UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM			10-Q

(Mark One)



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

For the quarterly period ended March 31, ~~2020~~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~~Delaware						16-1694797
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



~~6850 Versar Center, Suite 420~~5911 Kingstown Village Pkwy, 6th Floor
~~Springfield, Virginia~~Alexandria,	Virginia	~~22151-4148~~	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 ~~National Market®~~

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 x☒ 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 x☒ 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~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer		☐			Accelerated filer		☒

~~Large accelerated filer~~		¨	~~Accelerated filer~~	x

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 x☒

~~19,005,209~~19,385,155 shares of the registrant’s common stock (par value $0.0001 per share) were outstanding as of April ~~24, 2020.~~

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, ~~2020~~2021, (Unaudited) and December 31, ~~2019~~2020	2
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 202 1, an d 2020 ~~and 2019~~ (Unaudited)	3
		Condensed Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the Three Months Ended March 31 ~~2020~~, 202 1, and ~~2019~~20 20 (Unaudited)	4
		Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2021, and 2020 ~~and 2019~~ (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31 ~~2020~~ , 202 1,and ~~2019~~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	2629
	Item 4.	Controls and Procedures	2629
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	2730
	Item 1A.	Risk Factors	2730
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2730
	Item 6.	Exhibits	2831
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	0		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)	0		0
Stockholders' equity:
Preferred stock	$	0	$	0
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

(in thousands) March 31, 2020 December 31, 2019
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 42,284
$ 47,361
Short-term investments 29,906
29,899
Accounts receivable, net 27,216
30,174
Prepaid expenses 8,411
7,517
Other current assets 2,433
2,714
Total current assets 110,250
117,665
Non-current assets:
Property and equipment, net 7,655
8,000
Operating lease right-of-use assets 15,591
16,317
Capitalized software development 1,705
—
Goodwill 124,182
124,182
Intangible assets, net 2,292
2,917
Deferred income tax assets 47,486
48,983
Other non-current assets 1,641
1,808
Total non-current assets 200,552
202,207
Total assets $ 310,802
$ 319,872
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 4,003
$ 3,615
Accrued compensation and benefits 10,403
11,680
Accrued taxes 1,419
1,529
Deferred revenue 25,265
25,944
Operating lease liabilities 5,236
5,437
Other current liabilities 3,629
2,978
Total current liabilities 49,955
51,183
Non-current liabilities:
Asset retirement obligations 6,109
6,061
Operating lease liabilities 10,972
11,575
Other non-current liabilities 986
959
Total non-current liabilities 18,067
18,595
Total liabilities 68,022
69,778
Commitments and contingencies (Note 12)

Stockholders' equity:
Preferred stock $ —
$ —
Common stock 2
2
Additional paid-in capital 87,153
86,874
Accumulated other comprehensive loss (1,821 ) (1,601 )
Retained earnings 157,446
164,819
Total stockholders’ equity 242,780
250,094
Total liabilities and stockholders' equity $ 310,802
$ 319,872

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

For the Three Months Ended March 31,
(Unaudited and in thousands except share and per share amounts) 2020 2019
Revenue:
Wireless $ 21,386
$ 22,610
Software 15,881
19,154
Total revenue 37,267
41,764
Operating expenses:
Cost of revenue 8,264
7,592
Research and development 5,449
6,167
Technology operations 7,904
7,674
Selling and marketing 6,361
6,110
General and administrative 11,251
10,747
Depreciation, amortization and accretion 2,146
2,359
Total operating expenses 41,375
40,649
Operating (loss) income (4,108 ) 1,115
Interest income 363
449
Other expense (137 ) (236 )
(Loss) income before income taxes (3,882 ) 1,328
Provision for income taxes

(657 ) (586 )
Net (loss) income $ (4,539 ) $ 742
Basic and diluted net (loss) income per common share $ (0.24 ) $ 0.04
Basic weighted average common shares outstanding 18,958,716
19,196,970
Diluted weighted average common shares outstanding 18,958,716
19,356,712
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,
2020 2019
(Unaudited and in thousands)
Net (loss) income $ (4,539 ) $ 742
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (220 ) (60 )
Other comprehensive loss (220 ) (60 )
Comprehensive (loss) income $ (4,759 ) $ 682

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

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~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)

(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, 2019 19,389,066
$ 2
$ 89,258
$ 185,294
$ 274,554
Net income —
—
—
742
742
Purchase of common stock for tax withholding (67,648 ) —
(1,011 ) —
(1,011 )
Amortization of stock-based compensation —
—
528
—
528
Cash dividends declared —
—
—
(2,479 ) (2,479 )
Common stock repurchase program including commissions (131,012 ) —
(1,810 ) —
(1,810 )
Issuance of restricted stock under the Equity Plan and other 13,650
—
—
70
70
Cumulative translation adjustment —
—
(60 ) —
(60 )
Balance, March 31, 2019 19,204,056
$ 2
$ 86,905
$ 183,627
$ 270,534

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 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

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

SPOK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~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

For the Three Months Ended March 31,
(Unaudited and in thousands) 2020 2019
Operating activities:
Net (loss) income (4,539 ) $ 742
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion 2,146
2,359
Deferred income tax expense 790
517
Stock-based compensation 1,182
528
Provision for doubtful accounts, service credits and other 18
374
Changes in assets and liabilities:
Accounts receivable 2,441
(4,791 )
Prepaid expenses, inventory, and other assets 964
2,216
Accounts payable, accrued liabilities and other (1,143 ) (2,525 )
Deferred revenue (542 ) 1,803
Net cash provided by operating activities 1,317
1,223
Investing activities:
Purchase of property and equipment (1,049 ) (1,287 )
Capitalized software development (1,705 ) —
Purchase of short-term investments (14,888 ) (14,824 )
Maturity of short-term investments 15,000
—
Net cash used in investing activities (2,642 ) (16,111 )
Financing activities:
Cash distributions to stockholders (2,629 ) (2,647 )
Purchase of common stock (including commissions) —
(1,810 )
Purchase of common stock for tax withholding on vested equity awards (903 ) (1,011 )
Net cash used in financing activities (3,532 ) (5,468 )
Effect of exchange rate on cash (220 ) (60 )
Net decrease in cash and cash equivalents (5,077 ) (20,416 )
Cash and cash equivalents, beginning of period 47,361
83,343
Cash and cash equivalents, end of period $ 42,284
$ 62,927
Supplemental disclosure:
Income taxes paid $ —
$ 80




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)	$	0

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 ~~the~~ Spok ~~Care Connect platform~~products and services to enhance workflows for clinicians, support administrative compliance, and provide a better experience for patients. ~~Our customers send over 100 million messages each month through their Spok solutions.~~

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, ~~mobile devices~~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 and collaboration.~~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~~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 with the exception of our adoption of Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses~~ ~~(Topic 326), Measurement of Credit Losses on Financial Instruments, often referred to as Current Expected Credit Losses ("CECL"). For additional details refer to Note 3, "Significant Accounting Policies Update".~~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, ~~2019,~~2020, is unaudited. The Condensed Consolidated Balance Sheet atas of December 31, ~~2019~~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, ~~2019.~~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, ~~2019~~2020 (the ~~“2019~~“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 ~~on-going~~ongoing basis, we evaluate estimates and assumptions, including, but not limited to, those related to the impairment of long-lived ~~assets;~~assets, intangible assets subject to amortization and ~~goodwill;~~goodwill, accounts receivable ~~allowances;~~allowances, revenue ~~recognition;~~recognition, determining standalone selling price ~~("SSP")~~ of performance

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~obligations;~~ obligations, variable ~~consideration;~~consideration, depreciation ~~expense;~~expense, asset retirement ~~obligations;~~obligations, income ~~taxes;~~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 ~~2019~~2020 Annual Report, which describe key risks associated with our operations and industry.

NOTE 3 - RECENT ACCOUNTING STANDARDS

~~Recently Adopted~~

~~Credit Losses -~~ ~~In June 2016,~~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 ~~ASU No. 2016-13,~~by the FASB are either not applicable or ~~CECL. CECL requires early recognition of credit losses~~are expected to have minimal impact on ~~financial assets held at~~ the ~~reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for fiscal years beginning after December 15, 2019.~~Company's Condensed Consolidated Financial Statements.

~~On January 1, 2020 we adopted ASU No. 2016-13 which resulted in an immaterial adjustment to the beginning balance of retained earnings and an increase to allowance for doubtful accounts.~~

NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES UPDATE

Our significant accounting policies are detailed in Note 1, “Organization and Significant Accounting Policies” of the ~~2019~~2020 Annual Report. ~~Significant changes to our accounting policies that occurred during the three months ended March 31, 2020 are discussed below:~~

~~Research and Development~~

~~Certain costs related to the development of Spok Go qualified for capitalization beginning in the first quarter of 2020.~~

~~In accordance with ASC 985-20,~~ ~~Software to be Sold, Leased, or Marketed~~, certain software development costs are charged to operations and expensed as incurred until technological feasibility has been established. Material costs incurred after technological feasibility is established and before the product is ready for general release are capitalized and amortized on a straight-line basis over the estimated remaining economic life of the product or the ratio of current revenues to total projected product revenues, whichever is greater. To date, the time between technological feasibility and general release to the public has been extremely short and consequently expenses available for capitalization have been immaterial. Accordingly, all research and developments costs incurred to date, accounted for in accordance with ASC 985-20, have been expensed as incurred.

~~In accordance with ASC 350-40,~~ ~~Internal-use Software~~, certain software development costs are capitalized while in the application development stage related to software developed for internal use or software sold in a SaaS arrangement. This includes certain development costs for Spok Go. All other costs incurred during the preliminary project stage or the post implementation stage, are expensed as incurred. Capitalized software development is amortized on a straight-line basis over the estimated useful life of the asset, typically three years, beginning when those development efforts have been placed into service (e.g. generally once made commercially available). Determining the estimated useful life requires significant judgment as we consider factors such as the rapid and continuous developments in software technology, obsolescence and anticipated life of the service offering before enhancements are necessary. In a SaaS environment, customer needs are rapidly evolving and a shorter useful life is generally expected.

NOTE 5 - REVENUE, DEFERRED REVENUE AND PREPAID COMMISSIONS

Wireless Revenue

Wireless revenue consists of ~~two~~2 primary components: ~~Paging~~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

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

nationwide basis. In addition, subscribers either contract for a messaging device from us for an additional fixed monthly fee or they own a device, having purchased it either from us or from another vendor. We also sell devices to resellers who lease or resell devices to their subscribers and then sell messaging services utilizing our networks. We offer ancillary services, such as voicemail and equipment loss or maintenance protection, which increase the monthly recurring revenue we receive along with these traditional messaging services. We offer exclusive one-way (T5) and two-way (T52) alphanumeric pagers, which are configurable to support un-encrypted or encrypted operation. When configured for encryption, they utilize AES-128 bit encryption, screen locking and remote wipe capabilities. With encryption enabled these secure paging devices enhance our service offerings to the healthcare community by adding Health Insurance Portability and Accountability Act ("HIPAA") security capabilities to the low cost, highly reliable and availability benefits of paging. (See Item 1. “Business,” in the ~~2019~~2020 Annual Report for more details.)

