Q3 2023 Spok Holdings Inc Earnings Call

October 26, 2023

Good morning, and welcome to spoke holdings third quarter 2023 earnings call. At this time, all participants are in a listen only mode.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Al Galgano you may begin.

Hello, everyone and welcome to spoke holdings third quarter 2023 earnings call.

I am joined by Vince Kelly, Chief Executive Officer, Mike Wallace, President of Spokes, Inc, and Chief operating Officer, and Calvin Rice, Chief Financial Officer.

After a brief presentation by management, we will open up the call to your questions.

Want to remind everyone that todays conference call May include forward looking statements that are subject to risks and uncertainties relating to 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 intended to give any assurance as to the 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 factors section relating to our operations and the business environment, which are contained in our third quarter 2023 Form 10-Q and related documents filed with the Securities and Exchange Commission. Please.

Please note that spoke assumes no obligation to update any forward looking statements from past or present filings and conference calls.

With that I'll turn the call over to Vince.

Good morning, Thank you for joining us for our third quarter 2023 earnings call I'm very pleased with how our team performed in the third quarter.

We're excited by the growth we are generating in terms of revenue profitability and cash flow.

And we are excited by our prospects and our outlook are.

Our strategic focus remains the same that is to generate cash and return capital to our stockholders over the long term.

We are accomplishing this by responsibly investing in our business to support growing revenue, while closely managing our operating expenses and capital expenditures.

While the dividend level, we declared when we announced our pivot in 2022 may have initially seemed high. We believe spoke is struck an excellent balance between making the necessary investments to fuel future growth.

While continuing to demonstrate our prowess generating cash flow and then returning capital to our stockholders.

We believe we are on a sustainable path to continue paying 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 based on our updated and increased guidance for the full year of 2023, we expect to cover at least 95% of our dollar twenty-five annual dividend. This year based on the midpoint of our adjusted EBITDA.

Guidance less capital expenditures.

Today, we'll share with you an update on how our strategic business plan is progressing supported 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 reviewing our strategic focus and goals and looking at our progress against those goals.

Next I'll turn the call over to Michael Wallace, our President and C. O L who will provide a review of our operational performance for the quarter.

Mike will then turn the call over to Calvin Rice, our CFO to review, our third quarter 2023 financial highlights in more detail.

We will then conclude our prepared remarks with our business outlook and updated financial guidance for 2023, and finally, we will then open up the call to your questions.

Any discussion regarding spokes third quarter results has to start with how truly proud I am of this team and the continued growth momentum that we were able to generate in the period.

That momentum continued in the third quarter after a record high software operations bookings in the second quarter. Our second quarter results included some new customer contracts that we had anticipated to close in the third quarter.

Software operations bookings are always going to be lumpy and we believe the best way to view them as over a broader window through the first nine months of this year. Our software operations bookings are up over 38% compared to the same nine month period in 2022.

Again, we were able to grow total revenue as we achieved year over year software revenue growth of 12% for the quarter and seven 9% growth on a year to date basis.

We were also able to keep wireless revenue levels consistent with the prior year quarter and slightly up on a year to date basis.

We continue our focus on expense management as adjusted operating expense levels through the first nine months of the year are down nearly 12% from the same period in 2022.

As part of our continuing focus to manage expense levels in September we exercised an option for the early termination for the lease on our corporate headquarters in Alexandria, Virginia.

Consistent with how we have been operating since the onset of COVID-19 employees of the Alexandria headquarters will continue to work remotely.

Evan will provide more detail regarding the lease termination when he reviews the financial results, but the bottom line is that we expect to save approximately $1 million in annually beginning after the conclusion of our lease in September of 2024.

However, our focus on expense management as a driver to generating increased cash flow does not come at the expense of our product platform as we continue to make the necessary investments in product development sales and marketing customer support professional services to support the growth of our spoke care connect and wireless solutions.

Our cost savings focus also does not come at the expense of our employees, who make spoke success a reality as we mindfully address compensation levels for all employees to be sure we are fair and competitive and our heightened inflationary environment.

