Spok Holdings Inc. Q1 2023 Earnings Call

Today into spokes future financial and business performance such statements May include estimates of revenue expenses and income as well as other predictive statements or plans, which are dependent upon future events or conditions. These statements represent the company's estimates only on the date of this conference call and are not in.

Tended to give any assurance as to actual future results spokes actual results could differ materially from those anticipated in these forward looking statements. Although these statements are based upon assumptions that the company believes to be reasonable they are subject to risks and uncertainties. Please review the risk factor.

Section relating to our operations and business environment, which are contained in our first quarter 2023 Form 10-Q and related documents filed with the Securities and Exchange Commission. Please note that spoke assumes no obligation to update any forward looking statements from past or present filings and <unk>.

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Good morning, everyone and thank you for joining us for our first quarter 2023 earnings call.

Want to remind everyone that our mission is to generate cash and return capital to our shareholders over the long term.

We believe we are on a sustainable path to doing so I believe we can pay our quarterly dividend at these levels for the foreseeable future.

Further we believe our cash flow is on a path to grow into our current dividend level and eventually cover it in full.

That is our job and our primary focus.

Turning to capital to shareholders has been our legacy and we feel good about getting back to our roots in doing so.

Today, we will share with you an update on our strategic business plan is progressing in support of this goal as well as our financial results for the quarter I'll start by reviewing the agenda for today's call. The order will be as follows.

We will begin by providing a review of our operational performance for the quarter and full year.

I'll, then turn the call over to Calvin to review, our first quarter 2023 financial highlights and performance.

We will then conclude our prepared remarks with our business outlook and financial guidance for 2023, and then we'll wrap up the call.

I'd like to invite all of you to our Investor Day program, which will be starting shortly after this call at 10 am central in the interest of time, we'll not be taking any questions on this morning's earnings call, but as al mentioned earlier, there will be ample opportunity for live Q&A during the Investor Day program. Please.

Please visit the Investor Relations section of our website.

Access that webcast.

We're proud of what the spoke team has been able to accomplish in the first quarter.

And believe that these results position us well for the remainder of the year as we continued to execute on our focus on generating cash and returning capital to stockholders.

Last quarter, we made tremendous progress in several key performance areas, including wireless trends.

Software bookings and backlog levels as well as expense management as we continue to see operating expenses decline on both a sequential and year over year basis. We.

We were able to accomplish this while investing in our spoke care connect and wireless solutions.

I'm, particularly pleased with our performance in wireless.

For the first time in several years, we grew our first quarter revenue on both a sequential and year over year basis, and further minimized unit churn.

Average revenue per unit or <unk>.

Also up on both the sequential and year over year basis.

More than half of the nearly 5% annual growth in <unk> in the first quarter reflects the impact pricing actions taken in late 2022 to a lesser extent sales of our new Gen. A pager.

We look forward to continued success for the remainder of the year.

Alan will go into more detail later in the call. Let me briefly say that based on our confidence in the strong performance. We saw in the first quarter, we are increasing our financial guidance for 2023, reflecting increased revenue and adjusted EBITDA expectations.

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Our strategic goal is simple.

On the business profitably and generate cash flow.

For a review some of the key highlights from the first quarter that drove the first part of that goal. Let me take a few minutes to address the second part of the goal which is to generate cash flow.

As I mentioned spoke is a proud legacy of creating stockholder value through free cash flow generation and we intend to continue this track record.

Last year spoke returned 25 million to our stockholders through our regular quarterly dividend.

Back since 2004 spoke has returned a total of nearly $655 million to our stockholders.

Through our regular quarterly dividend special dividends or share repurchases.

In 2023 this history of returning cash to our stockholders continue as we generated $6 9 million of adjusted EBITDA and returned $6 $9 million to our stockholders in the form of a regular quarterly dividend and we expect to pay dividends totaling approximately $25 million in 2023.