Software Revenue

Software revenue consists of ~~two~~2 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 ~~revenues~~ that ~~facilitate~~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 ~~which~~that include wireless, maintenance or ~~maintenance~~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,					For the Three Months Ended March 31,
(Dollars in thousands)	2020		2019		(Dollars in thousands)	2021		2020

Wireless products and services	$	21,386	$	22,610	Wireless products and services	$	20,120	$	21,386
License	955		2,840		License	1,507		955
Services	4,549		5,206		Services	4,354		4,549
Hardware	725		963
Equipment					Equipment	616		725
Subscription					Subscription	45		0
Maintenance	9,652		10,145		Maintenance	9,394		9,652
Total revenue	$	37,267	$	41,764	Total revenue	$	36,036	$	37,267

The U.S. was the only country that accounted for more than 10% of the Company’s total revenue for the three months ended March 31, ~~2020~~2021, and ~~2019.~~2020. Revenue generated in the U.S. and internationally consisted of the following for the periods stated:

For the Three Months Ended March 31,
(Dollars in thousands) 2020 2019
Revenue
United States $ 36,503
$ 39,766
International 764
1,998
Total revenue $ 37,267
$ 41,764

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


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

United States	$	35,174	$	36,503
International	862		764
Total revenue	$	36,036	$	37,267

Deferred Revenues

Our deferred revenues represent payments made by, or due from, customers in advance of our performance. Changes in the balance of total deferred revenue during the three months ended March 31, ~~2020~~2021 are as follows:


(Dollars in thousands)	December 31, 2019		Additions		Revenue Recognized			March 31, 2020		(Dollars in thousands)	December 31, 2020		Additions		Revenue Recognized		March 31, 2021

Deferred Revenue	$	26,621	$	15,100	$	(15,642	)	$	26,079	Deferred Revenue	$	29,796	$	14,378	$	(15,849)	$	28,325

During the three months ended March 31, ~~2020,~~2021, the Company recognized ~~$11.8~~$10.5 million related to amounts deferred as of December 31, ~~2019.~~2020.

Prepaid Commissions

Our prepaid commissions represent payments made to employees in advance of our performance on the related underlying contracts. These costs have been incurred directly in relation to obtaining a contract. As such, these costs are amortized over the estimated period of benefit. Changes in the balance of total prepaid commissions during the three months ended March 31, ~~2020~~2021 are as follows:


(Dollars in thousands)	December 31, 2019		Additions		Commissions Recognized			March 31, 2020		(Dollars in thousands)	December 31, 2020		Additions		Commissions Recognized		March 31, 2021

Prepaid Commissions	$	2,431	$	1,110	$	(1,212	)	$	2,329	Prepaid Commissions	$	2,290	$	1,043	$	(1,105)	$	2,228

Prepaid commissions are included within ~~prepaid~~Prepaid expenses ~~and other~~ on the Condensed Consolidated Balance Sheets and commissions expense is included within Selling and marketing on the Condensed Consolidated Statements of Operations.

Remaining Performance Obligations

The balance of remaining performance obligations at March 31, ~~2020~~2021, was ~~$49.0~~$48.8 million. We expect to recognize approximately ~~$37.7~~$35.0 million of our remaining performance obligations over the next 12 months, with the remaining balance recognized thereafter.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 6 - ~~Leases~~LEASES

We have operating lease arrangements for corporate offices, cellular towers, storage units and small building space. The building space is used to house infrastructure, such as transmitters, antennae and other various equipment for the Company’s wireless paging services. For leases with a term of 12 months or less, renewal terms are generally of an evergreen nature (either month-to-month or year-to-year). For leases with a term greater than 12 months, renewal terms are generally explicit and provide for ~~one~~1 to ~~five~~5 optional renewals consistent with the initial term. Many of our leases, with the exception of those for our corporate offices, include options to terminate the lease within one year. Variable lease payments, residual value guarantees or purchase options are not generally present in these leases.

Lease costs are included in technology operations and general and administrative expenses on the Condensed Consolidated Statements of Operations. The following table presents lease costs disaggregated by type:


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

Operating lease cost	$	1,470	$	1,382
Short-term lease cost	2,739		1,977
Short-term lease cost - related party(1)	0		890
Total lease cost	$	4,209	$	4,249

Supplemental Disclosure:
Cash paid for amounts included in the measurement of lease liabilities - operating leases	$	1,375	$	1,349
Weighted-average remaining lease term - operating leases (in years)	5.09		5.55
Weighted-average discount rate - operating leases	4.65%		5.39%

For the Three Months Ended March 31,
(Dollars in thousands) 2020 2019
Operating lease cost $ 1,382
$ 1,381
Short-term lease cost 1,977
1,935
Short-term lease cost - related party⁽¹⁾
890
902
Total lease cost $ 4,249
$ 4,218

Supplemental Disclosure:
Cash paid for amounts included in the measurement of lease liabilities - operating leases $ 1,349

Weighted-average remaining lease term - operating leases 5.55 years

Weighted-average discount rate - operating leases 5.39 %

⁽¹⁾A former member of our Board of Directors, ~~also serves~~who departed the Board during the third quarter of 2020, concurrently served as a director for an entity that leases transmission tower sites to the Company. ~~Refer~~

In March 2021, we relocated our corporate headquarters to ~~Note 13, "Related Parties"~~office space located in Alexandria, Virginia, consisting of approximately 26,000 square feet of space under a lease that will expire on September 30, 2026. At that time, we recorded $4.4 million in a right-of-use asset and corresponding operating lease liability for ~~additional details.~~this lease. Over the life of this lease, cash payments are expected to total approximately $4.9 million.

Maturities of lease liabilities as of March 31, 2021, were as follows:


For the Year Ended December 31,	(Dollars in thousands)

For the remaining nine months ending December 31, 2021	$	4,649
2022	4,653
2023	3,500
2024	2,658
2025	2,002
Thereafter	3,526
Total future lease payments	20,988
Imputed interest	(2,311)
Total	$	18,677

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~Maturities of lease liabilities as of March 31, 2020 were as follows:~~

For the Year Ended December 31, (Dollars in thousands)
For the remaining nine months ending December 31, 2020 $ 4,425
2021 4,404
2022 2,829
2023 1,883
2024 1,416
Thereafter 3,763
Total future lease payments 18,720
Imputed interest (2,512 )
Total $ 16,208

NOTE 7 - CONSOLIDATED FINANCIAL STATEMENT COMPONENTS

Depreciation, Amortization and Accretion

Depreciation, amortization and accretion expenses consisted of the following for the periods stated:


	For the Three Months Ended March 31,							For the Three Months Ended March 31,
(Dollars in thousands)	2020			2019			(Dollars in thousands)	2021		2020

Depreciation							Depreciation
Leasehold improvements	$	16		$	24		Leasehold improvements	$	16	$	16
Asset retirement costs	(161		)	(192		)	Asset retirement costs	(22)		(161)
Paging and computer equipment	1,478			1,666			Paging and computer equipment	1,069		1,478
Furniture, fixtures and vehicles	70			98			Furniture, fixtures and vehicles	58		70
Total depreciation	1,403			1,596			Total depreciation	1,121		1,403
Amortization	625			625			Amortization
Intangible assets							Intangible assets	417		625
Capitalized software development costs							Capitalized software development costs	1,035		0
Total amortization							Total amortization	1,452		625
Accretion	118			138			Accretion	154		118
Total depreciation, amortization and accretion expense	$	2,146		$	2,359		Total depreciation, amortization and accretion expense	$	2,727	$	2,146

Accounts Receivable, Net

Accounts receivable was recorded net of an allowance of ~~$1.6~~$1.5 million and ~~$1.3~~$1.7 million at March 31, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively. Accounts receivable, net includes ~~$6.5 million and $6.4~~$7.0 million of unbilled receivables at March 31, ~~2020~~2021, and December 31, ~~2019, respectively.~~2020. Unbilled receivables are defined as the Company's right to consideration in exchange for goods or services that we have transferred to the customer but have not yet billed for, generally as a result of contractual billing terms.

Property and Equipment, Net

Property and equipment, net consisted of the following as of the dates stated:

(Dollars in thousands) Useful Life
(In Years) March 31, 2020 December 31, 2019
Leasehold improvements shorter of useful life or lease term $ 3,620
$ 3,620
Asset retirement costs 1-5 1,922
1,922
Paging and computer equipment 1-5 95,542
96,562
Furniture, fixtures and vehicles 3-5 3,585
3,716
Total property and equipment
104,669
105,820
Accumulated depreciation
(97,014 ) (97,820 )
Total property and equipment, net
$ 7,655
$ 8,000

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


(Dollars in thousands)	Useful Life (In Years)	March 31, 2021		December 31, 2020

Leasehold improvements	shorter of useful life or lease term	$	3,172	$	3,628
Asset retirement costs	1-5	3,717		3,717
Paging and computer equipment	1-5	91,441		92,608
Furniture, fixtures and vehicles	3-5	3,530		3,517
Total property and equipment		101,860		103,470
Accumulated depreciation		(94,439)		(95,655)
Total property and equipment, net		$	7,421	$	7,815

Capitalized Software Development

Capitalized software development is amortized on a straight-line basis over the estimated useful life of the asset, typically three years. Capitalized software development costs were $2.9 million and $1.7 million for the three months ended March 31, 2021 and 2020 respectively. Amortization expense with respect to software development costs was $1.0 million and ~~no capitalized costs were recorded~~$0.0 million for the three months ended March 31, ~~2019. There was no amortization expense with respect to software development costs for the three months ended March 31,~~2021, and 2020, ~~and 2019.~~respectively.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 - GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

During the ~~quarter~~three months ended March 31, ~~2020,~~2021, we ~~determined, based on~~performed a qualitative assessment of goodwill and determined that ~~the Coronavirus Disease 2019 ("COVID-19") pandemic created~~ a triggering event that required further assessment. As such, we performed a quantitative assessment, using data as of March 31, 2020. Based on this assessment, the estimated fair value of the reporting unit exceeded the carrying value of the Company, which indicatedhad not occurred. While an impairment did not exist as of the interim balance sheet date. For purposes of the goodwill impairment assessment, the Company as a whole is considered to be the reporting unit. The fair value of the reporting unit is estimated under a market based approach using the fair value of the Company's common stock. The estimated fair value requires significant judgments, including timing and appropriateness of the price of common stock used (e.g., point-in-time application, simple moving average, exponential moving average, etc.), as well as application of an estimated control premium. The estimated control premium is based on a number of factors including current and past market information published by third-party resources and detailed analysis that considers appropriate industry, market and other pertinent factors. While a formal impairment assessment is performed annually in the fourth quarter, the Company monitors its business environment for potential triggering events on a quarterly basis. There is potential for further impairment charges being recognized in future periods based on these ongoing assessments.

Intangible Assets

Amortizable intangible assets at March 31, ~~2020~~2021, related primarily to customer relationships that resulted from our acquisition of Amcom Software, Inc. in 2011. ~~Such~~These intangibles, ~~are~~with an original gross carrying amount of $25.0 million, were being amortized over a period of ~~ten~~10 years~~. For~~ and became fully amortized during the ~~years ending December 31, 2020 and 2021 there is an estimated remaining amortization of $1.9 million and $0.4 million, respectively.~~

~~The net consolidated balance of intangible assets consisted of the following at~~quarter ended March 31, ~~2020:~~2021.

(Dollars in thousands) Useful Life
(In Years) Gross Carrying
Amount Accumulated
Amortization Net Balance
Customer relationships 10 $ 25,002
$ (22,710 ) $ 2,292

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

NOTE 9 - ASSET RETIREMENT OBLIGATIONS

The components of the changes in the asset retirement obligation liabilities were:


(Dollars in thousands)	Short-Term Portion		Long-Term Portion		Total

Balance at December 31, 2020	$	335	$	7,289	$	7,624
Accretion	(31)		185		154
Amounts paid	(101)		0		(101)


Reclassifications	72		(72)		0
Balance at March 31, 2021	$	275	$	7,402	$	7,677

(Dollars in thousands) Short-Term
Portion Long-Term
Portion Total
Balance at January 1, 2020 $ 90
$ 6,061
$ 6,151
Accretion (9 ) 127
118
Amounts paid (27 ) —
(27 )
Increases —
—
—
Reclassifications 79
(79 ) —
Balance at March 31, 2020 $ 133
$ 6,109
$ 6,242

The short-term portion of the balance above is included within ~~other~~Other current liabilities on the Condensed Consolidated Balance Sheet at March 31, ~~2020~~2021, and December 31, ~~2019.~~2020.

