Smarter, faster, clinical
communication
2021
Annual Report
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A Message from the President and Chief Executive Officer
Dear Fellow Stockholders
Over the last year, Spok has embarked on a significant transformation. In September, the Company announced
that it would be conducting a strategic review process to evaluate alternatives to maximize shareholder value. In
February, the Company announced a new strategic business plan that will prioritize maximizing cash flow over
the long term and returning capital to stockholders. After a comprehensive and rigorous process, on Apr. 27, 2022,
we announced that we had concluded the strategic alternatives review process as the Board determined it would
be in the best interests of all shareholders for the Company to be fully focused on executing our strategic plan
as a standalone company. However, we further indicated the board remains open to all pathways to maximize
shareholder value.
The new strategic business plan, which began implementation on Feb. 17, 2022, includes maximizing revenue and
cash flow generation from our established Spok Care Connect® suite, including Spok Mobile®, and our Wireless
service offerings. The Company already has an excellent track record of driving revenue from these businesses
and enjoys a significant market leadership position in narrowband personal communications services and hospital
call center solutions. Moving forward, we plan to invest in a targeted and disciplined manner in these important
and valuable franchises in order to continue our long-standing relationships with the nation’s leading healthcare
providers.
The Company plans to prioritize returning capital to our stockholders, and we increased our regular quarterly
dividend by 150% from $0.125 per share, or $0.50 annually to $0.3125 per share, or $1.25 annually. Based on
our new business plan and our view of the future, we believe we can continue to pay this level of dividend for
the foreseeable future and expect to be able to fund the majority of it from cash flow from operations in 2023
and beyond. This new level of dividend represents a significant recurring yield on Spok shares going forward.
Additionally, the Board has also authorized a share repurchase program of up to $10 million of the Company’s
common stock. This authorization allows the Company to return capital to stockholders by opportunistically
repurchasing the Company’s shares. We will continue to evaluate opportunities to repurchase shares as Spok
transitions throughout our strategic pivot during 2022.
As a result of our new strategic business plan, we had to make some very hard decisions. We trimmed our
management team by roughly one-half and reduced our workforce by approximately one-third. Our Board was also
reduced to six members to better align the Board’s size and composition with our recently announced business
strategy. We did not take these steps lightly. However, after careful deliberation, and given the challenges that we
had been facing, we believed this was the right decision. For those we unfortunately had to say goodbye to, we
thank them for their service to Spok over the years.
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Discontinuation of Spok Go®
Due to the ongoing challenges of the COVID-19 pandemic, we made the difficult decision of discontinuing Spok Go®
following the announcement of our new strategic business plan. The pandemic made it untenable for the platform
to gain sufficient traction with customers or for our business to continue operating with our current level of cost
and personnel. We have been working closely with existing Spok Go® customers to ensure that this transition is as
smooth as possible. We also expect to utilize and repurpose certain functionality from our investment in Spok Go® into
our existing Spok Care Connect® suite solutions.
Corporate Highlights
for critical communications that many of our customers
rely on. We are committed to continually enhancing
While 2021 was a challenging year for the Company,
communication solutions, like the GenA™ pager, that
we had some significant achievements. For the full year
can help save lives and eliminate the barriers to effective
2021, we completed some significant deals for our Spok
communication facing healthcare systems and public
Care Connect® suite solutions. This momentum has
safety organizations today.
continued into 2022 with the recent announcement of
our partnership with the University of Rochester Medical
Center to provide the medical center with our Spok
Care Connect® software to help improve contact center
operations and connect clinicians and staff.
Finally, subsequent to the end of the fourth quarter 2021,
Spok was voted the top-rated secure communications
platform by healthcare industry clients in Black Book
Industry’s 2022 survey. We are honored that Spok
has been ranked number one for the fifth consecutive
In July, all 20 adult hospitals and all 10 children’s hospitals
year in the Black Book Research industry survey. The
named to the U.S. News & World Report’s 2021-22
award demonstrates that our customers can continue
Best Hospital Honor Roll were Spok customers. For
to count on Spok for secure and reliable care team
the ninth consecutive year, Spok has partnered with all
communications, especially with the rise of COVID-19
20 of the best adult hospitals, and in eight of the past
variants and the increase in data breaches and security
nine years, the Company has also provided solutions
threats since the onset of the pandemic.
to all the best children’s hospitals. All these hospital
systems rely on Spok to solve complex healthcare
communications challenges and provide reliable care
team communications.
In November, we announced the next generation
of paging with the launch of our new GenA™ pager.
The GenA™ pager enables fast, secure, and effective
communication--when and where it’s needed most.
More than ever before, communication needs to be
immediate and reliable regardless of cell coverage. Spok
pagers help provide peace of mind and remain among
the most reliable, survivable, and affordable technology
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Cash Returned to Stockholders
Dividends and Share Repurchases
(dollars in millions)
$25.3
$23.6
$16.4
$9.8
$10.0
2017
2018
2019
2020
2021
$30.0
$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
2021 Financial Performance
For fiscal year 2021, we achieved our previously communicated full year financial guidance for revenue, adjusted
operating expenses, and capital expenditures. Total GAAP revenue for fiscal year 2021 was $142.2 million,
consisting of wireless revenue of $78.8 million and software revenue of $63.4 million. With respect to wireless
revenue, 2021 performance was driven by a lower level of pager unit churn on a year-over-year basis. Our adjusted
operating expenses of $154.3 million are up from $147.3 million in the prior year. Adjusted operating expenses
were higher largely as a result of higher payroll, one-time savings related to refundable tax credits for employee
retention, and related costs due to our strategic alternatives review process. Finally, our balance sheet remained
strong with a cash, cash equivalents, and short-term investment balance of $59.6 million as of Dec. 31, 2021. We
continue to operate as a debt-free company.
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2022 and Beyond
We are optimistic about our prospects for 2022 and are confident in our plan to maximize revenue
and cash flow generation from our established Spok Care Connect® suite, including Spok Mobile®
and our wireless service offerings. Our offerings provide the Company with a very predictable
revenue base with over 80% of our revenue being recurring in nature, coming from either our legacy
wireless offerings or software maintenance contracts. Additionally, our Spok Care Connect® solutions
provide a suite of products with potential for new licenses sales and a valuable maintenance stream.
Maintenance continues to provide a foundation under our legacy software business and is important to
maintain as we quickly transition to focus on cash flow generation.
For 2022 we expect total revenue to be in the range of $126.0 million to $139.2 million, of which we
expect wireless revenue to range between $71.6 million to $77.0 million, where the midpoint reflects
an annual revenue attrition rate of approximately 5.7% when compared to 2021, consistent with our
recent trends. Software revenue is expected to range from $54.4 million to $62.2 million, where the
midpoint reflects annual revenue attrition of approximately $5.0 million from 2021. We expect adjusted
operating expenses for the full year of 2022 to be in the range of $118.8 million to $128.6 million,
and Capital Expenditures will be in the range of $3.4 million to $4.2 million as the majority of Capital
Expenditures is related to our wireless business, which is unchanged.
Importantly, we would like to highlight that fiscal year 2022 will be a transition year for Spok, given
the implementation time required to execute our strategic shift to a cash flow model. However, we do
anticipate that this transition will be completed by the end of 2022. With that being said, we expect that
the Company will be cash flow positive by the third quarter of 2022 and will reach the full cash flow run
rate by the end of 2022 as we head into 2023.
We remain committed to our mission to be a strategic partner of choice
for enterprise grade communications and patient care coordination. This
commitment has allowed Spok to create a significant market position with
longstanding relationships with the nation’s leading healthcare providers. This
vision serves as the framework for every aspect of our business. We want to
express to all our stakeholders that we are committed to the core principles
that will guide our organization’s future. Every Spok representative and partner
must embody these core tenets of our values.
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In summary, our commitment to our shareholders,
customers, and other stakeholders has never wavered.
We are moving forward with a clear vision for the
future, and we are focused on transforming that vision
into action through compelling products and innovative
strategies that position us to capitalize on the robust
opportunities in our evolving marketplace. We wish
to thank you, our shareholders, for your support and
patience as we’ve navigated these challenging times.
We believe better days lay ahead. We also thank our
Board of Directors for their continued stewardship and
guidance; our employees for their tireless dedication
to our mission; and our customers for their continued
support. We look forward to the journey ahead.
Yours truly,
Vincent D. Kelly
President and Chief Executive Officer
June 2022
This letter includes references to adjusted operating expenses, which is a non-GAAP
financial measure. For reconciliations between our non-GAAP measures and the nearest
GAAP measures, please refer to the page preceding the back cover of this Annual Report.
As non-GAAP financial measures are not intended to be considered in isolation or as a
substitute for GAAP financial measures, you should carefully read the Form 10-K included
in this Annual Report, which includes our consolidated financial statements prepared in
accordance with GAAP. Additionally, this letter includes statements that, to the extent
they are not recitations of historical fact, constitute for ward-looking statements within
the meaning of the federal securities laws, and are based on Spok’s current expectations
and assumptions. For a discussion identifying important factors that could cause actual
results to vary materially from those anticipated in the for ward-looking statements, see the
corporation’s filings with the SEC, including “Risk Factors” in the Form 10-K portion of this
Annual Report.
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
or
☐ 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
(State or other jurisdiction of
incorporation or organization)
5911 Kingstown Village Pkwy, 6th Floor
Alexandria, Virginia
(Address of principal executive offices)
16-1694797
(I.R.S. Employer
Identification No.)
22315
(Zip Code)
Title of each class
Common Stock, par value $0.0001 per share
Name of each exchange on which registered
NASDAQ
(800) 611-8488
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
SPOK
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
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 ☒ 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 ☒ No ☐
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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 growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
☐
Non-accelerated filer
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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
the registrant
Indicate by check mark whether
Act). YES ☐ NO ☒
The aggregate market value of the common stock held by non-affiliates of the registrant was $181 million based on the
closing price of $9.62 per share on the NASDAQ National Market® on June 30, 2021.
The number of shares of registrant’s common stock outstanding on February 14, 2022, was 19,742,512.
is a shell company (as defined
in Rule 12b-2 of
☐
the
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders of the registrant, which
will be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than May 2, 2022, are
incorporated by reference into Part III of this Report.
Table of Contents
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Item 16.
Signatures
Exhibit and Financial Statement Schedules
Form 10-K Summary
Part IV
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28
28
28
29
29
31
31
48
49
50
50
50
51
52
52
52
52
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Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements and information relating to Spok Holdings, Inc. and
its subsidiaries ("Spok" 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 the following:
• Risks related to our ongoing review of strategic alternatives to evaluate potential transactions that may affect our
ownership or capital structure, including a sale of the Company or other actions that would maximize value for
stockholders;
• Risks related to the stockholder rights plan adopted to allow our Board of Directors to conduct an orderly review of
strategic alternatives;
• Risks related to the COVID-19 pandemic and its effect on our business and the economy;
• Other economic conditions such as recessionary economic cycles, higher interest rates, inflation and higher levels
of unemployment;
• Risks related to the new strategic plan announced by our Board of Directors, including our ability to implement the
restructuring program to discontinue Spok Go in accordance with our timing and cost expectations, maximize
revenue and cash generation from our established businesses and return capital to stockholders through
dividends and repurchases of shares of our common stock;
• Continuing decline in the number of paging units we have in service with customers, commensurate with a
continuing decline in our wireless revenue;
• Our dependence on the U.S. healthcare industry;
• The sales cycle of our software solutions and services can run from six to eighteen months, making it difficult to
plan for and meet our sales objectives and bookings on a steady basis quarter-to-quarter and year-to-year;
• Our ability to manage wireless network rationalization to lower our costs without causing disruption of service to
our customers;
• Our ability to address changing market conditions with new or revised software solutions;
• Our ability to retain key management personnel and to attract and retain talent within the organization;
• Our ability to manage change related to regulation, including laws and regulations affecting hospitals and the
healthcare industry generally;
• Competition for our services and products from new technologies or those offered and/or developed from firms
that are substantially larger and have much greater financial and human capital resources;
• The reliability of our networks and servers and our ability to prevent cyber-attacks and other security issues and
disruptions;
• Our ability to protect our rights in intellectual property that we own and develop and the potential for litigation
claiming intellectual property infringement by us;
• Unauthorized breaches or failures in cybersecurity measures adopted by us and/or included in our products and
services;
• Our ability to realize the benefits associated with our deferred income tax assets;
• Future impairments of our long-lived assets, amortizable intangible assets or goodwill; and
• Those matters that are discussed in this Annual Report under Item 1A "Risk Factors."
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 United States Securities and Exchange Commission ("SEC"). Also note that, in the risk factors section, 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
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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 Annual Report.
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PART I
The terms "we," "us," "our," "Company" and "Spok" refer to Spok Holdings, Inc. and its direct and indirect wholly owned
subsidiaries.
ITEM 1. BUSINESS
Overview
Spok, Inc., a wholly owned subsidiary of Spok Holdings, Inc. (NASDAQ: SPOK), is proud to be 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 Spok products and services to enhance workflows for clinicians, support
administrative compliance, and provide a better experience for patients.
Our headquarters is located at 5911 Kingstown Village Pkwy, 6th Floor, Alexandria, Virginia 22315, and our telephone
number is 800-611-8488. We maintain an Internet website at http://www.spok.com. (This website address is for
information only and is not intended to be an active link or to incorporate any website information into this 2021 Annual
Report on Form 10-K ("2021 Form 10-K").)
We deliver smart, reliable clinical communication and collaboration solutions to help protect the health, well-being, and
safety of people in the United States and abroad, on a limited basis, in Europe, Canada, Australia, Asia and the Middle
East. Our customers rely on Spok for workflow improvement, secure texting, paging services, contact center optimization,
and public safety response. We develop, sell, and support enterprise-wide systems primarily for healthcare and other
organizations needing to automate, centralize, and standardize their approach to clinical communications. 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. We offer our services and products to three
major market segments: healthcare, government, and large enterprise, with a greater emphasis on the healthcare market
segment.
In February 2022, our Board of Directors announced a new strategic business plan. In accordance with this plan, the
Company expects to discontinue Spok Go and intends to eliminate all associated costs. Additional information related to
the new strategic business plan can be found throughout this 2021 Form 10-K.
Industry Overview
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The pandemic has had a severe
impact on the global economy and has caused a significant strain on the healthcare industry. In the early months of the
pandemic, hospitals struggled to maintain capacity within their intensive care units, and most stopped performing elective
procedures in order to reallocate bed capacity to meet the surge of critical COVID-19 patients. Simultaneously, non-
emergency clinic visits declined, resulting in a marked decrease in total clinic visits and non-COVID-19-related
hospitalizations. This placed a significant burden on hospital cash flow and revenue, which many organizations were still
recovering from towards the end of 2020 and into 2021.
While the impact of COVID-19 has varied greatly from one organization or region to the next, in general, reducing costs
was a critical theme for the healthcare provider industry in 2020 and 2021. Initially, many organizations furloughed
employees or significantly slowed the contracting process for new products or services as they braced for the unknown
impacts of this virus. Some organizations enacted a complete moratorium on product renewals and new purchases. As
hospitals began to better manage their admissions process and capacity constraints, they began to resume performing
elective procedures in the second half of 2020. As a result, we began to see improved operating levels during this period
and into 2021. While we are likely to see some lingering and continued effects from COVID-19, barring the emergence of
a severe COVID-19 variant of concern, which might have significant negative effects on the overall economy and our
customer base specifically, we anticipate a return to pre-pandemic operating levels in 2022.
Aside from the serious impact that COVID-19 has had on the healthcare industry, the United States healthcare market
continues to experience significant change. Healthcare costs continue to rise, reimbursements from Centers for Medicare
and Medicaid Services are being reduced in certain areas, digitization of healthcare information continues and the
industry continues to shift towards a value-based purchasing model and away from the traditional fee-for-service model.
The value-based purchasing model places an emphasis on incentivizing value and quality at an individual patient level in
order to provide better patient outcomes and reduce 30-day readmissions.
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In response, healthcare providers now require greater communication and better collaboration between clinicians in order
to generate improvements in the quality, safety, satisfaction and efficiency of patient care delivery. Improvements in these
areas are necessary for healthcare providers to successfully navigate many of these issues. Many providers are seeking
improvement through the adoption of technology, looking to take advantage of workflow automation, process improvement
and, in limited circumstances, machine learning and artificial intelligence. Providers also look to increase efficiencies
through consolidation as larger health systems continue to acquire smaller hospitals for the primary purpose of gaining
regional market share amongst tough competition.
We believe these changes and continued pressure for organizations to provide improved services with fewer resources
place an even greater emphasis on the need for improved clinical communication and collaboration tools to meet the
increasing requirements demanded by the healthcare industry in today’s marketplace. Our solutions help hospitals
significantly increase the quality and safety of patient care delivery, while increasing patient and provider satisfaction and
simultaneously increasing employee productivity, reducing costs and clinician burnout. This is accomplished through
workflow enhancement; secure, reliable and integrated communication tools; and mobile accessibility.
Sales and Marketing
We offer a focused suite of unified clinical communication and collaboration solutions primarily to organizations in the
healthcare sector. We generate wireless revenue from the sales of wireless messaging services, equipment,
maintenance plans and/or equipment loss protection to both one-way and two-way messaging subscribers. We generate
software revenue from the sale of our software solutions, including software licenses, professional services, equipment we
procure from third parties, and post-contract support.
Sales
We market and distribute our clinical communication and collaboration solutions through a direct sales force and an
indirect sales channel.
The direct sales force contracts or sells products, solutions, messaging services and other services directly to customers
ranging from small and medium-sized businesses to companies in the Fortune 1000, healthcare and related businesses,
and federal, state, and local government agencies. We will continue to market primarily to commercial enterprises, with a
focus on healthcare organizations, interested in our communication solutions. We maintain a sales presence in key
markets throughout the United States, and in limited markets internationally including our Asia-Pacific sales team, in an
effort to gain new customers and to retain and increase sales to existing customers. The direct sales force targets
leadership responsible for the procurement of clinical communication and collaboration solutions such as chief information
officers, chief technology officers, chief medical officers, chief nursing officers, information technology directors,
telecommunications directors, laboratory directors, radiology directors and contact center managers. The timing for a
direct sale varies but may take from 6 to 18 months depending on the type and scope of software solution.
The indirect sales force complements our direct sales force. Through relationships with alliance partners we are able to
sell our solutions to a wider customer base. For wireless services that we do not provide directly, we contract with and
invoice an intermediary for airtime services. For our software sales, relationships with alliance partners assist us in
broadening the distribution of our products and further diversifying into markets outside of the healthcare provider vertical.
We will continue to expand partnership efforts in 2022.
Within our target market, we have identified and focused our efforts to address the following dynamics:
• A heightened awareness of the ubiquitous, critical role of communications in healthcare;
• An increased focus within hospitals on quality of care and patient safety initiatives;
• The importance of confidentiality when sharing information;
•
Increased regulations that may result in process changes, increased documentation and reporting and increased
costs;
• A continuing focus within hospitals to reduce labor and administrative costs while increasing productivity; and
• A broader proliferation of information technology in healthcare as hospitals strive to apply technology to solve their
business problems.
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Marketing
We have a centralized marketing function, which is focused on supporting our solutions and sales efforts by strengthening
our corporate brand, generating sales leads, and facilitating the sales process. Our principal marketing programs include:
• Content marketing (eBriefs, case studies, brochures, videos, infographics, and more) as an underlying foundation
of all marketing campaigns or initiatives;
• Website development and maintenance, which provides product and Company information, customer support
options, paging capabilities, as well as thought leadership and engagement;
• Participation at trade shows and industry events, such as Healthcare Information and Management Systems
Society, College of Healthcare Information Management Executives, Association of Medical Directors of
Information Systems, American Organization of Nurse Leaders, and other Healthcare Information technology
related shows and conferences;
• Webinars about customer successes, current industry trends, and our solutions;
• Social media involvement to provide information regarding upcoming educational events or new product offerings;
•
• Newsletters and blog posts to provide information about industry trends and our solutions to customers,
Industry analyst relationships;
prospects, and alliances; and
• Annual customer conferences that solicit feedback on our solutions and services.
Licenses and Messaging Networks
In order to provide our wireless services, we hold licenses to operate on various frequencies in the 900 MHz narrowband.
We are licensed by the United States Federal Communications Commission (the “FCC”) to operate Commercial Mobile
Radio Services (“CMRS”). These licenses are required to provide one-way and two-way messaging services over our
networks.
We operate local, regional and nationwide one-way networks, which enable subscribers to receive messages over a
desired geographic area. One-way networks operating in 900 MHz frequency bands utilize the FLEX™ protocol
developed by Motorola Mobility, Inc. (“Motorola"). The FLEX™ protocol has advantages of functioning at higher network
speeds (which increases the volume of messages that can be transmitted over the network) and of having more robust
error correction (which facilitates message delivery to a device with fewer transmission errors).
Our two-way networks utilize the ReFLEX 25™ protocol, also developed by Motorola. ReFLEX 25™ promotes spectrum
efficiency and high network capacity by dividing coverage areas into zones and sub-zones. Messages are directed to the
zone or sub-zone where the subscriber is located, allowing the same frequency to be reused to carry different traffic in
other zones or sub-zones. As a result, the ReFLEX 25™ protocol allows the two-way network to transmit substantially
more messages than a one-way network using the FLEX™ protocols. The two-way network also provides for assured
message delivery. The network stores, for a limited amount of time, messages that could not be delivered to a device that
is out of coverage for any reason, and when the unit returns to service, those messages are delivered. The two-way
paging network operates under a set of licenses called narrowband Personal Communications Service, which uses
900 MHz frequencies. These licenses require certain minimum five and ten-year build-out commitments established by
the FCC, which have been satisfied.
Although the capacities of our networks vary by geographic area, we have excess capacity at a consolidated level. We
have implemented a plan to manage network capacity and to improve overall network efficiency by consolidating
subscribers onto fewer, higher capacity networks with increased transmission speeds. This plan is referred to as network
rationalization. Network rationalization will result in fewer networks and therefore fewer transmitter locations, which we
believe will result in lower operating expenses due primarily to lower site rent expenses.
As we continue to implement our network rationalization plan, we expect to have fewer transmitters that can be removed
efficiently from our networks and still maintain the level of service required for our customers, and thus the benefits of
network rationalization will decline. Cost savings began to slow in 2019 and 2020 as compared to historical cost savings,
and we expect this trend to continue in the future. As we reach certain minimum frequency commitments, as outlined by
the FCC, we may be limited in our ability to continue our efforts to rationalize and consolidate our networks. Our
messaging networks and related infrastructure are located exclusively in the United States.
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Generally, our software solutions do not require licenses or permits from federal, state and/or local government agencies
in order to be sold to customers. However, certain of our software products are subject to regulation by the United States
Food and Drug Administration ("FDA") and are subject to certification by the Joint Interoperability Test Command to be
sold to the branches of the armed services of the United States and the United States government. (see "Regulation"
below).
Our Strategy
In alignment with our new strategic business plan announced in February 2022, our over-arching strategy is to prioritize
free cash flow generation and the return of capital to stockholders, by maximizing revenue and cash generation from our
established lines of business while effectively managing expenses. Through targeted investments in these important and
valuable business lines, we aim to reinvigorate growth in our legacy software solutions and minimize wireless revenue
attrition.
Particular areas of strategic emphasis include:
Acquire new customers and expand relationships within our existing customer base - We will continue to focus our
sales and marketing efforts in the healthcare market in order to identify opportunities for new sales as well as grow
revenues from our existing customer base. We have ongoing initiatives to further penetrate the hospital segment in the
United States, and while we believe there is a significant opportunity to sell clinical communication and collaboration
solutions to hospitals located outside the United States, our near-term focus is on the domestic market.
We have a significant presence in the healthcare marketplace, and we intend to leverage the strength of our market
presence and the breadth of our product offerings to further expand our customer base in healthcare.
Minimize wireless revenue attrition - We continue to have a valuable wireless presence in the healthcare market,
particularly in larger hospitals. We offer a comprehensive suite of wireless messaging products and services focused on
healthcare and "campus" type environments and critical mission notification. We will continue to focus on network
reliability and customer service to help minimize the rate of revenue attrition.
We recognize that the number of wireless subscribers, units in service, and the related revenue will likely continue to
decline. We intend to continue reducing our underlying cost structure impacting this declining wireless revenue stream by
reducing payroll and related expenses as well as network related expenses where possible. We will integrate and
consolidate operations as necessary to ensure the lowest cost operational platform for our consolidated business.
The introduction of our GenA pagers in November 2021 is a key initiative that we believe may slow our wireless revenue
attrition. Further details on GenA pagers can be found under "GenA Pagers."
Enhance existing software applications - We will continue to invest in the development and enhancement of our Care
Connect Suite products and services, although at a significantly reduced rate relative to our total research and
development costs over the last several years. Targeted enhancements and continued development efforts are critical to
our ability to maintain our core software maintenance revenue and are necessary to drive future software operations
revenue. Additionally, targeted enhancements of the Spok Mobile application will be critical in our ability to help further
mitigate wireless customer attrition.
Manage expenses – With a renewed focus on generating cash flow it is critical that we manage costs in alignment with
our revenue. We will continue to look for ways to reduce our underlying cost structure should revenue continue to decline.
While we will continue to invest in the business, we will do so in a more targeted manner to drive tangible earnings that
can be returned to our stockholders.
Return capital to our stockholders - We understand that our primary objective is to create long-term stockholder value.
We will continue to evaluate how best to deploy our capital resources to support sustainable business growth and
maximize stockholder value. In February 2022, our Board of Directors authorized an increase of our quarterly dividend to
$0.325 per share of common stock, or $1.250 annually, in 2022, and they authorized the repurchase of up to $10.0 million
of our common stock.
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Products and Services
Wireless Products and Related Services
We offer subscriptions to one-way or two-way messaging services for a periodic (monthly, quarterly, semi-annual, or
annual) service fee. The level of service fees 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. We also sell devices to resellers
who lease or resell them to their subscribers and then sell messaging services utilizing our networks.
Wireless products and services revenue represented 55%, 56% and 55% of total consolidated revenue for the years
ended December 31, 2021, 2020 and 2019, respectively. Demand for one-way and two-way messaging services declined
during these years, and we believe demand will continue to decline for the foreseeable future. As demand for one-way
and two-way messaging has declined, we have developed or added service offerings, including our GenA pagers
discussed below, in order to optimize our revenue potential and mitigate the decline in our wireless revenues. We will
continue to evaluate opportunities within our wireless business while providing customers the highest value possible.
Legacy Wireless Services
A subscriber to one-way messaging services may select coverage on a local, regional, or nationwide basis to best meet
their messaging needs, while two-way messaging is generally offered on a nationwide basis. In addition, subscribers
either contract to use a messaging device that we own for an additional fixed monthly fee, or they own the device used,
after either purchasing it from us or from another vendor.
