SPOK - Earnings call transcript Q2 2021

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Operator

Good morning and welcome to Spok’s 2021 Second Quarter Investor Call. Today’s call is being recorded. On line today, we have Vince Kelly, President and Chief Executive Officer and Mike Wallace, Chief Operating Officer and Chief Financial Officer. At this time, for opening comments, I will turn the call over to Mr. Wallace. sir. ahead, go Please

Mike Wallace

are business I as estimates include or not remind subject forward-looking only assurance relating and financial actual and results, upon those estimates may conference dependent revenue, differ statements. predictive of to statements These that statements forward-looking call uncertainties expenses and future Spok’s may are conference statements any as conditions. call to materially these future this intended to Such events and the want give operating as on future the statements everyone actual which include well to date income results. today’s risks performance. from of other For that company’s plans, results in are represent to or anticipated Spok’s could

statements expect forward-looking file or filings Form business Spok we will in I Please over are and Vince. and no calls. to call subject believes XX-K, section relating operations that assumptions to documents they XXXX XXXX our update that and to the Exchange to Factors the past which later Commission. note related our upon today assumes to With compete that, obligation filed statements risks reasonable, be Form XX-Q, second from based Risk environment the with any quarter our to which and the Securities Although we company contained are conference present turn the in uncertainties. review Please these and

Vince Kelly

times, we to employees presented and safe Spok, are and our you, to to variant. a families, good the Thanks, we challenges and are that everyone. of as by this friends work morning very are continue unprecedented safe these Delta ensuring Mike situation remain seriously vaccinated your the environment. take getting COVID-XX At I secure and all hope continue navigate during and especially

frontline saving this always, thank whom virus are we the of lives. our to many on fighting As want and customers,

their sacrifice. for grateful forever are We

We improved second of important the wireless year software expense areas. declines year half an over are the the in in increase continued entering resulted improvement quarter key saw trends, with retention on performance based revenue made we in management outlook several the and our prior second progress levels, many increase that pager year-over-year from expense categories. placements sequential continued significant in in particularly Overall,

However, our budgets the projects. are challenging and selling demonstrate operating very of of as result quarter second to our on a results also and environment new impact on the we in the customers’ COVID-XX focus ability continuation pandemic related

quarter, level half in certainly software we performance. are financial for the software satisfied resources second on the improvement hospital and of effects the bookings that we We the course remain not remaining the revenue that the second see of pandemic size our with impact large pipeline the its on quarter XXXX health and our a believe this quarters. deals in While second we will and and had believe of encouraged quality by of over two area after

a the pillars. company strong with on operational built We three have foundation developed

in largest continues States the the results. First to network, our is United generate paging strong best-in-class that

coordination. clinical delights our XXXX with beautiful to when of mission strategic our is Care Spok legacy be choice, matters revenues from quarter. per We platform, to Spok of coming the new million information nature, base that wireless subscription-based viable a of either to maintenance provides data software contributes care service Spok in customers, XX% Go. software remain products under over and our a communications suite second critical to $XX it stream, clinical the enterprise-grade, where recurring committed our partner vision our our Spok demonstrate is create Next and the most or revenue delivering outcomes. Connect and patient care Last teams revenue improve stable valuable business with cloud customers, contracts. just to to maintenance a patient to continues quarter

and values continuous Our putting innovation a core they customer include accountability. the do first, respecting to commitment what and

pandemic the while environment, we long-term system trends this challenging by by continues Spok action a create encouraged to for in healthcare need are the represented of a So sophisticated Go. and

second first, our the to Turning units wireless quarter quarter. subscriber sharply Difficulty] [Technical up prior from results, were

stable net pleased a units, approximately X.X%. to pager of were As see X,XXX XX% these a in result, the top-performing We comprises of nearly healthcare our our low subscriber segment, base. losses more of to trends, record especially continuation which declined paging

was performance more resulted postponed basis, revenue completing our prior increase to projects $XX.X professional starting a services in people hospitals are primarily quarter integration second the from more and quarters. year software the X% of quarter. allow from increase up The revenue on nearly are from Next, site GAAP many than on of year-over-year as million a in teams prior XX%