Increases other than accretion, reclassification and amounts paid primarily relate to changes in estimate of the underlying liability, specifically as it relates to updates in estimated costs to remove a transmitter and the estimated timing of removal. The cost associated with the estimated removal costs and timing refinements due to ongoing network rationalization activities is expected to accrete to a total liability of ~~$7.6~~$9.3 million. The total estimated liability is based on the transmitter locations remaining after we have consolidated the number of networks we operate and assume the underlying leases continue to be renewed to that future date.

~~Accretion expense was $0.1 million for the three months ended March 31, 2020 and 2019.~~ Accretion expense related solely to asset retirement obligations and was recorded based on the interest method.

NOTE 10 - STOCKHOLDERS' EQUITY

General

Our authorized capital stock consists of 75 million shares of common stock, par value ~~$0.0001~~$0.0001 per share, and 25 million shares of preferred stock, par value $0.0001 per share.

At March 31, ~~2020~~2021, and December 31, ~~2019,~~2020, we had no0 stock options outstanding.

At March 31, ~~2020~~2021, and December 31, ~~2019,~~2020, there were ~~18,993,551~~19,323,604 and ~~19,071,614~~19,384,192 shares of common stock outstanding, respectively, and no0 shares of preferred stock outstanding.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Dividends

The following table details our cash dividends declared in ~~2020.~~2021. Cash dividends paid as disclosed in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2020~~2021, and ~~2019~~2020 include previously declared cash dividends on shares of vested restricted common stock ("restricted stock") issued to our non-executive directors and dividends related to vested restricted stock units ("RSUs") issued to eligible employees. Cash dividends on RSUs and restricted stock have been accrued and are paid when the applicable vesting conditions are met. Accrued cash dividends on forfeited restricted stock and RSUs are also forfeited.


												(Dollars in thousands)
Declaration Date	Record Date	Payment Date	Per Share Amount		Total Declared⁽¹⁾		Declaration Date	Record Date	Payment Date	Per Share Amount		Total Declared(1)
					(Dollars in thousands)
February 26, 2020	March 16, 2020	March 30, 2020	$	0.125	$	2,488
February 17, 2021							February 17, 2021	March 16, 2021	March 30, 2021	$	0.125	$	2,553
	Total		$	0.125	$	2,488

Total							Total			$	0.125	$	2,553

(1) The total declared reflects the cash dividends declared in relation to common stock, deferred stock units ('DSUs') and unvested RSUs.

On April ~~29, 2020,~~28, 2021, our Board of Directors declared a regular quarterly cash dividend of $0.125 per share of common stock with a record date of May 25, ~~2020,~~2021, and a payment date of June 24, ~~2020.~~2021. This cash dividend of approximately $2.4 million will be paid from available cash on hand.

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Net Income (Loss) ~~Income~~ per Common Share

Basic net income (loss) ~~income~~ per common share is computed on the basis of the weighted average common shares outstanding. Diluted net ~~loss~~income (loss) per common share is computed on the basis of the weighted average common shares outstanding plus the effect of all potentially dilutive common shares including outstanding restricted stock and RSUs, which are treated as contingently issuable shares, using the “treasury stock” method.

The components of basic and diluted net ~~loss~~income (loss) per common share were as follows for the periods stated:

For the Three Months Ended March 31,
(in thousands, except for share and per share amounts) 2020 2019
Numerator:
Net (loss) income $ (4,539 ) $ 742

Denominator:
Basic and diluted weighted average outstanding shares of common stock 18,958,716
19,196,970
Diluted weighted average outstanding shares of common stock 18,958,716
19,356,712
Basic and diluted net (loss) income per common share $ (0.24 ) $ 0.04


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

Numerator:
Net loss	$	(2,297)	$	(4,539)

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


Basic and diluted net loss per common share	$	(0.12)	$	(0.24)

For the three months ended March 31, ~~2020~~2021, and ~~2019~~2020 the following securities were excluded from the calculation of diluted shares outstanding as the effect would have been anti-dilutive:

For the Three Months Ended March 31,
2020 2019
Restricted stock units 203,188
$ —


	For the Three Months Ended March 31,
	2021	2020

Restricted stock units	292,059	203,188

Share-Based Compensation Plans

On March 23, 2012, our Board of Directors adopted the Spok Holdings, Inc. 2012 Equity Incentive Award Plan (the ~~“Equity~~“2012 Equity Plan”) that ~~was~~our stockholders subsequently approved ~~by our stockholders~~ on May 16, 2012. A total of 2,194,986 shares of common stock were reserved for issuance under this plan.

On April 29, 2020, our Board of Directors adopted the Spok Holdings, Inc. 2020 Equity Incentive Award Plan (the “2020 Equity Plan” and together with the 2012 Equity Plan, the "Equity Plans") that our stockholders subsequently approved on July 28, 2020. As of that date, a total of 1,699,950 shares of common stock have been reserved for issuance under ~~this plan.~~ the 2020 Equity Plan, and no further grants will be made under the 2012 Equity Plan. However, the 2012 Equity Plan will continue to govern all outstanding awards thereunder.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Awards under the 2020 Equity Plan may be in the form of stock options, restricted common ~~stock, restricted~~ stock, RSUs, performance awards, dividend equivalents, stock payment awards, deferred stock, ~~deferred stock units, or~~DSUs, stock appreciation ~~rights.~~ rights or other stock or cash-based awards.

Restricted stock awards generally vest one year from the date of grant. Related dividends accumulate during the vesting period and are paid at the time of vesting.

Contingent RSUs generally vest over a three-year performance period upon successful completion of the performance objectives. Non-contingent RSUs generally vest in thirds, annually, over a three-year period. Dividend ~~equivalents~~equivalent rights generally accompany each RSU award and those rights accumulate and vest along with the underlying RSU.

Dividend equivalent rights generally accompany each DSU award and are paid to participants in cash on the Company's applicable dividend payment date whether the DSU is vested or unvested. The dividend equivalent right associated with a DSU continues until delivery of the underlying shares of common stock is made.

Payment of the underlying common stock occurs at the earliest of a participant's separation from service, disability, death, or a change in control. Any shares subject to an award under the 2012 Equity Plan that are forfeited or expire will be available for the future grant of awards under the 2020 Equity Plan. As of March 31, 2021, the aggregate amount of unvested RSUs and restricted stock outstanding under the 2012 Equity Plan was 585,006.

The following table summarizes the activities under the Equity ~~Plan~~Plans from January 1, ~~2020~~2021, through March 31, ~~2020:~~

2021:



	Activity

Total equity securities available at January 1, ~~2020~~2021	~~646,480~~1,699,314
RSU, DSU, and restricted stock awarded to eligible employees, net of forfeitures	~~(497,082~~(564,858)	)
Issuance of common stock in lieu of cash compensation	(50,741)
Total equity securities available at March 31, ~~2020~~2021	~~149,398~~1,083,715

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following table details activities with respect to outstanding RSUs, DSUs, and restricted stock under the Equity Plans for the three months ended March 31, ~~2020:~~2021:


						Shares	Weighted- Average Grant Date Fair Value
	Shares		Weighted- Average Grant Date Fair Value
Unvested at January 1, 2020	419,426		$	14.00
Unvested at January 1, 2021					Unvested at January 1, 2021	636,722	$	12.16
Granted	531,170		12.20		Granted	579,905	11.14
Vested	(8,106	)	13.26		Vested	(6,842)	11.86
Forfeited	(34,088	)	11.97		Forfeited	(15,047)	13.48
Unvested at March 31, 2020	908,402		$	13.03
Unvested at March, 31 2021					Unvested at March, 31 2021	1,194,738	$	11.65

Of the ~~908,402~~1,194,738 unvested RSUs, DSUs and restricted stock outstanding at March 31, ~~2020, 471,002~~2021, 592,674 RSUs include contingent performance requirements for vesting purposes. At March 31, ~~2020,~~2021, there was ~~$7.9~~$8.8 million of unrecognized net compensation cost related to RSUs and restricted stock, which is expected to be recognized over a weighted average period of ~~2.1~~2.0 years.

For 2021, qualified employees are receiving a portion of their compensation in the form of shares of the Company's common stock in lieu of cash. These awards are made in advance on a quarterly basis and vest immediately. For the three months ended March 31, 2021, 50,741 shares of common stock were issued, with a weighted average grant date fair value of $12.13.

Employee Stock Purchase ~~Plan.~~Plan

In 2016, our Board of Directors adopted the Spok Holdings, Inc. Employee Stock Purchase Plan ("ESPP") that ~~was~~our stockholders subsequently approved ~~by our stockholders~~ on July 25, 2016. A total of 250,000 shares of common stock ~~have been~~were reserved for issuance under this plan.

The ~~Company's~~ ESPP allows employees to purchase shares of common stock at a discounted rate, subject to plan limitations. Under the ESPP, eligible participants can voluntarily elect to have contributions withheld from their pay for the duration of an offering period, subject to the ESPP limits. At the end of an offering period, contributions will be used to purchase the Company's common stock at a discount to the market price based on the first or last day of the offering period, whichever is lower.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Participants are required to hold common stock for a minimum period of two years from the grant date. Participants will begin earning dividends on shares after the purchase date. Each offering period will generally last for no longer than six months. Once an offering period begins, participants cannot adjust their withholding amount. If a participant chooses to withdraw, any previously withheld funds will be returned to the participant, with no stock purchased, and that participant will be eligible to participate in the ESPP atduring the next offering period. If the participant terminates employment with the Company during the offering period, all contributions will be returned to the employee and no stock will be ~~purchased at a discounted rate.~~purchased.

The Company uses the Black-Scholes model to calculate the fair value of the common stock to be purchased each offering period on ~~their~~the offer date. The Black-Scholes model requires the use of estimates for the expected term, the expected volatility of the underlying common stock over the expected term, the risk-free interest rate and the expected dividend payment.

For the three months ended March 31, 2021, and 2020, ~~and 2019, no~~0 shares of the Company's common stock were purchased.

The following table summarizes the activities under the ESPP from January 1, ~~2020~~2021, through March 31, ~~2020:~~

2021:



			Activity

Total ESPP equity securities available at January 1, ~~2020~~2021			~~184,860~~149,199
ESPP common stock purchased by eligible employees			—0
Total ESPP securities available at March 31, ~~2020~~2021			~~184,860~~149,199

Amounts withheld from participants will be classified ~~an accrued~~as Accrued compensation and ~~benefit~~benefits on the Condensed Consolidated Balance Sheets until funds are used to purchase shares. This liability amount is immaterial to the Condensed Consolidated Financial Statements.

~~SPOK HOLDINGS, INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Stock-Based Compensation Expense

We record all stock-based ~~awards,~~compensation, which consist of RSUs, DSUs, restricted stock, equity in lieu of salary, and the option to purchase common stock under the ESPP, at fair value as of the grant date. Stock-based compensation expense is recognized based on a straight-line amortization basis over the respective service period. Forfeitures and withdrawals are accounted for as incurred.