We offer exclusive one-way (T5) and two-way (T52) alphanumeric pagers that are configurable to support unencrypted or
encrypted operation. When configured for encryption, these devices utilize AES-128 bit encryption, screen locking and
remote wipe capabilities. With encryption, 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
and high reliability and availability benefits of paging. We also offer ancillary services, such as voicemail and equipment
loss or maintenance protection, which help increase the monthly recurring revenue we receive, along with these traditional
messaging services.
GenA Pagers
On November 16, 2021, we announced the launch of our newest pager, GenA. This one-way alphanumeric pager,
available on our wide-area paging network, features a high resolution ePaper display, intuitive modern user interface,
advanced HIPAA-compliant encryption and security features, over-the-air remote programming, and an antimicrobial
housing. The ePaper display advances the user experience with its larger screen featuring a high-resolution, high-contrast
display for easy reading in all conditions, while an automatic front-light eases reading messages in the dark. Users can
select from various font sizes, and the large GenA display also leverages proportional fonts to maximize key information
on a single screen.
GenA pagers also allow for superior message reception in buildings with difficult coverage conditions using the high-
powered Spok 900MHz simulcast network. Enhanced over-the-air (OTA) programming through the Spok My Account
customer web portal enables remote pager configuration changes such as updating the user’s name on the pager,
assigning a pager to a group, deleting message data and encryption keys, modifying global security settings, and
remotely unlocking the device. The GenA pager also provides advanced message management features allowing critical
messages to be locked to prevent deletion or saved to a separate folder. In addition, separate inbox folders can be set up
for group messages.
The GenA pager is the only product available on the market with these capabilities, and we maintain an exclusive
arrangement with the product's manufacturer whereby it may not market or sell the product to any third party without our
consent. Given the uniqueness of the GenA pager, we believe its development is a key initiative that may help slow our
wireless revenue attrition.
Software
Dependable clinical communications are paramount for individuals in healthcare and a host of other industries. We offer a
number of solutions, providing our customers with the ability to communicate anywhere, anytime across a number of
situations. Our solutions are used for contact centers, clinical alerting and notification, mobile communications and
messaging, and for public safety notifications.
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Spok Care Connect® Suite
Contact Center
• Spok® Healthcare Console: Provides operators with the information needed to process calls using their
computers with just a few keystrokes. This solution integrates with the customers’ existing phone systems and is
used by the operator group to answer incoming calls to the contact center. Operators can quickly and accurately
perform directory searches and code calls, as well as messaging and paging by individuals, groups, and roles
using the Spok Healthcare Console’s computer telephony integration and directory capabilities.
• Spok® Web-Based Directory: Makes employee contact information more accessible and enables staff to send
messages quickly right from the directory. Authenticated users can log on anywhere, anytime to perform a variety
of important updates to contact information and on-call schedules, search the directory, and send important
messages.
• Spok® Web-Based On-Call Scheduling: Keeps personnel, calendars and on-call scheduling information
updated, even with thousands of staff, using a secure web portal to maintain and allow password-protected
access to the latest on-call schedules and personnel information.
• Spok® Speech: Enables the organization to process routine phone requests, including transfers, directory
assistance, messaging and paging without live operators and with more ease-of-use than touch-tone menus.
• Spok® Call Recording and Quality Management: Records, monitors, and scores operators’ conversations to
allow for better management of calls, helping improve customer service.
Clinical Alerting
• Spok® Messenger: Provides an intelligent, FDA-compliant, 510(k)-cleared solution that connects virtually all
crucial alert systems, including nurse call, fire, security, patient monitoring, and building management to mobile
staff via their wireless communication devices. This solution provides the ability to reach mobile team members
within seconds of an alert, improving overall workflow, staff productivity, and the convenience and safety of
everyone in the facility.
• Spok® e.Notify: Enables organizations to quickly and reliably notify and confirm team member availability during
emergency situations without relying on calling trees, thereby reducing confusion that may arise in an emergency
situation. This solution automatically delivers messages, collects responses, escalates issues to others, and logs
all activities for reporting and analysis purposes.
• Spok® Critical Test Results Management: Automates and streamlines the process of delivering critical test
results to the appropriate clinicians to help ensure patient safety. This solution can send messages from the
cardiology, laboratory and radiology departments by means of encrypted smartphone communications, two-way
paging, secure email, secure text, images, annotations, and voice to a variety of endpoints such as workstations,
laptops, tablets, smartphones, pagers, and other wireless devices.
Mobile Communications
• Spok Mobile®: Simplifies communications and strengthens care by using smartphones and tablets for secure
code alerts, patient updates, results, consult requests, and much more. Allows users to access the full directory of
accurate contact information to send messages/photos/videos to smartphones and other devices, and to ensure
clinical communications are logged, all with security, traceability, and reliability.
• Spok® Device Preference Engine: Facilitates voice conversations among doctors and caregivers by enabling
users to choose the desired communication method based on factors such as message priority.
Public Safety
• Spok® pc/psap: Speeds emergency dispatch by giving Public Safety Answering Point call-takers an easy-to-use,
standards-based, graphical interface that integrates the underlying phone system, mapping systems, and other
resources for critical information availability. 9-1-1 call-takers are able to instantly involve police, fire, EMT, and
hazardous material personnel with a single click of the mouse or touch of the screen.
• Spok® Enterprise Alert: Directs emergency personnel to a 9-1-1 caller’s exact location (building, floor, room),
helping to ensure speed, accuracy, and reliability of response. The E9-1-1 software provides real-time, onsite
notification when 9-1-1 is dialed, and works to decrease emergency response time.
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Services
We offer a variety of professional services to assist our customers in the successful implementation of, and to maximize
the benefits obtained from the use of, our software solutions. We also offer support services to enhance and refine the
customer's experience throughout their relationship with Spok.
• Professional Services: We offer a full suite of professional services that are provided by a dedicated group of
professional service employees. Our professional services include consultation, implementation, and training
services. Our professional services staff uses a branded, consistent methodology that provides a comprehensive
phased work plan for both new software installations and/or upgrades. In support of our implementation
methodology, we manage the various aspects of the process through a professional services automation tool. We
may also use third-party professional services firms as supplemental resources to implement our solutions for
customers as needed. Professional services revenue represented 12% of total consolidated revenue for each of
the years ended December 31, 2021, 2020 and 2019.
• Software License Updates and Product Support (Maintenance): Software license updates and product
support, which is generally referred to as maintenance when sold to customers, is an important offering to
customers who utilize our on-premise software solutions. In order to support our products that provide clinical
communication and collaboration solutions to our customer’s organizations, we have a dedicated customer
support organization. The customer support organization provides support 24 hours a day, 7 days a week, 365
days a year and the service can be accessed via telephone, email or the Internet via the Spok webpage. The
Spok support service is augmented by third-party services where needed. Software license updates and product
support are generally priced together as a percentage of the software licenses for which these services will be
provided. Largely all of our customers purchase maintenance when they purchase new software licenses, after
which renewals generally occur on an annual basis and are paid in advance. Software license updates provide
customers with rights to unspecified product upgrades as well as maintenance and patch releases that are
released during the term of the support period. Software license updates and product support revenue (i.e.
Maintenance revenue) represented 27% of total consolidated revenue for the year ended December 31, 2021,
26% for the year ended December 31, 2020, and 25% for the year ended December 31, 2019.
Sources of Equipment
We do not manufacture the messaging devices our customers need to make use of our wireless services or the network
equipment we use to provide wireless messaging services. We have relationships with several vendors to purchase new
messaging devices. Used messaging devices are available in the secondary market from various sources. We believe
existing inventory, returns of devices from customers that canceled wireless services, and purchases from other available
sources of new and reconditioned devices will be sufficient to meet expected messaging device requirements for the
foreseeable future. With the exception of our GenA pagers, the network equipment and messaging devices on which we
may place our logo or label are generic.
We sell third-party equipment for use with our software solutions. The third-party equipment that we sell is generally
available and does not require any specialty manufacturing to accommodate our software solutions.
We currently have inventory and network equipment on hand that we believe will be sufficient to meet our wireless and
software equipment requirements for the foreseeable future. However, the COVID-19 pandemic has contributed to global
supply chain disruptions from which we are not immune. These disruptions may contribute to delayed production of
certain of the products that we offer, including, but not limited to, our recently launched GenA pagers, which are
assembled with certain microchip technology that has experienced, and may continue to experience, shortages. Such
shortages may result in delayed delivery of the products that we offer to customers.
Intellectual Property
As of December 31, 2021, we held 79 trademarks and six patents, as well as four pending trademarks and one pending
patent, which we believe are important to protect our intellectual property. We believe our intellectual property
distinguishes our business from our competition and is integral to our continued success in the area of clinical
communication and collaboration solutions. The expiration dates of these trademarks range from 2022 to 2033 and can
be extended for ten-year periods upon renewals.
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Customers
Our customers include businesses and their employees who need to be accessible to their offices or customers, first
responders who need to be accessible in emergencies, and third parties, such as other telecommunication carriers and
resellers that pay us to use our networks. Customers include businesses, professionals, management personnel, medical
personnel, field sales personnel and service forces, members of the construction industry and construction trades, real
estate brokers and developers, sales and services organizations, specialty trade organizations, manufacturing
organizations and government agencies.
Our wide-ranging customer base allows for low customer revenue concentration and as a result, no single customer
accounted for more than 10% of our total revenues in 2021, 2020 or 2019.
We pursue close, long-term relationships with our customers because we believe strong customer relationships enable us
to retain our current customer base and expand our services and revenue to that customer base.
Competition
The competitors and degree of competition vary among our various product categories. Competition is particularly strong
for our wireless messaging services. Within the wireless industry, companies compete on the basis of price, coverage
area, services offered, transmission quality, network reliability and customer service. We compete by maintaining
competitive pricing for our products and services, by providing broad coverage options through high-quality, reliable
messaging networks and by providing quality customer service. Direct competitors for wireless messaging services
include American Messaging Service, LLC and a variety of other regional and local providers. We also compete with a
broad array of wireless messaging services provided by mobile telephone companies, including AT&T Mobility LLC, Sprint
Nextel Corporation, T-Mobile USA, Inc., and Verizon Wireless, Inc. This competition has intensified as prices for the
services of mobile telephone companies have declined and messaging capabilities are generally available in today's
mobile phone devices. Many of these companies possess far greater financial, technical and other resources than we do.
Most personal communication and other mobile phone devices currently sold in the United States are capable of sending
and receiving one-way and two-way messages. Most subscribers that purchase these services no longer need to
subscribe to a separate messaging service. As a result, many one-way and two-way messaging subscribers can readily
switch to cellular, personal communications service and other mobile telephone services. The decrease in prices and
increase in capacity and functionality for cellular, personal communications service, Wi-Fi, and other mobile telephone
services have led many subscribers to select combined voice and messaging services from mobile telephone companies
as an alternative to our stand-alone messaging services.
We also have a number of competitors whose software products compete with one or more modules of our clinical
communication and collaboration solutions. These competitors are a mix of privately held and public companies that offer
a number of call center, alerting and mobile communication products. Our primary competitive advantages include having:
• An integrated product suite;
• A communication-driven workflow;
• Certifications, such as those through the Joint Interoperability Test Command (see "Joint Interoperability Test
Command" below) and the FDA; and
• A complete directory of contacts throughout the customer enterprise.
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Although we have no competitors that offer a comprehensive set of software modules that match our product offerings,
several competitors offer software similar to many of our solutions. Selected competitors for portions of our product
portfolio include:
• ATN International, Inc.. - Mobile communications solutions;
• CareCloud, Inc. - Healthcare solutions;
• Castlight Health, Inc. - Software as a service health benefits platform;
• Computer Programs and Systems, Inc. - Healthcare IT solutions;
• Domo, Inc. - Cloud-based solutions;
• Globalstar, Inc. - Mobile communications solutions;
• Health Catalyst, Inc. - healthcare data and analytics;
• HealthStream, Inc. - Healthcare workforce solutions;
• NextGen Healthcare, Inc. - Healthcare solutions;
• Ooma, Inc. - Telecommunications;
• OptimizeRx Corporation. - Healthcare solutions;
• ORBCOMM Inc. - Network connectivity and device management solutions;
• Tabula Rasa Healthcare, Inc. - Healthcare Solutions; and
• Vocera Communications, Inc. - Mobile communications solutions.
In addition to these select competitors, substantially larger companies in the electronic medical records space such as
Epic Systems Corporation, Cerner Corporation ("Cerner"), Athenahealth, Inc. and Allscripts Healthcare Solutions, Inc. may
choose to offer software-related solutions similar to our clinical communication and collaboration solutions or may acquire
one of our competitors.
Furthermore, the healthcare sector continues to experience significant consolidation, in large part due to COVID-19, which
has highlighted the need to improve patient outcomes, reduce the burden on providers and streamline operations. As
certain industries have been challenged during the pandemic, many organizations are motivated to reduce costs and
improve efficiencies while others attempt to enter new markets with complementary or divergent product offerings and
drive growth. Large acquisitions have recently been announced, including Microsoft Corporation's proposed acquisition of
Nuance Communications, Inc., and Oracle Corporation's proposed acquisition of Cerner. Should organizations of this size
enter the markets in which we operate, they may have a competitive advantage through aggressive pricing power,
established brand recognition, extensive capital resources, and broader delivery and distribution channels.
Research and Development
We maintain a product development group, a substantial portion of which is focused on the enhancement of existing
software products. Our product development group uses a methodology that balances enhancement requests from a
number of sources including customers, regulatory requirements, the professional services staff, customer support
incidents, known defects, market and technology trends, and competitive requirements. These requests are reviewed and
prioritized based on criteria that include the potential for increased revenue, customer/employee satisfaction, possible cost
savings, and development time and expense.
Human Capital
At December 31, 2021, and 2020, we had 563 and 602 full time equivalent ("FTE") employees, respectively. As part of the
restructuring of our business in connection with the new strategic business plan announced by our Board of Directors in
February 2022, we intend to eliminate approximately 175 positions, primarily in research and development, but also in
professional services, selling and marketing, and back-office support functions. Our employees are not represented by
labor unions or covered by a collective bargaining agreement.
Employee Health, Safety and Well-Being
Spok is committed to conducting its business operations in a manner that protects the health and safety of its employees,
visitors, contractors and the public, and to the reduction of risks within our work centers. Spok believes that no job is so
important that our employees cannot take the time to ensure the work is performed safely and in an environmentally
conscious manner. Spok’s policies and procedures are intended to provide employees with the information needed to
meet all federal, state and local guidelines for occupational health and safety.
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The COVID-19 pandemic continues to affect our policies with regard to our employees, whose health and safety is our
highest priority. Following strategies recommended by the Centers for Disease Control and Prevention, we have
continued to implement enhanced safety measures, including restrictions on business travel, the implementation of
remote work arrangements for our office-based employees, and liberal leave policies for employees who may be affected
by illness, quarantines or childcare obligations. We are compliant with all federal, state and local regulations as applicable.
Diversity and Inclusion
As a global company, Spok strives to create an environment that embraces diversity and fosters inclusion. We recognize
the value and contributions of individuals with a wide range of capabilities, experience, and perspectives, and draws upon
this diversity to create value for our customers and maintain an effective and engaged workforce. Spok is committed to
maintaining a work environment free from discrimination and harassment, and one where employees are treated with
dignity and respect. We refuse to accept or tolerate harassment or discrimination against any employee or applicant for
employment.
Spok has a council composed of employees and executive sponsors to provide feedback and make recommendations
regarding our diversity and inclusion policies and practices. We believe that by promoting and supporting inclusiveness
and by leveraging our organization’s diversity, we have a competitive advantage that allows us to innovate and draw from
our workforce’s differing perspectives. By bringing together employees from diverse backgrounds and providing each an
opportunity to develop their skills and actively contribute to our mission, we cultivate an engaged workforce which in turn
helps us deliver value to our customers.
Ethical Standards
Integrity is a core tenet of Spok’s culture, and we have measures and controls in place to regularly ensure that our work
and organization are held to the highest ethical standards. We provide numerous resources to our employees, including
regular, annual training on maintaining these standards. We also maintain employee guidelines and policies that align with
Spok’s Code of Business Conduct and Ethics.
Regulation
Federal Regulation
The FCC issues licenses to use radio frequencies necessary to conduct our business and regulate many aspects of the
operations that support our wireless revenue. Licenses granted to us by the FCC have varying terms, generally of up to
ten years, at which time the FCC must approve renewal applications. In the past, FCC renewal applications generally
have been granted upon showing compliance with FCC regulations and adequate service to the public. Other than those
still pending, the FCC has thus far granted each license renewal that we have requested.
The Communications Act of 1934, as amended (the "Communications Act"), requires radio licensees, including us, to
obtain prior approval from the FCC for the assignment or transfer of control of any construction permit or station license or
authorization of any rights thereunder. The FCC has thus far granted each assignment or transfer request we have made
in connection with a change of control.
The Communications Act also places limitations on foreign ownership of CMRS licenses, which constitute the majority of
our licenses. These foreign ownership restrictions limit the percentage of stockholders’ equity that may be owned or voted,
directly or indirectly, by non-United States citizens or their representatives, foreign governments or their representatives,
or foreign corporations. Our Amended and Restated Certificate of Incorporation permits the redemption of our equity from
stockholders where necessary to ensure compliance with these requirements.
The FCC’s rules and regulations require us to pay a variety of fees that otherwise increase our costs of doing business.
For example, the FCC requires licensees, including Spok, to pay levies and fees, such as universal service fees, to cover
the costs of certain regulatory programs and to promote various other societal goals. These requirements increase the
cost of the services we provide. By law, we are permitted to bill our customers for these regulatory costs and we typically
do so.
Additionally, the Communications Assistance to Law Enforcement Act of 1994, ("CALEA") and certain rules implementing
CALEA require some telecommunication companies, including Spok, to design and/or modify their equipment in order to
allow law enforcement personnel to "wiretap" or otherwise intercept messages. Other regulatory requirements restrict how
we may use customer information and prohibit certain commercial electronic messages, even to our own customers.
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In addition, the FCC’s rules require us to pay other carriers for the transport and termination of some telecommunication
traffic. As a result of various FCC decisions over the last few years, we no longer pay fees for the termination of traffic
originating on the networks of local exchange carriers providing wireline services interconnected with our services. In
some instances, we received refunds for prior payments to certain local exchange carriers. We have entered into a
number of interconnection agreements with local exchange carriers in order to resolve various issues regarding charges
imposed by local exchange carriers for interconnection.
Failure to follow the FCC’s rules and regulations can result in a variety of penalties, ranging from monetary fines to the
loss of licenses. Additionally, the FCC has the authority to modify licenses, or impose additional requirements through
changes to its rules.
The FDA has determined software systems that connect to medical devices are subject to regulation as medical devices
as defined by the federal Food, Drug and Cosmetic Act (the "FDC Act"). Since our middleware software products connect
to medical devices, we are required to comply with the FDC Act’s requirements, including but not limited to: registration
and listing, labeling, medical device reporting (reporting of medical device-related adverse events), removal and
correction, and good manufacturing practice requirements. We have complied with the regulatory requirements of the
FDC Act, and registered and received the necessary clearances for our products. As we modify and/or enhance our
software products (including our middleware product), we may be required to request FDA clearance before we are
permitted to market these products.
In addition, our software solutions may handle or have access to personal health information subject in the United States
to the HIPAA, the Health Information Technology for Economic and Clinical Health Act ("HITECH"), and related
regulations. These statutes and related regulations impose numerous requirements regarding the use and disclosure of
personal health information with which we help our customers comply. Our failure to accurately anticipate or interpret
these complex and technical laws could subject us to civil and/or criminal liability. We believe that we are in compliance
with these laws and their related regulations.
Although these and other regulatory requirements have not, to date, had a material adverse effect on our operating
results, such requirements could have a material impact on our operating results in the future. We monitor discussions at
the FCC and FDA on pending changes in regulatory policy or regulations; however, we are unable to predict what
changes, if any, may occur in 2022 to regulatory policy or regulations.
State Regulation
As a result of the enactment by the United States Congress of the Omnibus Budget Reconciliation Act of 1993 ("OBRA")
in August 1993, states are now generally preempted from exercising rate or entry regulation over any of our operations.
States are not preempted, however, from regulating "other terms and conditions" of our operations, including consumer
protection and similar rules of general applicability. Zoning requirements are also generally permissible, however,
provisions of the OBRA prohibit local zoning authorities from unreasonably restricting wireless services. States that
regulate our services also may require us to obtain prior approval of (1) the acquisition of controlling interests in other
paging companies and (2) a change of control.
At this time, we are not aware of any proposed state legislation or regulations that would have a material adverse impact
on our business.
Joint Interoperability Test Command ("JITC") Certification
JITC is a military organization that tests technology for use by the branches of the armed services of the United States
and the United States government. JITC certification is required of all systems with joint interfaces or joint information
exchanges with other systems used by these organizations and is done to ensure all systems operate effectively together.
All information technology and national security systems that exchange and use information to enable units or forces to
operate effectively in joint, combined, coalition and interagency operations and simulations must be certified. Once a
system has been certified under this program, the certification must be renewed every four years or after any changes
that may affect interoperability. The interoperability certification process consists of four basic steps, which are:
Identify (interoperability) requirements;
•
• Develop certification approach (planning);
• Perform interoperability test and evaluation; and
• Report certifications and statuses.
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We submit and receive JITC certification for certain of our products through the Defense Information Systems Agency,
which allows us to sell and implement our solutions at federal government agencies. We currently certify a console, web,
speech, mass notification, public safety answering point, call recording and campus 911 product with JITC. We have a
roadmap to renew the existing certifications with new releases of existing products and to bring additional products to
JITC to increase the products that can be sold to federal agencies.
Available Information
We make available on our website, http://www.spok.com, free of charge, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably
practicable after such reports are electronically filed with, or furnished to, the SEC. The SEC also maintains an Internet
site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov. We also make available on our website, and in print, if any stockholder or other
person so requests, our code of business conduct and ethics entitled "Code of Ethics" which is applicable to all
employees and directors, our "Corporate Governance Guidelines" and the charters for all committees of our Board of
Directors, including Audit, Compensation and Nominating and Governance. Any changes to our Code of Ethics or waiver,
if any, of our Code of Ethics for executive officers or directors will be posted on that website.
ITEM 1A. RISK FACTORS
The following important factors, among others, could cause our actual operating results to differ materially from those
indicated or suggested by forward-looking statements made in this 2021 Form 10-K or presented elsewhere by
management from time to time.
Risks Related to our Business and Operations
Our Board of Directors has adopted a stockholder rights plan, which could delay or discourage a merger, tender
offer, or assumption of control of the Company not approved by our Board of Directors.
On September 2, 2021, our Board of Directors entered into a Rights Agreement between the Company and
Computershare Trust Company, N.A., as Rights Agent (as amended from time to time, the "Rights Agreement") with an
expiration date of August 31, 2022, and a beneficial ownership trigger threshold of 10% (20% in the case of a passive
institutional investor), subject to certain exceptions.
In connection with the Rights Agreement, a dividend was declared of one preferred stock purchase right (individually, a
“Right” and collectively, the “Rights”) for each share of our common stock outstanding at the close of business on
September 17, 2021. Each Right will entitle the registered holder thereof, after the Rights become exercisable and until
August 31, 2022 (or the earlier redemption, exchange or termination of the Rights), to purchase from the Company one
one-tenth of a share of Series A Junior Participating Preferred Stock, par value $0.00001 per share (the “Series A
Preferred”), of the Company at a price of $50.95 per one one-tenth of a share of Series A Preferred.
The Rights Agreement was adopted in order to ensure our Board of Directors can conduct an orderly review of strategic
alternatives and to provide our Board of Directors and stockholders with adequate time to make informed decisions
regarding any potential transactions, including a sale of all or part of the Company. The Rights Agreement will not
preclude our Board of Directors from considering an offer that is fair and in the best interests of our stockholders.
However, the Rights Agreement could render more difficult, or discourage, a merger, tender offer, or assumption of control
of the Company that is not approved by our Board of Directors, even if some stockholders consider such a transaction to
be favorable. These deterrents could adversely affect the price of our common stock.
Our new strategic business plan may fail to deliver the results we expect, which could have a material adverse
effect on our business, financial condition and operating results.
In February 2022, our Board of Directors announced a new strategic business plan that includes a restructuring of our
business to discontinue Spok Go, eliminate all associated costs and optimize the Company’s existing structure to drive
continued cost improvement, while placing a renewed focus on our existing and established business, including the Spok
Care Connect Suite and our wireless service offerings. We cannot assure you that our plan to focus on our existing and
established business will be successful or that we will be able to achieve growth in revenues related to our legacy
software solutions and minimize wireless revenue attrition.
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In addition, pursuant to the new strategic business plan, we will undertake various restructuring activities in an effort to
better align our organizational structure and costs with our strategy. We cannot assure you that our estimates regarding
the costs to be incurred or the future cost savings as a result of such restructuring activities will be accurate or that we will
complete such restructuring activities within our expected timeframe. Also, we may experience a disruption in our ability to
perform functions critical to our strategy as we undertake these restructuring activities. For example, these restructuring
activities could result in significant disruptions to our operations, including adversely affecting the timeliness of product
releases or our ability to acquire new customers or expand relationships with existing customers.
Any failure to successfully implement our new strategic business plan, including the restructuring activities contemplated
thereby, could have a material adverse effect on our business, financial condition and operating results.
Wireless service to our customers could be adversely impacted by network rationalization.
We have an active program to consolidate the number of wireless networks and related transmitter locations, which is
referred to as network rationalization. Network rationalization is necessary to match our technical infrastructure to our
smaller subscriber base and to reduce both site rent and telecommunication costs. The implementation of the network
rationalization program could adversely impact wireless service to our existing subscribers, and there can be no
assurance that any efforts to minimize that impact would be successful. Any adverse impact to our wireless service could
lead to increases in the rate of gross subscriber cancellations and/or the level of wireless revenue erosion. Adverse
changes in gross subscriber cancellations and/or wireless revenue erosion could have a material adverse effect on our
business, financial condition and operating results.
We depend on highly skilled personnel, and, if we are unable to retain or hire qualified personnel, including as a
result of our public announcement of our new strategic business plan or our review of strategic alternatives, we
may not be able to achieve our strategic objectives.
To execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified
and motivated personnel across our organization. In particular, to continue to enhance our software solutions and add
new and innovative core functionality and services, as well as develop new products, it will be critical for us to increase
the size of our research and product development organization, including hiring highly skilled software engineers.
Competition for software engineers is intense within our industry, and there continues to be upward pressure on the
compensation paid to these professionals. In addition, for us to achieve broader market acceptance of our software
solutions, grow our customer base, and pursue adjacent markets, we will need to continue to increase the size of our
sales and marketing and customer support organizations. Identifying and recruiting qualified personnel, training them in
the use of our software solutions and ensuring they are well-equipped to serve our customers requires a significant
investment of time and resources, and it can be particularly difficult to retain these individuals.
