Earnings Labs

Spok Holdings, Inc. (SPOK)

Q2 2014 Earnings Call· Sat, Aug 2, 2014

$11.41

-0.57%

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Transcript

Operator

Operator

Good day and welcome to the Spok’s Second Quarter Investor Call. Today’s conference is being recorded. Online today, we have Vince Kelly, President and Chief Executive Officer; Shawn Endsley, Chief Financial Officer and Colin Balmworth, President of the company’s Operating Company. At this time for opening comments, I will turn the call over to Mr. Endsley, please go ahead, Sir.

Shawn E. Endsley

Management

Good morning. Thank you for joining us for our second quarter investor update. Before we discuss our operating results, I want to remind everyone that today’s conference call may include forward-looking statements, that are subject to risks and uncertainties relating to Spok’s future financial and business performance. Such statements may include estimates of revenue, expenses and income, as well as other predictive statements or plans, which are dependent upon future events or conditions. These statements represent the company’s estimates only on the date of this conference call and are not intended to give any assurance as to actual future results. Spok’s actual results could differ materially from those anticipated in these forward-looking statements. Although these statements are based upon assumptions that the company believes to be reasonable, they are subject to risks and uncertainties. Please review the risk factors section relating to our operations and the business environment in which we compete contained in our 2013 Form 10-K, our second quarter Form 10-Q, which we expect to file later today, and related documents filed with the Securities and Exchange Commission. Please note that Spok assumes no obligation to update any forward-looking statements from past or present filings and conference calls. With that, I'll turn the call over to Vince.

Vincent D. Kelly

Management

Thanks, Shawn, and good morning. We’re delighted to speak with you this morning about our second quarter results, recent activities and business outlook. Our second quarter results were very strong relative to our plan and we believe we are well positioned for the balance of the year. In addition, as you know, we announced the new corporate name Spok, earlier this month as part of the company wide rebranding strategy. We are very pleased with the successful launch and positive feedback we received today on our new identity in [LaSalle] (ph). Spok is proud to be a leader in critical communications for healthcare, government, public safety and large enterprise market segments. We deliver smart, reliable solutions to help protect the health, well-being, and safety of people around the globe. More than 125,000 organizations worldwide rely on Spok for workflow improvement, secure texting, paging services, contact center optimization, and public safety response. When communications matter, Spok delivers. Our core value includes customer approach in everything we do. What we do matters, our solutions improve communications in critical situations. We are committed to innovation and offering new solutions for future growth and we are accountable to each other, our customers and our shareholders. Turning to the second quarter, we set an all-time record for software bookings, while software revenue increased from the year earlier quarter. Our backlog is also near record high at June 30. Our wireless trends improved as we ended the quarter ahead of our key operating goals for total revenue, gross placement and pager churn. On a consolidated basis, we were able to exceed our operating goals, strengthen our balance sheet, advance our long-term business strategy and once again return capital to stock holder in the form of cash dividends. Shawn will provide a financial overview shortly, but first…

Shawn E. Endsley

Management

Thanks, Vince. Before I review our financial highlights for the quarter, I would again encourage you to review our second quarter Form 10-Q, which we expect to file later today, since it contains far more information about our business operations and financial performance that we will cover on this call. As Vince noted, our operating performance for the second quarter was consistent with our previously announced financial guidance for 2014, strong Wireless and Software revenue combined with continued expense management contributed to solid cash flow, EBITDA and operating margins. Overall, we believe this was another quarter of solid results as we continue to transition our corporate business model to focus on global critical communication. I planned to limit my comments this morning to four areas that may be of interest to you. They include, number one, a review of how we now report certain items in our financial statements following the consolidation of our business operations earlier this year. Number two, an update on how software revenue reported for the second quarter was impacted by the internal control remediation process we completed in 2013. Number three, a review of selected items impacting our statement of income and number four, a brief review of the balance sheet and other key financial items in the second quarter. If you have specific questions about any of these issues or related financial matters, I would be glad to address them during the Q&A. With respect to how we report certain results in our financial statements in 2014 following the consolidation of our Wireless and Software businesses on January 1st, we will report only one operating segment, our consolidated operations. However, we will continue to breakout revenue for Wireless and Software. As previously noted, our business operations are now unified under one company with a…

Vincent D. Kelly

Management

Thanks, Shawn. Before we take your questions, I want to comment briefly on several other items that may be of interest. First, provide some additional perspective on our recently announced corporate name change of rebranding program. Second, briefly update our current capital allocation strategy; and third, review our business outlook over the balance of the year. With respect to our recent name change to Spok which we announced on July 8, we are very excited about this new chapter in our company’s history. As many of you know, the paging side of our business firmly known as USA Mobility Wireless and the Software side firmly known as Amcom Software both had strong and respected brands in a respected markets. Indeed, both of these entities with the product that numerous mergers and acquisitions over the years, our reach was associated with the specific product line, mostly pagers and operator consoles and either reflected the evolving global focus about the company truly represents to the marketplace today and integrated provider of critical communication on a worldwide basis. As we thought about this internally over the past year, we concluded that we needed a brand identity that would reflect our singular mission, as well as one that would be easily recognized and respected by customers in both domestic and international markets. Additionally, we wanted to assure then that we now provide a number of technologies not just one or two, that are specifically designed to improve their communication challenges. In short, we wanted to ensure that all customers and potential customer clearly understood what we did and how our product and services could improve their workflow activity and operating results. We think our new name Spok effectively depicts many elements of our current business and long-term goal. Like the spokes of a wheel…