The following table reflects the items for stock-based compensation expense on the Condensed Consolidated Statements of Operations for the periods stated:


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

Performance-based RSUs	$	573	$	346
Time-based RSUs, DSUs and restricted stock	1,023		812
Equity in lieu of salary	622		0
ESPP	21		24
Total stock-based compensation	$	2,239	$	1,182

For the Three Months Ended March 31,
(Dollars in thousands) 2020 2019
Performance-based RSUs $ 346
$ 107
Time-based RSUs and restricted stock 812
404
ESPP 24
17
Total stock-based compensation $ 1,182
$ 528

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 11 - INCOME TAXES

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law on March 27, 2020. The CARES Act was initiated to provide stimulus and relief in response to the ~~COVID-19~~coronavirus disease 2019 ("COVID-19") pandemic and resulting economic collapse. While the CARES Act provides a number of potential benefits to companies, ~~we believe~~the Company has made use of the following ~~items may provide certain relief for our Company:~~provisions:

•Payroll Tax Deferral - Allows for the deferral of payment on the Company's share of the 6.2% Social Security tax on wages paid beginning on March 27, 2020 and ending on December 31, 2020. Deferred amounts are payable in two installments, with 50% of such taxes ~~being~~ due on December 31, 2021, and the remainder due on December 31, 2022. ~~While we continue to assess the impact of the CARES Act, we believe this is likely to result~~This resulted in a total deferral of ~~between $1.5~~approximately $2.1 million ~~and $3.0 million~~of payroll taxes under this provision, as of December 31, 2020. We do not anticipate additional deferrals in ~~payroll taxes.~~

2021.

•Employee Retention Credits - Allows for a refundable tax credit for the Company's share of the 6.2% Social Security tax on wages. This tax credit ~~is for~~applies to the first $10,000 in qualified wages paid to each employee commencing on March 13, 2020. To be eligible, ~~our~~the Company must (i) have had operations fully or partially suspended because of a shut-down order from a governmental authority related to COVID-19, or (ii) have had gross receipts decline by more than 50% in a calendar quarter when compared to the same quarter in 2019. Qualified wages are limited to wages paid to employees who were not providing services due to the COVID-19 ~~crisis. While we continue to assess the impact of the CARES Act, we believe this is likely to result~~pandemic. This resulted in a ~~tax credit~~total claim of ~~between $0.5~~approximately $1.3 million ~~and $1.5 million.~~

in employee retention credits under this provision, as of December 31, 2020. We do not anticipate additional material employee retention credits in 2021.

•Alternative Minimum Tax ("AMT") Credit - Allows for an immediate refund of all refundable AMT credits resulting from passage of the Tax Cuts and Jobs Act of 2017. This ~~will result~~resulted in accelerated collection of approximately $1.3 million of other current ~~assets.~~

assets which was received during the third quarter of 2020.

Spok files a consolidated U.S. ~~Federal~~federal income tax return and income tax returns in various state, local and foreign jurisdictions as required.

Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do business, changes in our stock price, foreign currency gains (losses), tax law developments (including changes in statutes, regulations, case law, and administrative practices), and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

For ~~2020,~~2021, the anticipated effective income tax rate is expected to continue to differ from the ~~Federal~~federal statutory rate of 21% primarily due to the effect of state income taxes, research and development credits and related valuation allowance, permanent differences between book and taxable income and certain discrete items.

~~At March 31, 2020, we~~We had total net deferred income tax assets ("DTAs") of ~~$47.5~~$25.2 million and ~~no valuation allowance. This reflects a decrease of $1.5~~$25.8 million ~~from the~~at March 31, 2021, and December 31, ~~2019 DTAs~~2020, respectively. We had a valuation allowance of ~~$49.0~~$23.1 million and ~~no valuation allowance.~~$22.1 million at March 31, 2021, and December 31, 2020, respectively.

We ~~consider both~~assess the recoverability of our deferred income tax assets, which represent the tax benefits of future tax deductions, based on available positive and negative evidence ~~when evaluating~~and by considering the ~~recoverability~~adequacy of ~~our DTAs. The~~future taxable income from all sources, including prudent and feasible tax planning strategies. This assessment is required to determine whether based on all available evidence, it is ~~more~~"more likely than ~~not (i.e.,~~not" (meaning a probability of greater than a 50% ~~probability)~~) that all or some portion of the ~~DTAs~~deferred income tax assets will be realized in ~~the future.~~future periods. During the fourth quarter of each year, we update our multi-year forecast of taxable income for our operations, which assists in analyzing the recoverability of our DTAs.

Those deferred income tax assets which are not currently covered by a valuation allowance are those that are indefinite-lived, or whose temporary differences would reverse in the future and may result in the creation of an indefinite-lived deferred income tax asset, which we consider to be realized through future taxable income despite near term uncertainties. The amount of deferred income tax assets considered realizable, however, could be adjusted in the future if objective negative evidence in the form of cumulative losses is no longer present, additional weight is given to subjective evidence such as our projections for future profitability and growth, or other relevant factors arise.

SPOK HOLDINGS, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 12 - COMMITMENTS AND CONTINGENCIES

There have been no material changes during the three months ended March 31, ~~2020~~2021, to the commitments and contingencies previously reported in the ~~2019~~2020 Annual Report.

NOTE 13 - RELATED PARTIES

A member of our Board of Directors also serves as a director for an entity that leases transmission tower sites to the Company. For both the three months ended March 31, 2020 and 2019, we incurred site rent expenses of $0.9 million from the entity on which the individual serves as a director. Site rent expenses are included in Technology operations expenses on the Condensed Consolidated Statements of Operations.

A member of our Board of Directors, who was appointed at the beginning of 2020, ~~also~~ serves as Chief Information Officer for an entity that is also a customer of the Company. For both the three months ended March 31, ~~2020~~2021, and ~~2019,~~2020, we recognized revenues of $0.2 million related to contracts from the entity at which the individual is employed.

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q ("Quarterly Report") contains forward-looking statements and information relating to Spok Holdings, Inc. and its subsidiaries (collectively, “we,” “Spok,” “our” or the “Company”) that set forth anticipated results based on management’s current plans, known trends and assumptions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “target,” “forecast” and similar expressions, as they relate to Spok are forward-looking statements.

Although these statements are based upon current plans, known trends and assumptions that management considers reasonable, they are subject to certain risks, uncertainties and assumptions, including, but not limited to, those discussed in this section ~~and “Risk Factors”~~ below and under the captions “Business,” “Management’s Discussion and Analysis of Financial Condition and Statement of Operations (“MD&A”),” and “Risk Factors” in our ~~2019~~ Annual ~~Report.~~Report on Form 10-K for the year ended December 31, 2020 ("2020 Annual Report"). Should known or unknown risks or uncertainties materialize, known trends change, or underlying assumptions prove inaccurate, actual results or outcomes may differ materially from past results and those described herein as anticipated, believed, estimated, expected, intended, targeted or forecasted. Investors are cautioned not to place undue reliance on these forward-looking statements.

The Company undertakes no obligation to update forward-looking statements. Investors are advised to consult all further disclosures the Company makes in its subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that it will file with the SEC. Also note that, in the risk factors disclosed ~~below in “Risk Factors” and~~ in the Company’s ~~2019~~2020 Annual Report, the Company provides a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to its business. These are factors that, individually or in the aggregate, could cause the Company’s actual results to differ materially from past results as well as those results that may be anticipated, believed, estimated, expected, intended, targeted or forecasted. It is not possible to predict or identify all such risk factors. Consequently, investors should not consider the risk factor discussion to be a complete discussion of all of the potential risks or uncertainties that could affect Spok's business, statement of operations or financial condition, subsequent to the filing of this Quarterly Report.

Overview

The following MD&A is intended to help the reader understand the results of operations and financial condition of Spok. This MD&A is provided as a supplement to, and should be read in conjunction with, our ~~2019~~2020 Annual Report and our unaudited Condensed Consolidated Financial Statements and accompanying notes. A reference to a “Note” in this section refers to the accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

Spok, acting through its indirect wholly owned operating subsidiary, Spok, Inc., delivers smart, reliable clinical communication and collaboration solutions to help protect the health, well-being and safety of people primarily in the United States. Organizations rely on Spok for workflow improvement, secure texting, paging services, contact center optimization and public safety response.

Business

See Note 1, "Organization and Significant Accounting Policies" in Item 1 of Part I of this Quarterly Report ~~on Form 10-Q ("Quarterly Report")~~ and "Item 1. Business" of Part I of the ~~2019~~2020 Annual Report, which describe our business in further detail.

COVID-19

~~The~~

In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the virus ~~known as COVID-19~~ has significantly impacted the global economy. ~~While the United States first began experiencing an impact in late February of this year,~~Although federal and state restrictions were not widely adopted until late in the first ~~quarter. Given the significant uncertainties that exist regarding COVID-19 it is difficult for us~~quarter of 2020, we began to ~~predict the short and long-term implications that this pandemic will have~~experience a direct impact on our business. There is a high level of uncertainty around COVID-19 including, but not limited to: the length of time in which government restrictions will remain in place; the ability to contain the spread of the virus; the time it will take for the general economy to recover; and the time it will take hospitals to return to a more normal operating state. As a result, we are unable to quantify the potential impact that COVID-19 may have on our business. In the short period of time that governmental restrictions have been in place, we have seen delays in our sales cycle ~~impacting~~in late February 2020 as hospitals began to delay purchasing decisions and address staff reductions. These delays have continued to affect our software bookings, which directly ~~impacts~~impact license and equipment ~~revenues, as well as~~revenues. We have also experienced delays in our ability to deliver on-site implementation ~~services.~~services, which continued to impact our services revenue throughout 2020 and into the first quarter of 2021. While ~~this impact was not material~~much of our implementation process can be performed remotely, the on-premise nature of certain of our solutions requires some level of on-site availability to our results for the three months ended March 31, 2020, it is likely to have a greater impact on our results in future quarters depending on how long these restrictions remain in place. We believe there will likely be a significant impact oncomplete and finalize customer software solutions. Although our software revenues for the ~~full year ending December 31,~~first quarter of 2021 have marginally improved, we believe we will continue to see weaker professional services revenue in comparison to normal operating levels during the second quarter of 2021, followed by more normal operating levels in the second half of the year.

Our ability to return to normal operating levels is largely driven by our customers and their ability to bring operations back to levels beyond just critical needs and emergency services. Many hospitals initially reduced the number of elective surgeries as a result of government restrictions, as well as patients delaying or canceling elective procedures during the pandemic. While these organizations began to see improved operating levels during the second half of 2020 ~~given~~as they better managed their admissions process and capacity constraints, the timing of vaccine distributions as well as any significant spikes in U.S. virus cases could further delay progress towards returning to normal operational levels. As previously discussed, we believe that we are likely to see some lingering and continued effects from COVID-19 throughout 2021, although we are cautiously optimistic that normal operating levels could be achieved during the second half of the year.

Additionally, many hospitals continue to maintain restrictive social distancing guidelines to ensure the safety of their personnel and patients. These restrictions can make it difficult for external personnel who are not critical to the immediate operating needs of a hospital, such as our implementation staff, to gain access. These factors can vary considerably depending on the size of an organization, geographical location and local regulations. Given that we anticipate continued disruptions to our business, we ~~anticipate in~~believe our software revenues will continue to be impacted by the ~~second quarter and beyond. However, with regards~~pandemic for the remainder of 2021. With regard to implementation services, these impacts ~~are~~have primarily ~~a delay~~resulted in ~~timing. The~~delays in timing of revenue ~~still resides in~~recognition, as associated revenue corresponds to our backlog of performance obligations ready to deliver at some point in the future.

Over the last several months of 2020 and into the first quarter of 2021, we began to see modest improvements in each of the aforementioned areas that have been impacted by the COVID-19 pandemic, and we are cautiously optimistic that we will continue seeing sequential improvement in these areas over the next several quarters. We are also optimistic that any lingering effects from COVID-19 will have a lesser impact on our financial results in 2021 than they did in 2020.

As facts and circumstances continue to evolve over the coming months, we will continue to assess and communicate the anticipated impact on our ~~business. While~~business, and we ~~believe revenue is likely~~will continue to ~~be impacted for the full year ending December 31, 2020, we are~~ diligently ~~pursuing counter measures~~pursue countermeasures to prudently manage operating expenses during this time, with a goal of neutralizing the impact of ~~COVID-19~~the pandemic on our cash ~~flows for~~flows. Each of these measures is described in further detail below and is subject to actual operating conditions experienced during the ~~remaining nine months ending December 31, 2020. More specifically, the Company has~~year.