$X.X down bookings. quarter. related the off quarter our revenue revenue our prior was at second However, in XX decline sequential level million was backlog driven June primarily software software The operations the $XX.X software our from million, of backlog

crisis I our got hold and on deals crisis also As put out. pushed healthcare financial Many current is a customers. before, mentioned of for many

year However, we not worsen Delta optimistic the of to many revert that provided variant. will in the back backdrop the these second due are of the half does

sales to remainder continue of throughout already the will posted. booking year laser-focused million Go deals be we’ve Spok $X.X to Go the Spok sales additional generating of and platform, Our activity of team the on adding

specifics disciplined management. demonstrate expense to of continues quarter Spok the Mike the minutes. in review will Finally,

point our development, this a a new team and operating to basis. quarter our marketing adjusted me demand. let support of being the both order able to with continue accomplish market what we However, evolution the That such said, our has product in down expense I’m were sequentially second and platform. to make of proud GAAP time short expenses on align in in our in been base to area infrastructure that out necessary sales investments

software. of generated in the added deals and just more including in We I’d I’m to quarter. than lot a X a our for did quarter you. share quarter. business manage like second X the new the we to family, Spok X-figure of highlight new costs X couple second the customers to However, some wireless excited

Our software Go Go X customers aggregate to deals with new approximately from $X.X value an transitioning Spok Spok of amount contract bookings platform existing our included million.

In had that South. X the medical addition, we X school medical deals the academic in X-figure second including center quarter, oldest in other an the with operates

what the an been this customer, confidence Environmental, in commitments. or solutions. to our strong On to that which the this an Since Social a enterprise-wide into we team a These level able Governance, headwinds sales focused console its citizen. the of committed activity the release corporate year. and provides existing accomplish strong console licenses of maintenance. responsible including sales final as seen note, an of the and in the of Spok’s our second very As XXXX, gives policies announced just half of a against sale ESG agreement, early first contributed company’s from I’m being we has inception overview sustainability June, report, to and proud This company’s of extended are and the services us we have hospital Spok move to examples couple year. the and

meaningful to we hard and inaugural and look we our We impact and the We the where report work are seriously. forward we commitment initiatives proud serve on that have to ESG in working published have and very live identify. believe we our communities take a we

that responsibility as all constituencies, the our shortly, Financial help be as highlights to the on in embraces first, and our and societal will we will business shape role cope outlook Operating As our ongoing in well financial our social forward impact Spok Mike? quarter. to strive but can COVID-XX will Officer example of continue Chief U.S., Chief company a unrest Mike with the we for as some and social social ongoing I and culture, Officer, additional of attitudes an review make Spok updates recognizes all look to Wallace, future for our providing comments outcomes. journey.

Mike Wallace

provide to call. expect Form but this business would the and will we contains than quarter XX-Q, of file our second our on we encourage far certain second XXXX about will financial in I performance performance as details to it today information our Vince. you which review more financial cover quarter, later I again operations Thanks,

progress levels and in revenue performance X% software year with areas, up to prior more Vince the revenue due to continued made noted, from than pandemic, key lower was wireless compared XXXX management. in continued trends several levels, As in the albeit as improvement expense

in However, continues continuation and quarter results selling we a our the to our operating as the COVID-XX pandemic are customers budgets. challenging their second environment of impact demonstrate

activity that the half half. accelerate for pipeline satisfied bookings with of we size of of and level quarter, encouraged the deals While second remain in second the the in the software and quality XXXX of believe the by software second not will

financial and confident of will a of I sheet. last influenced In second, our guidance which result, selected that we review a include, quarter the comments, review which certain They performance. areas a in lastly, items my quarter quarter drove As financial impacting key first, factors are we balance revenue; review provided second quarter. the second of reiterating the brief second balance expenses;

XXXX, $XX.X in or results, unchanged As to revenue second our of for usual, million, quarterly this Q&A them during respect of I about specific these items if revenue of morning’s quarter to the XXXX. revenue the be any the financial call. quarter total address questions have GAAP was of With will you portion from happy second total

half X $XX of a of revenue, churn first respect pager first the a to the totaled of lower XXXX, $XX.X to first revenue million months level million year-over-year basis. XXXX. For driven With compared in revenue of by half wireless was performance GAAP unit on