We look forward to continued success and believe our extensive experience operating our established communication solutions will unlock even more efficiencies and create significant value for stockholders over time.

In short we continue to fire on all cylinders and are confident about the future as we close out 2023.

Based on our performance in the third quarter, we are once again, increasing our guidance estimates for revenue and adjusted EBITDA generation.

Want to point out we have increased our guidance each quarter. This year every time, we have reported we are increasing the midpoint of our revenue and adjusted EBITDA guidance by $1 $75 million.

Or an additional almost 7% demonstrating our ability to generate cash.

All of our increase in revenue guidance. This quarter is falling to the bottom line commonly go in more detail later in the call, but we expect to grow consolidated revenue for 2023 on a year over year basis for the first time in the company's history.

And the low point of our revenue guidance reflects our confidence we believe we will do so again in 2024.

Before we dive into our operational highlights for the third quarter. Let me take this opportunity to briefly summarize our mission for those of you that may be new to our story. Our strategic goal is simple run the business profitably generate cash flow and return that capital to stockholders.

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

The beginning of our strategic pivot, which started about 20 months ago spoke has returned approximately $44 million or $2 20 per share to our stockholders in the form of our regular quarterly dividend in fact since we founded this company in 2004 spoke has returned nearly $670 million to our.

Stockholders.

Through our regular quarterly dividend special dividends or share repurchases.

In the third quarter of 2023, the history of returning cash to our stockholders continues as we again generated impressive levels of adjusted EBITDA and returned $6 $2 million to our stockholders and we expect to pay dividends totaling approximately $25 million in 2023 as we did in 2022.

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 share repurchases debt repayments and acquisitions spoke has now generated more than $1 billion of free cash flow since 2004 inception.

Our focus on maximizing cash over the long term supports the four major tenants of our strategy and those are one.

Continued investment in our wireless and software solutions to.

Stabilizing and growing our revenue base, three disciplined expense management and 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 continue to create significant value for our stockholders.

Now I'll turn the call over to our President and Chief operating Officer, Michael Walsh.

Who will talk about our operational accomplishments Mike.

Thanks, Vince and good morning, and thank you all for joining us for another solid quarter of results from spoke.

We are happy to report that we have continued to execute on our business plan in the third quarter of 2023.

Generated GAAP net income of $4 5 million or <unk> 22 per diluted share, which.

That's a 52% increase from net income of $2 9 million or <unk> 15 per diluted share in the prior year period.

We accomplished this while continuing to generate year over year third quarter software operations bookings growth.

Again on a year to date basis software operations bookings have totaled $26 million.

More than 38% from the prior year levels and have already surpassed our full year total for 2022.

Also total 2023 software bookings are on track to reach levels not seen since 2019.

Amidst all the progress in creating a solid financial platform and stockholder friendly capital allocation strategy. We remained true to our mission of being a global leader in health care Communications.

We deliver clinical information to care teams, when and where it matters most to improve patient outcomes as folk enables smarter faster clinical communications for our customers.

And importantly, we continue to maintain our reputation as a thought leader in the healthcare communications space.

Now let me take a couple of minutes to tell you about two recent events that underscore our industry leading reputation.

First earlier this month, we released the results of spokes, 13th annual survey on communications and healthcare.

This year more than 150 executives physicians nurses personnel and contact Center Representatives responded with input about the state of communication at their respective organizations.

The survey results unveiled three major takeaways.

First unified communication across the organization is essential for modern health care health.

Health care leaders want a unified communication platform that integrates features such as secure messaging on call scheduling clinical alerting and mass communications.

One that is a centralized approach rather than one that is siloed all of which spoke provides.

Second addressing burn out across the organization from clinicians to personnel is imperative.

Although we have seen a positive shift on this front is about two thirds of respondents noted their organizations are trying to tackle work related stress and burnout.

And lastly, diversity and communication devices remains relevant health care organizations recognize the importance of personal communication devices, whether that'd be smartphones Wi Fi phones are encrypted pagers.

