Thursday, B.Riley initiated coverage on NASDAQ:SPOK, Spok Holdings Inc., with a Neutral rating and set a price target of $15.00. Spok Holdings is recognized as a healthcare IT company that specializes in communication solutions for top hospitals across the United States. The company boasts the largest installed base of pagers, approximately 750,000, and offers its Spok Care Connect software suite, which includes features such as updated directories, on-call scheduling, and message routing.
Spok's clientele includes seven of the top ten children's hospitals and 18 of the top 20 adult hospitals in the U.S., with an impressive average customer tenure of 24 years. The company's management made a strategic decision early in 2022 to focus on optimizing cash flow and enhancing shareholder returns. This resulted in Spok returning $25 million in 2022 and $26 million in 2023 through dividends, with projections of returning over $25 million in 2024.
The company's overall business, which includes wireless/pager services and software/Spok Care Connect sales, experienced a slight decline of 1% year-over-year in the first half of 2024. The management team is focused on several key objectives, such as reducing the loss of wireless subscribers, increasing average revenue per unit with the introduction of the latest GenA pager, and growing the Spok Care Connect software's footprint both in new and existing markets.
B.Riley analysts anticipate that the company's free cash flow will be sufficient to support the dividend payout. They also noted that if Spok Holdings were to achieve adjusted EBITDA growth of 3% year-over-year in 2024, driven by reduced pager erosion, higher software sales growth, or international expansion, they would consider revisiting their rating. At present, they are waiting to see evidence of margin expansion before altering their stance on the stock.
In other recent news, Spok Holdings has reported a strong second quarter in 2024, with a notable increase in software operations bookings and a healthy adjusted EBITDA. The company announced a GAAP net income of $3.4 million and total revenue of $34 million for the quarter. The company's financial guidance for the rest of 2024 projects total revenue between $136 million and $144 million.
Spok Holdings also signed 18 six-figure and one seven-figure contracts, demonstrating their strong market position. These contracts include a three-year deal with a Southwestern U.S. health system and a contract with a 350-bed hospital. Despite a temporary dip in wireless average revenue per user (ARPU), the company expects positive impacts from price increases and large GenA pager sales in subsequent quarters.
In terms of analyst notes, software operations bookings were down 16% at the six-month mark compared to the same period last year. However, the company remains optimistic, with a commitment to achieving double-digit growth in software bookings by the year's end.
InvestingPro Insights
As Spok Holdings Inc. continues to navigate the healthcare IT landscape, real-time data from InvestingPro provides additional context for investors considering the company's stock. With a market capitalization of $304.37 million and a P/E ratio of 19.62, Spok appears to be valued by the market at a level that reflects its current earnings. Notably, the company's P/E ratio has adjusted slightly to 18.48 over the last twelve months as of Q2 2024, suggesting a modest improvement in valuation.
InvestingPro Tips highlight that Spok holds more cash than debt on its balance sheet, which is a positive sign for financial stability. Furthermore, the company's long-standing commitment to shareholder returns is evident with a significant dividend yield of 8.34% as of the latest data, and it has maintained dividend payments for an impressive 20 consecutive years. These attributes, combined with the fact that analysts predict the company will be profitable this year and has been profitable over the last twelve months, provide a solid foundation for investor confidence.
For those interested in further analysis, InvestingPro offers additional tips on Spok Holdings Inc. at https://www.investing.com/pro/SPOK. These insights could be particularly valuable for investors seeking to understand the company's potential in the context of its industry and financial performance.
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