X.X%, In net second fact, averaged decline the in record another pager low. the quarter

only XXXX first a Difficulty] prior stable wireless remained revenue the X.X% in half unit solid, from pricing. As result, declining [Technical year the of

professional up to And second greater XXXX, significant year-to-date as the lockdown performance half while services levels. than With on-site to it from pleased quarter. continues revenue, Both will prior efforts Customers reflected levels. of of our of the million total $XX.X of year the also software our implementation recovery in hospital almost than XXXX. historical second with of levels legacy reengage have year-over-year utilization For exclusively each the we from from on revenue of which lows the driven the year-to-date increase by with result services in we during a all-time hopeful are to the from professional and a were below country. second access across improve, pre-pandemic continued passing said, projects at pace a second to customers a is access X% quarter software quarter revenue, the quarter continues to that teams X% continued $XX.X as remain quarterly and more XXXX have normalize our million, were increase quarter more with all-time related to increase XX.X% to revenue, improvements in low an primarily second products

Regarding in $X.X million, second revenue and revenue, is source software and our critical which revenue respectively, recurring of was million the year-to-date $XX.X $X.X versus million a XXXX maintenance and $XX stream, year corresponding ago periods. quarter million

continue ability to our our of we we development products. purposeful continued the of sell Connect new the anticipate Spok a to Care in suite As Go, focus for efforts decline majority on licenses

Our Go. intent of over offset Spok sale to is customer churn time

contract Spok or of in to dynamics, $XX,XXX we we especially million TCV, TCV inception as approximately XXXX, In the an revenue have Go quarter flat, contract expect ARR was our aggregate, an time. X quarter bookings Also $X.X customers of model of originated subscription since albeit these would revenue we Given relatively total of slightly $X.X average transition third the ARR and move bookings $X.X with second small, software of in platform, from of new in of with subscription These maintenance from and Go life annual included as in $X.X existing transitioning bookings years. the revenue million to the Spok existing in in revenue a we forward value, over in platform. quarter, first recurring million annual had million. deals our customer or down

reduction operating both operating operating align levels, key market products. be the In the expense and for second expenses as year-over-year we expenses, a focus continuously year levels, expense demand disjointed prior to to continued impact management to expenses the the continues timing the we pandemic on of focus from the revenue quarter, our offset cost furloughs from adjusted were comparison up is as Turning quarter, our to CARES initiatives had given Act in we on creating and the In benefiting implemented efficiencies and reimbursement. expense streams. from our maintain base our the second

discussed second XXXX, higher during of million and employee continues of ago. as the broadened environment, a many in low the reported the of the second for for Adjusted $X.X quarter of lastly, credits a a as following the of and operating the of incurred discontinued adjusted software costs working of the adoption we For included We taken to employee medical XXXX up compared we related employees depreciation, X technology XXXX, place accretion two And health quarter, many and period to of million largely second as remote we and average XXXX year companies. unemployment regarding furloughs costs attributable XXXX. of has CARES same individuals quarter of of with reach refundable $XX.X higher, operating the tougher quarter under items. two, employee retention delayed in our as opposed see is amortization tax related market million savings ago the procedures This costs care operating costs week health which expenses, market of reflected as from Act. as incurred current in approximately includes as and expenses higher $XX.X last have to period quarter retention, excludes visits guidance. million, well as two, third financial expenses, greater care as development to the partly result the payroll year same competition capitalized the approximately And furlough in as lockdowns wellness $X.X one-time to are which

second Our $X.X capital expenses quarter approximately the in were million.

necessary to requirements be We do changes expense for of expenses infrastructure purchase X of first significant as from our capital support the incurred the half expect primarily as our not and $X.X network totaled million Capital XXXX, level XXXX. months in was the first the and to software customers our up well support infrastructure the our business. are guidance. pagers, any to slightly of range to of For wireless the capital plan of expenses

With December we financial reduction Finally, first we turning This million million. capital and used the call million turn other Vince half to up. quarterly that, approximately was primarily items, a to of with for dividends over comments closing I $X.X XX, some the back before call will down cash open $XX.X ended balance of from Vince? million, sheet balance $X.X of the and quarter $XX.X to fund expenses the XXXX.