Despite the challenge of hospitals and health care system space, we realize that effective and efficient communication is crucial for improving patient safety and outcomes and mitigating the risk of clinician burnout.

While budget and resource constraints remain the biggest challenge for healthcare leaders, when considering new technology quality and safety of patient care remains Paramount.

The same week, we released the survey results spoke hosted at our annual user conference connect.

We held the event again this year on a virtual basis and had over 150 attendees representing nearly 100 organizations.

The event included presentations by both our management teams and our customers.

As well as breakout roundtable discussions and general Q&A sessions.

On the feedback we received in the amount of customer participation in our group chat questions and forums. We believe this was the most successful successful virtual customer event, we have ever hosted and.

And we are proud of the unparalleled reputation we have built within the market that we serve and want to take this opportunity to thank our customers for their loyalty and their support.

Spoke has over 2200 health care facilities as customers, representing the who's who of hospitals in the United States.

We have built our solutions over many years and have longstanding valuable customer relationships.

This is an amazing and valuable asset for this company and these hospitals buy from us regularly and renew maintenance at a high level.

Despite the record $14 million of software operations bookings in the second quarter. That's all several large deals pulled forward that were anticipated to close in the second half of 2023.

Our team was still able to generate year over year growth in software operations bookings for the third quarter.

Included in this quarter's bookings were 11, new six figure customer contracts and $1 seven figure contract.

Our achievements in the third quarter can largely be attributed to three multi year engagement contracts we secured.

The first was with one of the largest nonprofit integrated academic health care systems in the United States.

Another with a large university medical system in the northeast.

And the final with a leading cancer Center hospital in the northeast.

The first health system boasts over 27000 employees across 14 hospitals and Leverages. The <unk> care connect platform for answering over 200000 monthly operator calls sending over 35000 pages per month and managing over 120000 oncall assignments each month.

We are delighted to announce today that our multi year engagement with this health system that includes spoke smart suite upgrades unlimited smart suite console licenses extended spoke mobile usage for all of the organizations almost 4000 users one of the largest deployments of slope mobile in the country and additional spoke professional services for small.

All engagements outside of the identified upgrades.

And as an existing spoke customer the health system also opted for a variety of spokes value added services, including data integrity workflow analysis and organizational change management.

These value added services help us partner derive maximum value from our solutions.

Looking ahead, we're excited about the prospects of expanding spud mobile and implementing smart suite and other locations within this organization.

Spoke boasts a remarkable history of delivering efficient communication solutions to health care facilities.

Another of our standout customer contracts last quarter.

It was with a leading academic teaching hospital with over 900 beds and almost 10000 employees across its campuses.

This five year engagement was felt was for enterprise consolidation across multiple facilities on spoke smart suite.

Operator: Good morning, and welcome to Spok Holdings 3rd quarter, 2023 earnings call. At this time, all participants aren't listened only month. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Folks messenger and speech solutions as well as folks value added services solution assessment.

Finally, we executed another five year engagement with one of the world's most respected comprehensive cancer centers.

With over 500 inpatient beds and over 5500 attending physicians and nurses.

Al Galgano: It is now my pleasure to introduce your host, Al Galgano, you may begin. Hello, everyone, and welcome to Spok Holdings 3rd quarter, 2023 earnings call. I am joined by Vince Kelly, Chief Executive Officer Mike Wallace, President of Spok Inc and Chief Operating Officer and Calvin Rice, Chief Financial Officer.

This contract was for new licenses and upgrades across multiple facilities on spoke smart suite E notify and our messenger solutions as well as the solution assessment value added service.

Our third quarter success continues to showcase our commitment to providing unmatched communication solutions to our clients and we are confident that our software solutions will continue to drive positive change for health care institutions nationwide.

Al Galgano: After a brief presentation by management, we will open up the call to your questions. I want to remind everyone that today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to Spok's 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 depending upon future events or conditions. These statements represent the company's estimates only on the date of this conference call and are not intended to give any assurance as to the 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.

While we are certainly pleased with.

With the continued momentum that we saw in the third quarter, coupled with the historic level of second quarter software operations bookings as we have noted in previous quarterly earnings calls. We believe it is more appropriate to look at software operations bookings on a calendar year basis.