Colin M. Balmforth

Management

Thank you, Vince, and good morning. Following a strong first quarter this year, our sales and marketing teams delivered a new quarterly record for the second quarter – Software bookings of $19 million. Included in these figures was 74% increase in new business from the second quarter in 2013. While we appreciate the record efforts of our sales and marketing teams, we also recognize the customer decisions and preferences and impact the timing of purchasing decisions each quarter. Sales to existing customers remain solid. Q2 included notable operates for a number of our long time (indiscernible) customers. Many of them also started new applications to their solutions throughput, demonstrating the trust they place in our products. One example is Southwest Health System with three hospitals and more than 100 clinics that added Spok’s clinical alerting. The health systems seeks to increase patient safety and enhance operational efficiencies. Their decision was driven by the need to create a more comprehensive alarm management system specific to their nursing workflows. We continue to meet our goals for gross additions in our paging services. As I’ve mentioned in previous calls, there are many positive collaboration efforts among the sales representatives. This cross-selling effort brought in 11 more deals during the quarter. I’ve also excelled before about our five pillars for growth. They represent folks’ initiatives for meeting our long range objectives, and I would like to update you on our progress in each area. Our first pillar is the mid-market healthcare space, which we define as hospitals with 200 to 600 beds. We continue to see the mid-market as a growth opportunity for new customers, which we added 12 accounts in Q2. Our development team is making progress with our software-as-a-service; SaaS capabilities that will allow us to offer hospitals in the small and…

Vincent D. Kelly

Management

Thank you, Colin. With regard to our business outlook for the balance of 2014, we are very optimistic about meeting our performance goal this year, as well as making significant progress toward our long-term strategic goal of becoming a growing global provider of critical communication solutions. The value of paging for critical messaging remains strong and should contribute to our cash flow and capital formation for some time to come. We expect overall demand for paging to continue to decline over time. As a result, we will continue to redeploy the majority of our capital to accelerate the development, growth and expansion of our critical communications solutions and services worldwide. This includes internally developing new offering, expanding our sales leads both then and beyond existing market segments, extending our sales in the new geographic regions and promoting our new brand, Spok in key global markets. In addition, as I noted earlier, we will continue to explore acquisition opportunities in the critical communications base that can accelerate our revenue growth and help utilize our valuable tax assets. In summary, operating results for the second quarter were strong and have positioned us well for our solid second half of the year. We never exceeded our primary performance goals, expanded our sales capabilities, extended our region key geographic and vertical markets, strengthened our balance sheet and continually operate the company profitably. Going forward, we anticipate even further progress as we aggressively execute our business plan and continue to explore all opportunities to create additional value for our stockholders. At this point, I’ll ask the operator to open up line up to your questions. We would ask you to limit your initial questions to one and a follow-up. After that, we’ll take additional questions as time allows. Operator?

Operator

Operator

Thank you. (Operator instructions) And we’ll take our first question from John Noell with Kensington Growth Partners. John Noell – Kensington Growth Partners LP: Yes. Hi, guys. I just wanted to ask in the paging industry, are there any potential acquisitions out there that could still potentially make sense at the right price, or has the industry kind of shrunk or deteriorated to the point where that would make sense, almost any price levels just be easier for you to take their customers?

Vincent D. Kelly

Management

So at some point, it might make sense, but again, you have to be careful, because there’s a lot of complexities associated with it. One of the issues that you have to consider is the actual, technical network infrastructure of the target, because depending on what frequency they operate on, if you purchase that company and then you try to integrate them, you might have to end up swapping out the pages, because if you want to have a very efficient long-term platform, kind of single skew if you will on a minimum number of frequencies, we can’t be maintaining multiple networks as the industry gets smaller. So there are some out there, we’ve talked to some in the past. the valuations haven’t made a lot of sense are up. and so we’ve really kind of approached it from the standpoint of just selling and marketing and being in the marketplace with our technical networks and our sales expertise. John Noell – Kensington Growth Partners LP: Thank you.

Operator

Operator

(Operator Instructions)

Vince D. Kelly

Analyst

Okay. Look, I don’t see any more questions in the queue. And so we’re going to ahead and call for this morning. Thank you very much for joining us. We look forward to speaking with you after we release our third quarter results. And thanks again, everybody have a great day.

Operator

Operator

This now concludes the presentation. Thank you for your participation.