Vince Kelly

Thanks, Mike.

maximizing first, Before and second, to we on I up to allocation call of comment to goals our on I’d achieve update you our the of the for overall want current and briefly business growth like our sustainable, profitable questions, current value. respect want open review outlook the strategy, year. With capital to couple capital strategy; balance key for a shareholder our items: while allocation to I goal long-term is business

of our a of is that that Towards remains focus allocation Board end, the area primary constantly reviewing. capital

that strategy capital augment operating Our development, infrastructure. dividends well currently allocation key as product multifaceted platform our as strategic investments and includes

are that Our strategy accretive potential and that are nature also includes to acquisitions the strategic for both earnings. in

our additional of functionality and and the software cost the on enhancement than acquisitions of architectures efficient present However, of is time. the mentioned taking. less functionality the prior integration and versus much development solutions at as main ultimately, build are we’ve internal is believe and, limiting focus approach We in the we quarters, disparate the acquiring

from Finally, this with the half regard our eventually pandemic. improvement positioned healthcare see the industry outlook, and as key fully our business we efforts to goals year us to recovers of the in have believe first

progress this However, and selling market software. we terms Go other of conditions will closely on year our monitor in Spok

to demand them support. We and for will we in for their are our with to able to patience seeing. market quickly being also last I’d week. I’d levels that our their being like participation annual in operations and our able shareholders react meeting thank remain nimble changing like thank to to align the conditions

reported, the to classified year. each elected directors As a reelection our XX for Spok X-year company’s the and we of does terms. every nominees of to Board Directors, Board have were not stand

filed report For Form on voting results, a in a with please and of review Securities full the Exchange the Commission. disclosures XX-K see our final

So a to and questions after limit one the questions. at to initial operator take call We Operator? ask And your for to follow-up. ask as like the to we this will allows. your time will that, I you additional questions open would point,

Operator

our Please Ryan Palogic. Vardeman Thank you. And with go [Operator first Instructions] ahead. comes from question

Ryan Vardeman

Hi, guys.

As sort Go, to legacy selling from the selling what year you do typically transitions to like? of that does platform maintenance efforts Go Spok start Spok the customers existing And what look like? revenue per revenue subscription look

Vince Kelly

of Mike out people selling that’s really we put two that selling the backgrounds latter. business The have those have quotas can recruited So regions, about take consist together, enterprise and are take in group efforts and about selling one gone software of – software. clinical XX% east west efforts have our Go three then sales sales of our and also we and Spok are XX% they our a then Spok that with their capability, that a XX% in terms we and and essentially XX% international Ryan. legacy pieces, Number are and of existing that we’ve software, I’ll to have are and regions, one, operating used new deep legacy the quota that And Go. people directors, ESPs,

of how per-user-per-month with current completed. That an terms the go outside in a a to and a what solutions with where basis. been structure consultant study, we our market that need third-party particular pricing be We’ve that’s pricing also of is study So seeing conducted recently in team. the pricing in to has we industry terms on

that the this of that out, of the in seeing here in start benefits and second process the year. half rolling are of We will we

to are those in areas terms primary we’re our So how of going market.

department innovation of our around latter, emergency help partners, a terms you them cases, from studies use how in as we’re platform. existing here, the in about terms TidalHealth, we’re and and development, can in of Mayo referenceable our referenceable account, talking Clinic case the studies in your feedback with our use from case also specific We’re about etcetera, improve using that to new of communications particularly talking

So second that’s there. half? to the want the you do primary take Mike, area

Mike Wallace

question Yes, on not maintenance. customers deal they Ryan. it announced, maintenance. In Good of that deals we regarding a existing great have case, the Spok to did Go the this to as relates

as perfect over So end Go, we that our sold scenario able that transition were had legacy really. actually that on progress, the to theory, to of very it is customers existing in amount Go. product But base, went I’ll we was report away them Spok and little. this transition them we going that we of of entire that the life from the a time, as in which the be out it Spok But make was one case, maintenance would, replacement by

Ryan Vardeman

Okay.