Spoke remains committed to our dividend policy and returning capital to our stockholders.

When you take into consideration our current cash balance distributions to stockholders and share repurchases debt repayment and acquisitions, it's focused generated nearly $1 billion of free cash flow since our inception, and we anticipate that we will exceed that threshold this quarter, our focus on maximizing cash flow over the long term support.

The four major tenants of our strategy. Those are number one continued investment in our wireless and software solutions.

Number two.

Stabilizing and then growing our revenue base.

Three continued disciplined expense management and number four a stockholder friendly capital allocation plan.

Going forward, we believe our extensive experience operating our established communication solutions and World class customer base will create significant value for our shareholders by maximizing revenue and further cash flow generation.

In early 2022, we announced a new strategic business plan set a priority on maximizing cash flow of returning capital to our shareholders.

Part of that strategic pivot, we made the tough decision to discontinue development and sale spokeo and eliminate all associated costs.

However, part of that plan also included continuing to invest in our wireless and contact center software solutions in a disciplined manner.

We felt this was important to stabilize and then ultimately grow our revenue and cash generation potential. That's how we will maximize our ability to return capital to our shareholders over the long run.

I'm happy to report that we have continued to execute on our business plan and in the first quarter of 2023, we generated GAAP net income of $3 1 million or 15 cents per diluted share a sharp reversal from the net loss of $7 $2 million 37 per diluted share in the prior year period, we accomplished this while <unk>.

Creasing first quarter 2023 software operations bookings by nearly 9% from the prior year period, and generating wireless revenue growth on both a sequential and year over year basis.

Amidst all the progress in creating a solid financial platform and shareholder friendly capital allocation strategy, we remain true to our mission of being a global leader in health care Communications, we deliver clinical information secure teams, winning where it matters most to improve patient outcomes spoke enables smarter faster.

Clinical communications for our customers.

We have over 200 health care facilities as customers, representing the who's who of hospitals in the United States. We built our solutions over many years and have long standing valuable customer relationships. This is coupled with our financial strength.

84% of our recurring revenue.

Our revenue is reoccurring in nature, and we are company with no debt, which provides us significant flexibility.

Before I turn the call over to Calvin to review our financial performance in more detail I'd, just like to highlight a couple of items from a shelf perspective.

In the first quarter of $5 $7 million of software operations bookings included 15, new six figure customer contracts sustaining the momentum that we saw in the second half of last year. This new six figure contracts included four new no new logo customers that had previously not been businesses, but we're pleased with the start.

23, especially in light of the timing of several contracts that we had anticipated to close in the first quarter and that have now closed in the first few weeks of the second quarter our momentum continues.

I'd like to also highlight our successful participation in last month's HIMSS conference. There was showcased our top rated clinical communications platform spoke solution experts also demonstrated the power of both care connect healthcare communications platform and spoke voice connect throughout the conference.

At the HIMSS 2023 conference attendees learned how spoke solutions improve provider care in communications at more than 200 hospitals worldwide.

Also featured our new evolution of speech technologies.

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Listen the response finally information and connects to call freeing operators time to support more complex higher value customer needs as well as manage periods of high call volume or being short staffed spoke voice connect also includes new reporting capabilities to provide insights into system usage areas for.

And how to optimize the system to better serve both customers.

While the conference did not have the attendants we've seen in years past, we were pleased with the customer prospect and partner meetings, we participated in.

Events, such as these are important as they provide a referral source for further growth through our sales pipeline.

Now with that said I'd like to turn the call over to our Chief Financial Officer Calvin Rice.

Thanks, Vince and good morning, everyone I would now like to take a few minutes and provide a recap of our first quarter 2023 financial performance, which we reported yesterday.

I encourage you to review our 10-Q when filed is it includes significantly more information about our business operations and financial performance than we will cover on this call.

Turning to our income statement in the first quarter of 2023, GAAP net income totaled $3 1 million or <unk> 15 per diluted share.

