messaging services for a periodic (monthly, quarterly, semiannual, or annual) service fee. This is generally based upon the type of service provided, the geographic area covered, the number of devices provided to the customer and the period of commitment. A subscriber to one-way messaging services may select coverage on a local, regional or nationwide basis to best meet their messaging needs. Two-way messaging is generally offered on a nationwide basis. (See Item 1. “Business,” in the 2020 Annual Report for more details.)

Software Revenue

Software revenue consists of two primary components: operations revenue and maintenance revenue. Operations revenue consists primarily of license and subscription revenues for our healthcare communications solutions, revenue from the sale of equipment that facilitates the use of our software solutions, and professional services revenue related to the implementation of our solutions. Maintenance revenue is for ongoing support of our software solutions or related equipment and access to when-and-if available software updates. Maintenance is generally purchased and renewed on an annual basis.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Our software licenses and hardware are generally recognized at a point in time when we have transferred control to the customer. For software licenses, revenue is not recognized until the related license(s) has been made available to the customer and the customer can begin to benefit from its right to use the license(s). Our software licenses represent a right to use Spok’s Intellectual Property ("IP") as it exists at a point in time at which the license is granted. Many of our software licenses have significant standalone functionality due to their ability to process a transaction or perform a function or task, and we do not need to maintain those products, once provided to the customer, for value to exist. While the functionality of the IP that we license may substantively change during the license period, customers are not contractually or practically required to update their license as a result of those changes.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our wireless, professional, subscription, and maintenance services are generally recognized over time due to a customer's simultaneous receipt and consumption of the benefit as we perform the work. As we transfer control over time, we recognize revenue based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires significant judgment and is based on the nature of the products or services to be provided. Generally, we use the time-elapsed measure of progress for performance obligations that include wireless, maintenance or subscription services. We believe this method best depicts the simultaneous transfer and consumption of the benefit based on our performance as these services are generally considered standby services. For professional services, we leverage an input methodology based on the number of hours worked on a project versus the total expected hours necessary to complete the project. Revenues are recognized proportionally as hours are incurred.

The following table presents our revenues disaggregated by revenue type:


	For the Three Months Ended March 31,
(Dollars in thousands)	2021	2020

SEC Form 10-Q filed by Spok Holdings, Inc.