While of course, we spend a great deal of time analyzing sales on a contract by contract basis.

When assessing overall performance of our software operations bookings.

Full year basis, better normalizes, both positive and negative timing anomalies that can arise out of the sales cycle.

Believe looking at growth in software operations bookings over an annual period is more reflective of the momentum that we are generating it is most appropriate for investors as well.

With that said, we now expect 2023 year over year software operations bookings growth in percentage terms to be in the upper teens to low twenties for the full year.

Al Galgano: Please review the risk factor section relating to our operations and the business environment which are contained in our 3rd quarter, 2023, formed 10Q and related documents filed with the Securities and Exchange Commission. Please note that Spokes assumes no obligation to update any forward-looking statements from past or present filings and conference calls.

With that I'd like to turn the call over to our Chief Financial Officer, Calvin Rice Calvin.

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

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

Al Galgano: With that, I'll turn the call over to Vince.

Vince Kelly: Good morning. Thank you for joining us for our 3rd quarter, 2023, earnings call. I'm very pleased with how our team performed in the 3rd quarter. We are excited by the growth we are generating in terms of revenue, profitability, and cash flow. And we are excited by our prospects in our outlook. Our strategic focus remains the same, that is, to generate cash and return capital to our stockholders over the long term. We are accomplishing this by responsibly investing in our business to support growing revenue, while closely managing our operating expenses and capital expenditures.

Turning to our income statement in the third quarter of 2023, GAAP net income totaled $4 5 million or <unk> 22 per diluted share compared to net income of $2 9 million or <unk> 15 per diluted share in the same 2022 period and in line with our record second quarter performance.

For the third quarter of 2023 total GAAP revenue was $35 4 million compared to revenue of $33 7 million in the third quarter of 2000 to 2022.

Vince Kelly: While the dividend level we declared when we announced our pivot in 2022 may have initially seemed high, we believe Spokes struck an excellent balance between making the necessary investments to fuel future growth, while continuing to demonstrate our prowess in generating cash flow and then returning capital to our stockholders. We believe we are on a sustainable path to continue paying 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 based on our updated and increased guidance for the full year of 2023, we expect to cover at least 95 percent of our Dow or 25 annual dividend this year based on the midpoint of our adjusted EBTA guidance less capital expenditure.

Revenue for the quarter consisted of wireless revenue of $19 million, which was essentially flat to revenue of $19 1 million in the prior year period and software revenue of $16 5 million.

Up 12% from last year.

Reflecting the significant year over year increase in professional services revenue driven by the significant increase in bookings and related backlog of professional service projects.

With respect to wireless revenue third quarter performance continues to be primarily driven by improvement in average revenue per unit or <unk>, which saw growth of 19 on a quarterly basis year over year.

This improvement is largely the result of additional pricing actions taken in September of 2023.

These pricing actions will be fully reflected in our fourth quarter results and we anticipate a corresponding increase of 15 to 19, <unk> and <unk> in relation to the $7 59 realized in the third quarter, all things being equal.

Vince Kelly: Today we'll share with you an update on how our strategic business plan is progressing and 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'll begin by reviewing our strategic focus and goals and looking at our progress against those goals.

Net unit churn continues to remain at historically low levels as net units in service declined by roughly four 7% from the prior year period.

Vince Kelly: Next I'll turn the call over to Michael Wallace, our president and COO, who will provide a review of our operational performance for the quarter.

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

Vince Kelly: Michael then turn the call over to Calvin Rice, our CFO, to review our third quarter 2023 financial highlights in more detail. We will then conclude our prepared remarks with our business outlook and updated financial guidance for 2023.

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

Turning to software revenue in the third quarter license revenue of $2 4 million was up by more than 12% from the third quarter of 2022.

Vince Kelly: And finally, we will then open up the call to your questions. Any discussion regarding Spokes' third quarter results has to start with how truly proud I am with this team and the continued growth momentum that we were able to generate in the period. That momentum continued in the third quarter after our record-high software operations bookings in the second quarter. Our second quarter results included some new customer contracts that we had anticipated to close in the third quarter.