•Reduced work schedules: We enacted a ~~Company wide~~Company-wide plan that ~~will reduce~~reduced work schedules with a related temporary reduction in ~~salary~~compensation rates during the second, third and fourth quarters of 2020 and continuing for the first half of 2021, whereby each of our employees, including our executive officers, is subject to one week of a reduced work schedule per quarter. For the three months ended March 31, 2021 these reduced work schedules resulted in realized savings of $1.0 million in compensation expense. We expect to realize savings of between $0.7 million and $1.2 million in compensation expense for the second quarter of ~~2020.~~2021. While we originally enacted this plan for the full-year 2021, we now believe that continuing this plan for the second half of the year is unnecessary, given our positive results for the first quarter as well as management's confidence in mitigating short-term uncertainties with regard to the pandemic.

•Equity in Lieu of Cash Compensation: For 2021, qualified employees are receiving a portion of their compensation in the form of shares of the Company's common stock in lieu of cash. These awards, affecting approximately 450 of our employees, are made in advance on a quarterly basis and vest immediately. For the three months ended March 31, 2021, we achieved cash savings of $0.6 million, and we expect to achieve a total of between $2.0 million and $3.0 million in cash savings for the year.

•Non-Employee Director Alternative DSU or Restricted Stock Plan: Since inception of this alternative payment plan, which began in the third quarter of 2020, all non-employee directors have voluntarily elected to receive either DSUs or restricted stock in lieu of the cash portion of their compensation. As a result, for the three months ended March 31, 2021, we achieved cash savings of $0.1 million, and we expect to achieve between $0.3 million and $0.5 million in cash savings for the year. (Refer to Note 10, "Stockholder's Equity" in the Notes to Consolidated Financial Statements for further detail related to the alternative DSU or restricted stock plan).

As we continue to see improvements in our operating levels, we are confident that the need to mitigate cash flow impacts through direct expense management will also continue to decline. While the Company has the ability to continue ~~this plan~~its countermeasures for the foreseeable future, we anticipate re-evaluating our position on a quarterly basis based on the progression of COVID-19, impacts on our business, and other facts and circumstances as deemed relevant by management. ~~Additionally, we~~

We believe ~~the Company is likely to see some benefits from the Coronavirus Aid Relief, and Economic Security ("CARES") Act discussed in further detail below.~~

The CARES Act was signed into law on March 27, 2020 to provide stimulus and relief in response to the COVID-19 pandemic and resulting economic collapse. While the CARES Act provides a number of potential benefits to companies, we believe the following items may provide certain relief for our ~~Company:~~

~~Payroll Tax Deferral~~ - Allows for the deferral of payment on the Company's share of the 6.2% Social Security tax on wages paid beginning on March 27, 2020 and ending on December 31, 2020. Deferred amounts are payable in two installments, with 50% of such taxes being due on December 31, 2021, and the remainder due on December 31, 2022. While we continue to assess the impact of the CARES Act, we believe this is likely to result in a deferral of between $1.5 and $3.0 million in payroll taxes.

~~Employee Retention Credits~~ - Allows for a refundable tax credit for the Company's share of the 6.2% Social Security tax on wages. This tax credit is for the first $10,000 in qualified wages paid to each employee commencing on March 13, 2020. To be eligible, our Company must (i) have had operations fully or partially suspended because of a shut-down order from a governmental authority related to COVID-19, or (ii) have had gross receipts decline by more than 50% in a calendar quarter when compared to the same quarter in 2019. Qualified wages are limited to wages paid to employees who were not providing services due to the COVID-19 crisis. While we continue to assess the impact of the CARES Act, we believe this is likely to result in a tax credit of between $0.5 and $1.5 million.

~~Alternative Minimum Tax ("AMT") Credit~~ - Allows for an immediate refund of all refundable AMT credits resulting from passage of the Tax Cuts and Jobs Act of 2017. This will result in accelerated collection of approximately $1.3 million of other current assets.

~~As previously mentioned, we believe these~~ cost mitigation efforts, in addition to relief provided by the CARES Act and natural cost savings that will materialize as a result of COVID-19 (e.g., reduced travel and events), will allow us to continue to offset any negative cash flow impact resulting from ~~COVID-19~~the pandemic during 2021.

Results of Operations

The following table is a summary of our Consolidated Statement of Operations for the ~~remainder of the year.~~

~~As a result of COVID-19 it was determined that a triggering event had occurred during the three months ended~~Three Months Ended March 31, ~~2020, requiring us to perform a quantitative goodwill assessment. However, the assessment determined that our goodwill was not impaired. Refer to Note 8, "Goodwill~~2021, and ~~Intangible Assets, Net," for further discussion.~~2020:


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

Revenue:
Wireless	$	20,120	$	21,386	$	(1,266)	(5.9)	%
Software	15,916		15,881		35		0.2	%
Total revenue	36,036		37,267		(1,231)		(3.3)	%
Operating expenses:
Cost of revenue (exclusive of items shown separately below)	7,241		8,264		(1,023)		(12.4)	%
Research and development	4,506		5,449		(943)		(17.3)	%
Technology operations	7,252		7,904		(652)		(8.2)	%
Selling and marketing	4,900		6,361		(1,461)		(23.0)	%
General and administrative	11,150		11,251		(101)		(0.9)	%
Depreciation, amortization and accretion	2,727		2,146		581		27.1	%

Total operating expenses	37,776		41,375		(3,599)		(8.7)	%
Operating loss	(1,740)		(4,108)		2,368		(57.6)	%
Interest income	61		363		(302)		(83.2)	%
Other expense	(27)		(137)		110		(80.3)	%
Loss before income taxes	(1,706)		(3,882)		2,176		(56.1)	%
Provision for income taxes	(591)		(657)		66		(10.0)	%
Net loss	$	(2,297)	$	(4,539)	$	2,242	(49.4)	%

Supplemental Information
Full-Time Equivalent ("FTE") Employees	603		620		(17)		(2.7)	%
Active transmitters	3,631		3,811		(180)		(4.7)	%

Revenue

We offer a focused suite of unified clinical communications 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 develop, sell and support enterprise-wide systems for healthcare, government, large enterprise and other organizations needing to automate, centralize and standardize their approach to clinical communications and collaboration. Our solutions can be found in prominent hospitals, large government agencies, leading public safety institutions, colleges and universities, large hotels, resorts and casinos, and well-known manufacturers. Our primary market has been the healthcare industry, particularly hospitals. ~~We have identified~~While we continue to identify hospitals with 200 or more beds as the primary targets for our software ~~and wireless solutions.~~solutions as well as our paging services, we have recently expanded our focus to include smaller hospitals with shorter sales cycles, including academic medical centers.

Revenue generated by wireless messaging services (including voice mail, personalized greeting, message storage and retrieval) and equipment loss and/or maintenance protection for both one-way and two-way messaging subscribers is presented as wireless revenue in our Statement of Operations. Revenue generated by the sale of our software solutions, which includes software ~~subscription, software~~ license, SaaS, professional services (installation, consulting and training), equipment (to be used in conjunction with the software), and post-contract support ~~(on-going~~(ongoing maintenance), is presented as software revenue in our Statement of Operations. Our software is licensed to end users under an industry standard software license agreement. ~~For the three months ended March 31, 2020 wireless revenue represented approximately 57.4% and software revenue represented approximately 42.6% of our consolidated revenue.~~

Refer to Note 5, "Revenue, Deferred Revenue and Prepaid Commissions" for additional information on our wireless and software revenue streams.

~~Operating Expenses~~

Our operating expenses are presented in functional categories. Certain of our functional categories are especially important to overall expense control and management. These operating expenses are categorized as follows:

~~Cost of revenue~~. These are expenses primarily for hardware, third-party software, outside services expenses and payroll and related expenses for our professional services, logistics, customer support and maintenance staff.

~~Research and Development.~~ These expenses relate primarily to the development of new software products and the ongoing maintenance and enhancement of existing products. This classification consists primarily of employee payroll and related expenses, outside services related to the design, development, testing and enhancement of our solutions and to a lesser extent hardware equipment.

~~Technology operations~~. These are expenses associated with the operation of our paging networks. Expenses consist largely of site rent expenses for transmitter locations, telecommunication expenses to deliver messages over our paging networks, and payroll and related expenses for our engineering and pager repair functions. We actively pursue opportunities to consolidate

transmitters and other technology operations expenses in order to maintain an efficient network while simultaneously ensuring adequate service for our customers. We believe continued reductions in these expenses will occur as our networks continue to be consolidated for the foreseeable future.

~~Selling and marketing~~. The sales and marketing staff are involved in selling our communication solutions primarily in the United States. These expenses support our efforts to maintain gross placements of units in service, which mitigated the impact of disconnects on our wireless revenue base, and to identify business opportunities for additional or future software sales. We have a centralized marketing function, which is focused on supporting our products and vertical sales efforts by strengthening our brand, generating sales leads and facilitating the sales process. These marketing functions are accomplished through targeted email campaigns, webinars, regional and national user conferences, monthly newsletters and participation at industry trade shows. Expenses consist largely of payroll and related expenses, commissions and other costs such as travel and advertising costs.

~~General and administrative~~. These are expenses associated with information technology and administrative functions, which include finance and accounting, human resources and executive management. This classification consists primarily of payroll and related expenses, outside services expenses, taxes, licenses and permit expenses, and facility rent expenses.

~~Results of Operations~~

~~The following table is a summary of our Consolidated Statement of Operations for the Three Months Ended March 31, 2020 and2019~~

For the Three Months Ended March 31, Change
(Dollars in thousands) 2020 2019 Total %
Revenue:

Wireless $ 21,386
$ 22,610

$ (1,224 )
(5.4 )%
Software 15,881
19,154

(3,273 )
(17.1 )%
Total revenue 37,267
41,764

(4,497 )
(10.8 )%
Operating expenses:

Cost of revenue 8,264
7,592

672

8.9 %
Research and development 5,449
6,167

(718 )
(11.6 )%
Technology operations 7,904
7,674

230

3.0 %
Selling and marketing 6,361
6,110

251

4.1 %
General and administrative 11,251
10,747

504

4.7 %
Depreciation, amortization and accretion 2,146
2,359

(213 )
(9.0 )%
Total operating expenses 41,375
40,649

726

1.8 %
Operating (loss) income (4,108 ) 1,115

(5,223 )
(468.4 )%
Interest income 363
449

(86 )
(19.2 )%
Other expense (137 ) (236 )
99

(41.9 )%
(Loss) income before income taxes (3,882 ) 1,328

(5,210 )
(392.3 )%
Provision for income taxes

(657 ) (586 )
(71 )
12.1 %
Net (loss) income $ (4,539 ) $ 742

$ (5,281 )
(711.7 )%

Supplemental Information

Full-Time Equivalent ("FTE") Employees 620
591

29

4.9 %
Active transmitters 3,811
3,909

(98 )
(2.5 )%

~~Revenue~~

The table below details total revenue for the periods stated:


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

Revenue - wireless:
Paging revenue	$	19,353	$	20,451	$	(1,098)	(5)	%
Product and other revenue	767		935		(168)		(18)	%
Total wireless revenue	20,120		21,386		(1,266)		(6)	%

Revenue - software:
License	1,507		955		552		58	%
Services	4,354		4,549		(195)		(4)	%
Equipment	616		725		(109)		(15)	%
Subscription	45		—		45		—	%
Operations revenue	6,522		6,229		293		5	%
Maintenance revenue	9,394		9,652		(258)		(3)	%
Total software revenue	15,916		15,881		35		—	%
Total revenue	$	36,036	$	37,267	$	(1,231)	(3)	%