So going we follow-up today. think Spok and about were there? revenue maintenance $XX of have million what maintenance question. And all on concerned as revenue is Go we to subscription kind got Spok to convert our the insofar we then forward, customers I’ve If of expectation to might go, – a

Mike Wallace

we’re Yes. mean getting we’re have of will Obviously, over that we’re existing expectation play and significantly time today, let Go question have an to out. we maintenance that switched, what that’s subscription I But need don’t that at in answer. exceed from Spok where revenue many that think again, we to I the customers a to given going have big today.

Ryan Vardeman

below a that not developing waste wireless software cash what you where Thanks. decade the business, Okay. cash results the the and currently have that stock operational about you a kind have a year trading plus of framework $XXX by business say public point parts, ago, the which think will business. the plus do About spent confidence guys of million? you – a sum to wireless give you meaningfully provided is At we think

Vince Kelly

quarter frustrated a is we the nobody We future. at Thanks, see than business fantastic. great very business am. solid And doing Look, look this expectation think we I value, we think price more stock quarter month, and have has and that every after it a our internally has wireless we Ryan. with it exceeding month after

that encrypted make fact, In second business. a chance all these more days, comeback in yesterday, he of we news because the we have, going hospital on this know, of were a talking cybersecurity paging have is we are and paging CIO software products some have you as in around the with and some half our might and there the legacy things business we the pagers, will year. more Then on said

this You U.S. probably the morning. press saw release

News now out XX adult put for in in in top rolls the It them pandemic. honor children’s the and a Spok there the a it rolled franchise its launched platform. new new my I All customers. the World are that out we’ve seen middle the environment is hospitals we top Report nation, is valuable. incredibly And worst projects career. of have hospitals in nation. of selling mean We the I’ve of the

no selling on pipeline problem very they to a great one than to involve take think to things We decision-maker. there sales now are new They have these consensus Frankly, very, to business We difficult. going in that. been cycles The already get internally has often is trying have. to add-on continued more value it grow. customers, existing has just right projects. And

not crusade future. what’s here. of a going piece with variant not right has our we’re We’re now. about look, we the on a But the third think that That’s good Delta business on excited

best decisions thing as going very can we next going year, closely year about we will look make do We’re and the at the in the this to forward what to we’re goes into business future.

a more than trading it’s I now this think right right the worth now. lot where trading is is company where stock

were indices. have June, we was We from of is huge we Russell and company that an volume, and funds. the and where out raised as S&P then out sure And a all we traded the market all underneath aware that trading with cap you’re their huge those sudden, with institutional ownership unfortunate a traded huge there that we that index. the came there. no have, end lot a down the It’s out I’m in They of reduction. stacks trading, of have We bar. a at situation out. of we on spike news gone a of a lot week thing this with there our Same of happened came

we’re worth than – think where more now. I personally trading we’re I right think

we’ve think platform. great a I built

I Australia. United in it that have We We’ve Obviously, it, real States. using platform. got great in We’ve here customers think we planted the implementing flag it. customers we’ve Canada. planted it planted with in our

We are real back with but need We But frustrated not improvement be, back not going it. there. not we’re the progress like an there. given also on get environment. We to to need the the opening in down to up, said, see hospitals traction to up, see shutting not quitters. I crusade We’ve we’re

very, watching very we will We’re this we business to decisions can. best closely, the and try make

shareholder. So you’re a

you can is one with I we I’m possibly shareholders. line. to that as this company of best are. responsibility. here my to situation I’m you where are. where apologize do running long our nobody to satisfied absolutely You’re It’s we improve going that biggest I can I as the here tell And

Ryan Vardeman

years quantifiable again, I’ve as still of in, I And mean, relates last sort to investing on judge about any we for asking yes. etcetera. by the don’t been have which it what go-forward we’ve been it basis, and a company could metrics Okay. the couple of framework we

source a be to of continues frustration. that So

So, best you. luck. Thank of

Vince Kelly

Thanks, Ryan.