Maintenance revenue totaled $9 4 million and that was up from revenue of $9 2 million in the prior year quarter.

As we have discussed in previous quarterly calls as we continue to make progress on our product roadmap. We spoke care connect we expect bookings will continue to grow in the coming years and maintenance revenue along with it.

Vince Kelly: Software operations bookings are always going to be lumpy, and we believe the best way to view them is over a broader window. Through the first nine months of this year, our software operations bookings are up over 38% compared to the same nine-month period in 2022. Again, we were able to grow total revenue as we achieved year-over-year software revenue growth 12% to the quarter and 7.9% growth on a year-to-date basis. We were also able to keep wireless revenue levels consistent with the prior year quarter and slightly up on a year-to-date basis.

Given the nature of maintenance revenue higher license sales will work through revenue on a lagging basis. So we look first to stabilizing that revenue decline, which we believe we are close to accomplishing and then beginning to grow it.

Professional services revenue was a healthy $3 8 million versus $2 8 million in the third quarter of 2022 and consistent with the record levels achieved in the second quarter of 2023.

We continue to see sustained improvement in resource utilization delivering on our internal initiatives to better align total resources with our backlog and driving a higher rate of net cash flow.

Vince Kelly: We continue our focus on expense management as adjusted operating expense levels through the first nine months of the year are down nearly 12% from the same period in 2022. As part of our continuing focus to manage expense levels in September, we exercise an option for the early termination for the lease on our corporate headquarters in Alexandria, Virginia. Consistent with how we have been operating since the onset of COVID-19, employees of the Alexandria headquarters will continue to work remotely.

We have been hiring service professionals in the second half of 2023 to meet our current backlog needs and we expect that to continue throughout 2024 to meet anticipated sales demand.

Third quarter, adjusted operating expenses, which excludes depreciation amortization and accretion and severance and restructuring costs totaled $27 9 million representing no change from the prior year period.

Increases in research and development, we're largely timing in nature with reductions in technology operations, driven by our normal practice of cost reduction and relationship to declining wireless revenues increase.

Vince Kelly: Calvinal provide more detail regarding the lease termination when he reviews the financial results, but the bottom line is that we expect to save approximately one million and annually beginning after the conclusion of our lease in September of 2024. However, our focus on expense management is the driver to generate increased cash load or does not come at the expense of our product platform. As we continue to make the necessary investments in product development, sales and marketing, customer support, professional services to support the growth of our Spoke Care Connect and wireless solutions, our cost saving focus also does not come at the expense of our employees who make Spoke success a reality as we mindfully address compensation levels for all employees to be sure we are fair and competitive in a heightened inflationary environment.

Increases in selling costs, which primarily relate to commissions and higher fringe costs, where most were more than offset by savings in G&A, which continues to see year over year benefit from our cost saving initiatives as.

As we look at the fourth quarter and into 2024, we foresee a need for additional sales resources and would expect sales and marketing costs will continue to marginally increase as a result these.

These resources will support our robust sales pipeline and generate additional sales activity as we look to extend the sales success, we have achieved over the last two years.

Also while we're on the topic of operating expenses, let me briefly add some detail to vince's prior comments regarding the early termination of our lease of the Alexandria headquarters building.

Vince Kelly: We look forward to continue to success and believe our extensive experience operating our established communication solutions will unlock even more efficiencies and create significant value for stockholders over time. In short, we continue to fire on all cylinders and are confident about the future as we close out 2023. Based on our performance in the third quarter, we are, once again, increasing our guidance estimates for revenue and adjusted EBDA generation. I want to point out, we have increased our guidance each quarter this year every time we have reported.

In September 2023, we exercised an early termination option for the lease of our corporate headquarters in Alexandria, Virginia. The lease will now end two years early on September 30th 2024, as a result of the early termination we paid a one time termination fee of 0.7 million reflected in our cash balances.

As of September 32023.

The termination fee and remaining lease costs will be amortized to severance and restructuring through September 32024.