In August 2021, we announced that we received an unsolicited proposal from a third party to acquire all of the outstanding
shares of common stock of the Company, and, in September 2021, we announced that we have initiated a review of
strategic alternatives to evaluate potential transactions, including a sale of the Company, and other actions that would
maximize value for stockholders. Further, in February 2022, we announced a new strategic business plan that includes a
restructuring of our business to discontinue Spok Go, eliminate all associated costs and optimize the Company's existing
structure to drive continued cost improvement. The ongoing review of strategic alternatives, which may eventually result in
a change in control of the Company, may create a perception of uncertainty regarding our future operations or
employment needs, and therefore may limit our ability to retain or hire qualified personnel and may contribute to the
unplanned loss of highly skilled employees through attrition.
Many of the companies with which we compete for experienced personnel have greater name recognition and financial
resources than we have. If we hire employees from competitors or other companies, their former employers may attempt
to assert that we or these employees have breached their legal obligations to the former employer, resulting in a diversion
of our time and resources. In addition, the job market in the Minneapolis-St. Paul area, where the majority of our software
developers are located, has historically been very competitive, and existing employees often consider the value of the
equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, or if
the price of our common stock experiences significant volatility, this may adversely affect our ability to recruit and retain
highly skilled employees. As a result, we have greater difficulty hiring and retaining skilled personnel than some of our
competitors. If we are unable to attract and retain the personnel necessary to execute our growth plan, we may be unable
to achieve our strategic objectives and our business, financial condition and operating results may be adversely affected.
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Growth in our software revenue and bookings, and maintenance of our wireless revenue and subscriber base is
dependent on the productivity of our sales organization.
Our ability to achieve revenue growth will depend, in large part, on our success in recruiting, training and retaining
sufficient numbers of sales personnel to support our growth. New hires require significant training and may take significant
time before they achieve full productivity. Based on past experience, we expect new sales team members to reach full
productivity after nine months of employment. However, our recent hires and planned hires may not become productive as
quickly as we expect, or at all, and we may be unable to hire or retain a sufficient number of qualified individuals in the
markets where we do business or plan to do business.
From time to time it may be necessary to reorient our sales representatives to focus on specific market segments, product
lines or new software solutions or to remove underperforming individuals, which may require additional resources to
maintain productivity. The impact of these changes could adversely impact our ability to achieve our sales productivity
goals. We have also identified the following risks that could impact our sales productivity:
• Customer Dissatisfaction and Reputational Harm. We may experience customer dissatisfaction with our
solutions that could result in lost opportunities for sales. Potential low ratings of our solutions may result in us
being excluded from consideration by current and prospective customers with respect to future opportunities. In
addition, fewer customer references for our solutions could impact our ability to prospect new sales.
• Training. Training of our marketing and sales personnel as to the clinical requirements of our healthcare
customers and the complexity of our service offerings, takes time and requires a substantial, continuing
investment in new hires as well as long-term employees.
• Competitive Speed. Sales productivity can be impacted by the capabilities of our competitors. There is a risk that
competitors may innovate or partner faster than we do to deliver a unified communications platform.
• Employee Retention. The impact of the elements noted above may challenge the ability of employees to make
sales, which may affect morale and employee retention.
• Customer Uncertainty. The recently announced new strategic business plan that includes a restructuring of our
business to discontinue Spok Go may create a perception of uncertainty regarding our future operations, which
may limit our ability to sell products and services to prospective customers. Additionally, this perceived uncertainty
may contribute to an increase in churn of existing customers.
If we are unable to deliver effective customer support, it could harm our relationships with our existing
customers and adversely affect our ability to attract new customers.
Our revenue growth depends, in part, on our ability to satisfy our customers, including by providing continued customer
support, which may contribute to increased customer retention and adoption and utilization of our wireless services and
software solutions. Once our wireless services and software solutions are deployed, our customers depend on our
customer support group to resolve technical issues relating to their use of our solutions. We may be unable to respond
quickly to accommodate short-term increases in customer demand for support services or may otherwise encounter a
customer issue that is difficult to resolve. If a customer is not satisfied with the quality of our customer support, we may
need to incur additional costs to remedy the situation, or a customer may choose to terminate, or not to renew, their
relationship with us.
Our sales process is highly dependent on the ease of use of our wireless services and software solutions, our reputation
and positive recommendations from our existing customers. Any failure to maintain high-quality or responsive customer
support, or a market perception that we do not maintain high-quality or responsive customer support, could harm our
reputation, cause us to lose customers and adversely impact our ability to sell our wireless services and software
solutions to prospective customers.
We have investigated potential acquisitions and may not be able to identify an opportunity at favorable terms or
have the ability to close on the financing necessary to consummate the transaction.
We cannot provide any assurances that we will be successful in finding such acquisitions or consummating future
acquisitions on favorable terms. We anticipate that our acquisitions will be financed through a combination of methods,
including, but not limited to, the use of available cash on hand, and, if necessary, borrowings from third-party financial
institutions. Disruptions in credit markets and an unwillingness to lend may limit our ability to finance acquisitions.
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We have investigated potential acquisitions and may be unable to successfully integrate such acquisitions into
our business and may not achieve all or any of the operating synergies or anticipated benefits of those
acquisitions.
We continue to evaluate acquisitions of other businesses where we believe such acquisitions will yield increased cash
flows, improved market penetration and/or identified operating efficiencies and synergies. We may face various
challenges with our integration efforts, including the combination and simplification of product and service offerings, sales
and marketing approaches and establishment of combined operations.
We may have limited or no history of owning and operating any business that we acquire. If we were to acquire these
businesses, there can be no assurance that:
• Such businesses will perform as expected;
• Such businesses will not incur unforeseen obligations or liabilities;
• Such businesses will generate sufficient cash flow to support the indebtedness, if incurred, to acquire such
business or the expenditures needed to develop such business; and
• The rate of return from such businesses will justify the decision to invest the capital to acquire them.
There can be no assurance that we will manage these challenges and risks successfully. Moreover, if we are not
successful in completing transactions that we have pursued or may pursue, our business may be adversely affected, and
we may incur substantial expenses and divert significant management time and resources. In addition, in pursuing and
completing such transactions, we could use substantial portions of our available cash to pay for all or a portion of the
purchase price for these transactions or retention incentives to employees of the acquired business, or we may incur
substantial debt. We could also issue additional securities to finance all or a portion of the purchase price for these
transactions or as retention incentives to employees of the acquired business, which could cause our stockholders to
suffer significant dilution. Any of such transactions may not generate additional revenue or profit for us, or may take longer
to do so than expected, which may adversely affect our business, financial condition, operating results and cash flows.
Risks Related to the COVID-19 Pandemic and the Economy
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, healthcare 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, which
directly impacts license and equipment revenues, as healthcare 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.
The COVID-19 pandemic has also contributed to global supply chain disruptions from which we are not immune. These
disruptions may contribute to delayed production of certain of the products that we offer, including, but not limited to, our
recently launched GenA pagers, which are assembled with certain microchip technology that has experienced, and may
continue to experience, shortages. Such shortages may result in delayed delivery of the products that we offer to
customers, and in certain circumstances, may increase our production costs.
The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and
cannot be predicted. These developments may include the emergence of new COVID-19 variants of concern as well as
actions taken to further contain the virus or treat its impact or the possible reinstatement of government or other
restrictions implemented in certain locations, and the acceptance, distribution and effectiveness of new and existing
vaccines and other medications to treat and prevent the spread of COVID-19.
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Economic conditions that are largely out of our control may adversely affect our financial condition and
statement of operations.
Our business is sensitive to recessionary economic cycles, higher interest rates, inflation, higher levels of unemployment,
higher tax rates and other changes in tax laws, or other economic factors that may affect business spending or buying
habits that could adversely affect the demand for our services. This adverse impact could increase the rate of gross
subscriber cancellations and/or the level of revenue erosion for our wireless business and could cause delays in or the
loss of software revenue or bookings, which impacts license, professional services, equipment and subscription revenues.
A significant portion of our revenue is derived from healthcare customers, and we are impacted by changes in the
healthcare economic environment. The healthcare industry is highly regulated and is subject to changing political,
legislative, regulatory, and other economic developments. These developments can have a dramatic effect on the
decision-making and spending by our customers for information technology and software. This economic uncertainty can
add to the unpredictability of decision-making and lengthen our sales cycle.
Further, the uncertainty created by the possibility of additional healthcare reform legislation is impacting customer decision
making and information technology plans in our key healthcare market. We are unable to predict the full consequences of
this uncertainty on our operations. Adverse changes in the economic environment could adversely impact our ability to
market and sell our wireless and software solutions to healthcare customers.
Risks Related to our Products and Services
The rate of wireless subscriber and revenue erosion could exceed our ability to reduce wireless operating
expenses in order to maintain overall positive operating cash flow from our wireless business.
Our wireless revenue is dependent on the number of subscribers that use our paging devices. Our customers may not
renew their subscriptions after the expiration of their subscription agreements. In addition, our customers may opt for one
of our lower-priced offerings or for fewer subscriptions. Our customers’ renewal rates may decline or fluctuate as a result
of a number of factors, including their level of satisfaction with our offerings and their ability to continue their operations
and spending levels. Increasing awareness and concern over HIPAA/HITECH compliance is causing healthcare
organizations, our largest customer segment, to re-evaluate paging subscriptions for clinical use cases when users are
not equipped with our encrypted pager offerings.
We face intense competition for subscribers from other paging service providers and alternate wireless communications
providers, such as mobile phone and mobile data service providers. There is a risk that our competitors’ products may
provide better performance or include additional features when compared to our offerings. Competitive pressures could
also affect the prices we may charge or the demand for our offerings, resulting in reduced profit margins and loss of
market share. Our efforts to compete effectively may not be sufficient, which may adversely affect our business, financial
condition, operating results and cash flows.
In addition to competition, our customer base may be impacted by the introduction of new technologies. As mobile
communications technology evolves, competitors that provide wireless broadband data services may lower their prices to
customers that approach, meet or undercut our prices for paging services. We are unable to predict how customer
perceptions of the value of our wireless services will be impacted by the development of new wireless technologies. Our
continued success will depend on our ability to adapt to rapidly changing technologies and user preferences, to adapt our
offerings to evolving industry standards, to predict user preferences and industry changes in order to continue to provide
value to our customers and to improve the performance and reliability of our offerings. Our failure to adapt to such
changes could harm our business, and our efforts to adapt to such changes could require substantial expenditures on our
part to modify our offerings or infrastructure. Delays in developing, completing or delivering new or enhanced offerings
and technologies could result in delayed or reduced revenue for those offerings and could also adversely affect customer
acceptance of those offerings and technologies. Even if we are able to enhance our existing offerings or introduce new
offerings that are well perceived by the market, if our marketing or sales efforts do not generate interest in or sales for
these offerings, they may be unsuccessful.
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We expect our wireless subscriber results, units in service and revenue will continue to decline for the foreseeable future.
As this revenue erosion continues, maintaining positive operating cash flow from our wireless business is dependent on
substantial and timely reductions in selected wireless operating expenses. Reductions in wireless operating expenses
require both the reduction of internal costs and negotiation of lower costs from outside vendors. As we require fewer
services and products from our vendors, our negotiating leverage to lower our costs is diminished. There can be no
assurance that we will be able to reduce our wireless operating expenses commensurate with the level of revenue
erosion. The inability to reduce wireless operating expenses would have a material adverse impact on our business,
financial condition and operating results, including our continued ability to remain profitable, produce positive operating
cash flow, and pay cash dividends to stockholders.
Technical problems and higher costs may affect our product development initiatives.
Our future software revenue growth depends on our ability to develop, introduce and effectively deploy new solutions and
features to our existing software solutions. These new features and functionalities are designed to address both existing
and new customer requirements. We may experience technical problems and additional costs as these new features are
tested and deployed. Failure to effectively develop new or improved software solutions could adversely impact software
revenue growth and could have a material adverse effect on our business, financial condition and operating results,
including our continued ability to remain profitable, produce positive operating cash flow and pay cash dividends to
stockholders.
Undetected defects, bugs, or security vulnerabilities in our products could adversely affect the market
acceptance of new products, damage our reputation with current or prospective customers, and materially and
adversely affect our operating costs.
Software products, such as those we offer, may contain defects and bugs when they are first introduced or as new
versions are released, or their release may be delayed due to unforeseen difficulties during product development. If any of
our products, including products of companies we have acquired, or third-party components used in our products, contain
defects or bugs, or have reliability, quality or compatibility problems, we may not be able to successfully design
workarounds. Any defects we do not detect and fix in pre-release testing could result in reduced sales and revenue,
damage to our reputation, repair or remediation costs, delays in the release of new products or versions or legal liability.
There can be no assurance that provisions in our license agreements that limit our exposure to liability will be sufficient or
withstand legal challenge. Computer programmers and hackers also may be able to develop and deploy viruses, worms,
and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our
products.
We are dependent on the U.S. healthcare provider industry for most of our revenue.
We generate over 75% of our revenue from sales to hospitals and other healthcare provider organizations in the United
States. These customers, both non-profit and for-profit, are greatly affected by the COVID-19 pandemic, healthcare reform
legislation and the reimbursement policies of federal and state governments and health insurance companies, and any
decline in revenue received by our customers due to adverse economic conditions or legislative or regulatory changes
could significantly affect the type and amount of services and products they order from us. We do not anticipate any
flexibility in increasing prices for our wireless services, notwithstanding general inflation, due to an unrelenting focus by
our customers on their cost structures, and our customers could be slow to invest in our software products and
professional services due to budgetary pressures.
We may experience a long sales cycle for our software products.
Our software revenue growth results from a long sales cycle that from initial contact to final sales order may take 6 to 18
months, depending on the type of software solution. Our software sales and marketing efforts involve educating our
customers on the technical capabilities of our software solutions and the potential benefits from the deployment of our
software, as well as educating ourselves as to the clinical needs of our customers. The inherent unpredictability of
decision making in our target market segment of healthcare, resulting from customer budget constraints, multiple
approvals and administrative issues, may result in fluctuating bookings and revenue from month to month, quarter to
quarter and year to year. Our bookings and corresponding revenue are dependent on actions that have occurred in the
past. Each month we need to spend substantial time, effort, and expense on our marketing and sales efforts that may not
result in future revenue.
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We may be unable to find vendors able to supply us with wireless paging equipment based on future demands.
We purchase paging equipment from third-party vendors. This equipment is sold or leased to customers in order to
provide wireless messaging services. The reduction in industry demand for paging equipment has caused various
suppliers to cease manufacturing this equipment or increase prices for devices. There can be no assurance that we will
continue to find vendors to supply paging equipment, or that the vendors will supply equipment at costs that allow us to
remain a competitive alternative in the wireless messaging industry. A lack of paging equipment could impact our ability to
provide certain wireless messaging services and could have a material adverse effect on our business, leading to
additional wireless revenue erosion.
We may be unable to maintain successful relationships with our channel partners.
We use channel partners such as resellers, consulting firms, original equipment manufacturers, and technology partners
to license and support our products. We rely, to a significant degree, on each of our channel partners to select, screen and
maintain relationships with its respective distribution network and to distribute our offerings in a manner that is consistent
with applicable law and regulatory requirements and our quality standards. Contract defaults by any of these channel
partners or the loss of our relationships with them may materially adversely affect our ability to develop, market, sell, or
support our communication solution offerings. If our indirect distribution channel is disrupted, we may be required to
devote more resources to distribute our offerings directly and support our customers, which may not be as effective and
could lead to higher costs, reduced revenue and growth that is slower than expected.
Recruiting and retaining qualified channel partners and training them in the use of our enterprise technologies requires
significant time and resources. If we fail to devote sufficient resources to support and expand our network of channel
partners, our business may be adversely affected. In addition, because we rely on channel partners for the indirect
distribution of our enterprise technologies, we may have little or no contact with the ultimate end-users of our
technologies, thereby making it more difficult for us to establish brand awareness, ensure proper delivery and installation
of our software, support ongoing customer requirements, estimate end-user demand, respond to evolving customer needs
and obtain subscription renewals from end users.
We may experience litigation claiming intellectual property infringement by us, and we may not be able to protect
our rights in intellectual property that we own and develop.
Intellectual property infringement litigation has become commonplace, particularly in the wireless and software industries
in which we operate. Litigation can be protracted, expensive, and time consuming. There is no assurance that we will
remain immune to this litigation. Any such claims, whether meritorious or not, could be time consuming and costly in terms
of both resources and management time.
We may receive claims that we have infringed the intellectual property rights of others, including claims regarding patents,
copyrights, and trademarks. The number and types of these claims may grow as a result of constant technological change
in the segments in which our wireless services and software products compete, the extensive patent coverage of existing
technologies, and the rapid rate of issuance of new patents.
Our patents, trademarks, copyrights and trade secrets relating to our wireless services and networks, and our software
solutions, are important assets. The efforts we undertake to protect our proprietary rights may not be sufficient or effective.
Any significant impairment to our intellectual property rights could harm our business and our ability to compete effectively.
Protecting our intellectual property rights can be costly and time consuming.
We seek to maintain certain of our intellectual property rights as trade secrets, including the source code for many of our
software solutions and innovations. Our source code and system architecture may be reverse engineered by our
competitors, or the secrecy of our solutions and designs could be compromised through a security breach or otherwise, or
by our employees or former employees, intentionally or accidentally. Any compromise of our trade secrets could cause us
to lose any competitive advantage our software solutions have and the investment we have made in developing our
products and services.
Our portfolio of issued patents and copyrights may be insufficient to defend ourselves against intellectual property
infringement claims, and the validity and scope of our patents could be challenged by third parties were we to seek to
enforce them.
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Risks Related to Technology
Our use of open source software, third-party software and other intellectual property may expose us to risks.
We license and integrate certain software components from third parties into our software, and we expect to continue to
use third-party software in the future. Some open source software licenses require users who distribute or make available
as a service open source software as part of their own software product to publicly disclose all or part of the source code
of the users’ developed software or to make available any derivative works of the open source code on unfavorable terms
or at no cost. Our efforts to use the open source software in a manner consistent with the relevant license terms that
would not require us to disclose our proprietary code or license our proprietary software at no cost may not be successful.
We may face claims by third parties seeking to enforce the license terms applicable to such open source software,
including by demanding the release of the open source software, derivative works or our proprietary source code that was
developed using such software. In addition, if the license terms for the open source code change, we may be forced to re-
engineer our software or incur additional costs.
Some of our products and services include other software or intellectual property licensed from third parties, and we also
use software and other intellectual property licensed from third parties in our business. This exposes us to risks over
which we may have little or no control. For example, a licensor may have difficulties keeping up with technological
changes or may stop supporting the software or other intellectual property that it licenses to us. There can be no
assurance that the licenses we use will be available on acceptable terms, if at all. In addition, a third party may assert that
we or our customers are in breach of the terms of a license, which could, among other things, give such third party the
right to terminate a license or seek damages from us, or both. Our inability to obtain or maintain certain licenses or other
rights or to obtain or maintain such licenses or rights on favorable terms, or the need to engage in litigation regarding
these matters, could result in delays in releases of new products, and could otherwise disrupt our business, until
equivalent technology can be identified, licensed or developed. In addition, sophisticated hardware and operating system
software and applications that we procure from third parties may contain defects in design or manufacture, including
"bugs," security vulnerabilities, and other problems that could unexpectedly interfere with the expected operation of our
products and services.
System disruptions and security threats to our computer networks, satellite control or telecommunications
systems, or to those of our service providers, could have a material adverse effect on our business.
The performance and reliability of our computer network and telecommunications systems infrastructure, as well as the
technology infrastructure of third parties, is critical to our operations. This technology infrastructure may be vulnerable to
damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, software errors
and other events. Any computer system or satellite network error or failure, regardless of cause, could result in a
substantial outage that materially disrupts our operations. In addition, we face the threat to our computer systems, or
those of our service providers, of unauthorized access, computer hackers, computer viruses, malicious code, organized
cyber-attacks and other security problems and system disruptions (e.g., distributed denial of service (DDoS) attacks,
ransomware attacks). Our satellite network connections for our wireless services depend upon very small aperture
terminals, many of which are based on decades-old technology or equipment that could fail and result in a loss of service
to our customers. With respect to our Enterprise Reporting and Management systems and data storage, we rely on third-
party data centers and services for maintaining accessibility, reliability and uninterrupted connectivity.
A significant number of the systems making up this infrastructure are not redundant, and our disaster recovery planning
may not be sufficient for every eventuality, such as a ransomware attack that encrypts some or all of our or our service
providers' systems, data or infrastructure. We may not carry business interruption insurance sufficient to protect us from
all losses that may result from interruptions in our services as a result of technology infrastructure failures or to cover all
contingencies. We may be required to expend significant resources to protect against the threat of these system
disruptions or to alleviate problems caused by these disruptions. Any interruption in the availability of our websites and
online interactions with customers or partners may cause a reduction in customer or partner satisfaction levels, which in
turn could cause additional claims, reduced revenue or loss of customers or partners. There can be no assurance that any
precautions we take will prove successful, and such problems could result in, among other consequences, a loss of data,
a loss of confidence in the stability and reliability of our offerings, damage to our reputation, and legal liability, all of which
may adversely affect our business, financial condition, operating results and cash flows.
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Unauthorized intrusions, data breaches or failures in cybersecurity measures adopted by us or our service
providers and/or included in our products and services could have a material adverse effect on our business.
Our security controls are designed to maintain the physical security of our facilities and to protect the systems that
process and store our customers’, suppliers’ and employees’ confidential information, as well as our own proprietary
information. We are also dependent on a number of third-party providers of various technology, tools and services relating
to, among other things, human resources, electronic communications, data storage, finance, and other business
functions, and we are, of necessity, dependent on the security systems of these providers. Accidental or willful security
breaches or other unauthorized access events committed or enabled by third parties or by our employees or contractors
(for example, due to social engineering or phishing attacks) can impact the security of our facilities, our systems or the
systems of our third-party providers, and the information maintained in such systems. In addition, the existence of
computer viruses or malware in our or our service providers' data, software, products or services, as well as external
cyberattacks and data breaches, could expose us to the risks of corruption, loss, and misappropriation of proprietary and
confidential information. We also routinely transmit and receive proprietary and confidential information, including through
third parties, which makes that information vulnerable to interception, misuse or mishandling.
We utilize a security framework that includes security policies and procedures, security appliances and software, third-
party vulnerability testing, business continuity plans, and other administrative, physical and technical measures. The
frequency and scope of cyberattacks has been steadily increasing, and attackers are increasingly sophisticated, using
tools and techniques that we and our service providers may be unable to detect or identify, or that may cause significant
delays in our detection or identification. Once identified, we and our service providers may be unable to investigate or
remediate incidents due to attackers taking steps to obfuscate or remove forensic evidence and to circumvent logging
tools and counter-measures, rendering us unable to anticipate or implement adequate preventative or restorative
measures.
We and our service providers have, from time to time, been subject to unauthorized network intrusions, malware and
other cyberattacks. Any theft, misuse of, or unauthorized access to confidential, personal or proprietary information as a
result of such incidents could result in, among other things, unfavorable publicity, damage to our reputation, loss of our
trade secrets and other competitive information, difficulty in marketing our products, increased costs of investigation and
remediation, allegations by our customers that we have not performed our contractual obligations, litigation by affected
parties and possible financial obligations for liabilities and damages related to the theft or misuse of such information,
regulatory investigations and enforcement actions, as well as fines and other sanctions pursuant to data privacy and
security rules and regulations, any or all of which could have a material adverse effect on our reputation, operations,
business, profitability and financial condition. Any losses, costs and liabilities may not be covered by, or may exceed the
coverage limits of, any or all of our applicable insurance policies.
Risks Related to our Financial Results
We may be unable to realize the benefits associated with our deferred income tax assets.
We have significant deferred income tax assets that are available to offset future taxable income and increase cash flows
from operations. The use of these deferred income tax assets is dependent on the availability of taxable income in future
periods. The availability of future taxable income is dependent on our ability to profitably manage our operations to
support a growing base of software revenue offset by declining wireless subscribers and revenue. To the extent that
anticipated reductions in wireless operating expenses do not occur or sufficient revenue is not generated, we may not
achieve sufficient taxable income to allow for use of our deferred income tax assets. The accounting for deferred income
tax assets is based upon an estimate of future results, and any valuation allowance we may apply to our deferred tax
assets may be increased or decreased as conditions change or if we are unable to implement certain tax planning
strategies. If we are unable to use these deferred income tax assets, our financial condition and statement of operations
may be materially affected. In addition, a significant portion of our deferred income tax assets relate to net operating
losses. If our ability to utilize these losses is limited, due to Internal Revenue Code ("IRC") Section 382, our financial
condition and statement of operations may be materially affected. For example, we maintained a valuation allowance of
$24.2 million and $22.1 million at December 31, 2021 and 2020, respectively, to reduce net deferred income tax assets as
their realization did not meet the applicable more-likely-than-not criterion.
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If our long-lived assets, intangible assets subject to amortization or goodwill become impaired, we may be
required to record a significant charge to earnings.
We are required to evaluate the carrying value of our long-lived assets, amortizable intangible assets and goodwill. For
long-lived and amortizable intangible assets, we assess quarterly whether circumstances exist which suggest that the
carrying value of long-lived and amortizable intangible assets may not be recoverable. We evaluate goodwill for
impairment at least annually, or when events or circumstances suggest a potential impairment has occurred. We generally
perform this annual goodwill impairment test in the fourth quarter of the fiscal year.
If our long-lived assets, intangible assets subject to amortization or goodwill are deemed to be impaired, an impairment
loss equal to the amount by which the carrying amount exceeds the fair value of the assets would be recognized. We may
be required to record a significant charge in our financial statements during the period in which any impairment of our
long-lived assets, intangible assets subject to amortization or goodwill is determined, which would negatively affect our
results of operations. For example, as a result of our periodic evaluation of our capitalized software development costs,
we recorded an impairment charge of $15.7 million for the year ended December 31, 2021. Furthermore, as a result of our
annual goodwill impairment testing that takes place in the fourth quarter of each year, we recognized a non-cash, pre-tax
goodwill impairment charge of $25.0 million for the year ended December 31, 2020.
Our estimates of market opportunity for our software solutions are subject to significant uncertainty and, even if
the markets in which we compete meet or exceed our size estimates, we could fail to increase our revenue or
market share.
Market opportunity estimates are based on assumptions and estimates, and our internal analysis and industry experience.
However, assessing the market for clinical communication and collaboration solutions is difficult due to several factors,
such as limited available information and rapid evolution of the market. Our estimates of market opportunity depend on
the assumptions we made, and the estimated market opportunity could be materially different with different assumptions.