Operator

you. Thank

Melas from go with MKH next ahead Our question comes George Please sir. Management.

George Melas

What and give of an Spok maybe sense about last Go point a center remove a the contact Also, you broader the adoption? us from on you morning the Good view? that integration would you. talked would integration what stimulate three with update gentlemen. barriers Spok to your functional Thank Thank call, Go? you. solutions. us the of adoption of from In Can

Vince Kelly

Yes, great. two Absolutely. Yes. really. Well, things

which the look years. existing customer one using customers are base, have to center over two our developed we have have three, that and solutions, acquired contact we internally of our at historically you that If existing we we the

a of contact progress We centers. have integrating those made ton

because have premise-based, are been server-based solutions. in-house Some in them of place they

years, over they those have of been have Some in and XX customized. been highly place

in when are important contact around those workflows built center So centers talk in the that’s because directory. you of these integration, contact about hospitals the integration degree these it’s

to a those list customers, so And delivered to ahead go have right have center it’s that sales. have total another book specific go target integration, subset and our greenlight we the you contact is is platform enhanced subset this to think functionality, we deliver where base and customer There on on to on salespeople of and now, them pitch spend we a we and where get one biggest a imagine our at We’ve our we’re to we’re don’t priority. for where going a the prioritize customer. for buck. can to map lot trying development got because road want bang we and constantly And to looking our a we’re dollars do just of to efforts

I’d is or a console software, well. There asked to like going other couple are things we be that scheduling be There where say from in not want we tweaks that is integration, to we’ve some away or our we X in of integrations ultimately. I next probably want is game a where few we’re with to software be that of will and months So console other still the there. think terms end end integration X ultimately, that be, By progress, the year. might year, of this do etcetera,

need better those lot things outreach some them, areas conversations than different And we And continue I and some and with to we our marketing we’ve is that. across what have we think hospitals’ and partner a that little will ongoing, the and the some we’re success on in other as to of historically. those patient don’t companies of terms things the been road integrations that have in platform well kind results. get like of done creature with care a a and functionality, when that. the clinical And are other complete, bit we’re looking have exactly down look we yet will with respect of selling there communications,

our the So there on to to things add to console main have Mike, want road integration. that? map do with respect that’s basically we on that is anything you

Mike Wallace

perfect. No, I think that’s

George Melas

I’ll that. on Okay, Maybe sort a ask follow-up great. of

those of to to three that because consoles. the of Is consoles important integration specifically what share sort the complex I’m is So granularity what and adoption the seems – to customer just more that base? three be trying you for some trying I’m with about – have one product. within your your understand, of of get

Vince Kelly

Yes, great question.

the challenge. Here’s

our base between Amcom third, and our console third, medical about SmartSuite. that customer is we a console, console Our split old call third

console of the beast feature-rich. two. other we It’s call lot is complicated SmartSuite a Now the more more than that a

are about doing with, So lot customers. two actually of into a little do our third the integration easier putting we’re the to effort other a which integration more is SmartSuite, bit but with

customers functionality. SmartSuite course, wanted lot happen to Of larger use they a health your who because care organizations of added that be those

we having it’s can all to little team, And with So console, that it’s as disparate three and are architectures, integrate you with do imagine, based longer. bit hey, it’s the like, integrate with development consoles been why on a are that’s go a not taking three. us

as Mike, good Now, that, said, that’s got we’ve it, in we I Hope, hands having do our in I said we And it’s you helpful. process. to... around be will there. this want year, really as shape think end

Mike Wallace

No.

I think you explained it perfect.

George Melas

it. Appreciate much. very you Thank

Vince Kelly

You welcome. are very

Operator

remarks. over time. questions you. And we I’ll Instructions] [Operator at back Thank for call have additional Mr. Kelly turn any to closing this the no

Vince Kelly

third look lot a forward quarter We have and with morning. everyone safe October for stay day Thanks a speaking again please this our joining in release after healthy. you we to and great results us and

Operator

Thank you participation. concludes your today’s call. all for this And

disconnect. now may You

Spok (SPOK) 1 Aug 212021 Q2 Earnings call transcript