For the Three Months Ended March 31, Change
(Dollars in thousands) 2020 2019 Total %
Revenue - wireless:
Paging revenue $ 20,451
$ 21,687
$ (1,236 ) (5.7 )%
Product and other revenue 935
923
12
1.3 %
Total wireless revenue 21,386
22,610
(1,224 ) (5.4 )%

Revenue - software:
License 955
2,840
(1,885 ) (66.4 )%
Services 4,549
5,206
(657 ) (12.6 )%
Equipment 725
963
(238 ) (24.7 )%
Operations revenue 6,229
9,009
(2,780 ) (30.9 )%
Maintenance revenue 9,652
10,145
(493 ) (4.9 )%
Total software revenue 15,881
19,154
(3,273 ) (17.1 )%
Total revenue $ 37,267
$ 41,764
$ (4,497 ) (10.8 )%
Wireless Revenue

The decrease in wireless revenue for the three months ended March 31, ~~2020~~2021, compared to the same period in ~~2019~~2020 reflects the decrease in demand for our wireless services. Wireless revenue is generally based upon the number of units in service and the monthly Average Revenue Per User ("ARPU"). On a consolidated basis, ARPU is affected by several factors, including the mix of units in service and the pricing of the various components of our services. The number of units in service changes based on subscribers added, referred to as gross placements, less subscriber cancellations, or disconnects. ARPU for the three months ended March 31, 2021, and 2020 was $7.34 and ~~2019 was~~ $7.31, ~~and $7.32,~~ respectively. Total units in service were 0.9 million ~~and 1.0 million for the three months ended~~as of March 31, ~~2020~~2021, and ~~2019, respectively.~~ 2020. The increase in ARPU was primarily due to the Telecommunications Relay Service Charge ("TRS") which we began to recover from customers in 2021, as well as general increases of Universal Service Fees ("USF"), offset by lower variable revenue and an expected decline in service revenue. USF and TRS fees are effectively pass-through items that have corresponding costs associated with them. Excluding these pass-through items, ARPU would have declined in-line with historical trends.

While demand for wireless services continues to decline, it has done so at a slower rate ~~than historically experienced.~~for each of the periods presented. While we are ~~encouraged~~optimistic that this trend will continue in future periods, we believe that demand will continue to decline for the foreseeable future in line with recent and historical trends. As our wireless products and services are replaced with other competing technologies, such as the shift from ~~narrow band~~narrowband wireless service offerings to ~~broad band~~broadband technology services, our wireless revenue will continue to ~~decrease.~~decline.

The following reflects the impact of subscribers and ARPU on the change in wireless revenue:


																			Units in Service as of March 31,			Revenue for the Three Months Ended March 31,						Change Due To:
(in thousands)																		(in thousands)	2021	2020	Change	2021		2020		Change		ARPU		Units

Paging revenue																		Paging revenue	874	926	(52)	$	19,353	$	20,451	$	(1,098)	$	62	$	(1,160)

	Units in Service as of March 31,				Revenue for the Three Months Ended March 31,							Change Due To:
(in thousands)	2020	2019	Change		2020		2019		Change			ARPU			Units
Total	926	982	(56	)	$	20,451	$	21,687	$	(1,236	)	$	(35	)	$	(1,201	)

As demand for one-way and two-way messaging has declined, we have developed or added service offerings such as encrypted paging and Spok Mobile with a pager number in order to increase our revenue potential and mitigate the decline in our wireless revenue. We will continue to explore ways to innovate and provide customers the highest value possible.

Software Revenue

Operations Revenue

For the three months ended March 31, ~~2020,~~2021, as compared to the same period in ~~2019, the decrease~~2020, license revenue increased as a result of an increase in ~~software operations revenue primarily resulted from lower license revenue. The three months ended March 31, 2019 included a benefit from software licenses delivered to the~~bookings coinciding with modest improvements in sales as our customer which were contracted in a prior period. During the three months ended March 31, 2019, the Company began delivering software licenses to customers in the same month they were contracted for, thus a similar benefit was not seen during the three months ended March 31, 2020. Additionally, the delay in our sales cycle due to COVID-19 resulted in delivery of fewer software licenses and equipment products. Servicebase has experienced improved operating levels. Services revenue was lower, primarily as a result of ~~less efficient projects as well as initial impacts from COVID-19. Governmental~~lower travel ~~restrictions and our customers focus on COVID-19 mitigation efforts led~~revenue during the three months ended March 31, 2021, which is generally a pass-through item. Additionally, reduced work-schedules were in place during the three months ended March 31, 2021, which resulted in reduced personnel capacity to ~~delays~~perform project work in ~~implementation projects contributing to lower services revenue beginning in March. Given the nature of our projects (e.g. fixed bid), the time taken to complete projects in comparison~~relation to the original expectation can vary significantly resulting from a number of factors including complexity, customer focus, accuracy of the original scope, etc. Additionally, we significantly increased capacity in the fourth quarter of 2019. Some of this inefficiency seen in the first quarter can be attributed to the significant training and other efforts undertaken by the services team as these new hires werethree months ended March 31, 2020.

assimilated into the professional service organization. Our current expectation is that these individuals will be fully utilized beginning in the second quarter of 2020, excluding any effects from COVID-19.Maintenance Revenue

For the three months ended March 31, ~~2020~~2021, as compared to the same period in ~~2019,~~2020, the decrease in maintenance revenue is primarily ~~relates~~due to ~~certain one-time~~the general decline in maintenance revenue ~~reflected~~throughout 2020. Those declines were largely attributable to the continued historical decline in license bookings, from which maintenance revenues are derived. Current trends in revenue churn rates remain relatively stable and are in-line with historical trends. However, in 2020, the ~~results~~deterioration of maintenance revenue from new license bookings created an environment where churn was greater than the inflow of new revenue. Historically, this revenue churn had been offset by the growth in our license sales.

As we continue to focus the majority of our development efforts on Spok Go, we anticipate a continued decline in our ability to sell new licenses for the ~~three months ended March 31, 2019 that did~~Care Connect Suite of products. While we have not seen a meaningful increase in our normal customer churn, our ability to replace this churn with new revenues will not likely replicate what we have accomplished historically nor do we expect to fully offset this with annual increases of our existing base. Our intent is to replace this churn with the sale of Spok Go as well as transition existing on-premise customers to our cloud-based solution over the next several years. Given these dynamics, we believe annual maintenance revenue is likely to be relatively flat or slightly down as we move forward, especially as we begin the process of transitioning existing customers to a subscription model.

Operating Expenses

•Cost of Revenue. These are expenses primarily for hardware, third-party software, outside services expenses and payroll and related expenses for our professional services, logistics, customer support and maintenance staff.

•Research and Development. These expenses relate primarily to the development of new software products and the ongoing maintenance and enhancement of existing products. This classification consists primarily of employee payroll and related expenses, outside services related to the design, development, testing and enhancement of our solutions and to a lesser extent hardware equipment. The research and development costs exclude any development costs which qualify for capitalization.

•Technology Operations. These are expenses associated with the operation of our paging networks. Expenses consist largely of site rent expenses for transmitter locations, telecommunication expenses to deliver messages over our paging networks, and payroll and related expenses for our engineering and pager repair functions. We actively pursue opportunities to consolidate transmitters and other service, rental and maintenance operations in order to maintain an efficient network while simultaneously ensuring adequate service for our customers. We believe continued reductions in these expenses will occur ~~during~~for the ~~first quarter~~foreseeable future as our networks continue to be consolidated, although the benefits of ~~2020. These one-time items generally relate to specific renewal contracts that do not have auto-renewal terms~~such network rationalization efforts and ~~for which we must negotiate for at the end of each term. We are generally precluded from recognizing revenue on these contracts until new terms have been agreed to even though we generally~~resulting costs savings will continue to ~~provide maintenance~~decline .

•Selling and Marketing. The sales and marketing staff are involved in selling our communication solutions primarily in the United States. These expenses support our efforts to maintain gross placements of units in service, which mitigated the impact of disconnects on our wireless revenue base, and to identify business opportunities for these customers while negotiations are on-going. While certain of our commercial customers require this type of contract renewal, these contracts are generally limited to government organizations including federal, state and local entities. Whenadditional or future software sales. We have a ~~renewal of this nature has been contracted, it is often accompanied by several months of "catch-up" revenue from services performed in past periods resulting in a one-time value~~centralized marketing function, that is ~~greater than~~focused on supporting our products and vertical sales efforts by strengthening our brand, generating sales leads and facilitating the ~~normal~~sales process. These marketing functions are accomplished through targeted email campaigns, webinars, regional and national user conferences, monthly ~~revenue expected over the life~~newsletters and participation at industry trade shows. Expenses consist largely of payroll and related expenses, commissions and other costs such as travel and advertising costs.

•General and Administrative. These are expenses associated with information technology and administrative functions, including finance and accounting, human resources and executive management. This classification consists primarily of payroll and related expenses, outside services expenses, taxes, licenses and permit expenses, and facility rent expenses.

•Depreciation, Amortization and Accretion. These are expenses that may be associated with one or more of the ~~remaining term.~~aforementioned functional categories. This classification generally consists of depreciation from capital expenditures or other assets that are core to our ongoing operations, amortization of intangible assets, amortization of capitalized software development costs, and accretion of asset retirement obligations.

~~Operating Expenses~~

The following is a review of our operating expense categories for the three months ended March 31, ~~2020~~2021, and ~~2019.~~2020. Certain prior period amounts have been reclassified to conform to the current period's presentation.

Cost of ~~revenue.~~Revenue

Cost of revenue consisted primarily of the following items:


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

Payroll and related	$	5,369	$	5,785	$	(416)	(7.2)	%
Cost of sales	1,251		1,940		(689)		(35.5)	%
Stock-based compensation	322		119		203		170.6	%
Other	299		420		(121)		(28.8)	%
Total cost of revenue	$	7,241	$	8,264	$	(1,023)	(12.4)	%
FTE Employees	193		203		(10)		(4.9)	%

For the Three Months Ended March 31, Change
(Dollars in thousands) 2020 2019 Total %
Payroll and related $ 5,785
$ 4,931
$ 854
17.3 %
Cost of sales 1,940
2,080
(140 ) (6.7 )%
Stock-based compensation 119
107
12
11.2 %
Other 420
474
(54 ) (11.4 )%
Total cost of revenue $ 8,264
$ 7,592
$ 672
8.9 %
FTE Employees 203
177
26
14.7 %

~~Cost~~For the three months ended March 31, 2021, as compared to the same period in 2020, cost of ~~revenue expense~~sales declined largely due to reduced travel costs resulting from the pandemic as well as lower professional services costs. Payroll and related costs decreased primarily as a result of temporary cost reductions implemented by management beginning in the second quarter of 2020, as well as a decrease in overall headcount. In addition, effective January 1, 2021, qualified employees began receiving stock compensation in lieu of cash payment for a portion of their salary, which decreased payroll and related costs and increased stock-based compensation for the three months ended March 31, ~~2020 compared to the same period~~2021. These temporary cost reductions are outlined in 2019 primarily due to an increase in payroll and related expenses, partially offset by a decrease in cost of sales. The increase in payroll and related is due to an increase in headcount for added professional services resources to drive corresponding revenue. The decrease in cost of sales is primarily related to lower hardware revenues with a corresponding decrease in related costs as well as lower costs related to professional services as the result of travel restrictions related tomore detail within our earlier discussion on COVID-19.

Research and Development.