Even if the markets in which we compete meet or exceed our size estimates, our software solutions may fail to gain
market acceptance and our business may not grow in line with our forecasts. In addition, an increase in the prevalence of
cloud-based offerings by our competitors could also unfavorably impact the pricing of our on-premise offerings and have a
dampening impact on overall demand for our on-premise offerings, which could have a material adverse impact on our
business, financial condition and operating results.
Risks Related to Regulatory Matters
We are subject to data privacy and protection-related laws and regulation, and we may encounter issues with
privacy and security of personal information.
A substantial portion of our revenue comes from healthcare customers. As part of our business, we (or third parties with
whom we contract) may receive, store and process our data, as well as our customers’ and partners’ private data and
personal information. As such, our business is subject to a variety of federal, state and international laws and regulations
that apply to the collection, use, retention, protection, disclosure, transfer and processing of personal data.
Our software solutions may handle or have access to personal health information subject in the United States to HIPAA,
HITECH and related regulations as well as legislation and regulations in foreign countries. These statutes and related
regulations impose numerous requirements regarding the use and disclosure of personal health information with which we
and our software solutions must comply. Our failure to accurately anticipate or interpret these complex and technical laws
and regulations could subject us to civil and/or criminal liability. Such failure could adversely impact our ability to market
and sell our software solutions to healthcare customers, and have a material adverse impact on our software sales.
In addition to personal health information, the Company may handle or have access to personal information in the
European Union subject to the General Data Protection Regulation (the "GDPR"). The GDPR imposes several stringent
requirements for controllers and processors of personal data and increases our obligations, including, for example, by
requiring more robust disclosures to individuals, strengthening the individual data rights regime, shortening timelines for
data breach notifications, limiting retention periods and secondary use of information, and imposing additional obligations
when we contract third-party processors in connection with the processing of personal data.
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The GDPR could limit our ability to use and share personal data or could cause our costs to increase and harm our
business, financial condition, operating results and cash flows. Failure to comply with the requirements of the GDPR and
the applicable European Union member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide
annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. To comply with the
data protection rules imposed by the GDPR, we may be required to put in place additional mechanisms that could be
onerous and adversely affect our business, financial condition, and operating results.
Existing privacy-related laws and regulations in the United States and other countries are evolving and are subject to
potentially differing interpretations, and various federal and state or other international legislative and regulatory bodies
may expand or enact laws regarding privacy and data security-related matters. In the U.S., the state of California enacted
the California Consumer Privacy Act, which came into effect on January 1, 2020, and which also imposes heightened
transparency obligations and requirements to make available data collected about California residents and to provide
them the ability to object to the sale, or request deletion of, their personal data in certain instances. If other states in the
U.S. adopt similar laws or if a comprehensive federal data privacy law is enacted, we may expend considerable resources
to meet these requirements.
In addition, customers may use our wireless services to transmit patient health information subject to HIPAA and other
regulatory requirements. While we offer encrypted pagers to our customers, many customers use wireless devices
provided by us that do not encrypt text messages. While we disclaim liability for customer non-compliance with HIPAA
and other privacy requirements, there remains some risk we could be held responsible for privacy violations by our
customers.
There can be no assurance that the security and testing measures we take relating to our offerings and operations will
prevent all security breaches and data loss that could harm our business or the businesses of our customers and
partners. These risks may increase as we continue to grow our services and offerings and as we receive, store and
process more of our customers’ data. Actual or perceived vulnerabilities may lead to regulatory investigations, claims
against us by customers, partners or other third parties, or costs, such as those related to providing customer notifications
and fraud monitoring. There can be no assurance that any provisions in our customer agreements limiting our liability will
be enforceable or effective under applicable law. In addition, the cost and operational consequences of implementing
further data protection measures could be significant.
The data privacy and protection-related laws and regulations to which we are subject are evolving, with new or modified
laws and regulations proposed and implemented frequently, and existing laws and regulations subject to new or different
interpretations. Any failure by us to comply with data privacy- and protection-related laws and regulations could result in
enforcement actions, significant penalties or other legal actions against us or our customers or suppliers. An actual or
alleged failure to comply, which could result in negative publicity, reduce demand for our offerings, increase the cost of
compliance, require changes in business practices that result in reduced revenue, restrict our ability to provide our
offerings in certain locations, result in our customers’ inability to use our offerings and prohibit data transfers or result in
other claims, liabilities or sanctions, including fines, and could have an adverse effect on our business, financial condition,
operating results and cash flows.
Our wireless products are regulated by the FCC and, to a lesser extent, state and local regulatory authorities.
Changes in regulation could result in increased costs to us and our customers.
We are subject to regulation by the FCC and, to a lesser extent, by state and local authorities. Changes in regulatory
policy could increase the fees we must pay to the government or to third parties, and could subject us to more stringent
requirements that could cause us to incur additional capital and/or operating costs. To the extent additional regulatory
costs are passed along to customers, those increased costs could adversely impact subscriber cancellations.
For example, the FCC issued an order in October 2007 that mandated paging carriers (including the Company) along with
all other CMRS providers serving a defined minimum number of subscribers to maintain an emergency back-up power
supply at all cell sites to enable operation for a minimum of eight hours in the event of a loss of commercial power (the
"Back-up Power Order"). Ultimately, after a hearing by the U.S. Court of Appeals for the DC Circuit and disapproval by the
Office of Management and Budget (the "OMB") of the information collection requirements of the Back-up Power Order, the
FCC indicated that it would not seek to override the OMB’s disapproval. Rather the FCC indicated that it would issue a
Notice of Proposed Rulemaking with the goal of adopting revised back-up power rules. To date, there has been no Notice
of Proposed Rulemaking by the FCC and we are unable to predict what impact, if any, a revised back-up power rule could
have on our business, financial condition and operating results, including our continued ability to remain profitable,
produce positive operating cash flow and pay cash dividends to stockholders.
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As a further example, the FCC continues to consider changes to the rules governing the collection of universal service
fees. The FCC is evaluating a flat monthly charge per assigned telephone number as opposed to assessing universal
service contributions based on telecommunication carriers’ interstate revenue. There is no timetable for any rulemaking to
implement this numbers-based methodology. If the FCC adopts a numbers-based methodology, our attempt to recover the
increased contribution costs from our customers could significantly diminish demand for our services, and our failure to
recover such increased contribution costs could have a material adverse impact on our business, financial condition and
operating results.
Certain of our software products are regulated by the FDA. The application of or changes in regulations could
impact our ability to market new or revised software products to our customers.
Certain of our software products are regulated by the FDA as medical devices. The classification of our software products
as medical devices means that we are required to comply with certain registration and listing, labeling, medical device
reporting, removal and correction, and good manufacturing practice requirements. Updates to these products or the
development of new products could require us to seek clearance from the FDA before we are permitted to market or sell
these software products.
In addition, changes to FDA regulations could impact existing software products or require updates to existing products.
The impact of delays in FDA clearance or changes to FDA regulations could impact our ability to market or sell our
software products and could have a material adverse effect on our business, financial condition and operating results,
including our continued ability to remain profitable, produce positive operating cash flow and pay cash dividends to
stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We had no unresolved SEC staff comments as of February 17, 2022.
ITEM 2. PROPERTIES
In March 2021, we relocated our corporate headquarters to a commercial property located in Alexandria, Virginia,
consisting of approximately 26,000 square feet of space under a lease that will expire on September 30, 2026.
At December 31, 2021, we leased facility space, including our corporate headquarters, sales offices, technical facilities,
warehouse and storage facilities in 51 locations in 26 states in the United States, one facility in Australia and one facility in
the Middle East. The total leased space is approximately 170,000 square feet. At December 31, 2021, we owned three
small parcels of land in three states in the United States.
At December 31, 2021, we leased transmitter sites on commercial broadcast towers, buildings and other fixed structures,
some of which are free of charge, in approximately 2,836 locations throughout the United States. These leases are for our
active transmitters and are for various terms and provide for periodic lease payments at various rates.
At December 31, 2021, we had 3,468 active transmitters on leased sites which provide service to our customers.
ITEM 3. LEGAL PROCEEDINGS
Refer to Note 11, "Commitments and Contingencies," in the Notes to Consolidated Financial Statements for information
regarding legal proceedings in which we are involved.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our sole class of common equity is our $0.0001 par value common stock, which is listed on the NASDAQ National
Market® and is traded under the symbol "SPOK."
Holders of Common Stock
As of February 14, 2022, there were 2,950 holders of record of our common stock.
Dividends
The Company declared dividends totaling $10.2 million and $10.0 million during 2021 and 2020, respectively. Cash
dividends declared for the years ended December 31, 2021, and 2020, respectively, include dividends related to unvested
restricted stock units ("RSUs") and shares of unvested restricted common stock ("restricted stock") granted under the
Company's Equity Plans (as defined below) to executives and non-executive members of our Board of Directors. Cash
distributions on RSUs and restricted stock are accrued and paid when the applicable vesting conditions are met. Accrued
cash distributions on forfeited RSUs and restricted stock are also forfeited.
The following table details information on our dividends declared and cash distributions since the formation of the
Company in 2005 through the year ended December 31, 2021:
(Dollars in Thousands)
Year
Prior to 2017(2)
2017
2018
2019
2020
2021
$
Dividends Declared
Per Share
Amount
Total
Payment(1)
18.275 $
0.500
0.500
0.500
0.500
0.500
20.775 $
452,033
15,234
10,064
9,819
9,771
10,025
506,946
Total
(1) The total payment reflects the cash distributions paid in relation to common stock, vested RSUs and vested shares of
$
restricted stock.
(2) The per share amount includes a special one-time dividend of $0.25 per share of common stock declared in 2016 but
distributed to stockholders in 2017.
We expect to increase our quarterly dividends to $0.3125 per common share for each quarter in 2022, subject to
declaration by the Board of Directors. On February 16, 2022, the Board of Directors declared a regular quarterly cash
dividend of $0.3125 per share of common stock, with a record date of March 16, 2022, and a payment date of March 30,
2022. This cash dividend of approximately $6.2 million is expected to be paid from available cash on hand.
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Performance Graph
We began trading on the NASDAQ National Market® on November 17, 2004. The chart below compares the relative
changes in the cumulative total return of our common stock for the period of December 31, 2016, to December 31, 2021,
against the cumulative total return of the NASDAQ Composite Index®, the NASDAQ Telecommunications Index® and the
S&P Health Care Technology Index for the same period.
The chart assumes that on December 31, 2016, $100 was invested in our common stock and in each of the indices. The
comparisons assume that all cash distributions were reinvested. The chart indicates the dollar value of each hypothetical
$100 investment based on the closing price as of the last trading day of each fiscal year from December 31, 2016, to
December 31, 2021. The stock performance depicted on the chart represents historical stock performance and is not
necessarily indicative of future stock price performance.
Spok Holdings, Inc.
NASDAQ Composite
NASDAQ Telecommunications
S&P Health Care Technology
December 31,
2016
2017
2018
2019
2020
2021
$ 100.00 $ 77.66 $ 68.04 $ 65.20 $ 62.37 $ 55.03
100.00 129.64 125.96 172.17 249.51 304.85
100.00 117.62 108.29 137.49 166.70 174.78
100.00 142.26 110.70 156.11 168.77 202.07
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
No common stock was repurchased by the Company (excluding the purchase of common stock for tax withholdings)
during the three months ended December 31, 2021.
Repurchased shares of our common stock are accounted for as a reduction to common stock and additional paid-in-
capital in the period in which the repurchase occurs. In February 2022, the Company’s Board of Directors authorized a
share repurchase program of up to $10 million of the Company’s common stock.
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Transfer Restrictions on Common Stock
In order to reduce the possibility that certain changes in ownership could impose limitations on the use of our deferred
income tax assets, our Amended and Restated Certificate of Incorporation contains provisions that generally restrict
transfers by or to any 5% stockholder of our common stock or any transfer that would cause a person or group of persons
to become a 5% stockholder of our common stock. After a cumulative indirect shift in ownership of more than 45% since
our emergence from bankruptcy proceedings in May 2002 through a transfer of our common stock, any transfer of our
common stock by or to a 5% stockholder of our common stock or any transfer that would cause a person or group of
persons to become a 5% stockholder of such common stock, will be prohibited unless the transferee or transferor
provides notice of the transfer to us and our Board of Directors determines in good faith that the transfer would not result
in a cumulative indirect shift in ownership of more than 47%.
Prior to a cumulative indirect ownership change of more than 45%, transfers of our common stock will not be prohibited,
except to the extent that they result in a cumulative indirect shift in ownership of more than 47%, but any transfer by or to
a 5% stockholder of our common stock or any transfer that would cause a person or group of persons to become a 5%
stockholder of our common stock requires notice to us. Similar restrictions apply to the issuance or transfer of an option to
purchase our common stock, if the exercise of the option would result in a transfer that would be prohibited pursuant to
the restrictions described above. These restrictions will remain in effect until the earliest of (1) the repeal of IRC
Section 382 (or any comparable successor provision) and (2) the date on which the limitation amount imposed by IRC
Section 382 in the event of an ownership change would not be less than the tax attributes subject to these limitations.
Transfers by or to us and any transfer pursuant to a merger approved by our Board of Directors or any tender offer to
acquire all of our outstanding stock where a majority of the shares have been tendered will be exempt from these
restrictions.
Based on publicly available information and after considering any direct knowledge we may have, our combined
cumulative change in ownership was an insignificant amount as of December 31, 2021, and 2020.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and
related notes and the discussion under "Organization and Significant Accounting Policies” (refer to Note 1 in the Notes to
the Consolidated Financial Statements), which describes key estimates and assumptions we make in the preparation of
our consolidated financial statements; the cautionary language that appears under the title "Forward Looking Statements"
immediately following the Table of Contents; "Item 1. Business," which describes our operations; and "Item 1A. Risk
Factors," which describes key risks associated with our operations and markets in which we operate. A reference to a
"Note" in this section refers to the accompanying Notes to Consolidated Financial Statements.
Overview and Highlights
We offer a focused suite of unified clinical communication and collaboration solutions that include call center applications,
clinical alerting and notifications, one-way and advanced two-way wireless messaging services, mobile communications
and public safety solutions. Our customers rely on Spok for workflow improvement, secure texting, paging services,
contact center optimization and public safety response. Our product offerings are capable of addressing a customer’s
clinical communications needs. We develop, sell and support enterprise-wide systems for healthcare and other
organizations needing to automate, centralize and standardize their approach to clinical communications. While our
primary market has been the healthcare industry with a focus on prominent hospitals, our solutions can also be found in
large government agencies; leading public safety institutions; colleges and universities; large hotels, resorts and casinos;
and well-known manufacturers.
Revenue generated by wireless messaging services (including voice mail, personalized greetings, message storage and
retrieval), equipment, maintenance plans and/or equipment loss protection to both one-way and two-way messaging
subscribers is presented as wireless revenue in our statements of operations. Revenue generated by the sale of our
software solutions, which includes software license, professional services (installation, consulting and training), equipment
procured by us from third parties (to be used in conjunction with our software) and post-contract support (on-going
maintenance), is presented as software revenue in our statements of operations. Our software is licensed to end users
under an industry standard software license agreement.
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New Strategic Business Plan
In February 2022, our Board of Directors announced a new strategic business plan that includes a restructuring of our
business to discontinue Spok Go, eliminate all associated costs and optimize the Company’s existing structure to drive
continued cost improvement. The strategic business plan includes a renewed focus on our existing and established
business, including the Spok Care Connect Suite and our wireless service offerings. While there are numerous factors
that went into this decision, the ongoing challenge of the COVID-19 pandemic made it difficult for the Spok Go platform to
gain sufficient traction with customers or for our business to continue operating with our current level of costs and
personnel. This shift in focus will allow us to prioritize cash flow generation and the return of capital to stockholders. As a
result of this new strategic business plan, our Board of Directors has increased the regular quarterly dividend from $0.125
to $0.3125 and has authorized a share repurchase program of up to $10 million of our common stock.
As part of the restructuring program, we intend to eliminate approximately 175 positions, primarily in research and
development, but also in professional services, selling and marketing, and back-office support functions. We expect to
record one-time pre-tax restructuring charges of approximately $6.4 million to $10.2 million, comprised of approximately
$5.0 million to $6.6 million in severance and personnel related costs and approximately $1.4 million to $3.6 million in
contractual terminations. Future cash payments related to these charges are expected to generally be within the same
range. The restructuring actions associated with these charges are expected to be substantially complete in 2022.
COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the virus significantly impacted
the global economy. Although federal and state restrictions were not widely adopted until late in the first quarter of 2020,
we began to experience a direct impact on our sales cycle in late February 2020 as hospitals began to delay purchasing
decisions and address staff reductions. These delays continued to affect our software bookings, which directly impacted
license and equipment revenues during 2020 and 2021.
We also experienced delays in our ability to deliver on-site implementation services, which has impacted our services
revenue since the onset of the pandemic. While 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 completely implement. These
impacts primarily resulted in delays in the timing of revenue recognition during 2020 and 2021, as associated revenue
corresponds to our backlog of performance obligations ready for delivery at some point in the future.
While many hospitals relaxed their initial capacity and social distancing guidelines in the second half of 2020, some of our
customers continued such restrictions into 2021 to ensure the safety of their personnel and patients. Such restrictions,
which have varied considerably depending on the size of the organization, geographical location and local regulations,
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.
As we return to normal operating levels, much of our business continues to be driven by our customers and their ability to
resume operations beyond providing 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 most organizations began to see improved operating levels during the second half
of 2020 and into 2021 as the number of overall U.S. virus cases declined, some of our customers in certain geographic
areas continued to experience periodic capacity constraints due to the emergence of new COVID-19 variants.
The length and severity of pandemic-related challenges affecting our customer base remain uncertain, and we continue to
monitor new COVID-19 variants of concern that may indicate risks of increased transmission and more severe disease.
Any significant spikes in U.S. virus cases could delay or reverse progress towards returning to normal operational levels.
With continued distribution of effective vaccines, however, we are optimistic that spikes in virus cases will be mitigated
and that our customers' operating levels will continue to improve as pandemic-related restrictions are lifted.
While we are likely to see some lingering and continued effects from COVID-19, barring the emergence of a severe
COVID-19 variant of concern, which might have significant negative effects on the overall economy and our customer
base specifically, we anticipate a return to pre-pandemic operating levels in 2022. Since the fourth quarter of 2020, we
have seen modest improvements in each of the aforementioned areas impacted by the pandemic, and we remain
cautiously optimistic that we will continue seeing sequential improvement in these areas over the next several quarters.
Likewise, we are optimistic that any lingering effects from COVID-19 will have a lesser impact on our financial results in
2022 than they did in 2020 and 2021.
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As facts and circumstances continue to evolve over the coming months, we will continue to assess and communicate the
anticipated impact on our business, and we will continue to diligently pursue countermeasures to prudently manage
operating expenses and liquidity during this time, with a goal of neutralizing the impact of the pandemic on our cash flows.
Each of these measures is described in further detail below and is subject to actual operating conditions experienced
during the year.
• Reduced Work Schedules: We enacted a Company-wide plan that reduced work schedules, resulting in a
temporary reduction in compensation expenses 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, was subject
to one to two weeks of a reduced work schedule per quarter. For the years ended December 31, 2021 and 2020,
these reduced work schedules resulted in realized savings of $1.8 million and $5.6 million in compensation
expense, respectively. While we originally expected this plan to continue for all of 2021, we subsequently
concluded that continuing the plan for the second half of the year was unnecessary given our positive results
during the first half of the year, as well as management's confidence in mitigating short-term uncertainties with
regard to the pandemic.
• Equity in Lieu of Cash Compensation: We also enacted a plan for the first three quarters of 2021 whereby
qualified employees received a portion of their compensation in the form of shares of the Company's common
stock in lieu of cash. These awards, which affected approximately 450 of our employees, were made in advance
on a quarterly basis and vested immediately. While we originally expected this plan to continue for all of 2021, we
subsequently concluded that continuing the plan for the fourth quarter of 2021 was unnecessary, for the same
reasons as explained above. For the year ended December 31, 2021, we achieved cash savings of $1.9 million.
• 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 entire cash portion of their compensation. As a result, for the year
ended December 31, 2021, we achieved cash savings of $0.3 million. We do not anticipate any further savings
from this plan. (Refer to Note 9, "Stockholders' 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 no plans to resume its
countermeasures, we anticipate re-evaluating our position on a quarterly basis based on the progression of COVID-19
and any variants of concern, impacts on our business, and other facts and circumstances as deemed relevant by
management.
2021 Highlights
Total revenue declined by $6.0 million or 4.1% during 2021 compared to 2020, primarily as a result of the continued and
expected decline in wireless revenue.
The wireless revenue attrition rate in 2021 was 5.7%, an increase from a 5.2% attrition rate in 2020. This increase was
driven by product and other revenue which is highly variable. The attrition rate within recurring paging revenue categories
was 5.1% as compared to an attrition rate of 6.1% in both 2020 and 2019.
For the year ended December 31, 2021 we recognized impairment charges of $15.7 million pertaining to capitalized
software development, and for the year ended December 31, 2020, we recognized impairment charges of $25.0 million
pertaining to goodwill. Excluding these impairment charges, our operating expenses increased by $8.4 million or 5.7%
during 2021 compared to 2020, driven primarily by the 2021 curtailment of the pandemic-related cost mitigation measures
that we enacted in 2020, as discussed above, our utilization of certain provisions under The Coronavirus Aid Relief and
Economic Security ("CARES") Act in 2020 that were not available in 2021, and costs related to our strategic alternatives
review.
We returned approximately $10.0 million of capital to stockholders in the form of cash dividends.
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Results of Operations
The following table is a summary of our Consolidated Statements of Operations for the years ended December 31, 2021,
2020 and 2019 and the discussion that follows compares the year ended December 31, 2021 to the year ended
December 31, 2020. For a discussion and analysis of the year ended December 31, 2020, compared to the year ended
December 31, 2019, please refer to Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with
the SEC on February 18, 2021:
(Dollars in thousands)
Revenue:
Wireless revenue
Software revenue
Total revenue
Operating expenses:
2021
Change
2020
Change
2019
$ 78,826
63,327
142,153
(4,767)
(1,260)
(6,027)
(5.7) % $ 83,593 $ (4,574)
(2.0) % 64,587
(7,535)
(4.1) % 148,180 (12,109)
(5.2) % $ 88,167
(10.4) % 72,122
(7.6) % 160,289
Cost of revenue (exclusive of items
shown separately below)
Research and development
Technology operations
Selling and marketing
General and administrative
Depreciation, amortization and
accretion
Goodwill and capitalized software
development impairment
Total operating expenses
Operating loss
Interest income
Other income
Loss before income taxes
32,574
17,920
29,247
20,168
43,853
1,219
2,092
(596)
701
3,564
3.9 % 31,355
(1,226)
13.2 % 15,828 (11,715)
(1,585)
(2.0) % 29,843
(3,703)
3.6 % 19,467
(2,989)
8.8 % 40,289
(3.8) % 32,581
(42.5) % 27,543
(5.0) % 31,428
(16.0) % 23,170
(6.9) % 43,278
10,446
1,390
15.3 %
9,056
(193)
(2.1) %
9,249
15,663
169,871
(27,718)
320
66
(27,332)
(9,344)
(974)
(5,053)
(367)
(142)
(5,562)
(37.4) % 25,007 16,158
(5,253)
(0.6) % 170,845
(6,856)
22.3 % (22,665)
(964)
687
(53.4) %
(527)
(68.3) %
208
(8,347)
25.5 % (21,770)
182.6 %
8,849
(3.0) % 176,098
43.4 % (15,809)
1,651
(58.4) %
(71.7) %
735
62.2 % (13,423)
Benefit from (provision for) income
taxes
Net loss
5,152 27,607
$ (22,180) $ 22,045
(122.9) % (22,455) (25,113)
(49.8) % $ (44,225) $ (33,460)
(944.8) %
2,658
310.8 % $ (10,765)
Supplemental Information
FTEs
Active transmitters
563
3,468
(39)
(178)
(6.5) %
(4.9) %
602
3,646
(36)
(194)
(5.6) %
(5.1) %
638
3,840
34
Table of Contents
Revenue
We offer a focused suite of unified clinical communications and collaboration solutions that include call center
applications, 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 is the healthcare industry, particularly hospitals. While we have historically identified hospitals with 200 or more
beds as the primary targets for our software 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), equipment, maintenance plans and/or equipment loss 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 license, professional services (installation, consulting and training), equipment
(to be used in conjunction with the software), and post-contract support (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.
Refer to Note 4, "Revenue, Deferred Revenue and Prepaid Commissions," in the Notes to Consolidated Financial
Statements for additional information on our wireless and software revenue streams.
The table below details total revenue for the periods stated:
(Dollars in thousands)
Wireless revenue:
Paging revenue
Product and other revenue
Wireless revenue
Software revenue:
License
Professional services
Hardware
Subscription
Operations revenue
Maintenance
Software revenue
Total revenue
Wireless Revenue
2021
Change
2020
Change
2019
$ 75,845 $ (4,071)
(696)
(4,767)
2,981
78,826
(5.1) % $ 79,916 $ (5,151)
(18.9) %
577
3,677
(4,574)
(5.7) % 83,593
(6.1) % $ 85,067
18.6 %
3,100
(5.2) % 88,167
5,494
315
17,161
(749)
2,267
(574)
423
357
25,345
(651)
37,982
(609)
(1,260)
63,327
$ 142,153 $ (6,027)
6.1 %
5,179
(3,771)
(4.2) % 17,910
(1,279)
2,841
(20.2) %
(777)
66
540.9 %
66
(2.5) % 25,996
(5,761)
(1.6) % 38,591
(1,774)
(7,535)
(2.0) % 64,587
(4.1) % $ 148,180 $ (12,109)
(42.1) %
8,950
(6.7) % 19,189
3,618
(21.5) %
—
— %
(18.1) % 31,757
(4.4) % 40,365
(10.4) % 72,122
(7.6) % $ 160,289
Wireless revenue consists of two primary components: 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, sales of paging devices and
charges for devices that are not returned and are net of anticipated credits. See Item 1. "Business" for more details.
We offer subscriptions to one-way or two-way messaging services for a periodic (monthly, quarterly, semiannual, or
annual) service fee. The level of service fees 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. We also sell devices to resellers
who lease or resell such devices to their subscribers and then sell messaging services utilizing our networks.
35
Table of Contents
A subscriber to one-way messaging services may select coverage on a local, regional or nationwide basis to best meet
their messaging needs, while two-way messaging is generally offered on a nationwide basis. In addition, subscribers
either contract to use a messaging device that we own and provide for an additional fixed monthly fee or they own the
device used, after either purchasing it either from us or from another vendor.
We offer exclusive one-way (T5) and two-way (T52) alphanumeric pagers, which are configurable to support unencrypted
or encrypted operation. When configured for encryption, they utilize AES-128 bit encryption, screen locking and remote
wipe capabilities. With encryption enabled, these new secure paging devices enhance our service offerings to the
healthcare community by adding HIPAA security capabilities to the low cost, highly reliable and availability benefits of
paging . We also offer ancillary services, such as voicemail and equipment loss or maintenance protection, which help
increase the monthly recurring revenue we receive along with these traditional messaging services.
