Spok(SPOK) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the company's unaudited quarterly financial statements, management's analysis, and disclosures on market risk and internal controls Item 1. Condensed Consolidated Financial Statements The unaudited financial statements for Q1 2022 show declining revenue, a wider net loss due to restructuring, and negative operating cash flow Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $78,674 | $94,053 | | Total assets | $232,875 | $248,154 | | Total liabilities | $72,980 | $74,463 | | Total stockholders' equity | $159,895 | $173,691 | - Cash and cash equivalents decreased from $44.6 million at the end of 2021 to $31.4 million as of March 31, 2022[9] Condensed Consolidated Statements of Operations (in thousands) | | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total revenue | $33,825 | $36,036 | | Total operating expenses | $42,493 | $37,776 | | Operating loss | $(8,668) | $(1,740) | | Net loss | $(7,214) | $(2,297) | | Basic and diluted net loss per common share | $(0.37) | $(0.12) | - The company incurred a significant severance and restructuring charge of $4.5 million in Q1 2022, which was not present in Q1 2021, contributing substantially to the increased operating and net loss[11] - Cash dividends declared per common share increased to $0.3125 in Q1 2022 from $0.1250 in Q1 2021[11] Condensed Consolidated Statements of Cash Flows (in thousands) | | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,879) | $719 | | Net cash used in investing activities | $(646) | $(3,642) | | Net cash used in financing activities | $(7,733) | $(4,174) | | Net decrease in cash and cash equivalents | $(13,233) | $(7,083) | - The significant shift in operating cash flow from positive to negative was primarily driven by the net loss of $7.2 million in Q1 2022[19] - Cash distributions to stockholders (dividends) increased to $6.5 million in Q1 2022 from $2.7 million in Q1 2021, driving higher cash usage in financing activities[19] Unaudited Notes to Condensed Consolidated Financial Statements - In February 2022, the company announced a restructuring plan to discontinue its Spok Go® platform, resulting in the elimination of approximately 175 positions and an estimated total charge of $6.2 million to $7.5 million[36] - For Q1 2022, the company incurred $4.5 million in severance and restructuring costs, consisting of $4.0 million in personnel-related costs and $0.5 million in contractual terminations[38] Revenue by Type (in thousands) | | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Wireless revenue | $18,846 | $20,120 | | Software revenue | $14,979 | $15,916 | | Total revenue | $33,825 | $36,036 | - On February 16, 2022, the Board of Directors authorized a share repurchase program for up to $10 million of the company's common stock, though no shares were repurchased in Q1 2022[71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2022 performance, focusing on the strategic shift away from Spok Go, its financial impact, and resulting liquidity changes New Strategic Business Plan - In February 2022, the company initiated a new strategic plan to discontinue the Spok Go® platform, eliminate associated costs, and refocus on its established Spok Care Connect Suite and wireless services[108] - The restructuring involves eliminating approximately 175 positions, primarily in research and development, with expected one-time pre-tax charges of $6.2 million to $7.5 million[108] - As part of the new plan to prioritize cash flow and capital return, the Board increased the quarterly dividend to $0.3125 per share and authorized a $10 million share repurchase program[108] Results of Operations (in thousands) | | Q1 2022 | Q1 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenue | $33,825 | $36,036 | (6.1)% | | Wireless revenue | $18,846 | $20,120 | (6.3)% | | Software revenue | $14,979 | $15,916 | (5.9)% | | Total operating expenses | $42,493 | $37,776 | 12.5% | | Operating loss | $(8,668) | $(1,740) | 398.2% | - The decline in wireless revenue reflects a secular decrease in demand for paging services, with Average Revenue Per User (ARPU) decreasing to $7.24 from $7.34 YoY[123][124] - Research and Development expenses increased by 46.2% YoY, primarily because the company did not capitalize any software development costs in Q1 2022 following the decision to discontinue Spok Go, compared to capitalizing $2.9 million in Q1 2021[138][139] - Severance and restructuring expenses of $4.5 million were recorded in Q1 2022 due to the new strategic business plan, which was the primary driver of the increased operating loss[152] Liquidity and Capital Resources - As of March 31, 2022, the company held cash, cash equivalents, and short-term investments of $46.3 million[154] Net Cash Flow (in thousands) | | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Operating activities | $(4,879) | $719 | | Investing activities | $(646) | $(3,642) | | Financing activities | $(7,733) | $(4,174) | - The company intends to use cash on hand for working capital, operations, investment, and returning value to stockholders through dividends and share repurchases, with more cash expected to be available following the discontinuation of Spok Go[156] - Future cash payments related to the restructuring are expected to be between $6.2 million and $7.5 million and are anticipated to be substantially complete in 2022[158] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports minimal exposure to interest rate and foreign currency exchange risks due to no outstanding debt and limited international business - As of March 31, 2022, the company had no outstanding debt, resulting in no material interest rate risk[177] - The company conducts limited business outside the U.S., making its exposure to foreign currency exchange rate fluctuations immaterial[178] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - Based on an evaluation as of the end of the fiscal quarter, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[179] - No changes were made to the company's internal control over financial reporting during Q1 2022 that have materially affected, or are reasonably likely to materially affect, these controls[180] PART II. OTHER INFORMATION This part provides supplementary information on legal proceedings, risk factors, equity sales, and a list of filed exhibits Item 1. Legal Proceedings The company reports no material changes to legal proceedings from its 2021 Annual Report - For information on legal proceedings, the report refers to Note 13, "Commitments and Contingencies," in the financial statements[181] Item 1A. Risk Factors There have been no material changes to the company's risk factors since the 2021 Annual Report - The risk factors included in the 2021 Annual Report have not materially changed during the three months ended March 31, 2022[182] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during the first quarter of 2022 - The Company did not repurchase any of its common stock during the first quarter of 2022[183] Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including certifications and management contracts - The report includes an exhibit index listing documents filed or incorporated by reference, such as an employment agreement extension, a voting agreement, and CEO/CFO certifications[185][187]