Thereafter, we expect to save approximately $1 million annually as a result of this decision and as Vince mentioned previously a portion of this benefit will go towards offsetting salary increases expected in the fourth quarter in light of our strong financial performance and a heightened inflationary environment. We have all been experiencing we believe it's important that we took.

Vince Kelly: We are increasing the midpoint of our revenue and adjusted EBDA guidance by 1.75 million or an additional almost 7% demonstrating our ability to generate cash. All of our increase in revenue guidance this quarter is falling to the bottom line. Calvin will go in more detail later in the call but we expect to grow consolidated revenue for 2023 on a year-over-year basis for the first time in the company's history. And the low point of our revenue guidance reflects our confidence. We believe we will do so again in 2024.

Care of the people that make these results a reality these increases will be companywide based on certain qualifications at all levels below senior management.

Additionally, it is important that we take care of our employees to ensure we can compete in what is still a highly competitive market.

The company anticipates relocation of its headquarters to the existing corporate location in Plano, Texas and does not expect material costs to be incurred as a result of this change.

Vince Kelly: Before we dive into our operational highlights for the third quarter, let me take this opportunity to briefly summarize our mission for those of you that may be new to our story. Our strategic goal is simple. Run the business profitably, generate cash flow, and we turn that capital to stockholders. Spoke as a proud legacy of creating stockholder value through free cash flow generation and we intend to continue this track record. Since the beginning of our strategic pivot, which started about 20 months ago, Spoke as we turn approximately 44 million dollars or two dollars and 20 cents per share to our stockholders in the form of our regular quarterly dividend.

Approximately 30 employees will be impacted as a result of this decision as Vince pointed out these employees will formally transition to remote work, we see no risk related to this transition and expect no issues. Given this has largely been our posture since early 2020.

While this decision was not made lightly the company expects to benefit greatly from the significant cash savings greater flexibility for our employees and higher levels of productivity, we have seen from the preexisting work from home posture.

Lastly, as Vince pointed out earlier in the call adjusted EBITDA was a near record $8 4 million in the third quarter up nearly 25% from $6 7 million in the same quarter of 2022, reflecting the progress made to date with our strategic pivot in fact through the first nine months of 2023.

Vince Kelly: In fact, since we founded this company in 2004, Spoke as we turn nearly 670 million dollars to our stockholders through our regular quarterly dividend, special dividends, or share repurchases. In the third quarter of 2023, the history of returning cash to our stockholders continues as we again generate impressive levels of adjusted EBDA and we turn 6.2 million dollars to our stockholders. And we expect to pay dividends totaling approximately 25 million dollars in 2023 as we did in 2022.

<unk> adjusted EBITDA has totaled nearly $24 million up nearly 156% from the prior year period.

Our performance in the first nine months of 2023 in terms of strengthening software operations bookings robust backlog levels improvement in wireless trends and strong adjusted EBITDA has led us to again increase our expectations across all categories for the full year.

Vince Kelly: 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, share repurchases, debt repayments, and acquisitions, Spoke has now generated more than one billion dollars of free cash loss since 2004 inception. Our focus on maximizing cash over the long-term supports of four major tenants of our strategy, and those are one, continued investment in our wireless and software solutions, two, stabilizing and growing our revenue base, three, disciplined expense management, and 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 continue to create significant value for our stockholders.

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 $136, two 5 million to $139 $2 5 million a $175 million increase from the previous guidance mid points more importantly, as Vince pointed out. This represents the first time in the company's history that we expect to grow consolidated.

Revenue from the prior year and the low end of our guidance reflects that with a three 5% annual growth rate at the high end of our revised guidance <unk>.

Included in the revised guidance, we expect wireless revenue to range between 75 to 5 million to $76 5 million.

$750000 increase from the previous guidance midpoint as we expect recent trends will continue to improve as I discussed earlier.