The decrease in wireless revenue during 2021 compared to 2020 reflects the secular decrease in demand for our wireless
services. Wireless revenue is generally reflective of the number of units in service and measured monthly as 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.
For the year ended December 31, 2021, ARPU was $7.30, unchanged from the prior year. Total units in service were
0.8 million and 0.9 million as of December 31, 2021, and 2020, respectively. Overall ARPU remained steady as compared
to the prior year as the decrease from lower variable revenue and the anticipated decline in service revenue was offset by
revenue from 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"). 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 for each of the periods presented.
While we are 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 narrowband wireless service offerings to broadband technology
services, our wireless revenue will continue to decrease.
The following reflects the impact of subscribers and ARPU on the change in wireless revenue:
(Units and Dollars in Thousands)
Paging revenue
Units in Service as of December 31,
Change
2020
2021
847
885
Revenue for the Year Ended
December 31,
2020
(38) $ 75,845 $ 79,916 $ (4,071) $
Change
2021
Change Due To:
Units
ARPU
(86) $ (3,985)
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.
In late 2021, we began offering our newest pager, GenA. This one-way alphanumeric pager features a high resolution
ePaper display, intuitive modern user interface, advanced encryption and security features, over-the-air remote
programming, and an antimicrobial housing. Users can select from various font sizes, and the large GenA display also
leverages proportional fonts to maximize key information on a single screen.
The GenA pager is the only product available on the market with these capabilities, and we maintain an exclusive
arrangement with the product's manufacturer. Given the product differentiation of the GenA pager, its development is a
key initiative providing a competitive advantage, and we expect this new technology will be popular for our customers in
clinical environments and may help slow our wireless revenue attrition.
Software Revenue
Software revenue consists of two 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 that facilitate the use of our software solutions, and professional services revenue related to the
implementation of our solutions. Maintenance revenue is generated from our ongoing support of our software solutions or
related equipment, typically for a period of one year after project completion.
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Table of Contents
To a large degree, software revenue corresponds to our backlog of performance obligations ready to deliver at some point
in the future, and any delays in implementation may affect the timing of revenue recognition. Our software projects
generally originate from fixed-bid contracts, although many involve a protracted sales cycle and may result in unforeseen
complexity and deviation from original scope. The time needed to complete projects, therefore, may not align with our
original expectations, which affects our backlog. As a result, software revenue may fluctuate on a short-term basis, and
we generally evaluate longer-term trends when managing this business.
Revenue items impacted by timing generally relate to specific renewal contracts that do not have auto-renewal terms and
for which we must negotiate 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 continue to provide maintenance service for these
customers while negotiations are ongoing. While certain commercial customers require this type of contract renewal,
these contracts are generally limited to government organizations, including federal, state and local entities. When 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 that is greater than the normal monthly revenue expected
over the life of the remaining term.
While we have not seen a meaningful increase in our normal customer churn as it relates to maintenance revenue, 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. Given these dynamics, we believe annual
maintenance revenue is likely to be relatively flat or slightly down as we move forward, until such time that we are able t to
develop new licenses that can provide an avenue for additional maintenance revenue.
During 2021, we continued to experience disruptions to our business due to the COVID-19 pandemic, however we believe
that such disruptions will subside in 2022 and that our software revenues will resume their pre-pandemic growth.
Operations Revenue
Software operations revenue decreased during 2021 when compared to 2020. Service revenue declined largely as a
result of employing fewer billable FTE's in 2021 as compared to 2020. Like many other companies, we experienced
relatively high personnel attrition and slower time-to-hire rates given the macroeconomic environment in 2021. The
decline in services revenue was partially offset by an increase in license and subscription revenues overall, given an
improving economy and selling environment when compared to the prior year and the early stages of the pandemic.
Maintenance Revenue
Software maintenance revenue decreased during 2021 when compared to 2020. Current trends in revenue churn rates
remain relatively stable and are in line with historical trends. However, the deterioration of maintenance revenue from new
license bookings has created an environment where churn is greater than the inflow of new revenue. Historically, this
revenue churn had been offset by the growth in our license sales.
37
Table of Contents
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 we incur for the delivery of products and services to our customers and
consist primarily of 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. Research and development expenses
exclude any development costs that 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 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 for the foreseeable future as we continue to consolidate
our networks, although the benefits of such network rationalization efforts and resulting costs savings will continue
to 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 additional or future software sales. We maintain a centralized marketing function, that 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, including finance and accounting, human resources and executive management. This classification
consists primarily of payroll and related expenses, outside service 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
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.
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Table of Contents
The following is a review of our operating expense categories for the years ended December 31, 2021, and 2020.
Cost of Revenue
Cost of revenue consisted primarily of the following items:
(Dollars in thousands)
Payroll and related
Cost of sales
Stock-based compensation
Other
Total cost of revenue
FTEs
2021
Change
2020
Change
2019
$ 21,224 $
8,881
1,008
1,461
700
227
471
(179)
$ 32,574 $ 1,219
(7)
189
523
3.4 % $ 20,524 $
(1,680)
8,654
2.6 %
270
537
87.7 %
(339)
1,640
(10.9) %
3.9 % $ 31,355 $ (1,226)
(6)
196
(3.6) %
2.6 % $ 20,001
(16.3) % 10,334
101.1 %
267
1,979
(17.1) %
(3.8) % $ 32,581
202
(3.0) %
Cost of revenue increased for the year ended December 31, 2021, compared to December 31, 2020, driven by increases
in payroll and related expenses, stock-based compensation, and cost of sales.
Despite the decline in FTE's, payroll and related costs increased as we recognized lower cost savings from reduced work
schedules during the year. Additionally, payroll and related costs were lower in 2020 relative to historical trend and normal
operating costs as a result of our utilization of certain provisions under the CARES Act for payroll and employee taxes last
year that were not available in 2021. Stock-based compensation increased as a result of our plan to provide a portion of
compensation for certain employees in the form of shares of the Company's common stock in lieu of cash, which was
effective for the first three quarters of 2021. These temporary cash savings measure are outlined in more detail within our
earlier discussion on COVID-19.
Cost of sales increased largely due to an increase in recoverable taxes and regulatory fees associated with our wireless
revenue, offset by lower equipment costs. The Company reclassified $3.3 million from general and administrative to cost
of sales for the year ended December 31, 2021. Corresponding reclassifications of $2.8 million and $2.5 million were
made to the Consolidated Statement of Operations for presentation purposes for the years ended December 31, 2020,
and 2019, respectively.
Research and Development
Research and development consisted primarily of the following items:
(Dollars in thousands)
Payroll and related
Outside services
Capitalized software development
Stock-based compensation
Other
Total research and development
FTEs
2021
Change
47
$ 17,428 $
(2)
7,856
410
(10,842)
484
1,449
$ 2,029
1,153
$ 17,920 $ 2,092
(19)
102
2020
Change
2019
0.3 % $ 17,381 $ (1,659)
432
7,858
— %
(3.6) % (11,252) (11,252)
655
50.2 %
131.6 % $
109
13.2 % $ 15,828 $ (11,715)
(11)
(15.7) %
965
876
121
(8.7) % $ 19,040
7,426
5.8 %
—
— %
310
211.3 %
14.2 % $
767
(42.5) % $ 27,543
132
(8.3) %
Research and development expenses increased for the year ended December 31, 2021, compared to 2020, driven by
higher stock-based compensation, and lower capitalized software development costs, and higher other expenses.
Stock-based compensation increased as a result of our plan to provide a portion of compensation for certain employees in
the form of shares of the Company's common stock in lieu of cash, which was effective for the first three quarters of 2021.
Our temporary cash savings measures are outlined in more detail within the earlier discussion on COVID-19. Although
payroll and related expenses within each of our other functional categories increased during 2021, as explained in more
detail in those sections, Research and Development payroll costs were essentially flat for the year due to the decline in
FTEs within the category.
We capitalized fewer costs related to software development due to fewer FTE's in 2021, as well as reduced spending on
outside services. Refer to Note 1, "Organization and Significant Accounting Policies," and Note 7, "Goodwill, Capitalized
Software Development and Intangible Assets, Net," in the Notes to Consolidated Financial Statements for further detail.
39
Table of Contents
The increase in other expenses was driven by a $0.9 million loss contingency we recorded in the fourth quarter of 2021
related to a license and service contract from which we do not believe we will be able to realize any benefits. Due to a
change in standards required for electronic heath records, we no longer need the product enhancements that would be
provided under this contract. Refer to Note 11, "Commitments and Contingencies," in the Notes to Consolidated Financial
Statements for further detail.
While development costs have continued to grow, they have done so at a slower pace when compared to prior years. We
will continue to focus on the development efforts of our software solutions and intend to maintain these efforts based on
their importance to our continued success, however these efforts will be targeted to specific enhancements. Total research
and development costs are expected to significantly decrease in 2022 as part of our new strategic business plan and our
intent to eliminate all Spok Go related costs.
Technology Operations
Technology operations consisted primarily of the following items:
(Dollars in thousands)
Payroll and related
Site rent
Telecommunications
Stock-based compensation
Other
Total technology operations
FTEs
2021
Change
2020
Change
2019
$ 9,959 $
12,565
3,316
459
2,948
$ 29,247 $
86
322
(1,013)
(452)
269
278
(596)
(2)
3.3 % $ 9,637 $ (1,151)
(137)
(7.5) % 13,578
(290)
3,768
(12.0) %
67
190
141.6 %
10.4 %
(74)
2,670
(2.0) % $ 29,843 $ (1,585)
(4)
(2.3) %
88
(10.7) % $ 10,788
(1.0) % 13,715
4,058
(7.1) %
54.5 %
123
(2.7) %
2,744
(5.0) % $ 31,428
92
(4.3) %
Technology operations expenses decreased for the year ended December 31, 2021, compared to 2020, driven by lower
site rent and by lower telecommunications costs, which resulted from cost savings initiatives applicable to our wireless
network. These declines were partially offset by higher payroll and related and stock-based compensation costs.
The number of active transmitters, which directly affects our site rent expenses, declined 4.9% from December 31, 2020,
to December 31, 2021. 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 FCC, we may be
unable to continue our efforts to rationalize and consolidate our networks.
Payroll and related expenses increased as we recognized lower cost savings from reduced work schedules during 2021
as compared to 2020. Additionally, payroll and related costs were lower in 2020 relative to historical trend and normal
operating costs as a result of our utilization of certain provisions under the CARES Act for payroll and employee tax
credits in 2020 that were not available in 2021. Refer to Note 10, "Income Taxes," in the Notes to Consolidated Financial
Statements for additional information on our temporary use of the CARES Act provisions. Stock-based compensation
increased as a result of our plan to provide a portion of compensation for certain employees in the form of shares of the
Company's common stock in lieu of cash, which was effective for the first three quarters of 2021. Our temporary cash
savings measures are outlined in more detail within the earlier discussion on COVID-19.
Selling and Marketing
Selling and marketing consisted primarily of the following items:
(Dollars in thousands)
Payroll and related
Commissions
Stock-based compensation
Advertising and events
Other
Total selling and marketing
FTEs
2021
Change
2020
Change
2019
$ 12,812 $ 1,006
125
130
(69)
(491)
701
(12)
4,426
897
1,565
468
$ 20,168 $
86
8.5 % $ 11,806 $ (1,702)
(693)
4,301
2.9 %
767
16.9 %
177
(1,692)
1,634
(4.2) %
207
959
(51.2) %
3.6 % $ 19,467 $ (3,703)
(7)
(12.2) %
98
(12.6) % $ 13,508
4,994
(13.9) %
30.0 %
590
3,326
(50.9) %
752
27.5 %
(16.0) % $ 23,170
105
(6.7) %
Selling and marketing expense increased for the year ended December 31, 2021, compared to 2020, driven by increases
in payroll and related expenses and stock-based compensation, partially offset by a decline in other expenses.
40
Table of Contents
Payroll and related expenses increased as we recognized lower cost savings from reduced work schedules during the
year compared to 2020. Additionally, payroll and related costs were lower in 2020 relative to historical trends and normal
operating costs as a result of our utilization of certain provisions under the CARES Act for payroll and employee tax
credits in 2020 that were not available in 2021. Refer to Note 10, "Income Taxes," in the Notes to Consolidated Financial
Statements for additional information on our temporary use of the CARES Act provisions. Furthermore, the significant
decrease in FTE's largely occurred during the second half of 2021 and payroll and related costs do not reflect full
annualized savings. Stock-based compensation increased as a result of our plan to provide a portion of compensation for
certain employees in the form of shares of the Company's common stock in lieu of cash. The reduced work schedules and
share compensation plan were part of our temporary cash savings measures, outlined in more detail within the earlier
discussion on COVID-19.
The decline in other expenses was primarily driven by savings from precautionary COVID-19 measures whereby we did
not hold our annual offsite event for recognition of outstanding employees, and we held virtual internal sales training and
conferences in lieu of in-person training.
General and Administrative
General and administrative consisted primarily of the following items:
2020
Change
2019
(Dollars in thousands)
Payroll and related
Stock-based compensation
Facility rent, office and technology costs
Outside services
Taxes, licenses and permits
Bad debt
Other
Total general and administrative
FTEs
2021
$ 15,333 $
3,426
10,235
9,514
1,047
660
3,638
Change
995
377
1,219
1,703
719
(391)
(1,058)
$ 43,853 $ 3,564
1
100
6.9 % $ 14,338 $ (2,034)
696
3,049
12.4 %
9,016
13.5 %
(83)
(626)
7,811
21.8 %
(835)
328
219.2 %
1,051
(37.2) %
382
(489)
4,696
(22.5) %
8.8 % $ 40,289 $ (2,989)
(8)
1.0 %
99
(12.4) % $ 16,372
2,353
29.6 %
9,099
(0.9) %
8,437
(7.4) %
(71.8) %
1,163
57.1 %
669
(9.4) %
5,185
(6.9) % $ 43,278
107
(7.5) %
General and administrative expenses increased for the year ended December 31, 2021, compared to 2020, driven by
increases in outside services, facility rent, office and technology costs, payroll and related costs, taxes, licenses and
permits,, and stock-based compensation. These increases were partially offset by decreases in bad debt and other
expenses.
Outside services increased primarily due to the use of professional services in connection with our strategic alternatives
review, which we announced on September 3, 2021. The increase in facility rent, office and technology costs was
primarily due to higher expenses for software, hardware and IT related costs as well as increased rent for our
headquarters lease. Refer to Note 5, "Leases," in the Notes to Consolidated Financial Statements for additional
information on our headquarters lease.
Payroll and related costs increased as we recognized lower cost savings from reduced work schedules during the year as
compared to 2020. The increase in stock-based compensation was due to our plan to provide a portion of compensation
for certain employees in the form of shares of the Company's common stock in lieu of cash, which was effective for the
first three quarters of 2021. These temporary cash savings measures are outlined in more detail within our earlier
discussion on COVID-19.
The increases in taxes, licenses and permits was due in large part to temporary reductions in certain usage taxes in 2020
that were not incurred in 2021. Furthermore, we reclassified $3.3 million from taxes, licenses and permits to cost of
revenue for the year ended December 31, 2021. Corresponding reclassifications of $2.8 million and $2.5 million were
made to the Consolidated Statement of Operations for presentation purposes for the years ended December 31, 2020,
and 2019, respectively. These reclassification were related to the recoverable taxes and regulatory fees associated with
our wireless revenue.
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Table of Contents
Depreciation, Amortization and Accretion
For the year ended December 31, 2021, compared to 2020, depreciation, amortization and accretion expenses increased
by $1.4 million. Amortization expense increased by $2.2 million for the year due to an increase in amortization of software
development costs. This was partially offset by a $1.0 million decline in depreciation expenses for the year, largely due to
lower depreciation for paging equipment, including a large purchase of pagers becoming fully depreciated in 2021. Refer
to Note 6, "Consolidated Financial Statement Components," in the Notes to Consolidated Financial Statements for further
discussion.
Goodwill and Long-Lived Asset Impairment
We perform our annual goodwill impairment testing in the fourth quarter of each year. For the year ended December 31,
2021, we recognized no goodwill impairment. For the year ended December 31, 2020, we recognized a non-cash, pre-tax
goodwill impairment charge of $25.0 million.
We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the asset group may not be recoverable. For the year ended December 31, 2021, we recognized a capitalized
software development impairment charge of $15.7 million. For the year ended December 31, 2020, we recognized no
capitalized software development impairment.
Refer to Note 1, "Organization and Significant Accounting Policies," and Note 7, "Goodwill, Capitalized Software
Development and Intangible Assets, Net" in the Notes to Consolidated Financial Statements for further discussion.
Interest Income, Other Income (Expense) and Income Tax (Benefit) Expense
Interest Income
Interest income decreased by $0.4 million for the year ended December 31, 2021, compared to 2020, primarily due to a
decrease in interest earned on the Company's cash balances and short-term investments. This was driven by lower
interest rates during the year.
Other Income
For the year ended December 31, 2021, compared to 2020, other income decreased by $0.1 million, largely as a result of
a decrease in gains on foreign currency.
Provision for (Benefit from) Income Taxes
The effects of foreign taxes are immaterial for all periods presented. The following provides the effective tax rate
reconciliation for the years ended December 31, 2021, 2020 and 2019, respectively (See Note 10, "Income Taxes" in the
Notes to Consolidated Financial Statements for further discussion on our income taxes):
2021
(Dollars in thousands)
Loss before income taxes
$ (27,332)
Income taxes computed at the federal statutory rate $ (5,740)
State income taxes, net of federal benefit
(1,513)
Goodwill impairment
—
Change in valuation allowance
2,070
Research and development and other tax credits
(808)
Excess executive compensation
272
Other
567
$ (5,152)
(Benefit from) provision for income taxes
2020
2019
$ (21,770)
21.0 % $ (4,572)
(703)
5.5 %
6,341
— %
(7.6) % 22,108
(1,316)
3.0 %
(1.0) %
266
331
(2.1) %
18.8 % $ 22,455
$ (13,423)
21.0 % $ (2,819)
(567)
3.2 %
2,243
(29.1) %
(101.6) %
—
(1,790)
6.0 %
322
(1.2) %
(47)
(1.5) %
(103.1) % $ (2,658)
21.0 %
4.2 %
(16.7) %
— %
13.3 %
(2.4) %
0.4 %
19.8 %
Benefit from income taxes changed by $27.6 million for the year ended December 31, 2021, from 2020 due primarily to
the deferred tax asset valuation allowance and goodwill impairment in 2020 that did not occur in 2021. Our investment in
research and development qualifies for the research and development income tax credit under Section 41 of the Internal
Revenue Code. Unused research and development tax credits have a 20-year carryover and will provide future tax
benefits once Spok’s net operating losses are fully utilized.
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We 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, and by considering the adequacy of 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 likely than not" (meaning a probability of greater than 50%) that all or some portion of
our deferred income tax assets will be realized in future periods.
The cumulative loss incurred by the Company over the three-year period ended December 31, 2021, constitutes a piece
of objective negative evidence that limits our ability to consider other subjective evidence. In addition, the uncertainty
created by COVID-19 has significantly limited our ability to consider our projections for future profitability and growth in our
assessment of the recoverability of our deferred income tax assets. We traditionally perform this evaluation in the fourth
quarter of each year, utilizing our annual long-range planning and forecasting updates. As of December 31, 2021, and
2020, our deferred tax assets were net of valuation allowances of $24.2 million and $22.1 million, respectively. COVID-19
has significantly limited our ability to consider projections for future profitability as objectively verifiable positive evidence
to support the realizability of deferred tax assets. As a result, we continue to maintain a valuation allowance against
deferred tax assets associated with net operating losses and credits with set expiration dates.
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. We did not record a
valuation allowance in 2019.
Refer to Note 1, "Organization and Significant Accounting Policies," and Note 10, "Income Taxes," in the Notes to
Consolidated Financial Statements for further discussion.
Liquidity and Capital Resources
Cash and Cash Equivalents
At December 31, 2021, we held cash, cash equivalents and short-term investments of $59.6 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. These funds invest in U.S. Treasury securities and are therefore classified as held-to-
maturity and reported at amortized cost in our 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 of U.S. Treasury securities, which are classified as held-to-maturity and are measured at amortized cost
on our Condensed Consolidated Balance Sheets.
We maintain a level of liquidity sufficient to allow us to meet our cash needs in both the short term (next 12 months) and
long term (beyond 12 months). At any point in time, we maintain approximately $5.0 to $10.0 million in our operating
accounts at 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 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. As part of the restructuring program in connection with our new
strategic business plan, we expect to record one-time pre-tax restructuring charges of approximately $6.4 million to $10.2
million, comprised of approximately $5.0 million to $6.6 million in severance and personnel related costs and
approximately $1.4 million to $3.4 million in contractual terminations. Future cash payments related to these charges are
expected to generally be within the same range. The restructuring actions associated with these charges are expected to
be substantially complete in 2022. Because of these cash payments related to the restructuring program, we anticipate
that our cash on hand will decrease during 2022. However, our restructuring efforts are meant to refocus our operational
efforts towards cash flow generation and the return of capital to our stockholders. Should our restructuring efforts be
successful, we anticipate future operating periods will return to historically positive cash flow generation.
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On February 16, 2022, the Board of Directors declared an increase in the regular quarterly cash dividend to $0.3125 per
share of common stock, with a record date of March 16, 2022, and a payment date of March 30, 2022. This cash dividend
of approximately $6.2 million is expected to be paid from available cash on hand. The Board of Directors also authorized a
share repurchase program of up to $10 million of the Company's common stock.
Cash Flows Overview
In response to COVID-19, management enacted certain temporary cost mitigation measures, as previously discussed.
While we have previously discussed the impact on our revenues from the pandemic, we do not expect COVID-19 will
have a material impact on our liquidity given our ability to reduce costs further, if necessary.
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 repurchase shares of our common stock under the share repurchase program, sell assets or seek
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 additional 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 December 31, 2021, should be adequate to meet anticipated cash
requirements for the short term (next 12 months) and long term (beyond 12 months).
The following table sets forth information on our net cash flows from operating, investing, and financing activities for the
periods stated:
(Dollars in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Operating Activities
2021
For the Year Ended December 31,
2020
2019
$
7,968 $
(225)
(11,753)
26,163 $
(14,571)
(10,373)
11,693
(30,222)
(17,153)
As discussed above, we are dependent on cash flows from operating activities to meet our cash requirements. Cash from
operations varies depending on changes in various working capital items, including deferred revenues, accounts payable,
accounts receivable, prepaid expenses and various accrued expenses.
For the year ended December 31, 2021, net cash provided by operating activities was $8.0 million. This decline was
driven by the net loss of $22.2 million, the deferred income tax benefit of $5.5 million, and changes in deferred revenue of
$3.4 million and accounts payable, accrued liabilities and other of $0.7 million. These declines were partially offset by non-
cash items such as capitalized software development impairment of $15.7 million, depreciation, amortization and
accretion of $10.4 million, stock-based compensation of $7.2 million, and the provision for credit losses, service provisions
and other of $1.2 million, as well as changes in prepaid expenses and other assets of $2.6 million, accounts receivable of
$1.8 million, and lease liability of $0.8 million.
For the year ended December 31, 2020, net cash provided by operating activities was $26.2 million, due primarily to non-
cash items such as goodwill impairment of $25 million, valuation allowance of $22.1 million, depreciation, amortization
and accretion of $9.1 million, stock-based compensation of $5.5 million, and other non-cash items of $1.8 million, partially
offset by the 2020 net loss of $44.2 million. Cash provided by operating activities also increased resulting from changes in
accounts payable, accrued liabilities and other of $3.8 million, deferred revenue of $3.2 million and prepaid and other
assets of $1.4 million, partially offset by a change in accounts receivable of $1.6 million.
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Investing Activities
For the years ended December 31, 2021, and 2020, net cash used in investing activities was $0.2 million and
$14.6 million, respectively, due primarily to the purchase and maturity of U.S. treasury securities, capital expenditures and
capitalization of certain software development costs.
Financing Activities
For the years ended December 31, 2021, and 2020, net cash used in financing activities was $11.8 million and
$10.4 million, respectively, primarily due to cash distributions to stockholders of $10.0 million and $9.8 million,
respectively.
Commitments and Contingencies
In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data
processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and
deposit liabilities.
Purchase obligations are defined as agreements to purchase goods or services that are enforceable, legally binding, non-
cancelable, have a remaining term in excess of one year and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of transactions. The
amounts of such obligations are based on our contractual commitments, however, it is possible that we may be able to
negotiate lower payments if we choose to exit these contracts before their expiration date.
Our contractual payment obligations for operating leases apply to leases for office space and transmitter locations. In
March 2021, we relocated our corporate headquarters to 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. Over the life of this
lease, cash payments are expected to total approximately $4.9 million.
The following table provides the Company's significant commitments and contractual obligations as of December 31,
2021:
(Dollars in thousands)
Operating lease obligations
Unconditional purchase obligations
Total contractual obligations
Payments Due by Period
Total
Less than 1
year
1 to 3 years 3 to 5 years
More than 5
years
$
$
15,624
7,534
23,158 $
6,217 $
3,967
10,184 $
6,619 $
3,442
10,061 $
2,599 $
125
2,724 $
189
—
189
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 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.
The Company evaluates contingencies on an ongoing basis and establishes loss provisions for matters in which losses
are probable and the amount of loss can be reasonably estimated. As part of this evaluation, the Company recognized a
loss of $0.9 million in the fourth quarter of 2021 related to a license and service contract from which we do not believe we
will realize any benefits. Due to a change in standards required for electronic heath records, we no longer need the
product enhancements that would be provided under this contract.
Refer to Note 5, "Leases," and Note 11, "Commitments and Contingencies," in the Notes to Consolidated Financial
statements for further discussion of commitments and contingencies.
Related Parties
Refer to Note 13, "Related Parties" in the Notes to Consolidated Financial Statements for further discussion on our related
party transactions.
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Inflation
Inflation has not had a material effect on our operations to date. System equipment and operating costs have not
significantly increased in price, and the price of wireless messaging devices has tended to decline in recent years. Our
general operating expenses, such as salaries, site rent for transmitter locations, employee benefits and occupancy costs,
are subject to normal inflationary pressures.
Critical Accounting Estimates
The Company’s accounting policies are more fully described in Note 1 of the Consolidated Financial Statements. As
disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe
that the following discussion addresses the Company’s most critical accounting estimates, which are those that involve a
significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the
Company’s financial condition and results of operations.
Revenue Recognition
We review each contract to determine whether to account for the various promises as one or more performance
obligations. The assessment and determination of performance obligations for a given contract requires significant
judgment. Wireless service contracts are generally considered to be a single promise and therefore accounted for as a
single performance obligation. Contracts which include goods or services related to our software solutions and
subscriptions are generally sold with multiple promises and therefore will often include multiple performance obligations.
