Spok Holdings Inc

Previous wording

The following table is a summary of our Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2024 and 2023:

Current wording

The following table is a summary of our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2024 and 2023:

Previous wording

Wireless revenue decreased for the three months ended June 30, 2024, compared to the same period in 2023, reflective of the secular decrease in our wireless units in service, from 806 thousand as of June 30, 2023 to 747 thousand as of June 30, 2024. This was partially offset by an increase in ARPU, as a result of price increases initiated in September of 2023. For the three months ended June 30, 2024, ARPU was $7.84 as compared to $7.53 for the same period in 2023.

Current wording

Wireless revenue decreased for the three months ended September 30, 2024, compared to the same period in 2023, reflective of the secular decrease in our wireless units in service, from 785 thousand as of September 30, 2023 to 730 thousand as of September 30, 2024. This was partially offset by an increase in ARPU, as a result of price increases initiated in September 2024. For the three months ended September 30, 2024, ARPU was $7.95 as compared to $7.59 for the same period in 2023.

Previous wording

Wireless revenue decreased for the six months ended June 30, 2024, compared to the same period in 2023, reflective of the secular decrease in our wireless units in service, from 806 thousand as of June 30, 2023 to 747 thousand as of June 30, 2024. This was partially offset by an increase in ARPU, as a result of price increases initiated in September of 2023. For the six months ended June 30, 2024, ARPU was $7.85 as compared to $7.56 for the same period in 2023.

Current wording

Wireless revenue decreased for the nine months ended September 30, 2024, compared to the same period in 2023, reflective of the secular decrease in our wireless units in service, from 785 thousand as of September 30, 2023 to 730 thousand as of September 30, 2024. This was partially offset by an increase in ARPU, as a result of price increases initiated in September 2024. For the nine months ended September 30, 2024, ARPU was $7.91 as compared to $7.62 for the same period in 2023.

Previous wording

Software operations revenue decreased during the three and six months ended June 30, 2024, when compared to the same periods in 2023. These decreases are primarily due to decreases in license and hardware revenue, driven by lower sales. More specifically, results from the second quarter of 2023 included $1.8 million in license revenue from a single customer contract with no similar performance in 2024. These decreases were partially offset by increases in professional services revenue, resulting from our targeted hiring efforts over the last twelve months, as we aligned staffing levels with our backlog which has grown as a result of our operations bookings results.

Current wording

Software operations revenue decreased during the nine months ended September 30, 2024, compared to the same period in 2023. The decrease is primarily due to decreases in license and hardware revenue, driven by lower sales. More specifically, results from the second quarter of 2023 included $1.8 million in license revenue from a single customer contract with no similar performance in 2024. These decreases were partially offset by increases in professional services revenue, resulting from our targeted hiring efforts over the last 12 months, as we aligned staffing levels with our backlog, which had grown as a result of our operations bookings results.

Previous wording

For the three and six months ended June 30, 2024, maintenance revenue increased compared to the same periods in 2023, as a result of improvement in our gross revenue churn as well as net new maintenance driven by our operational bookings performance. Given these dynamics, we believe annual maintenance revenue is likely to remain flat or increase marginally, as we continue to enhance our existing software solutions. Further enhancements are expected to provide additional revenues for license sales which generate new maintenance revenue and help to reduce levels of gross churn.

Current wording

Maintenance revenue remained flat for the three months ended September 30, 2024 compared to the same period in 2023. For the nine months ended September 30, 2024, maintenance revenue increased compared to the same period in 2023, as a result of improvement in our gross revenue churn as well as net new maintenance driven by our operational bookings performance. Given these dynamics, we believe annual maintenance revenue is likely to remain flat or increase marginally, as we continue to enhance our existing software solutions. Further enhancements are expected to provide additional revenues for license sales, which generate new maintenance revenue and help to reduce levels of gross churn.

Previous wording

The following is a review of our operating expense categories for the three and six months ended June 30, 2024, and 2023. Certain prior period amounts have been reclassified to conform to the current period's presentation.

Current wording

The following is a review of our operating expense categories for the three and nine months ended September 30, 2024, and 2023. Certain prior period amounts have been reclassified to conform to the current period's presentation.

Previous wording

For the three and six months ended June 30, 2024, cost of revenue increased compared to the same periods in 2023, primarily driven by increases in payroll and related expenses, partially offset by decreases in cost of sales.

Current wording

For the three and nine months ended September 30, 2024, cost of revenue increased compared to the same periods in 2023, primarily driven by increases in payroll and related expenses, partially offset by decreases in cost of sales.