Research and development expenses consisted of the following items:


	For the Three Months Ended March 31,					Change						For the Three Months Ended March 31,				Change
(Dollars in thousands)	2020			2019		Total			%		(Dollars in thousands)	2021		2020		Total		%

Payroll and related	$	4,761		$	4,263	$	498		11.7	%	Payroll and related	$	4,475	$	4,761	$	(286)	(6.0)	%
Outside services	1,584			1,745		(161		)	(9.2	)%	Outside services	2,277		1,584		693		43.8	%
Capitalized software development	(1,705		)	—		(1,705		)	100.0	%	Capitalized software development	(2,920)		(1,705)		(1,215)		71.3	%
Stock-based compensation	236			11		225			2,045.5	%	Stock-based compensation	475		236		239		101.3	%
Other	573			148		425			287.2	%	Other	199		573		(374)		(65.3)	%
Total research and development	$	5,449		$	6,167	$	(718	)	(11.6	)%	Total research and development	$	4,506	$	5,449	$	(943)	(17.3)	%
FTE Employees	123			121		2			1.7	%	FTE Employees	122		123		(1)		(0.8)	%

Research and development expenses decreased for the three months ended March 31, ~~2020~~2021, compared to the same ~~period~~periods in ~~2019~~2020, primarily due to the capitalization of certain development costs related to Spok ~~Go, as development efforts reached project phases where certain costs qualified for capitalization.~~Go. Refer to ~~Note 4 "Significant Accounting Policies Update" and~~ Note 7, "Consolidated Financial Statement Components" for further detail. The ~~capitalization of development costs partially offset anticipated increases in~~ payroll and related costs decreased primarily as a result of temporary cost reductions implemented by management beginning in the second quarter of 2020, as well as a decrease in overall headcount. In addition, effective January 1, 2021, qualified employees began receiving stock compensation ~~expenses, as we~~in lieu of cash payment for a portion of their salary, which decreased payroll and related costs and increased stock-based compensation for the three months ended March 31, 2021. These temporary cost reductions are outlined in more detail within our earlier discussion on COVID-19. The increase in outside services for the three months ended March 31, 2021, is largely the timing of costs in relation to the same period in 2020.

We continue to focus on the development efforts of our software ~~solutions. We~~solutions and intend to maintain these efforts based on their importance to our continued ~~success and do not anticipate a return to historically low costs. However, increases in~~success. While development costs have ~~grown~~continued to grow, they have done so at a slower pace when compared to prior years. ~~These~~Excluding the effects of capitalization, these costs will continue to substantially impact margins

and our cash flow from operations. The benefits from our development efforts are contingent upon successful ~~introduction and~~ adoption of Spok Go in the marketplace, which we expect to gradually take place over the next several years.

Technology ~~Operations.~~Operations

Technology operations expenses consisted primarily of the following items:


	For the Three Months Ended March 31,				Change						For the Three Months Ended March 31,				Change
(Dollars in thousands)	2020		2019		Total			%		(Dollars in thousands)	2021		2020		Total		%

Payroll and related	$	2,712	$	2,647	$	65		2.5	%	Payroll and related	$	2,467	$	2,712	$	(245)	(9.0)	%
Site rent	3,398		3,296		102			3.1	%	Site rent	3,196		3,398		(202)		(5.9)	%
Telecommunications	1,001		996		5			0.5	%	Telecommunications	837		1,001		(164)		(16.4)	%
Stock-based compensation	43		30		13			43.3	%	Stock-based compensation	137		43		94		218.6	%
Other	750		705		45			6.4	%	Other	615		750		(135)		(18.0)	%
Technology Operations	$	7,904	$	7,674	$	230		3.0	%	Technology Operations	$	7,252	$	7,904	$	(652)	(8.2)	%
FTE Employees	90		92		(2		)	(2.2	)%	FTE Employees	89		90		(1)		(1.1)	%

Technology operations expense ~~increased~~decreased for the three months ended March 31, ~~2020~~2021, compared to the same ~~period~~periods in ~~2019~~2020, primarily due to the ~~increase~~decrease in payroll and related, site rent, telecommunications and other minor expenses. The ~~increase in site rent is primarily~~payroll and related ~~to a one time reduction made during the first quarter of 2019 which did not similarly impact the first quarter of 2020. Excluding this one time reduction, site rent~~ costs decreased primarily as a result of temporary cost reductions implemented by management beginning in the second quarter of 2020. In addition, effective January 1, 2021, qualified employees began receiving stock compensation in lieu of cash payment for a portion of their salary, which decreased payroll and related costs and increased stock-based compensation for the three months ended March 31, 2021. These temporary cost reductions are outlined in more detail within our ~~continued efforts related to network rationalization.~~ earlier discussion on COVID-19.

The number of active transmitters declined ~~2.5% in~~4.7% between March 31, ~~2020 compared to~~2021, and March 31, ~~2019.~~2020. The number of active transmitters directly relates to the amount of site rent expenses we generally incur on a recurring basis. As we reach certain minimum frequency commitments, as outlined by the United States Federal Communications Commission, we may be unable to continue our efforts to rationalize and consolidate our networks.

Selling and Marketing.

Selling and marketing expenses consisted of the following items:


	For the Three Months Ended March 31,				Change						For the Three Months Ended March 31,				Change
(Dollars in thousands)	2020		2019		Total			%		(Dollars in thousands)	2021		2020		Total		%

Payroll and related	$	3,583	$	3,273	$	310		9.5	%	Payroll and related	$	3,135	$	3,583	$	(448)	(12.5)	%
Commissions	1,212		1,424		(212		)	(14.9	)%	Commissions	1,105		1,212		(107)		(8.8)	%
Stock-based compensation	172		161		11			6.8	%	Stock-based compensation	319		172		147		85.5	%
Advertising and events	784		933		(149		)	(16.0	)%	Advertising and events	161		784		(623)		(79.5)	%
Other	610		319		291			91.2	%	Other	180		610		(430)		(70.5)	%
Total selling and marketing	$	6,361	$	6,110	$	251		4.1	%	Total selling and marketing	$	4,900	$	6,361	$	(1,461)	(23.0)	%
FTE Employees	101		95		6			6.3	%	FTE Employees	97		101		(4)		(4.0)	%

Selling and marketing expenses ~~increased~~decreased for the three months ended March 31, ~~2020~~2021, compared to the same ~~period~~periods in ~~2019~~2020, primarily due to the ~~increase~~decrease in payroll and related, ~~and other various expenses, partially offset by the decrease in~~ commissions and advertising and events. The ~~increase in~~ payroll and related ~~expenses is~~costs decreased primarily ~~related to an increase~~as a result of temporary cost reductions implemented by management beginning in ~~headcount. The~~the second quarter of 2020, as well as a decrease in ~~advertising~~overall headcount. In addition, effective January 1, 2021, qualified employees began receiving stock compensation in lieu of cash payment for a portion of their salary, which decreased payroll and ~~events expenses is largely due to management's focused efforts to reduce marketing~~related costs ~~to augment research~~ and ~~development initiatives.~~increased stock-based compensation for the three months ended March 31, 202 These temporary cost reductions are outlined in more detail within our earlier discussion on COVID-19. The decrease in commissions expenses primarily relates to ~~the~~a corresponding decrease in ~~revenue~~revenue. The decrease in advertising, events and other expenses was largely the ~~related commissions associated with those revenues.~~result of reduced travel and fewer trade events as large public gatherings continue to remain generally restricted.

General and Administrative.

General and administrative expenses consisted of the following items:


	For the Three Months Ended March 31,				Change						For the Three Months Ended March 31,				Change
(Dollars in thousands)	2020		2019		Total			%		(Dollars in thousands)	2021		2020		Total		%

Payroll and related	$	4,134	$	4,041	$	93		2.3	%	Payroll and related	$	3,818	$	4,134	$	(316)	(7.6)	%
Stock-based compensation	612		219		393			179.5	%	Stock-based compensation	986		612		374		61.1	%
Bad debt	43		308		(265		)	(86.0	)%
Facility rent, office, and technology costs	2,068		2,294		(226		)	(9.9	)%
Facility rent, office and technology costs										Facility rent, office and technology costs	2,480		2,068		412		19.9	%
Outside services	2,036		1,776		260			14.6	%	Outside services	1,825		2,036		(211)		(10.4)	%
Taxes, licenses and permits	859		921		(62		)	(6.7	)%	Taxes, licenses and permits	1,081		859		222		25.8	%
Bad debt										Bad debt	106		43		63		146.5	%
Other	1,499		1,188		311			26.2	%	Other	854		1,499		(645)		(43.0)	%
Total general and administrative	$	11,251	$	10,747	$	504		4.7	%	Total general and administrative	$	11,150	$	11,251	$	(101)	(0.9)	%
FTE Employees	103		106		(3		)	(2.8	)%	FTE Employees	102		103		(1)		(1.0)	%

General and administrative expenses ~~increased~~decreased for the three months ended March 31, ~~2020~~2021, compared to the same ~~period~~periods in ~~2019~~2020, primarily due to a decrease in payroll and related and various other expenses, partially offset by an increase in stock-based ~~compensation.~~compensation and facility rent, office and technology costs. The ~~increase~~payroll and related costs decreased primarily as a result of temporary cost reductions implemented by management beginning in the second quarter of 2020, In addition, effective January 1, 2021, qualified employees began receiving stock compensation in lieu of cash payment for a portion of their salary, which decreased payroll and related costs and increased stock-based compensation ~~is largely due to forfeitures related to the resignation of an NEO during~~for the three months ended March 31, ~~2019 that did not impact~~2021. These temporary cost reductions are outlined in more detail within our earlier discussion on COVID-19.

For the three months ended March 31, ~~2020.~~2021, the increase in stock-based compensation was primarily related to expense related to the alternative DSU plan made available to the Board of Directors in the third quarter of 2020, as well as stock compensation in lieu of cash for qualified Spok employees, as mentioned above. Refer to Note 10, "Stockholder Equity" for further detail related to the alternative DSU plan.

The increase in facility rent, office and technology costs was due to additional rent for our new headquarters lease, effective March, 2021, as well as increase in back office software costs. The decrease in other expenses is due primarily to lower travel costs resulting from continued restrictions and other miscellaneous cost savings.

Depreciation, Amortization and ~~Accretion.~~Accretion

Depreciation, amortization and accretion expenses were $2.7 million and $2.1 ~~million and $2.4~~ million for the three months ended March 31, ~~2020~~2021, and ~~2019, respectively. The decrease of $0.3~~2020. Expenses increased by $0.6 million ~~in depreciation, amortization and accretion expenses~~ for the three months ended March 31, ~~2020~~2021, compared to the same period in ~~2019 is~~2020 primarily due to the amortization of software development costs offset by decreased expense related to certain computer hardware and software assets becoming fully depreciated in ~~2019~~2020 and continued efforts to reduce capital expenditures. The capitalization of software development costs began in the first quarter of 2020 and amortization of certain of those costs began in the third quarter of 2020. For additional details regarding depreciation, amortization and accretion expenses refer to Note 7, "Consolidated Financial Statement Components."

Income Taxes

Provision for income ~~taxes.~~ ~~Expense from income~~ taxes was ~~$0.7~~$0.6 million and ~~$0.6~~$0.7 million for the three months ended March 31, 2021, and 2020, ~~and 2019,~~ respectively. ~~Income tax expense increased~~Provision for income taxes decreased $0.1 million for the three months ended March 31, ~~2020~~2021, compared to the same period in ~~2019. The change in the provision for income taxes for the three months ended March 31,~~ 2020 ~~as compared~~due to ~~the same period in 2019 primarily relates~~ the difference in the anticipated annual effective tax rate as a result of certain permanent tax differences, estimated research and development tax credits and related valuation allowance, and certain discrete items. Further details can be found in Note 11, "Income Taxes."

Liquidity and Capital Resources

Cash and Cash Equivalents

At March 31, ~~2020,~~2021, we ~~had~~held cash, ~~and~~ cash equivalents and short-term investments of ~~$72.2~~$71.6 million.