Material performance obligations related to the sale of our software solutions include software licenses, professional
services, hardware and maintenance.
If a contract is separated into more than one performance obligation, we allocate the total transaction price to each
performance obligation proportionately based on the estimated relative standalone selling price ("SSP") of the promised
goods or services underlying each performance obligation. We rarely sell goods or services as readily observable
standalone sales, however, if we do, the observable standalone sales are used to determine the SSP. In most cases, we
must estimate the relative SSP which requires significant judgment and estimates. In instances where SSP is not directly
observable, we determine the SSP using information that may include contractually stated prices, market conditions,
costs, renewal contracts, list prices and other observable inputs. A discount is present if the total transaction price is less
than the sum of the estimated SSPs of the goods or services promised in the contract. Discounts are generally allocated
proportionately based on the relative SSP of the identified performance obligations for a given contract.
Our wireless, professional, maintenance, and subscription 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
that include wireless, maintenance, or 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. This is a significant area of judgment as it requires an estimate at completion ("EAC") for each contract. Our
initial EAC is primarily based on prior experience also taking into consideration any specific facts and circumstances for a
given contract. As projects progress, the EAC is periodically updated and reviewed to ensure the timing of revenue
recognition is appropriate. The creation, maintenance and review of a project's EAC requires significant judgment to
determine an appropriate number of hours over which the remaining project is expected to be completed.
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
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. In most contracts transfer of control for software licenses
occurs in a short period of time after a contract has been executed and licenses are made electronically available.
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Income Taxes
Deferred income tax assets and liabilities are calculated based on temporary differences between the financial statement
values and the tax bases of assets and liabilities including net operating loss and tax credit carryforwards at the enacted
tax rates expected to apply to taxable income when taxes are actually paid or recovered. Changes in deferred income tax
assets and liabilities are included as a component of deferred income tax expense. Deferred income tax assets represent
amounts available to reduce future income taxes payable. We 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 and by
considering the adequacy of 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 likely than not"
(meaning a probability of greater than 50%) that all or some portion of our deferred income tax assets will be realized in
future periods. We provide a valuation allowance when we consider it "more likely than not" that a deferred income tax
asset will not be fully recovered. The assessment of our deferred income tax assets requires significant judgment,
however, our methods, assumptions, and estimates used in assessing the need for a valuation allowance remained
materially unchanged in 2021.
Impairment of Goodwill, Long-Lived Assets and Intangible Assets Subject to Amortization
We are required to evaluate the carrying value of our goodwill, long-lived assets and intangible assets subject to
amortization.
Goodwill is not amortized but is evaluated for impairment at least annually, or when events or circumstances suggest a
potential impairment has occurred. We generally perform this annual impairment test in the fourth quarter of the fiscal
year. We evaluate goodwill for impairment between annual tests if indicators of impairment exist. Significant judgment is
required in the determination of a triggering event given the qualitative nature of the assessment. 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), as well as application of an
estimated control premium, if necessary. The estimated control premium is based on a review of current and past market
information published by a third-party resource, assessment of the Company's future projected discounted cash flows and
other relevant information if available. Our methods, assumptions, and estimates used in assessing goodwill in a
quantitative form remained materially unchanged in 2021. We recorded no impairment of goodwill for the year ended
December 31, 2021, and impairment of $25.0 million and $8.9 million for the years ended December 31, 2020, and 2019,
respectively.
Quarterly, we assess whether circumstances exist which suggest that the carrying value of long-lived and amortizable
intangible assets (asset groups) may not be recoverable. Similar to our quarterly assessment of goodwill, significant
judgment is required in the determination of a triggering event given the qualitative nature of the assessment. During the
quarter ended December 31, 2021, we determined that a triggering event had occurred based on a number of factors
including a continuing trend of unsatisfactory Spok Go sales relative to our expectations, a significant accumulation of
costs combined with a reduction of future sales projections which indicated continuing losses associated with Spok Go,
and our expectation that Spok Go would not provide substantive future service potential.
We assessed recoverability based on the sum of the estimated undiscounted net cash flows of the long-lived asset group.
The assessment of recoverability requires significant judgment, including timing and appropriateness of the estimated
undiscounted future net cash flows. Given our lack of operational history with Spok Go, there is significant uncertainty in
regards to an estimate of future cash flows. Our assessment determined that the carrying amount of the long-lived asset
group was greater than the estimated undiscounted cash flows and further assessment of fair value was necessary to
determine whether an impairment loss should be recognized.
We estimated fair value taking into consideration a number of factors including estimates used in our assessment of
recoverability, discounted cash flow methods incorporating market-based information that we gathered as part of our on-
going strategic alternatives process, and the projected continuance of costs necessary to create substantive future service
potential. Given the nature of these capitalized software development costs where observable market prices are not
readily available, the assessment of fair value requires significant judgment and estimates. This analysis determined that
the remaining balance of capitalized software development costs had no fair value, and as a result, we recorded an
impairment charge of $15.7 million for the year ended December 31, 2021. We did not record any impairment of long-lived
assets or definite lived intangible assets for the years ended December 31, 2020, and 2019.
For additional details refer to Note 7, "Goodwill, Capitalized Software Development and Intangible Assets, Net," in the
Notes to Consolidated Financial Statements.
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Recent accounting pronouncements
Refer to Note 2, "Recent Accounting Standards," in the Notes to Consolidated Financial Statements for a summary of
recent and pending accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
At December 31, 2021, we had no outstanding borrowings or associated debt service requirements.
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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements are included in this Report beginning on Page F-1.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
F- 2
F- 5
F- 6
F- 7
F- 8
F- 9
F- 10
F- 31
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There are no reportable events.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, as required by Rule 13a-15(b) of 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 year. 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 December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in the Exchange Act Rule 13a-15(f) and 15d-15(f). Management conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the 2013 Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Such internal controls include those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with
authorizations of management and members of the Board of Directors of the Company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Based on our evaluation under the 2013 Internal Control — Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021, has been audited by Grant
Thornton LLP, an independent registered public accounting firm, as stated in its report which appears in this 2021 Form
10-K.
Changes in Internal Control Over Financial Reporting
There were no changes made in the Company’s internal control over financial reporting during the quarter ended
December 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
Certain information called for by Items 10 through 14 is incorporated by reference from Spok’s definitive Proxy Statement
for our 2022 Annual Meeting of Stockholders, which will be filed with the SEC no later than May 2, 2022.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following information required by this item is incorporated by reference from Spok’s definitive Proxy Statement for our
2022 Annual Meeting of Stockholders:
•
•
•
•
Information regarding directors is set forth under the caption "Election of Directors";
Information regarding executive officers is set forth under the caption "Executive Officers";
Information regarding our audit committee and designated "audit committee financial expert" is set forth under the
caption "Committees of the Board of Directors"; and
If applicable, information regarding compliance with Section 16(a) of the Exchange Act is set forth under the
caption "Delinquent Section 16(a) Reports."
We also make available on our website, and in print, if any stockholder or other person so requests, our code of business
conduct and ethics entitled "Code of Ethics" which is applicable to all employees and directors, our "Corporate
Governance Guidelines," and the charters for all committees of our Board of Directors, including Audit, Compensation and
Nominating and Governance. Any changes to our Code of Ethics or waiver, if any, of our Code of Ethics for executive
officers or directors will be posted on that website.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the section of Spok’s definitive Proxy Statement
for our 2022 Annual Meeting of Stockholders entitled "Compensation Discussion and Analysis."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from the section of Spok’s definitive Proxy Statement
for our 2022 Annual Meeting of Stockholders entitled "Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item with respect to certain relationships and related transactions is incorporated by
reference from the section of Spok’s definitive Proxy Statement for our 2022 Annual Meeting of Stockholders entitled
"Related Person Transactions and Code of Conduct." The information required by this item with respect to director
independence is incorporated by reference from the section of Spok’s definitive Proxy Statement for our 2022 Annual
Meeting of Stockholders entitled "Board of Directors and Governance Matters."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the section of Spok’s definitive Proxy Statement
for our 2022 Annual Meeting of Stockholders entitled "Independent Registered Public Accounting Firm Fees."
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PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Form 10-K:
(a) 1. Financial Statements
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Index to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
(b) Exhibits
Page
F- 2
F- 5
F- 6
F- 7
F- 8
F- 9
F- 10
Page
F- 31
The exhibits listed in the accompanying index to exhibits, that follows the Signatures page, are filed as part of this Form
10-K.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.
By:
Spok Holdings, Inc.
/s/ Vincent D. Kelly
Vincent D. Kelly
President and Chief Executive Officer
February 17, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Director, President and Chief Executive
Officer (principal executive officer)
Date
February 17, 2022
/s/ Vincent D. Kelly
Vincent D. Kelly
/s/ Michael W. Wallace
Michael W. Wallace
/s/ Calvin C. Rice
Calvin C. Rice
/s/ Royce Yudkoff
Royce Yudkoff
/s/ N. Blair Butterfield
N. Blair Butterfield
/s/ Dr. Bobbie Byrne
Dr. Bobbie Byrne
/s/Christine M. Cournoyer
Christine M. Cournoyer
/s/ Stacia A. Hylton
Stacia A. Hylton
/s/ Randy Hyun
Randy Hyun
/s/ Matthew Oristano
Matthew Oristano
/s/ Brett Shockley
Brett Shockley
/s/ Todd Stein
Todd Stein
Chief Financial Officer (principal financial
officer)
February 17, 2022
Chief Accounting Officer (principal
accounting officer)
February 17, 2022
Chairman of the Board
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
February 17, 2022
Director
Director
Director
Director
Director
Director
Director
Director
54
Table of Contents
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Spok Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Spok Holdings, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations,
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December
31, 2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”), and our report dated February 17, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the
critical audit matter or on the accounts or disclosures to which it relates.
Realizability of Deferred Tax Assets and Valuation Allowance Assessment
As described further in Note 10 to the consolidated financial statements, the Company assesses the realizability of
deferred income tax assets, which represent the tax benefits of future tax deductions, based on available positive and
negative evidence and by considering the adequacy of future taxable income from all sources, including prudent and
feasible tax planning strategies. The Company assesses the need for a valuation allowance by evaluating both positive
and negative evidence that may exist. We identified the realizability of deferred tax assets and the assessment of the
need for a valuation allowance as a critical audit matter.
The principal consideration for our determination that the realizability of deferred tax assets is a critical audit matter is that
the forecast of future taxable income, exclusive of near-term uncertainties, and the assessment of this positive evidence
against other negative evidence are estimates subject to a high level of estimation uncertainty. There is inherent
uncertainty and subjectivity related to management’s judgments and assumptions regarding the Company’s future taxable
income, exclusive of near-term uncertainties, which are complex in nature and require significant auditor judgment.
F-2
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Our audit procedures related to the realizability of deferred tax assets and valuation allowance assessment included the
following, among others.
• We tested the effectiveness of controls over management’s estimates of the realization of the deferred tax assets,
including those over management’s long-range forecasts, which was the basis for the forecast of future taxable
income, and the determination of whether it is more likely than not that the deferred tax assets will be realized
prior to expiration.
• With the assistance of our income tax specialists, we evaluated the reasonableness of the methods, assumptions,
and judgments used by management to assess available positive and negative evidence and determine whether
a valuation allowance was necessary.
• We evaluated management’s ability to accurately estimate projected future taxable income by comparing actual
results to management’s historical estimates and evaluating whether there have been any changes that would
affect management’s ability to accurately estimate future taxable income.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2006.
Arlington, Virginia
February 17, 2022
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Spok Holdings, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Spok Holdings, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2020, based on criteria established in the 2013 Internal Control
Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31,
2021, and our report dated February 17, 2022 expressed an unqualified opinion on those financial statements.
‑
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ GRANT THORNTON LLP
Arlington, Virginia
February 17, 2022
F-4
Table of Contents
SPOK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Prepaid expenses
Other current assets
Total current assets
Non-current assets:
Property and equipment, net
Operating lease right-of-use assets
Capitalized software development, net
Goodwill
Intangible assets, net
Deferred income tax assets, net
Other non-current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued compensation and benefits
Deferred revenue
Operating lease liabilities
Other current liabilities
Total current liabilities
Non-current liabilities:
Asset retirement obligations
Operating lease liabilities
Other non-current liabilities
Total non-current liabilities
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.0001 par value; 25,000,000 shares authorized; no
shares issued or outstanding
Common stock—$0.0001 par value; 75,000,000 shares authorized;
19,828,033 and 19,384,192 shares issued and outstanding as of
December 31, 2021, and December 31, 2020, respectively.
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
$
December 31,
2021
2020
44,583 $
14,999
26,908
6,641
922
94,053
6,746
15,821
—
99,175
—
31,653
706
154,101
248,154 $
5,292 $
13,948
25,608
5,405
4,745
54,998
6,355
11,883
1,227
19,465
74,463
48,729
29,995
29,934
8,958
1,269
118,885
7,815
14,016
10,179
99,175
417
25,826
978
158,406
277,291
6,685
14,103
27,686
5,264
3,702
57,440
7,289
9,456
2,493
19,238
76,678
— $
—
2
97,291
(1,588)
77,986
173,691
248,154 $
2
91,780
(1,452)
110,283
200,613
277,291
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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SPOK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
Revenue:
Wireless revenue
Software revenue
Total revenue
Operating expenses:
Cost of revenue (exclusive of items shown separately below)
Research and development
Technology operations
Selling and marketing
General and administrative
Depreciation, amortization and accretion
Goodwill and capitalized software development impairment
Total operating expenses
Operating loss
Interest income
Other income
Loss before income taxes
Benefit from (provision for) income taxes
Net loss
Basic and diluted net loss per common share
Basic and diluted weighted average common shares outstanding
Cash dividends declared per common share
For the Year Ended December 31,
2020
2019
2021
$
78,826 $
63,327
142,153
83,593 $
64,587
148,180
88,167
72,122
160,289
32,574
17,920
29,247
20,168
43,853
10,446
15,663
169,871
(27,718)
320
66
(27,332)
5,152
(22,180) $
(1.14) $
32,581
27,543
31,428
23,170
43,278
9,249
8,849
176,098
(15,809)
1,651
735
(13,423)
2,658
(10,765)
$
(0.56)
$
19,404,477 19,028,918 19,089,402
0.50
$
31,355
15,828
29,843
19,467
40,289
9,056
25,007
170,845
(22,665)
687
208
(21,770)
(22,455)
(44,225) $
(2.32) $
0.50 $
0.50 $
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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SPOK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Dollars in thousands)
Net loss
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments
Other comprehensive (loss) income
Comprehensive loss
2021
For the Year Ended December 31,
2020
2019
$
(22,180) $
(44,225) $
(10,765)
(136)
(136)
(22,316) $
149
149
(44,076) $
(300)
(300)
(11,065)
$
The accompanying notes are an integral part of these consolidated financial statements.
F-7
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SPOK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Outstanding
Common
Shares
Common
Stock
Additional
Paid-In
Capital and
Accumulated
Other
Comprehensiv
e Loss
Retained
Earnings
(Dollars in thousands, except share amounts)
Balance, January 1, 2019
Net loss
Issuance of common stock under the
Employee Stock Purchase Plan
Issuance of common stock for vested
restricted stock units under the 2012
Equity Plan
Purchase of common stock for tax
withholding
Amortization of stock-based compensation
Cash dividends declared
Common stock repurchase program
including commissions
Issuance of restricted stock under the
2012 Equity Plan and other
Cumulative translation adjustment
Balance, December 31, 2019
Net loss
Adoption of current expected credit loss
("CECL")
Issuance of common stock under the
Employee Stock Purchase Plan
Issuance of common stock for vested
restricted stock units under the 2012
Equity Plan
Purchase of common stock for tax
withholding
Amortization of stock-based compensation
Cash dividends declared
Issuance of restricted stock under the
Equity Plans
Cumulative translation adjustment
Balance, December 31, 2020
Net loss
Issuance of common stock under the
Employee Stock Purchase Plan
Purchase of common stock for tax
withholding
Amortization of stock-based compensation
Cash dividends declared
Issuance of restricted stock under the
Equity Plans
Issuance of common stock in lieu of cash
compensation
Cumulative translation adjustment
Balance, December 31, 2021
19,389,066 $
—
23,299
233,507
(74,049)
—
—
(532,354)
32,145
—
19,071,614 $
—
—
35,661
282,871
(79,981)
—
—
74,027
—
19,384,192 $
—
16,015
(172,594)
—
—
430,476
169,944
—
19,828,033 $
Total
Stockholders’
Equity
274,554
(10,765)
185,294 $
(10,765)
—
—
—
—
(9,864)
264
—
(1,017)
3,643
(9,864)
—
(6,575)
89,258 $
—
264
—
(1,017)
3,643
—
(6,575)
—
(300)
85,273 $
—
154
—
164,819 $
(44,225)
154
(300)
250,094
(44,225)
—
300
—
(902)
5,508
—
(365)
—
—
—
—
(9,946)
—
149
90,328 $
—
—
—
110,283 $
(22,180)
132
(1,860)
7,239
—
—
—
—
(10,117)
(365)
300
—
(902)
5,508
(9,946)
—
149
200,613
(22,180)
132
(1,860)
7,239
(10,117)
—
—
—
—
(136)
95,703 $
—
—
77,986 $
—
(136)
173,691
2 $
—
—
—
—
—
—
—
—
—
2 $
—
—
—
—
—
—
—
—
—
2 $
—
—
—
—
—
—
—
2 $
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
(Dollars in thousands)
Operating activities:
Net loss
SPOK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
2020
2019
2021
$
(22,180) $
(44,225) $
(10,765)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation, amortization and accretion
Goodwill and capitalized software development impairment
Valuation allowance
Deferred income tax (benefit) expense
Stock-based compensation
Provisions for credit losses, service credits and other
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Net operating lease liabilities
Accounts payable, accrued liabilities and other
Deferred revenue
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment
Capitalized software development
Purchase of short-term investments
Maturity of short-term investments
Net cash used in investing activities
Financing activities:
Cash distributions to stockholders
Purchase of common stock (including commissions)
Proceeds from issuance of common stock under the Employee Stock
Purchase Plan
Purchase of common stock for tax withholding on vested equity awards
Net cash used in financing activities
Effect of exchange rate on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure:
Income taxes (refunds received) paid
$
$
10,446
15,663
—
(5,483)
7,239
1,162
1,833
2,594
763
(679)
(3,390)
7,968
(4,393)
(10,842)
(44,990)
60,000
(225)
9,056
25,007
22,108
438
5,508
1,212
(1,588)
1,445
10
4,017
3,175
26,163
(3,455)
(11,252)
(59,864)
60,000
(14,571)
(10,025)
—
(9,771)
—
132
(1,860)
(11,753)
(136)
(4,146)
48,729
44,583 $
301
(903)
(10,373)
149
1,368
47,361
48,729 $
9,249
8,849
—
(3,253)
3,643
694
964
1,676
(148)
742
42
11,693
(4,837)
—
(59,385)
34,000
(30,222)
(9,819)
(6,575)
258
(1,017)
(17,153)
(300)
(35,982)
83,343
47,361
(126) $
1 $
901
The accompanying notes are an integral part of these consolidated financial statements.
F-9
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SPOK HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Spok, Inc., a wholly owned subsidiary of Spok Holdings, Inc. (NASDAQ: SPOK) ("Spok," the "Company," "we," "us" and
"our") is proud to be 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 Spok products and services to enhance
workflows for clinicians, support administrative compliance, and provide a better experience for patients.
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,
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. These solutions are used for contact centers, clinical alerting and
notification, mobile communications and messaging and for public safety notifications. These areas of market focus
compliment the market focus of our wireless services outlined above.
Basis of Presentation
The accompanying 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 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 Consolidated Financial Statements include all adjustments and accruals that
are necessary for the presentation of the results of all periods reported herein and all such adjustments are of a normal,
recurring nature.
Amounts shown on the 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. These items are shown separately on the Consolidated Statements
of Operations within operating expenses to the extent that they are considered material for the periods presented.
Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current
period's presentation, including a reclassification of $3.3 million from General and administrative expense to the Cost of
revenue expense classification for the year ended December 31, 2021. Corresponding reclassifications of $2.8 million
and $2.5 million were made to the Consolidated Statement of Operations for presentation purposes for the years ended
December 31, 2020, and 2019. This reclassification was related to the recoverable taxes and regulatory fees associated
with our wireless revenue. These reclassifications had no effect on the reported results of operations or the statement of
financial position.
Use of Estimates
The preparation of these 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 ongoing basis, we
evaluate estimates and assumptions, including but not limited to those related to the impairment of long-lived assets,
intangible assets subject to amortization and goodwill, accounts receivable allowances, revenue recognition, depreciation
expense, 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.
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Table of Contents
Revenue Recognition
The majority of our revenues are derived from short-term contracts related to the sale of wireless paging services and
software solutions. Our arrangements exist primarily with customers in the healthcare market and to a lesser extent state
and federal governments, as well as large enterprise businesses.
Under the typical payment terms of our software contracts, customers will normally pay a material amount of the contract
price immediately upon execution of the contract. The remaining payments are required when the product is delivered,
when services begin and, to a lesser extent, when services are completed. Wireless services are generally billed as
incurred on a monthly basis. Our contracts will generally result in billings in excess of revenue recognized, which we
present as deferred revenues on the Consolidated Balance Sheets, primarily due to the receipt of payment in advance of
the product or services we provide. Amounts billed and due from our customers are classified as accounts receivable on
the Consolidated Balance Sheets. At times, we may have contracts which require us to perform work or provide products
prior to billing which will generally result in revenue recognized in excess of billings. This excess is presented as unbilled
receivables in the Notes to the Consolidated Financial Statements. We generally do not have transactions that include a
significant financing component (whether payments are made in advance or in arrears) as our contracts typically take less
than 12 months to complete once started. We would not adjust the total consideration for the effects of a significant
financing component if we anticipate, at contract inception, that the period between when we transfer a promised good or
service to a customer and when the customer pays for that good or service will be one year or less.
We account for a contract when: (1) both parties have approved the contract through mutually signed agreements or
through other methods such as purchase orders or master agreements; (2) the rights of the parties have been identified;
(3) payment terms have been identified; (4) the contract has commercial substance; and (5) collectability of consideration
is probable. We also evaluate whether two or more contracts should be combined and accounted for as a single contract.
In our evaluation, we consider criteria such as, but not limited to, whether: (1) the contracts are negotiated as a package
with a single commercial objective; (2) the amount of consideration to be paid in one contract is dependent on the price or
performance of another contract; and (3) some or all of the goods or services promised in the contracts are a single
performance obligation. Should we consider contracts related, we would account for those contracts as if they were a
single contract. Evaluating whether two or more contracts should be combined and accounted for as a single contract
requires significant judgment. In the aggregate, a decision to combine a group of contracts could significantly impact the
amount of revenue and profit recorded in a given period.
We review each contract to determine whether to account for the various promises as one or more performance
obligations. The assessment and determination of performance obligations for a given contract requires significant
judgment. Wireless service contracts are generally considered to be a single promise and therefore accounted for as a
single performance obligation. Contracts which include goods or services related to our software solutions and
subscriptions are generally sold with multiple promises and therefore will often include multiple performance obligations.
Material performance obligations related to the sale of our software solutions include software licenses, professional
services, hardware and maintenance.
More often than not, total consideration will equate to the stated value on the contract taking into consideration any period
or term over which services are to be provided, if applicable. However, we could have contracts in which variable
consideration is present. It is common for our contracts that include wireless services to contain customer penalties if
rental pagers are not returned and fees for usage of services in excess of the contractually allotted amount for a given
period. It is also common for our contracts that include professional services to include travel-related costs. These are
costs which we incur in the normal course of delivering professional services and are generally billable to the customer
based on our incurred expenses. These elements of variable consideration are fully constrained when an agreement is
initially executed and are generally not considered estimable until the penalties, fees or costs have been incurred or are
otherwise known. We include estimated amounts in the transaction price to the extent it is probable that a significant
reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration
is resolved. Estimating variable consideration requires significant judgment and our assessment includes all relevant
information that is reasonably available to us including historical, current and forecasted information. We have elected to
exclude from revenue all amounts collected on behalf of third parties, and therefore, items such as sales and use tax are
excluded from our calculation of the total transaction price.
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If a contract is separated into more than one performance obligation we allocate the total transaction price to each
performance obligation proportionately based on the estimated relative standalone selling price ("SSP") of the promised
goods or services underlying each performance obligation. We rarely sell goods or services as readily observable
standalone sales, however, if we do, the observable standalone sales are used to determine the SSP. In most cases, we
must estimate the relative SSP which requires significant judgment and estimates. In instances where SSP is not directly
observable, we determine the SSP using information that may include contractually stated prices, market conditions,
costs, renewal contracts, list prices and other observable inputs. A discount is present if the total transaction price is less
than the sum of the estimated SSPs of the goods or services promised in the contract. Discounts are generally allocated
proportionately based on the relative SSP of the identified performance obligations for a given contract.
Our wireless, professional, maintenance, and subscription 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
that include wireless, maintenance, or 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. This is a significant area of judgment as it requires an estimate at completion ("EAC") for each contract. Our
initial EAC is primarily based on prior experience also taking into consideration any specific facts and circumstances for a
given contract. As projects progress, the EAC is periodically updated and reviewed to ensure the timing of revenue
recognition is appropriate. The creation, maintenance and review of a project's EAC requires significant judgment to
determine an appropriate number of hours over which the remaining project is expected to be completed.
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
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. In most contracts transfer of control for software licenses
occurs in a short period of time after a contract has been executed and licenses are made electronically available.
Contracts may be modified to account for changes in a project's scope or other customer requirements. Most of our
contract modifications are for goods or services that are distinct from the existing contract. In these instances, the contract
modification would either be recognized as an entirely new and separate contract or the modification would be treated as
if it were a termination of the existing contract and the creation of a new contract including all undelivered goods and
services under the previous contract. Revenue would be recognized on a prospective basis and a cumulative catch-up
would not be recognized.
Incremental Costs of Obtaining a Contract and Costs to Fulfill a Contract
Our incremental costs primarily relate to sales commissions. We capitalize commissions and proportionally recognize the
related expense to revenue as it is recognized on the underlying performance obligations. Some of these costs may relate
to specific future anticipated contracts, specifically future maintenance renewals, which we do not pay commensurate
sales commissions on. We amortize commission costs proportionally with revenue, thus it is necessary for us to estimate
future revenues when there are future anticipated contracts. We estimate future revenues based on anticipated renewal
amounts over an expected useful life (e.g. the period over which we believe the initial sales commissions relate to future
anticipated contracts). The expected useful life is based on a review of our product life cycles, customer upgrade patterns
and the rate at which customers renew maintenance. Commission expense was $4.4 million, $4.3 million and $5.0 million
for the years ended December 31, 2021, 2020 and 2019, respectively. Commission expense is classified within the selling
and marketing operating expenses category.