Previous wording

For the three and six months ended June 30, 2024, research and development expenses increased when compared to the same periods in 2023, primarily driven by an increase in outside services as we continue to invest in the enhancement of our software solutions.

Current wording

For the three and nine months ended September 30, 2024, research and development expenses increased, compared to the same periods in 2023, primarily driven by an increase in outside services as we continue to invest in the enhancement of our software solutions.

Previous wording

For the three and six months ended June 30, 2024, technology operations expenses decreased compared to the same periods in 2023, primarily due to decreases in payroll and related expenses and site rent.

Current wording

For the three and nine months ended September 30, 2024, technology operations expenses decreased compared to the same periods in 2023, primarily due to decreases in payroll and related expenses and site rent.

Previous wording

The decreases in payroll and related expenses are primarily due to the reduction in headcount as a result of our continuous efforts to optimize costs, partially offset by increases in employee compensation costs. In addition, as a result of our network rationalization efforts, site rent and telecommunications costs decreased in response to a 5.4% decline in active transmitters from June 30, 2023 to June 30, 2024. 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.

Current wording

The decreases in payroll and related expenses are primarily due to the reduction in headcount as a result of our continuous efforts to optimize costs, partially offset by increases in employee compensation costs. In addition, as a result of our network rationalization efforts, site rent and telecommunications costs decreased in response to a 5.6% decline in active transmitters from September 30, 2023 to September 30, 2024. 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.

Previous wording

For the three and six months ended June 30, 2024, selling and marketing expenses decreased compared to the same periods in 2023, driven primarily by decreases in commissions and partially offset by payroll and related costs.

Current wording

For the three and nine months ended September 30, 2024, selling and marketing expenses decreased compared to the same periods in 2023, driven primarily by decreases in commissions and partially offset by increases in payroll and related costs.

Previous wording

The decrease in commissions was primarily driven by a one-time benefit from the adjustment of commissions expense that was previously expensed as incurred, with a corresponding increase in our prepaid commissions. While the majority of our commissions are expensed in proportion to revenue, an immaterial subset was historically expensed as incurred under an ASC 606 practical expedient. With the growth in multi-year contracts over the last two years, more related revenue continues to extend beyond the 12-month period allowed for under this practical expedient. Going forward, these costs will be expensed in alignment with their related revenue in the same manner as the majority of our commissions.

Current wording

For the three and nine months ended September 30, 2024, the decrease in commissions is primarily due to amortization of commissions expense that were previously expensed as incurred under an ASC 606 practical expedient. With the growth in multi-year contracts over the last two years, more related revenue continues to extend beyond the 12-month period allowed for under this practical expedient. As a result, the associated commission expenses are now expensed in alignment with the related revenue, resulting in lower expenses compared to the same periods in 2023. For the nine months ended September 30, 2024, the decrease also includes a one-time benefit from an adjustment to commissions expense that was previously expensed as incurred, as well as lower commissions expense stemming from lower license bookings as compared to the same period in 2023.

Previous wording

For the three and six months ended June 30, 2024, general and administrative expenses decreased compared to the same periods in 2023, primarily driven by decreases in facility rent, office and technology costs resulting from reductions in office space in late 2023. These decreases were partially offset by increases in stock-based compensation expenses due to increases in employee compensations costs.

Current wording

For the three and nine months ended September 30, 2024, general and administrative expenses increased compared to the same periods in 2023, primarily driven by increases in other and stock-based compensation. These increases were partially offset by decreases in facility rent, office and technology costs.

Previous wording

For the three months ended June 30, 2024, and 2023, depreciation and accretion expenses were $1.1 million and $1.3 million, respectively. For the six months ended June 30, 2024, and 2023, depreciation and accretion expenses were $2.1 million and $2.5 million, respectively. These expenses decreased for the three and six months ended June 30, 2024, compared to the same periods in 2023 primarily due to decreases in asset retirement costs.

Current wording

For the three months ended September 30, 2024, and 2023, depreciation and accretion expenses were $1.1 million and $1.3 million, respectively. For the nine months ended September 30, 2024, and 2023, depreciation and accretion expenses were $3.2 million and $3.8 million, respectively. These expenses decreased for the three and nine months ended September 30, 2024, compared to the same periods in 2023, primarily due to decreases in asset retirement costs.

Previous wording

For the three and six months ended June 30, 2024, we incurred severance and restructuring expenses of $0.3 million and $0.8 million, respectively, primarily related to early termination for the lease of our corporate headquarters in Alexandria, Virginia in September 2023 as a result of our continuous efforts to optimize costs. No significant severance and restructuring expenses were incurred for the three and six months ended June 30, 2023.