Michael Wallace: Now I'll turn the call over to our president and chief operating officer Michael Wallace, who will talk about our operational accomplishments, Mike. Thanks, Ben, and good morning. And thank you all for joining us for another solid quarter of results from Spoke. We are happy to report that we have continued to execute on our business plan and in the third quarter of 2023 we generated gap net income of 4.5 million or 22 cents per diluted share which represents a 52% increase from that income of 2.9 million or 15 cents per diluted share in the prior year period.

Software revenue is expected to range from $61 million to $63 million with a midpoint, implying total software revenue growth of more than 5% from prior year levels.

Lastly, based on these improving trends and our performance in the third quarter. Our revised adjusted EBITDA guidance for 2023 is $27 5 million to $29 million, a $1 $75 million increase or almost 7% from the previous guidance midpoint with that said I will now turn the call back over to Vince. Thank you Calvin.

Michael Wallace: We accomplished this while continuing to generate year-to-year third quarter software operations bookings growth. Again, on a year-to-day basis software operations bookings have totaled 26 million up more than 38% from the prior year levels and have already surpassed our full year total for 2022. Also, total 2023 software bookings are on track to reach levels not seen since 2019. Amidst all the progress in creating a solid financial platform and stockholder friendly capital allocation strategy, we remain true to our mission of being a global leader in healthcare communications.

Before we open up the call to your questions. Let me just reiterate how proud I am of the entire spoke team and their ability to maintain our momentum and generate further growth despite coming off a record second quarter that shattered all performance metrics. It is their efforts, which gave us the confidence to increase guidance, yet again and we believe.

We'll provide the springboard to take us into an even stronger 2024.

I'd also like to thank our stockholders for their continued support and want to assure you that our primary focus remains on generating cash and increasing stockholder value, we're committed to our current dividend and capital allocation policy.

Michael Wallace: We deliver clinical information to care teams, when and where it matters most, to improve patient outcomes as spoke enables smarter, faster, clinical communications for our customers. And importantly, we continue to maintain our reputation as a thought leader in the healthcare communications space.

On a final note I'd like to tell everybody about spokes presentation at the upcoming Piper Sandler Healthcare Conference in New York look for a press release soon with the dates and timing of our presentation. We hope to see many of you there and we'll continue to look for opportunities to tell our story to the investment community and focus on investor marketing activities.

Michael Wallace: Now, let me take a couple of minutes to tell you about two recent events that underscore our industry leading reputation. First, earlier this month, we released the results of spokes, 13 annual survey on communications in healthcare. This year, more than 150 executives, physicians, nurses, IT personnel, and contact center representatives responded with input about the state of communication at their respective organizations. The survey results unveiled three major takeaways. First, unified communication across the organization is essential for modern healthcare.

And we know the ultimate attraction will come as a result of our consistent and successful business execution.

That concludes our prepared remarks at this point I'll ask the operator to open the call up for your questions. We'd ask you to limit your initial questions to one and a follow up and then after that we'll take additional questions as time allows operator.

Okay.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is open the question queue. You May press star two if he would like to remove your question from the queue.

Michael Wallace: Healthcare leaders want a unified communication platform that integrates features such as secure messaging, on-call scheduling, clinical alerting, and mass communications. One that is a centralized approach rather than one that is siloed, all of which spoke provides. Second, addressing burnout across the organization from clinicians to IT personnel is imperative. Although, we have seen a positive shift on this front. That's about two thirds of respondents noted their organizations are trying to tackle work related stress and burnout.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from Eric Mark Carden with Lake Street. Please proceed with your question.

Congrats on the the revenue and profitability as well as the the second.

Second quarter in a row now.

Year on year growth I.

I had a question regarding the price increase that you rolled in in September what how much was the price increase and what percentage of the installed basis is impacting.

Michael Wallace: And lastly, diversity in communication devices remains relevant. Healthcare organizations recognize the importance of versatile communication devices, whether that be smartphones, Wi-Fi phones, or encrypted dangers. Despite the challenges hospitals and healthcare systems face, we realize that effective and efficient communication is crucial for improving patient safety and outcomes and mitigating the risk of clinician burnout. While budget and resource constraints remain the biggest challenge for healthcare leaders when considering new technology, the quality and safety of patient care remains paramount.