The available cash and cash equivalents ~~are held in accounts managed by third-party financial institutions and~~ consist of invested cash and ~~cash~~ in our operating accounts. The invested cash is invested in ~~interest bearing~~interest-bearing funds managed by third-party financial institutions. These funds invest in ~~direct obligations of the government of the United States.~~U.S. Treasury securities which are classified as held-to-maturity and are measured at amortized cost on our Condensed Consolidated Balance Sheets. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse market conditions. ~~Our short-term investments consist entirely~~

We maintain a level of ~~U.S. Treasury securities which are classified as held-to-maturity~~liquidity sufficient to allow us to meet our cash needs in both the short- and ~~are measured at amortized cost on our Condensed Consolidated Balance Sheets.~~

long-term. At any point in time, we ~~have~~typically maintain approximately $7.0 million to ~~$12.0~~$15.0 million in our operating accounts that are with third-party financial institutions. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts.

We intend to use our cash on hand to provide working capital, to support operations, to invest in our business, and to return value to stockholders through cash dividends and possible repurchases of our common stock. We may also consider using cash to fund or complete opportunistic investments and acquisitions that we believe will provide a measure of growth or revenue stability while supporting our existing operations. Because we intend to continue to ~~substantially~~ invest heavily in the development of ~~our integrated communications platform~~Spok Go over the next several years, commensurate with declining revenues from our wireless business, we anticipate that our cash on hand will decrease significantly during that period, and possibly longer until revenues from Spok Go begin to be realized.

Cash Flows Overview

In response to COVID-19, management has enacted certain cost mitigation measures, as previously discussed, that it believes will allow the Company to operate in a cash flow positive manner for the remainder of the year. While we had previously mentioned the potential impact on our revenues, we do not expect COVID-19 will have a material impact on our liquidity at this time given our ability to reduce costs further, if necessary.

~~Overview~~

In the event that net cash provided by operating activities and cash on hand are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce or eliminate our cash dividends to stockholders, not resume our common stock repurchase program, sell assets ~~and/~~or seek ~~outside~~additional financing. We can provide no assurance that reductions in planned capital expenses or proceeds from asset sales would be sufficient to cover shortfalls in available cash or that outside financing would be available on acceptable terms.

Based on current and anticipated levels of operations, we anticipate that net cash provided by operating activities, together with the available cash on hand at March 31, ~~2020,~~2021, should be adequate to meet our anticipated cash requirements for the foreseeable future.

The following table sets forth information on our net cash flows from operating, investing, and financing activities for the periods stated:


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

Net cash provided by operating activities	$	719	$	1,317	$	(598)
Net cash used in investing activities	(3,642)		(2,642)		(1,000)
Net cash used in financing activities	(4,174)		(3,532)		(642)

Three Months Ended March 31, Change
(Dollars in thousands) 2020 2019
Net cash provided by operating activities $ 1,317
$ 1,223
$ 94
Net cash used in investing activities (2,642 ) (16,111 ) 13,469
Net cash used in financing activities (3,532 ) (5,468 ) 1,936
Operating Activities

~~Net Cash Provided~~For the three months ended March 31, 2021, cash provided by ~~Operating Activities.~~operating activities was $0.7 million due primarily to non-cash items such as depreciation, amortization and accretion of $2.7 million, stock-based compensation of $2.2 million, and other non-cash items of $0.7 million. This was partially offset by a net loss of $2.3 million, a change in accounts payable, accrued liabilities and other of $3.0 million and deferred revenue of $1.4 million, partially offset by changes in account receivable of $1.0 million, change in prepaid expenses, inventory, and other assets of $0.5 million and changes in lease liability of $0.3 million.

For the three months ended March 31, 2020, cash provided by operating activities was $1.3 million due primarily to non-cash items such as depreciation, amortization and accretion of $2.1 million, stock-based compensation of $1.1 million, deferred income tax expense of $0.8 million, partially offset by net loss of $4.5 million. Cash provided by operating activities also ~~increase~~increased resulting from the change in accounts receivable of $2.4 million and prepaid expenses, inventory, and other assets of $1.0 million, partially offset by changes in accounts payable, accrued liabilities and other of $1.1 million and deferred revenue of $0.5 ~~million~~million.

~~Cash provided by operating activities for~~Investing Activities

For the three months ended March 31, ~~2019 was $1.2 million, due primarily to net income of $0.7 million~~2021, and non-cash items such as depreciation, amortization and accretion of $2.4 million, stock-based compensation of $0.5 million, deferred income tax expense of $0.5 million and other non-cash items of $0.4 million. Cash provided by operating activities also increased resulting from the change in prepaid expenses, inventory, and other assets of $2.2 million and deferred revenue of $1.8 million, partially offset by the changes in account receivable of $4.8 million and accounts payable, accrued liabilities, and other of $2.5 million.

~~Net Cash Used in Investing Activities. Cash~~2020, cash used in investing activities ~~for the three months ended March 31, 2020 and 2019~~ was ~~$2.6~~$3.6 million and ~~$16.1~~$2.6 million, respectively, due primarily to the capitalization of software development costs, ~~and~~ purchases of property and ~~equipment.~~equipment, and purchase and maturity of short-term investments.

~~Net Cash Used in~~ Financing Activities~~. Cash used in financing activities for~~

For the three months ended March 31, 2021, and 2020, cash used in financing activities was $4.2 million and $3.5 million, respectively, due primarily to cash distributions to ~~stockholders. Cash used in financing activities for the the three months ended March 31, 2019 was $5.5 million due primarily to cash distributions to stockholder~~stockholders and the purchase of common ~~stock.~~stock for tax withholding purposes on vested equity awards.

~~Future Cash Dividends~~The Board of Directors currently expects to ~~Stockholders~~.pay dividends of $0.125 per common share each quarter in 2021, subject to declaration by the Board of Directors. On April ~~29, 2020,~~28, 2021, our Board of Directors declared a regular quarterly cash dividend of $0.125 per share of common stock with a record date of May 25, ~~2020,~~2021, and a payment date of June 24, ~~2020.~~2021. This cash dividend of approximately $2.4 million will be paid from available cash on hand.

~~Other.~~ ~~For 2020, the Board of Directors currently expects to pay dividends of $0.125 per common share each quarter, subject to declaration by the Board of Directors.~~

Commitments and Contingencies

See Note 12, "Commitments and Contingencies" for further discussion on our commitments and contingencies.

Operating ~~Leases.~~Leases

We have operating leases for office and transmitter locations. Substantially all of these leases have lease terms ranging from one month to five years. We continue to review our office and transmitter locations and intend to replace, reduce or consolidate leases where possible. As we reach certain minimum frequency commitments, as outlined by the United States Federal Communications Commission, we may be unable to continue our efforts to rationalize and consolidate our networks. Total rent expense under operating leases was $4.2 million for the three months ended March 31, ~~2020~~2021, and ~~2019, respectively.~~2020.

Off-Balance Sheet ~~Arrangements.~~Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, ~~which~~that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

~~Commitments and Contingencies.~~ ~~See Note 12, "Commitments and Contingencies" for further discussion on our commitments and contingencies.~~

Related Party Transactions

See Note 13, "Related Parties" for a discussion regarding our related party transactions.

Critical Accounting Policies and Estimates

The preceding discussion and analysis of financial condition and operations is based on our Condensed Consolidated Financial Statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our Condensed Consolidated Financial Statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. On an ~~on-going~~ongoing basis, we evaluate estimates and assumptions, including, but not limited to, those related to the impairment of long-lived assets and intangible assets subject to amortization and goodwill, accounts receivable, revenue recognition, asset retirement obligations, and income taxes. 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.

There have been no changes to the critical accounting policies reported in the ~~2019~~2020 Annual Report that affect our significant judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements other than those outlined in Note 4, "Significant Accounting Policies Update."

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of March 31, ~~2020,~~2021, we had no outstanding debt and no revolving credit facility.

Foreign Currency Exchange Rate Risk

We conduct a limited amount of business outside the United States. The financial impact of transactions billed in foreign currencies is immaterial to our financial results and, consequently, we do not have any material exposure to the risk of foreign currency exchange rate fluctuations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management carried out an evaluation, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the participation of our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Disclosure controls and procedures are defined under Rule 13a-15(e) under the Exchange Act as controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, ~~2020.~~2021.

Changes in Internal Control Over Financial Reporting

There were no changes made to the Company’s internal control over financial reporting during the three months ended March 31, ~~2020~~2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 12, "Commitments and Contingencies" in the Notes to Financial Statements for information regarding legal proceedings in which we are involved.

ITEM 1A. RISK FACTORS

The risk factors included in “Part I – Item 1A – Risk Factors” of the ~~2019~~2020 Annual Report have not materially changed during the ~~quarter~~three months ended March 31, ~~2020~~ ~~other than the additional risk factor provided below:~~2021.

~~Our business, financial condition and operating results have been, and will continue to be, adversely affected by the recent COVID-19 pandemic.~~

The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide, and has caused significant volatility in U.S. and international debt and equity markets. In particular, health care organizations, have faced, and will continue to face, substantial challenges in treating patients with COVID-19, such as the diversion of hospital staff and resources from ordinary functions to the treatment of COVID-19, supply, resource and capital shortages and the overburdening of staff and resource capacity.

Our business, financial condition and operating results have been, and will continue to be, adversely affected by the COVID-19 pandemic. For example, the COVID-19 pandemic has caused, and will continue to cause, delays in or the loss of revenue from services that require onsite implementation as well as delays in or the loss of software bookings, as health care organizations are putting these projects on hold to focus limited resources and personnel capacity toward the treatment of COVID-19. We also may be affected by the cancellation of or delay in healthcare information technology and management systems conferences and exhibitions, like the Healthcare Information and Management Systems Society (HIMSS) Global Health Conference & Exhibition, which was scheduled to take place in early March and would have allowed us to continue the rollout of Spok Go. The cancellation of or delay in these types of conferences and exhibitions may negatively affect our growth in Spok Go revenues.

The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not repurchase any shares of its common stock during the three months ended March 31, ~~2020.~~

2021.

ITEM 6. EXHIBITS

The exhibits listed in the accompanying Exhibit Index below are filed or incorporated by reference as part of this report.

EXHIBIT INDEX

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

File No.

~~Exhibit~~Exhibit/Appendix

Filing Date

Filed/Furnished Herewith

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated ~~April 30, 2020~~March 31, 2021

Filed

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated ~~April 30, 2020~~March 31 , 20 21

Filed

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated ~~April 30, 2020~~March 31, 2021

Furnished

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated ~~April 30, 2020~~March 31, 2021

Furnished

101.INS

Inline XBRL Instance Document*Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*

~~Furnished~~Filed

101.SCH

Inline XBRL Taxonomy Extension Schema*

~~Furnished~~Filed

101.CAL

Inline XBRL Taxonomy Extension Calculation*

~~Furnished~~Filed

101.DEF

Inline XBRL Taxonomy Extension Definition*

~~Furnished~~Filed

101.LAB

Inline XBRL Taxonomy Extension Labels*

~~Furnished~~Filed

101.PRE

Inline XBRL Taxonomy Extension Presentation*

~~Furnished~~Filed

104

Cover Page Interactive Data File (the cover page XBRL tags
are embedded within the Inline XBRL document and included Exhibit 101)

Filed



*			The financial information contained in these XBRL documents is unaudited.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SPOK HOLDINGS, INC.

Dated: April ~~30, 2020~~29, 2021

/s/ Michael W. Wallace

Name:

Michael W. Wallace

Title:

Chief Financial Officer

(Principal Financial Officer and duly authorized officer)



(Dollars in thousands)	Useful Life (In Years)	Gross Carrying Amount		Accumulated Amortization			Net Balance
Customer relationships	10	$	25,002	$	(22,710	)	$	2,292