Current wording

For the three and nine months ended September 30, 2024, we incurred severance and restructuring expenses of $0.3 million and $1.1 million, respectively, primarily related to early termination for the lease of our corporate headquarters in Alexandria, Virginia in September 2023 as a result of our continuous efforts to optimize costs. No significant severance and restructuring expenses were incurred for the three and nine months ended September 30, 2023.

Previous wording

Provision for income taxes was $1.4 million and $1.7 million for the three months ended June 30, 2024 and 2023, respectively. Provision for income taxes was $2.3 million and $3.6 million for the six months ended June 30, 2024 and 2023, respectively. Provision for income taxes changed for the three and six months ended June 30, 2024 compared to the same periods in 2023, primarily due to the effect of the anticipated annual effective tax rate change resulting from 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" in the Notes to Condensed Consolidated Financial Statements.

Current wording

Provision for income taxes was $1.5 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively. Provision for income taxes was $3.8 million and $5.7 million for the nine months ended September 30, 2024 and 2023, respectively. Provision for income taxes decreased for the three and nine months ended September 30, 2024 compared to the same periods in 2023, primarily due to the effect of the anticipated annual effective tax rate change resulting from 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" in the Notes to Condensed Consolidated Financial Statements.

Previous wording

As of June 30, 2024, we held cash and cash equivalents of $23.9 million. The available cash and cash equivalents consist of cash in our operating accounts and cash invested in interest-bearing funds managed by third-party financial institutions. The Company maintains a majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and the majority of our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business, financial condition and results of operations.

Current wording

As of September 30, 2024, we held cash and cash equivalents of $27.8 million. The available cash and cash equivalents consist of cash in our operating accounts and cash invested in interest-bearing funds managed by third-party financial institutions. The Company maintains a majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and the majority of our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business, financial condition and results of operations.

Previous wording

For the six months ended June 30, 2024, net cash provided by operating activities was $9.4 million, a decrease of $1.8 million compared to the six months ended June 30, 2023. This decrease was primarily driven by net income of $7.7 million and non-cash items such as depreciation and accretion of $2.1 million, deferred income tax expense of $2.3 million and stock-based compensation of $2.3 million partially offset by, accounts payable, accrued liabilities and other of $3.0 million and deferred revenue of $1.2 million.

Current wording

For the nine months ended September 30, 2024, net cash provided by operating activities was $20.5 million, an increase of $6.1 million compared to the nine months ended September 30, 2023. The net cash provided by operating activities primarily consisted of net income of $11.3 million, accounts receivable of $1.5 million, deferred revenue of $2.3 million, and non-cash items such as depreciation and accretion of $3.2 million, deferred income tax expense of $3.6 million and stock-based compensation of $3.5 million, partially offset by accounts payable, accrued liabilities and other of $4.3 million and prepaid expenses and other assets of $1.1 million.

Previous wording

For the six months ended June 30, 2023, net cash provided by operating activities was $11.2 million, primarily driven by net income of $7.9 million, accounts receivable of $1.2 million and non-cash items such as depreciation and accretion of $2.5 million, deferred income tax expense of $3.6 million and stock-based compensation of $1.9 million. These increases were partially offset by accounts payable, accrued liabilities and other of $1.7 million and deferred revenue of $3.3 million.

Current wording

For the nine months ended September 30, 2023, net cash provided by operating activities was $14.4 million, primarily driven by net income of $12.3 million, accounts receivable of $1.3 million and non-cash items such as depreciation and accretion of $3.8 million, deferred income tax expense of $5.6 million and stock-based compensation of $2.7 million. These increases were partially offset by accounts payable, accrued liabilities and other of $7.4 million, deferred revenue of $2.0 million, net operating lease liabilities of $1.2 million and prepaid expenses and other assets of $1.1 million.

Previous wording

For the six months ended June 30, 2024, and 2023, net cash used in investing activities was $1.5 million and $1.8 million, respectively. Net cash used in investing activities reflects purchases of property and equipment.

Current wording

For the nine months ended September 30, 2024, and 2023, net cash used in investing activities was $2.3 million and $2.4 million, respectively. Net cash used in investing activities reflects purchases of property and equipment.

Previous wording

For the six months ended June 30, 2024, and 2023, net cash used in financing activities was $16.0 million and $14.3 million, respectively, primarily due to cash distributions to stockholders and the purchase of common stock for tax withholding purposes on vested equity awards.

Current wording

For the nine months ended September 30, 2024, and 2023, net cash used in financing activities was $22.3 million and $20.6 million, respectively, primarily due to cash distributions to stockholders and the purchase of common stock for tax withholding purposes on vested equity awards.