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Leases
Operating lease right-of-use ("ROU") assets and liabilities are recognized at the commencement date based on the
present value of lease payments over the lease term. We have made an accounting policy election not to apply the
recognition requirements of ASC 842, "Leases," to short-term leases. Those leases which have a term of less than 12
months will have lease payments recognized, in our Consolidated Statements of Operations, on a straight-line basis over
the lease term. An optional renewal or termination is not recognized as part of the lease term unless we determine that it
is reasonably certain that we will exercise that option. The term reasonably certain is a high threshold for which pervasive
evidence generally does not exist, and therefore, optional renewal periods are generally excluded from our ROU assets
and lease liabilities until they have been exercised. Lease expense is recognized on a straight-line basis over the lease
term.
As most of our leases do not provide an implicit rate, we use an estimated incremental borrowing rate in determining the
present value of lease payments. The Company uses a portfolio approach when determining the discount rate applied to
its leases. Significant judgment is necessary when determining a discount rate because we must estimate the discount
rate based on a number of factors and observable inputs including current market conditions, market yields, government
bond rates, credit risk, and other factors as necessary. The Company must also exercise significant judgment when
determining whether an option to renew or terminate a lease should be included in the lease term. This judgment includes
an assessment of all relevant economic factors such as costs relating to the termination or extension of a lease,
importance of the underlying asset to the Company’s operations, and the terms and conditions of the optional periods in
relation to current market rates.
Where we have lease agreements which contain lease and nonlease components, we have elected to make use of the
practical expedient to account for each separate lease component and associated nonlease component as a single lease
component. This practical expedient is applied to our facility and site leases whereby maintenance and utilities charges
are included with lease components in the measurement of our lease liability.
Impairment of Goodwill, Long-Lived Assets, and Intangible Assets Subject to Amortization
Goodwill is not amortized but is evaluated for impairment at least annually, or when events or circumstances suggest a
potential impairment has occurred. We generally perform this annual impairment test in the fourth quarter of the fiscal
year. We evaluate goodwill for impairment between annual tests if indicators of impairment exist. The impairment test
involves comparing the fair value of the reporting unit with its carrying value. An impairment charge is recognized for the
amount that the carrying value exceeds the reporting unit's fair value. For purposes of the goodwill impairment evaluation,
the Company as a whole is considered 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), as well as application of an estimated control premium. The estimated
control premium is based on a review of current and past market information published by a third-party resource,
assessment of the Company's future projected discounted cash flows and other relevant information if available.
We recorded no impairment of goodwill for the year ended December 31, 2021, and impairment of $25.0 million and
$8.9 million for the years ended December 31, 2020, and 2019, respectively.
We are required to evaluate the carrying value of our long-lived assets, amortizable intangible assets and goodwill.
Amortizable intangible assets include customer-related intangibles that resulted from previous acquisitions. Such
intangibles are amortized over periods up to ten years. Quarterly, we assess whether circumstances exist which suggest
that the carrying value of long-lived and amortizable intangible assets (asset groups) may not be recoverable. When
applicable, we assess the recoverability of the carrying value of our long-lived assets (asset groups) and certain
amortizable intangible assets based on estimated undiscounted cash flows generated from such assets (asset groups).
We determine asset groups based on the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. In assessing the recoverability of these assets, we forecast cash flows based on
various operating assumptions such as revenue forecasted by product line, in-process research and development cost,
and other direct costs. Significant judgment is required in determining the recoverability, including the timing and
appropriateness of the estimated undiscounted cash flows. If the forecast of undiscounted cash flows does not exceed the
carrying value of the long-lived and amortizable intangible assets, we record an impairment charge to the extent the
carrying value exceeded the fair value of such assets. Significant judgment may be required in estimating fair value
dependent on the availability of objective, market-based, evidence and the input level (e.g., Level 1, 2 or 3) of that
evidence.
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We recorded impairment of $15.7 million for the year ended December 31, 2021, related to capitalized software
development. We did not record any impairment of long-lived assets or definite lived intangible assets for the years ended
December 31, 2020, and 2019.
For additional details refer to Note 7, "Goodwill, Capitalized Software Development and Intangible Assets, Net."
Accounts Receivable Allowances
Our two most significant allowance accounts are: an allowance for credit losses and an allowance for service credits.
Provisions for these allowances are recorded on a monthly basis and are included as a component of general and
administrative expenses, respectively.
Estimates are used in determining the allowance for credit losses and are based on historical collection experience and
current and forecasted trends, as well as known specific collection risks. In determining these estimates, we review
historical write-offs, including comparisons of write-offs to provisions for credit losses. We compare the ratio of the
allowance to gross receivables to historical levels, and monitor amounts collected and related statistics. We write off
receivables when they are deemed uncollectible. While write-offs of customer accounts have historically been within our
expectations and the provisions established, we cannot guarantee that the future write-off experience will be consistent
with historical experience, which could result in material differences when compared to the allowance for credit losses and
related provisions.
From time to time, we grant service credits for customer retention purposes or when there is an adjustment in the scope of
work. The allowance for service credits related provisions are based on historical credit percentages, current credit and
aging trends, historical actual payment trends and actual credit experience. We analyze our past credit experience over
several time frames. Using this analysis along with current operational data, including existing experience of credits
issued and the time frames in which credits are issued, we establish an appropriate allowance for service credits. This
allowance also reduces accounts receivable for lost and non-returned pagers to the expected realizable amounts and for
free wireless services. While credits issued have been within our expectations and the provisions established, we cannot
guarantee that future credit experience will be consistent with historical experience, which could result in material
differences when compared to the allowance for service credits and maintenance-related provisions.
Property and Equipment
Property and equipment are reported at cost and are depreciated using the straight-line method based on estimated
useful lives which range from one to five years.
Transmitter assets are grouped into tranches based on our transmitter decommissioning forecast and are depreciated
using the group life method on a straight-line basis. Depreciation expense is determined by the expected useful life of
each tranche of the underlying transmitter assets. The expected useful life is based on our forecasted usage of those
assets and their retirement over time and aligns the useful lives of these transmitter assets with their planned removal
from service. Disposals are charged against accumulated depreciation with no gain or loss recognized. This rational and
systematic method matches the underlying usage of these assets to the underlying revenue that is generated from these
assets. Depreciation expense for these assets is subject to change based upon revisions in the timing of transmitter
deconstruction resulting from our long-range planning and network rationalization process.
Asset Retirement Obligations
We recognize liabilities and corresponding assets for future obligations associated with the retirement of assets. We have
paging equipment assets, principally transmitters, which are located at leased locations. The underlying leases generally
require the removal of equipment at the end of the lease term; therefore, a future obligation exists. Asset retirement costs
are reflected in paging equipment assets with depreciation expense recognized over the estimated lives, which range
between one and five years. The asset retirement costs and the corresponding liabilities that have been recorded to date
generally relate to either current plans to consolidate networks or to the removal of assets at a future terminal date. When
an asset retirement obligation arises, the liabilities and corresponding assets are recorded at their present value using a
discounted cash flow approach and the liabilities are accreted using the interest method.
The recognition of an asset retirement obligation requires that management make numerous assumptions regarding such
factors as the cost and timing of deconstruction; the credit-adjusted risk-free rate to be used; inflation rates; and future
advances in technology. The fair value of contractor fees to remove each asset, based on historical trend, is estimated to
escalate by 2.1% each year through the terminal date. The total estimated liability is based on the estimated future value
of those costs and the timing of deconstruction.
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We believe these estimates are reasonable at the present time, but we can give no assurance that changes in technology,
our financial condition, the economy or other factors would not result in higher or lower asset retirement obligations. Any
variations from our estimates would generally result in a change in the assets and liabilities in equal amounts, and
operating results would differ in the future by any difference in depreciation expense and accretion expense (see Note 6,
"Consolidated Financial Statements' Components", and Note 8, "Asset Retirement Obligations" for additional details).
Income Taxes
We file a consolidated U.S. federal income tax return and income tax returns in state, local and foreign jurisdictions as
required. The provision for current income taxes is calculated and accrued on income and expenses expected to be
included in current year U.S. and foreign income tax returns. The provision for current income taxes may also include
interest, penalties and an estimated amount reflecting uncertain tax positions.
Deferred income tax assets and liabilities are calculated based on temporary differences between the financial statement
values and the tax bases of assets and liabilities including net operating loss and tax credit carryforwards at the enacted
tax rates expected to apply to taxable income when taxes are actually paid or recovered. Changes in deferred income tax
assets and liabilities are included as a component of deferred income tax expense. Deferred income tax assets represent
amounts available to reduce future income taxes payable. We 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 and by
considering the adequacy of 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 likely than not"
(meaning a probability of greater than 50%) that all or some portion of our deferred income tax assets will be realized in
future periods. We provide a valuation allowance when we consider it "more likely than not" that a deferred income tax
asset will not be fully recovered. The assessment of our deferred income tax assets requires significant judgment.
Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax
returns when such positions fail to meet the "more likely than not" threshold based on the technical merits of the positions.
We assess whether previously unrecognized tax benefits may be recognized when the tax position is (1) more likely than
not of being sustained based on its technical merits, (2) effectively settled through examination, negotiation or litigation, or
(3) settled through actual expiration of the relevant tax statutes. The assessment of an uncertain tax position requires
significant judgment. We had no uncertain tax positions for the periods ended December 31, 2021, and 2020 (see Note
10, "Income Taxes," for additional details).
Research and Development
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 were capitalized while in the
application development stage related to software developed for internal use or software sold in a Software as a Service
("SaaS") arrangement. This included certain development costs for our integrated communications and collaboration
platform, Spok Go®, prior to our new strategic business plan in February 2022 that discontinued Spok Go. These costs
qualified for capitalization beginning in the first quarter of 2020. All other costs incurred during the preliminary project
stage or the post-implementation stage were expensed as incurred. Significant judgment was required when assessing
costs and determining whether they fell within the preliminary project, application development, or post-implementation
stage that determined whether the associated costs were expensed as incurred or capitalized.
Capitalized software development was amortized on a straight-line basis over the estimated useful life of the asset,
typically three years, beginning when those development efforts were placed into service (e.g., generally once made
commercially available). Determining the estimated useful life required significant judgment as we considered factors such
as the rapid and continuous developments in software technology, obsolescence and anticipated life of the service
offering before enhancements would have been necessary. In a SaaS environment, customer needs are rapidly evolving
and a shorter useful life was generally expected.
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Shipping and Handling Costs
We incur shipping and handling costs to send and receive messaging devices and other equipment to/from our
customers. Amounts billed to customers related to shipping and handling are classified as revenue and the Company's
shipping and handling costs are classified as cost of revenue. These costs are expensed as incurred.
Advertising Expenses
Advertising costs are charged to operations when incurred. Advertising costs are classified as selling and marketing
expenses. Advertising expenses were $1.4 million, $1.3 million and $1.7 million for the years ended December 31, 2021,
2020, and 2019, respectively.
Stock-Based Compensation
We account for share-based payments to employees, including restricted stock units ("RSUs"), restricted common stock
("restricted stock") and the option to purchase common stock under the Employee Stock Purchase Plan ("ESPP"), based
on their fair value and the estimated number of shares we expect will vest based on the performance metrics associated
with the award, if applicable. Fair value for RSUs and restricted stock is measured based on the closing fair market value
of the Company's common stock on the date of grant. Fair value for ESPP is measured using the Black-Scholes model for
each offering period based on the offer date. Compensation expense is recognized on a straight-line basis over the
requisite service period. Forfeitures and withdrawals are accounted for on an as incurred basis.
Changes in our estimates of the expected attainment of performance targets are reflected in the amount of compensation
expense that we recognize for the related instruments during the interim reporting period when the change in estimate is
determined and may cause the amount of compensation expense that we record for each period to vary. Further
information regarding stock-based compensation can be found in Note 9, "Stockholders' Equity."
Concentration of Credit Risk
Our financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash
equivalents, short-term receivables and accounts receivable. While our cash and cash equivalents are managed by
reputable financial institutions, deposits at these institutions and funds may, at times, exceed federally insured limits.
Management believes that these financial institutions and funds are financially sound and, accordingly, that minimal credit
risk exists.
Accounts receivable are typically unsecured and are derived from revenue earned from customers across different
geographic locations, primarily within the U.S. We perform ongoing credit evaluations of our customers, and generally do
not require collateral. We maintain an allowance for estimated credit losses. During the years ended December 31, 2021,
2020, and 2019, our bad debt expenses were $0.7 million, $1.1 million and $0.7 million, respectively. In the event that
accounts receivable collection cycles deteriorate, our operating results and financial position could be adversely affected.
No customer represented 10% or more of total revenue or accounts receivable during the years ended December 31,
2021, 2020, and 2019.
Sales and Use Taxes
Sales and use taxes imposed on the ultimate consumer are excluded from revenue where we are required by law or
regulation to act as collection agent for the taxing jurisdiction.
Fair Value Measurements and Financial Instruments
We account for certain assets and liabilities at fair value. We categorize each of our fair value measurements in one of the
following three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These
levels are:
• Level 1: Inputs are based upon unadjusted quoted prices for identical instruments in active markets.
• Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical
or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the
asset or liability and inputs that are corroborated by other observable market data.
• Level 3: Unobservable inputs that cannot be corroborated by observable market data and typically reflect
management's estimates of assumptions that market participants would use in pricing the asset or liability.
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We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to
be cash equivalents. Those investments with an original maturity of greater than three months and less than one year are
classified as short-term investments. Cash and cash equivalents consist primarily of cash on deposit with banks and
investments in money market funds.
Our short-term investments consist entirely of U.S. Treasury securities which are classified as held-to-maturity and are
measured at amortized cost on our Consolidated Balance Sheets. These investments are classified as Level 1 and
mature within 12 months. The differences between carrying value and fair value are not material to the Consolidated
Financial Statements.
Financial instruments including cash and cash equivalents, accounts receivable and accounts payable all have fair values
that approximate their carrying values at December 31, 2021, and 2020 due to their short maturities.
Earnings Per Common Share
The calculation of earnings per common share is based on the weighted-average number of common shares outstanding
during the applicable period. The calculation for diluted earnings per common share recognizes the effect of all potentially
dilutive common shares that were outstanding during the respective periods, unless the impact would be anti-dilutive.
Further information regarding earnings per common share can be found in Note 9, "Stockholders' Equity."
NOTE 2 - RECENT ACCOUNTING STANDARDS
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 by the FASB
are either not applicable or are not expected to have a material impact on the Company's Consolidated Financial
Statements.
NOTE 3 - RESTRUCTURING SUBSEQUENT EVENT
In February 2022, the Company announced a new strategic business plan that includes a restructuring of its business to
discontinue Spok Go, eliminate all associated costs and optimize the Company’s existing structure to drive continued cost
improvement.
As part of the restructuring program, the Company intends to eliminate approximately 175 positions, primarily in research
and development, but also in professional services, selling and marketing, and back-office support functions. The
Company expects to record one-time pre-tax restructuring charges of approximately $6.4 million to $10.2 million,
comprised of approximately $5.0 million to $6.6 million in severance and personnel related costs and approximately
$1.4 million to $3.4 million in contractual terminations. Future cash payments related to these charges are expected to
generally be within the same range. The restructuring actions associated with these charges are expected to be
substantially complete in 2022.
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NOTE 4 - REVENUE, DEFERRED REVENUE AND PREPAID COMMISSIONS
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.
The following table presents our revenues disaggregated by revenue type:
(Dollars in thousands)
Revenue:
Paging revenue
Product and other revenue
Wireless revenue
License
Professional services
Hardware
Subscription
Operations revenue
Maintenance
Software revenue
Total revenue
2021
For the Year Ended December 31,
2020
2019
$
$
$
$
$
75,845 $
2,981
78,826 $
5,494 $
17,161
2,267
423
25,345
37,982
63,327 $
142,153 $
79,916 $
3,677
83,593 $
5,179 $
17,910
2,841
66
25,996
38,591
64,587 $
148,180 $
85,067
3,100
88,167
8,950
19,189
3,618
—
31,757
40,365
72,122
160,289
The Company is currently structured as a single operating (and reportable) segment, a clinical communication and
collaboration business. The U.S. was the only country that accounted for more than 10% of the Company’s total revenue
for the years ended December 31, 2021, 2020 and 2019. Revenue generated in the U.S. and internationally consisted of
the following for the periods stated:
(Dollars in thousands)
Revenue:
United States
International
Total revenue
Deferred Revenues
2021
For the Year Ended December 31,
2020
2019
$
$
138,265 $
3,888
142,153 $
145,349 $
2,831
148,180 $
154,766
5,523
160,289
Our deferred revenues represent payments made to, or due from, customers in advance of our performance. Changes in
the balance of total deferred revenue during the twelve months ended December 31, 2021, are as follows:
(Dollars in thousands)
Deferred Revenue
December 31, 2020
Additions
Revenue Recognized
December 31, 2021
$
29,796 $
59,165 $
(62,555) $
26,406
During the twelve months ended December 31, 2021, the Company recognized $25.2 million of revenue related to
amounts deferred as of December 31, 2020.
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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 year
ended December 31, 2021, are as follows:
(Dollars in thousands)
Prepaid Commissions
December 31, 2020
Additions
Commissions
Recognized
December 31, 2021
$
2,290 $
3,957 $
(4,426) $
1,821
Prepaid commissions are included within prepaid expenses in the Consolidated Balance Sheets and commissions
expense is included within Selling and marketing on the Consolidated Statements of Operations.
Remaining Performance Obligations
The balance of consideration allocated to remaining performance obligations at December 31, 2021, was $43.4 million.
We expect to recognize approximately $30.4 million of these remaining performance obligations over the next 12 months,
with the remaining balance recognized thereafter.
NOTE 5 - LEASES
We have operating lease arrangements for corporate offices, cellular towers, storage units and small building spaces. 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 to five 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 Consolidated
Statements of Operations. The following table presents lease costs disaggregated by type:
(Dollars in thousands)
Operating lease cost
5,823
Short-term lease cost
8,281
3,589
Short-term lease cost - related party(1)
Total lease cost
17,693
(1) A former member of our Board of Directors, who departed the Board during the third quarter of 2020, concurrently served as a director for an entity
5,797 $
7,991
3,518
17,306 $
6,221 $
10,529
—
16,750 $
2021
2019
$
$
For the Year Ended December 31,
2020
that leases transmission tower sites to the Company. Refer to Note 13, "Related Parties," for additional details.
The following table presents supplemental cash flow information:
(Dollars in thousands)
Cash paid for amounts included in the
measurement of lease liabilities - operating
l
2021
For the Year Ended December 31,
2020
2019
$
5,625 $
5,685 $
5,678
The following table presents the weighted average remaining lease term and discount rate:
(Dollars in thousands)
Weighted-average remaining lease term -
operating leases (in years)
Weighted-average discount rate - operating leases
2021
4.73
4.44 %
December 31,
2020
5.06
5.17 %
2019
5.60
5.45 %
We relocated our corporate headquarters in March of 2021 to 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 this lease.
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Maturities of lease liabilities as of December 31, 2021, were as follows:
(Dollars in thousands)
2022
2023
2024
2025
2026
Thereafter
Total future lease payments
Imputed interest
Total
$
$
For the Year Ended
December 31,
NOTE 6 - CONSOLIDATED FINANCIAL STATEMENTS' COMPONENTS
Depreciation, Amortization and Accretion
Depreciation, amortization and accretion consisted of the following for the periods stated:
$
(Dollars in thousands)
Depreciation
Leasehold improvements
Asset retirement costs
Paging and computer equipment
Furniture, fixtures and vehicles
Total depreciation
Amortization
Intangible assets
Capitalized software development costs
Total amortization
Accretion
Total depreciation, amortization and accretion
$
Accounts Receivable, net
2021
For the Year Ended December 31,
2020
2019
88 $
(87)
3,797
258
4,056
417
5,357
5,774
616
10,446 $
57 $
(643)
5,291
307
5,012
2,500
1,073
3,573
471
9,056 $
5,418
4,244
3,284
2,372
1,975
1,923
19,216
(1,928)
17,288
63
(766)
6,526
374
6,197
2,500
—
2,500
552
9,249
Accounts receivable was recorded net of an allowance of $1.4 million and $1.7 million for the years ended December 31,
2021 and 2020, respectively. Accounts receivable, net included $7.1 million and $7.0 million of unbilled receivables for the
years ended December 31, 2021, and 2020, respectively. 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.
F-20
Table of Contents
Property and Equipment, net
Property and equipment, net consisted of the following for the periods stated:
(Dollars in thousands)
Leasehold improvements
Asset retirement costs
Paging and computer equipment
Furniture, fixtures and vehicles
Total property and equipment
Accumulated depreciation
Total property and equipment, net
Useful Life
(In Years)
lease term
1-5
1-5
3-5
For the Year Ended December 31,
2020
2021
3,307 $
2,307
89,844
3,668
99,126
(92,380)
6,746 $
3,628
3,717
92,608
3,517
103,470
(95,655)
7,815
$
$
For purposes of assessing our asset retirement costs, we completed a review of the estimated useful life of our transmitter
assets during the fourth quarter of 2021 (that are part of paging and computer equipment). This review was based on the
results of our long-range planning and network rationalization process and indicated that the expected useful life of the
last tranche of the transmitter assets was no longer appropriate. As a result of that review, the expected useful life of the
final tranche of transmitter assets was extended from 2025 to 2026. This change resulted in a revision of the expected
future depreciation expense for the transmitter assets and an immaterial impact to the consolidated financial statements
beginning in 2022. We believe these estimates remain reasonable at the present time, but we can give no assurance that
changes in technology, customer usage patterns, our financial condition, the economy or other factors would not result in
changes to our transmitter decommissioning plans. Any further variations from our estimates could result in a change in
the expected useful lives of the underlying transmitter assets and operating results could differ in the future by any
difference in depreciation expense. The extension of the depreciable life was accounted for as a change in accounting
estimate.
NOTE 7 - GOODWILL, CAPITALIZED SOFTWARE DEVELOPMENT AND INTANGIBLE ASSETS, NET
Goodwill
For purposes of the goodwill impairment assessment, the Company as a whole is considered 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), as well as
application of an estimated control premium. There are a number of judgmental factors that are incorporated into our
assessment to establish an estimated control premium, including the review of current and past market information
published by a third-party resource, assessment of the Company's future projected discounted cash flows and other
relevant information if available. While a formal impairment assessment is performed annually, the Company monitors its
business environment for potential triggering events on a quarterly basis.
The change in goodwill for the year ended December 31, 2021, was as follows:
(Dollars in thousands)
Goodwill at December 31, 2019
Impairment
Goodwill at December 31, 2020
Impairment
Goodwill at December 31, 2021
Capitalized Software Development
Change in Goodwill
$
$
$
$
124,182
(25,007)
99,175
—
99,175
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 $10.8 million and $11.3 million for the years ended December
31, 2021, and 2020, respectively. Amortization expense with respect to software development costs was $5.4 million and
$1.1 million for the years ended December 31, 2021, and 2020, respectively.
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During the quarter ended December 31, 2021, we determined that a triggering event had occurred based on a number of
factors including a continuing trend of unsatisfactory Spok Go sales relative to our expectations, a significant
accumulation of costs combined with a reduction of future sales projections which indicated continuing losses associated
with Spok Go, and our expectation that Spok Go would not provide substantive future service potential. As such, further
assessment of recoverability was necessary. We identified the long-lived asset group, for which we assessed
recoverability, as our total capitalized software development costs. This asset group is the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
We assessed recoverability based on the sum of the estimated undiscounted net cash flows of the long-lived asset group.
The assessment of recoverability requires significant judgment, including timing and appropriateness of the estimated
undiscounted future net cash flows. Our assessment determined that the carrying amount of the long-lived asset group
was greater than the estimated undiscounted cash flows and further assessment of fair value was necessary to determine
whether an impairment loss should be recognized.
]We estimated fair value taking into consideration a number of factors including estimates used in our assessment of
recoverability, discounted cash flow methods incorporating market-based information that we gathered as part of our on-
going strategic alternatives process, and the projected continuance of costs necessary to create substantive future service
potential. Given the nature of these capitalized software development costs where observable market prices are not
readily available, the assessment of fair value requires significant judgment and estimates. This analysis determined that
the remaining balance of capitalized software development costs had no fair value, and as a result, we recorded an
impairment charge of $15.7 million for the three months ended December 31, 2021.
Intangible Assets
Amortizable intangible assets at December 31, 2021, and 2020 related primarily to customer relationships. These
intangible assets, with an original gross carrying amount of $25.0 million, were being amortized over a period of ten years
and became fully amortized during the quarter ended March 31, 2021. We did not record an impairment of our
amortizable intangible assets during the years ended December 31, 2021, 2020 and 2019.
The net consolidated balance of intangible assets consisted of the following at December 31, 2021, and 2020:
As of December 31,
2021
2020
(Dollars in thousands)
Customer relationships
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
25,002 $
(25,002) $
— $
25,002 $
(24,585) $
417
NOTE 8 - ASSET RETIREMENT OBLIGATIONS
The components of the changes in the asset retirement obligation liabilities for the periods stated were as follows:
(Dollars in thousands)
Balance at December 31, 2019
Accretion
Amounts paid
Additions
Reclassifications
Balance at December 31, 2020
Accretion
Amounts paid
Additions
Reclassifications
Balance at December 31, 2021
Short-Term Portion
Long-Term Portion
Total
6,061 $
509
—
1,185
(466)
7,289
741
—
(1,292)
(383)
6,355 $
6,151
471
(352)
1,354
—
7,624
616
(334)
(1,421)
—
6,485
90 $
(38)
(352)
169
466
335
(125)
(334)
(129)
383
130 $
$
$
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Increases and reductions other than accretion, reclassification and amounts paid primarily relate to changes in estimates
of the underlying liability, specifically related to updates in estimated costs to remove a transmitter and the estimated
timing of removal. Estimated removal costs and timing refinements due to ongoing network rationalization activities are
expected to accrete to a total liability of $7.8 million.
Additional information regarding asset retirement costs and accretion expense can be found in Note 6, "Consolidated
Financial Statements' Components."
NOTE 9 - STOCKHOLDERS' EQUITY
General
Our authorized capital stock consists of 75 million shares of common stock, par value $0.0001 per share, and 25 million
shares of preferred stock, par value $0.0001 per share.
At December 31, 2021, and 2020, we had no stock options outstanding.
At December 31, 2021, and 2020, there were 19,828,033 and 19,384,192 shares of common stock outstanding,
respectively, and no shares of preferred stock were outstanding.