Compared to a net loss of $7 2 million or <unk> 37 per diluted share in 2022.

For the first quarter of 2023 total GAAP revenue was $33 2 million in line with the prior quarter and compared to revenue of $33 8 million in the first quarter of 2022.

Revenue for the quarter consisted of wireless revenue of $19 million, which was up zero point $2 million or 1%.

From the prior year and software revenue of $14 2 million down five 5% from last year in line with our expectations.

With respect to wireless revenue first quarter 2023 totaled $19 <unk> million up on both a sequential and year over year basis, while we continue to see improvement in net unit churn declined only three 2% on a year over year basis. This performance was primarily driven by a 35% increase in <unk>.

Changes in recoverable taxes, and fees, which are pass through items and have a corresponding cost element that typically fluctuates on a roughly one to one basis accounted for approximately 40% of that increase or 15.

As a reminder, these fees are set by the FCC on a quarterly basis and can fluctuate significantly.

With that said the remaining 20 <unk> increase in <unk> was driven by the success of our pricing actions undertaken in late 2022 and to a lesser extent sales of our new Gen. A patriot.

While we believe the demand for our wireless services will continue to decline on a secular basis as reflected in declining paging units in service. We are hopeful that our focus on pricing and other initiatives like the journey Patriot will continue to further offset revenue lost through pager unit decline.

This is further reflected in our updated financial guidance, which I will walk through shortly.

Turning to first quarter software revenue maintenance revenue totaled $8 9 million was down from the prior year quarter by approximately 3% in line with our expectations as we have discussed in previous quarterly calls as we continue to reorient focus back on our stroke care connect software products, our expectation is for maintenance revenue to be flat.

Got to down slightly on a year over year basis, given gross churn and uplift levels remaining consistent with prior quarters.

As we continue to make progress on our product roadmap with spoke care connect we expect bookings will continue to grow in the coming years and maintenance revenue along with it given the nature of maintenance revenue higher license sales will work through revenue on a lagging basis. So we will look first to stabilizing that revenue decline and then begin to grow it.

Less billable resources.

Lastly license and hardware revenue was 2.0 million compared with $2 4 million in the same period of the prior year.

While the first quarter benefited from the timing of approximately <unk> 5 million to 1.0 million of expenses, which we expect to incur throughout the remainder of the year the year over year decline in cost was primarily a result of our restructuring efforts undertaken early last year and completed in late 2022.

Finally, I'd like to take a few minutes to outline our revised financial guidance for 2023.

First on our performance in the first quarter and the strengthening software operations bookings and backlog levels, along with improvement in wireless trends, we are increasing our expectations across all categories. As a reminder, the figures I'm going to discuss today are included in our guidance table in the earnings release.

In 2023, we now expect total revenue to be in the range of $131 million to $137 5 million, a $1 $5 million increase from the previous guidance midpoint.

Included in our revised guidance, we expect wireless revenue to range between 73 million to $75 5 million or $1 million to $5 million increase from the previous guidance midpoint. As we expect recent trends will continue to improve as I discussed earlier.

Software revenue is expected to range from $58 million to $62 million with the midpoint, implying total software revenue representing a small increase from the midpoint of our prior guidance.

Based on improving improving trends in our performance in the first quarter. Our revised adjusted EBITDA guidance for 2023 is $24 5 million to $26 5 million, a 0.5 million increase from the previous guidance midpoint with that said I will now turn the call back over to Vince. Thank you Kevin.

Again, I'd like to remind everybody that shortly following this call will be hosting our Investor Day program. The program will include presentations from myself and our broader management team as well as an opportunity for Q&A. We hope you can join us as the event will be webcast.

Please go to the Investor Relations section of our website to register for the webcast.

We appreciate your support and interest in both and we look forward to updating everyone again next quarter. When we report second quarter of 2023 results in July . Thank you for joining US this morning and have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.