Rights Plan
On September 2, 2021, the Company entered into a Rights Agreement between the Company and Computershare Trust
Company, N.A., as Rights Agent (as amended from time to time, the “Rights Agreement”), that was approved by our
Board of Directors. In connection with the Rights Agreement, a dividend was declared of one preferred stock purchase
right (individually, a “Right” and collectively, the “Rights”) for each share of our common stock outstanding at the close of
business on September 17, 2021. Each Right will entitle the registered holder thereof, after the Rights become
exercisable and until August 31, 2022 (or the earlier redemption, exchange or termination of the Rights), to purchase from
the Company one one-tenth of a share of Series A Junior Participating Preferred Stock, par value $0.00001 per share (the
“Series A Preferred”), of the Company at a price of $50.95 per one one-tenth of a share of Series A Preferred.
The Rights become exercisable upon the earlier to occur of (i) the close of business on the tenth business day following a
public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to
acquire, beneficial ownership of 10% (20% in the case of a passive institutional investor) or more of our common stock
(an “Acquiring Person”) or (ii) the close of business on the tenth business day (or such later date as may be determined
by action of our Board of Directors prior to such time as any person or group of affiliated or associated persons becomes
an Acquiring Person) following the commencement or announcement of an intention to make a tender offer or exchange
offer, the consummation of which would result in a person or group becoming an Acquiring Person.
Dividends
For each of the three years ending December 31, 2021, 2020 and 2019, our Board of Directors declared cash dividends
of $0.50 per share of our outstanding common stock. An immaterial amount of dividends declared were related to
unvested RSUs and unvested shares of restricted stock, which are accrued for and paid when the applicable vesting
conditions are met. Accrued cash dividends on forfeited RSUs and restricted stock are also forfeited. Cash dividends paid
as disclosed in the Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
included previously declared cash dividends on vested RSUs and on shares of vested restricted stock issued to non-
executive members of our Board of Directors.
On February 16, 2022, the Board of Directors declared an increase in the regular quarterly cash dividend to $0.3125 per
share of common stock, with a record date of March 16, 2022, and a payment date of March 30, 2022. This cash dividend
of approximately $6.2 million is expected to be paid from available cash on hand.
Common Stock Repurchase Program
In August 2018, our Board of Directors authorized the repurchase of up to $10.0 million of our common stock through
December 31, 2018. In November 2018, our Board of Directors extended the repurchase authority through December 31,
2019. The Company fully exhausted the repurchase authority in September 2019. In February 2022, our Board of
Directors authorized the repurchase of up to $10.0 million of our common stock.
We used available cash on hand and net cash provided by operating activities to fund the common stock repurchase
program. This repurchase authority allowed us, at management’s discretion, to selectively repurchase shares of our
common stock from time to time in the open market depending upon market price and other factors.
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Repurchased shares of our common stock were accounted for as a reduction to common stock and additional paid-in-
capital in the period in which the repurchase occurred. All repurchased shares of common stock were returned to the
status of authorized, but unissued, shares of the Company.
The Company did not repurchase any of its common stock during 2021 or 2020. Common stock repurchased in 2019
(excluding commission and the purchase of common stock for tax withholdings) was as follows:
(Dollars in thousands, except for shares purchased)
For the Three Months Ended
March 31,
June 30,
September 30,
December 31,
Total
Net Loss per Common Share
2019
Shares
Purchased Amount
131,012 $ 1,806
—
—
4,749
401,342
—
—
532,354 $ 6,555
Basic net loss per common share is computed on the basis of the weighted average common shares outstanding. Diluted
net 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 unvested and outstanding equity awards. The components of basic
and diluted net loss per common share were as follows for the periods stated:
(In thousands, except for share and per share amounts)
Numerator:
Net loss
Denominator:
Basic and diluted weighted average outstanding
shares of common stock
Basic and diluted net loss per common share
$
$
2021
For the Year Ended December 31,
2020
2019
(22,180) $
(44,225) $
(10,765)
19,404,477
(1.14) $
19,028,918
(2.32) $
19,089,402
(0.56)
For the years ended December 31, 2021, 2020 and 2019, the following securities were not included in the calculation of
diluted shares outstanding as the effect would have been anti-dilutive:
Restricted stock units
Share-Based Compensation Plans
2021
For the Year Ended December 31,
2020
2019
371,194
297,757
189,862
On March 23, 2012, our Board of Directors adopted the Spok Holdings, Inc. 2012 Equity Incentive Award Plan (the "2012
Equity Plan") that our stockholders subsequently approved 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. At July 28, 2020, a total of 1,699,950 shares of common stock had been reserved for issuance under the
Equity Plans, including 1,600,000 shares available under the 2020 Equity Plan and 99,950 shares which, as of the
Stockholder Approval Date, remained available for issuance under the 2012 Equity Plan. No further grants were to be
made under the 2012 Equity Plan, although the 2012 Equity Plan continues to govern all outstanding awards thereunder.
Awards under the 2020 Equity Plan may be in the form of stock options, restricted common stock, RSUs, performance
awards, dividend equivalents, stock payment awards, deferred stock, deferred stock units ("DSUs"), stock appreciation
rights or other stock or cash-based awards.
F-24
Table of Contents
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 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 shares of 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 December 31, 2021, there was an
aggregate of 274,320 unvested RSUs under the 2012 Equity Plan.
The following table summarizes the activities under the Equity Plans from January 1, 2019, through December 31, 2021:
Total equity securities available at January 1, 2019
Less: RSU and restricted stock awarded to eligible employees, net of forfeitures
Total equity securities available at December 31, 2019
Less: RSU and restricted stock awarded to eligible employees, net of forfeitures
Plus: Additional shares available for issuance under the 2020 Equity Plan
Total equity securities available at December 31, 2020
Less: RSU, DSU and restricted stock awarded to eligible employees, net of forfeitures
Less: stock issued in lieu of cash compensation
Total equity securities available at December 31, 2021
Activity
904,437
(257,957)
646,480
(547,166)
1,600,000
1,699,314
(539,241)
(169,944)
990,129
The following table details activities with respect to outstanding RSUs, DSUs, and restricted stock under the Equity Plans
for the year ended December 31, 2021:
Unvested at January 1, 2021
Granted
Vested
Forfeited
Unvested at December 31, 2021
Shares
Weighted-Average
Grant Date Fair Value
per Share
636,722 $
657,492
(404,792)
(118,251)
771,171 $
12.16
11.02
12.07
12.08
11.24
Of the 771,171 unvested RSUs, DSUs and restricted stock outstanding at December 31, 2021, 381,317 RSUs include
contingent performance requirements for vesting purposes. At December 31, 2021, there was $4.1 million of
unrecognized net compensation cost related to RSUs and restricted stock, which is expected to be recognized over a
weighted average period of 1.6 years.
During the years ended December 31, 2020, and 2019, the Company granted 603,171 and 388,321 RSUs, respectively,
with a weighted-average grant date fair value of $11.94 and $13.27 per share, respectively. The fair value of RSUs that
vested during the years ended December 31, 2020, and 2019 were $3.7 million and $3.0 million, respectively, based on
the closing price of the Company's common stock of $11.13 and $12.23 at December 31, 2020, and 2019, respectively.
Employee Stock Purchase Plan
In 2016, our Board of Directors adopted the ESPP that our stockholders subsequently approved on July 25, 2016. A total
of 250,000 shares of common stock were reserved for issuance under this plan.
F-25
Table of Contents
The 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.
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 at 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.
The Company uses the Black-Scholes model to calculate the fair value of each offering period on 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 years ended December 31, 2021, and 2020, employees purchased 16,015 and 35,661 shares of the Company's
common stock for a total price of $0.1 million, and $0.3 million, respectively.
The following table summarizes the activities under the ESPP from January 1, 2019, through December 31, 2021:
Total ESPP equity securities available at January 1, 2019
Less: common stock purchased by eligible employees
Total ESPP equity securities available at January 1, 2020
Less: common stock purchased by eligible employees
Total ESPP equity securities available at January 1, 2021
Less: common stock purchased by eligible employees
Total ESPP equity securities available at December 31, 2021
Activity
208,159
(23,299)
184,860
(35,661)
149,199
(16,015)
133,184
Amounts withheld from participants will be classified as a liability on the Consolidated Balance Sheets until funds are used
to purchase shares. This liability amount is immaterial to the consolidated financial statements.
Stock-Based Compensation Expense
Compensation expense associated with common stock, RSUs and restricted stock was recognized based on the grant
date fair value of the instruments, over the instruments’ vesting period. The following table reflects stock-based
compensation expense for the periods stated:
(Dollars in thousands)
Performance-based RSUs
Time-based RSUs and restricted stock
Equity in lieu of salary
ESPP
Total stock-based compensation
2021
For the Year Ended December 31,
2020
2019
$
$
1,608 $
3,754
1,845
32
7,239 $
2,019 $
3,389
—
100
5,508 $
1,434
2,119
—
90
3,643
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Table of Contents
NOTE 10 - INCOME TAXES
The significant components of our (provision for) benefit from income taxes attributable to current operations for the
periods stated were as follows:
$
$
(Dollars in thousands)
Loss before income taxes
Current:
Federal tax
State tax
Foreign tax
Total current
Deferred:
Federal tax
State tax
Foreign tax
Total deferred
Benefit from (provision for) income taxes
$
2021
For the Year Ended December 31,
2020
2019
(27,332) $
(21,770) $
(13,423)
— $
48
283
331
(4,178)
(1,561)
256
(5,483)
(5,152) $
— $
58
(150)
(92)
20,594
1,910
43
22,547
22,455 $
—
582
13
595
(2,121)
(1,239)
107
(3,253)
(2,658)
Foreign income before income tax (benefit) expense is immaterial to consolidated income before income tax (benefit)
expense. The following table summarizes the principal elements of the difference between the United States federal
statutory rate of 21% and our effective tax rate for the years ended December 31, 2021, 2020 and 2019:
2021
(Dollars in thousands)
Loss before income taxes
$ (27,332)
Income taxes computed at the federal statutory rate $ (5,740)
State income taxes, net of federal benefit
(1,513)
Goodwill impairment
—
Change in valuation allowance
2,070
Research and development and other tax credits
(808)
Excess executive compensation
272
Other
567
$ (5,152)
(Benefit from) provision for income taxes
2020
2019
$ (21,770)
21.0 % $ (4,572)
(703)
5.5 %
6,341
— %
(7.6) % 22,108
(1,316)
3.0 %
266
(1.0) %
(2.1) %
331
18.8 % $ 22,455
$ (13,423)
21.0 % $ (2,819)
(567)
3.2 %
2,243
(29.1) %
(101.6) %
—
(1,790)
6.0 %
322
(1.2) %
(47)
(1.5) %
(103.1) % $ (2,658)
21.0 %
4.2 %
(16.7) %
— %
13.3 %
(2.4) %
0.4 %
19.8 %
The anticipated effective income tax rate is expected to continue to differ from the federal statutory rate primarily due to
the effect of state income taxes, the benefit of the research and development tax credit, permanent differences between
book and taxable income and certain discrete items. The earnings of non-U.S. subsidiaries are deemed to be indefinitely
reinvested in non-U.S. operations.
F-27
Table of Contents
The components of deferred income tax assets at December 31, 2021, and 2020 were as follows:
(Dollars in thousands)
Capitalized research and development costs
Net operating loss carryforward
Property and equipment
Accrued liabilities, reserves and other expenses
Research and development credits
Tax credits
Stock based compensation
Other
Gross deferred income tax assets
Deferred income tax liabilities:
Intangible assets
Prepaid and other expenses
Gross deferred income tax liabilities
Net deferred income tax assets
Valuation allowance
Total deferred income tax assets
December 31,
2021
2020
$
$
13,436 $
25,284
5,139
4,726
6,342
495
2,283
289
57,994
(2,128)
(35)
(2,163)
55,831
(24,178)
31,653 $
13,367
18,081
5,353
5,063
5,533
717
1,917
132
50,163
(2,015)
(214)
(2,229)
47,934
(22,108)
25,826
The Coronavirus Aid Relief and Economic Security ("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, the Company has made use of the following 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 due on December 31, 2021, and the remainder due on December 31,
2022. This resulted in a total deferral of $2.1 million in payroll taxes under this provision for the year ended
December 31, 2020.
• 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 applies to the first $10,000 in qualified wages paid to each employee after
March 12, 2020, and before January 1, 2021. To be eligible, the Company must (i) have had operations fully or
partially suspended because of a shutdown 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
pandemic. This resulted in a total claim of approximately $1.3 million in employee retention credits under this
provision for the year ended December 31, 2020.
• Alternative Minimum Tax ("AMT") Credit: Allows for an immediate refund of all refundable AMT credits resulting
from passage of the CARES Act of 2020. This resulted in accelerated collection of approximately $1.3 million of
other current assets which was received during the third quarter of 2020.
Net Operating Losses
As of December 31, 2021, we had approximately $108.3 million of net operating losses available to offset future taxable
income, of which approximately $70.6 million were federal net operating losses with expiration dates that begin expiring in
2026 and will fully expire in 2030. We have an immaterial amount of foreign tax credits available for future use.
Valuation Allowance
We 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 and by considering the adequacy of 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 likely than not" (meaning a probability of greater than 50%) that all or some portion of
the deferred income tax assets will be realized in future periods.
F-28
Table of Contents
The cumulative loss incurred by the Company over the three-year period ended December 31, 2020, constitutes a piece
of objective negative evidence which limits our ability to consider other subjective evidence. In addition, the uncertainty
created by COVID-19, has meaningfully limited our ability to consider our projections for future profitability and growth in
our assessment of the recoverability of our deferred income tax assets. We traditionally perform this evaluation in the
fourth quarter of each year, utilizing our annual long-range planning and forecasting updates. As of December 31, 2021,
and 2020, our deferred tax assets were net of valuation allowances of $24.2 million and $22.1 million, respectively.
COVID-19 has significantly limited our ability to consider projections for future profitability as objectively verifiable positive
evidence to support the realizability of deferred tax assets. As a result, we continue to maintain a valuation allowance
against deferred tax assets associated with net operating losses and credits with set expiration dates.
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. We did not record a
valuation allowance in 2019.
Income Tax Audits
The 2019, 2020 and 2021 federal and state income tax returns are within the statute of limitations (“SOL”) and are
currently not under examination by any Federal or state tax authority.
We operate in all states and the District of Columbia and are subject to various state income and franchise tax audits. The
states’ SOL varies from three to four years from the later of the due date of the return or the date filed. We usually file our
federal and all state and local income tax returns on or before September 15 of the following year; therefore, the SOL for
those states with a three-year SOL is open for calendar years ending 2018 through 2021, and for the four-year SOL
states, the SOL is open for years ending from 2017 through 2021.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Contractual Obligations
We had no significant commitments and contractual obligations as of December 31, 2021.
Other Commitments
We have various LOCs outstanding with multiple state agencies which are considered to be immaterial to the
consolidated financial statements. The LOCs typically have one to three-year contract requirements and contain
automatic renewal terms.
Loss Contingencies
The Company evaluates contingencies on an ongoing basis and establishes loss provisions for matters in which losses
are probable and the amount of loss can be reasonably estimated. As part of this evaluation, the Company recognized a
loss of $0.9 million in the fourth quarter of 2021 related to the minimum remaining contractual obligation for a license and
service contract classified as a research and development cost on the Consolidated Statement of Operations.
This contract was originally intended to provide Spok Go with a source for electronic health record ("EHR") integration and
enable the application to display content that was not previously available from all EHR's through an application
programming interface. To date, we have not enhanced Spok Go such that it can make use of these integration licenses.
New standards require that EHR's support the seamless and secure access, exchange, and use of information by third
parties. With the change in standards and the ongoing iteration of internal development plans, we believe it is more likely
than not that future Spok Go enhancements will make use of direct EHR access under these new standards as opposed
to the use of a third party. Thus, as of December 31, 2021, it was more likely than not that we would be unable to realize
any benefits from the remaining $0.9 million contractual obligation under this contract which extends through late 2023.
Legal Contingencies
We are involved, from time to time, in lawsuits arising in the normal course of business. We believe the potential
outcomes from these lawsuits will not have a material adverse impact on our financial position or statement of operations.
F-29
Table of Contents
Operating 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.
Future minimum lease payments under non-cancelable operating leases at December 31, 2021, were as follows:
(Dollars in thousands)
For the Year Ended December 31,
2022
2023
2024
2025
2026
Thereafter
Total
Operating Leases
$
$
6,217
4,238
2,381
1,489
1,110
189
15,624
These leases typically include renewal options and escalation clauses. Where material, we recognize rent expense on a
straight-line basis over the lease period.
Total rent expense under operating leases for the years ended December 31, 2021, 2020 and 2019, was approximately
$16.8 million, $17.3 million and $17.7 million, respectively.
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Company has a savings plan in the U.S., the Spok Holdings, Inc. Savings and Retirement Plan, which qualifies under
Section 401(k) of the Internal Revenue Code. Participating U.S. employees may elect to contribute a percentage of their
wages, subject to certain limitations. Matching contributions under the savings plan were approximately $1.6 million for
the years ended December 31, 2021, 2020, and 2019.
NOTE 13 - RELATED PARTIES
A former member of our Board of Directors, 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. For the years ended December 31, 2020,
and 2019, we recorded site rent expenses pertaining to these leases of $3.5 million and $3.6 million, respectively. These
amounts were included within technology operations expenses.
A member of our Board of Directors, who was appointed at the beginning of 2020, serves as Chief Information Officer for
an entity that is also a customer of the Company. For the years ended December 31, 2021, and 2020, we recognized
revenues of $1.0 million and $0.7 million, respectively, related to contracts from the entity at which the individual is
employed.
F-30
Table of Contents
SPOK HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Allowance for Credit Losses, Service Credits and Other
(Dollars in thousands)
Balance at the
Beginning of
the Period
Charged to
Operations
Write-offs
Balance at the
End of the
Period
Year ended December 31, 2021
Year ended December 31, 2020
Year ended December 31, 2019
$
$
$
1,669 $
1,293 $
1,705 $
573 $
1,382 $
1,248 $
(800) $
(1,006) $
(1,660) $
1,442
1,669
1,293
F-31
Table of Contents
Exhibit
Number
EXHIBIT INDEX
Incorporated by Reference
Exhibit Description
Form
File No.
Exhibit
Filing Date
Amended and Restated Certificate of
Incorporation
Third Amended and Restated Bylaws of Spok
Holdings, Inc.
8-K
8-K
001-32358
3.1
7/8/2014
001-32358
3.1
10/30/2020
Filed/Furn
ished
Herewith
3.1
3.2
3.3
4.1*
4.2
4.3
10.1
10.2*
10.3*
10.4*
10.5†
10.6*
10.7
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16*
10.17†
10.18†
10.19†
Certificate of Designations of Series A Junior
Participating Preferred Stock of Spok Holdings,
Inc.
Specimen of common stock certificate, par value
$0.0001 per share
Rights Agreement, dated as of September 2,
2021, between Spok Holdings, Inc. and
Computershare Trust Company N.A.
Description of securities registered under
Section 12 of the Securities Exchange Act of
1934
Form of Indemnification Agreement for executive
officers of Spok, Holding Inc.
USA Mobility, Inc. Equity Incentive Plan
Restricted Stock Agreement (For Board of
Directors) (amended)
Form of Director’s Indemnification Agreement
USA Mobility, Inc. 2012 Equity Incentive Award
Plan
Employment Agreement, between Spok
Holdings, Inc. and Vince D. Kelly, dated as of
January 1, 2019
Restricted Stock Unit Grant Notice for the USA
Mobility, Inc. 2012 Equity Incentive Award Plan
Restricted Stock Unit Grant Notice for the Spok
Holdings, Inc. 2015 Long-Term Incentive Plan
Spok Holdings, Inc. Severance Pay Plan and
Summary Plan Description (For certain C-Level,
not including CEO) (amended and restated)
Spok Holdings, Inc. 2018 Long-Term Incentive
Plan
Exhibits to Spok Holdings, Inc., 2018 Long-Term
Incentive Plan for the 2019-2021 performance
period.
Spok Holdings, Inc. 2018 Short-Term Incentive
Plan
Spok Holdings, Inc. 2019 Short-Term Incentive
Plan
Spok Holdings, Inc. 2020 Short-Term Incentive
Plan
Spok Holdings, Inc. 2021 Short-Term Incentive
Plan
Spok Holdings, Inc. 2022 Short-Term Incentive
Plan
Amendment to the USA Mobility, Inc. 2012
Equity Incentive Award Plan
NEO Severance and Change in Control
Document
Spok Holdings, Inc. 2020 Equity Incentive Award
Plan
Employment Agreement Extension Letter, by and
between Spok Holdings, Inc. and Vincent D.
Kelly, dated as of June 18, 2020
8-K
001-32358
3.1
9/3/2021
S-4/A
333-115769
4.1
10/6/2004
8-K
001-32358
4.1
9/3/2021
10-Q
001-32358
10.1
10/25/2018
10-Q
10-Q
001-32358
001-32358
10.18
10.24
11/1/2007
10/30/2008
DEF 14A 001-32358
A
3/28/2012
8-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
001-32358
10.1
1/4/2019
001-32358
10.16
3/2/2017
001-32358
10.17
3/2/2017
001-32358
10.18
3/2/2017
001-32358
10.12
2/18/2021
001-32358
10.15
2/28/2019
001-32358
10.16
2/28/2019
001-32358
10.16
2/27/2020
001-32358
10.16
2/18/2021
DEF 14A 001-32358
A
4/27/2017
10-Q
001-32358
10.2
4/27/2017
DEF 14A 001-32358
A
6/19/2020
8-K
001-32358
10.1
6/18/2020
Filed
Filed
Filed
10.21
10.22
21
23
31.1
31.2
32.1
32.2
Table of Contents
10.20
Restricted Stock Unit Grant Notice for the Spok
Holdings, Inc. 2020 Equity Incentive Award Plan 10-K
001-32358
10.21
2/18/2021
Cooperation Agreement, dated as of June 18,
2020 by and among Spok Holdings, Inc., White
Hat Strategic Partners LP, White Hat SP GP
LLC, White Hat Capital Partners LP, and White
Hat Capital Partners GP LLC
Spok Holdings, Inc. Deferred Compensation
Plan For Non-Employee Directors
Subsidiaries of the Company
Consent of Grant Thornton LLP
Certification of President and Chief Executive
Officer pursuant to Rule 13a-14(a)/Rule 15d-
14(a) of the Securities Exchange Act of 1934, as
amended
8-K
001-32358
10.1
6/19/2020
10-K
10-K
001-32358
001-32358
10.23
21
2/18/2021
3/1/2018
Certification of Chief Financial Officer pursuant
to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended
Certification of President and Chief Executive
Officer pursuant to 18 U.S.C. Section 1350
Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350
Inline XBRL Instance Document - the instance
does not appear in the Interactive Data File
because its XBRL tags are embedded within the
Inline XBRL document**
101.INS
101.SCH Inline XBRL Taxonomy Extension Schema**
101.CAL Inline XBRL Taxonomy Extension Calculation**
101.DEF Inline XBRL Taxonomy Extension Definition**
101.LAB Inline XBRL Taxonomy Extension Labels**
101.PRE Inline XBRL Taxonomy Extension Presentation**
Cover Page Interactive Data File (the cover page
XBRL tags are embedded within the Inline XBRL
document and included in Exhibit 101)
104
* On July 8, 2014, the Company changed its name from USA Mobility, Inc. to Spok Holdings, Inc.
**
†
The financial information contained in these XBRL documents is unaudited.
Denotes a management contract or compensatory plan or arrangement.
Filed
Filed
Filed
Furnished
Furnished
Filed
Filed
Filed
Filed
Filed
Filed
Filed
THIS PAGE INTENTIONALLY LEFT BLANK
spok. co m
8
8
Board of Directors
Royce Yudkoff
Chairman of the Board, Spok
Holdings, Inc. and Co-Founder,
ABRY Partners, LLC
Vincent D. Kelly
President and Chief Executive Officer,
Spok Holdings, Inc.
N. Blair Butterfield
Chairman of Wind River Advisory Group, LLC
Stacia A. Hylton
Principal of LS Advisory
Matthew Oristano
Chairman and Chief Executive Officer,
Reaction Biology Corporation
Todd Stein
Co-Investment Manager,
Braeside Investments, LLC
Christine M. Cournoyer
Former Chairperson and Chief Executive Officer,
N-of-One, Inc.
Dr. Bobbie Byrne
Chief Information Officer,
Advocate Aurora Health
Brett Shockley
Chief Executive Officer and Chairman
Journey AI, Inc.
Randy Hyun
Chief Operations Officer of CarepathRx LLC
Chief Executive Officer of CarepathRx Health
Systems Solutions
Corporate Officers
Vincent D. Kelly
President and Chief Executive Officer
Michael W. Wallace
Chief Operating Officer, Chief Financial Officer
Sharon Woods Keisling
Corporate Secretary and Treasurer
Annual Meeting
A formal notice of the meeting is being mailed to
each stockholder. The proxy statement, proxy card
and 2021 Annual Report on Form 10-K are available
at www.proxyvote.com.
This annual report contains the 2021 Annual
Report on Form 10-K filed with the Securities and
Exchange Commission. Spok Holdings, Inc. will
provide without charge to each stockholder of
record additional copies of the Company’s 2021
Annual Report on Form 10-K. Please send your
request to:
Investor Relations
Spok Holdings, Inc.
5911 Kingstowne Village Parkway, 6th floor
Alexandria, VA 22315
Investor and Media Information
Inquiries from investors, the financial community,
and news organizations should be directed to
Investor Relations and Corporate Communications
at the address noted above, by calling (800) 611-
8488, or by visiting our website at www.spok.com.
Securities Listing
The common stock of Spok Holdings, Inc., trading
symbol “SPOK,” trades on the NASDAQ National
Market®.
Transfer Agent and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40233
Direct: (781) 575-2725
Toll Free: (877) 498-8865
Hearing Impaired: TDD (800) 952-9245
www.computershare.com/investor
Independent Public Accountants
Grant Thornton LLP
1000 Wilson Boulevard, Suite 1400
Arlington, VA 22209
Corporate Counsel
Latham & Watkins LLP
555 Eleventh Street, NW, Suite 1000
Washington, DC 20004-1304
spok. co m
9
9
SM
Spok, Inc.
5911 Kingstowne Village Parkway, 6th floor
Alexandria, VA 22315
Telephone (800) 611-8488
Fax (866) 382-1662
www.spok.com
ABOUT SPOK, INC.
Spok, Inc., a wholly owned subsidiary of Spok Holdings, Inc. (NASDAQ: SPOK), headquartered in Alexandria, Virginia, is
proud to be a 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 to enhance workflows
for clinicians and support administrative compliance. Our customers send over 100 million messages each month
through their Spok® solutions. When seconds count and patients’ lives are at stake, Spok enables smarter, faster clinical
communication.
spok.com
© 2022 Spok, Inc. Spok is a trademark of Spok Holdings, Inc. Spok Care Connect and Spok Mobile are trademarks of Spok, Inc.
Other names and trademarks may be the property of their respective owners.
Rev: 5/22