Okay.

Go ahead Derek good morning. This is Calvin yeah. So we rolled out a 6% price increase in September to the customer base that impacted probably somewhere between 65 and 70% of that customer base.

And we expect that to be fully reflected in the fourth quarter here.

Okay, and then I did see an uptick in churn in the third quarter. You guys have been I think Q2 is three 5% Q1 was $3. Two and then we saw an uptick to four 7% in Q3, what are your what are you expecting for churn.

Michael Wallace: The same week we released the survey results spoke posted in our annual user conference connect. We held the event again this year on a virtual basis and had over 150 attendees representing nearly 100 organizations. The event included presentations by both our management teams and our customers, as well as breakout roundtable discussions and general Q&A sessions. Based on the feedback we received and the amount of customer participation in our group chat, questions and forms, we believe this was the most successful, successful virtual customer event we have ever hosted.

You know kind of a range that investors can look to.

Yeah. So we've been very fortunate for probably the last nine months preceding the third quarter in terms of the lowest churn rates on record probably over the last decade, or so and it's been a consistent decline.

I would say that uptick in third quarter as isolated we don't believe it's part of any new trend you know those will.

Be variable from one quarter to the next we we'd expect to see churn anywhere in the range of probably 3.5% to 5% give or give or take.

Michael Wallace: And we are proud of the unparalleled reputation we have built within the market that we serve and want to take this opportunity to thank our customers for their loyalty and their support. Spok has over 2,200 healthcare facilities as customers, representing the who's who of hospitals in the United States. We have built our solutions over many years and have long standing, valuable customer relationships. This is an amazing and valuable asset for this company and these hospitals buy from us regularly and renew maintenance at a high level.

Okay.

And then I've noticed that disconnect between your adjusted EBITDA and the cash from ops.

Adjusted EBITDA coming in at $8 4 million.

Your your cash balance decline sequentially in the cash from ops was three 2 million. So just walk me through the delta between the two.

Michael Wallace: Despite the record $14 million of software operations, bookings and second quarter, that saw several large deals pulled forward that were anticipated to close in the second half of 2023. Our team was still able to generate year-over-year growth in software operations bookings for the third quarter. Included in this quarter's bookings were 11 news, six figure customer contracts, and one seven figure contract. Our achievements in the third quarter can largely be attributed to three multi-year engagement contracts we secured.

Adjusted EBITDA and cash flow.

Yeah, Eric we had a couple of one time things in the third quarter that affected working capital one of the things. We did is we paid out our P. T O and went to a different policy, that's going to save us about a half a million dollars a year going forward, but we had to spend about $3 million to do that and then the other thing was the early termination on the lease we span.

About what kind of a $750000 buying that out that.

That's going to save us about $1 million a year.

Going forward. All this stuff is focused on on getting to free cash flow. Those are working capital items that were both in the third quarter that won't be obviously in the fourth quarter or the first quarter are ever again.

Michael Wallace: The first was with one of the largest nonprofit integrated academic healthcare systems in the United States. Another with a large university medical system in the Northeast and the final with a leading cancer center hospital in the Northeast. The first health system boasts over 27,000 employees across 14 hospitals and leverages the Spok care connect platform for answering over 200,000 monthly operator calls, sending over 35,000 pages per month and managing over 120,000 on call assignments each month.

Mhm.

And then lastly, just stepping back here youre tracking to year on year growth here in 2023, I've got to up about 2% on a year, obviously, that's a roughly flat in the wireless and up about 5% on the software side of the house you did comment in your prepared remarks about it.

Supporting growth in 2024.

Michael Wallace: We are delighted to announce today that our multi-year engagement with this health system includes Spoke Smart Suite upgrades, Unlimited Smart Suite console licenses, Extended Spoke Mobile Usage for all of the organizations, almost 4,000 users, one of the largest deployments in Spoke Mobile in the country, an additional Spoke Professional Services for small engagements outside of the identified upgrades. And as an existing Spoke customer, the health system also opted for a variety of Spoke's value added services, including data integrity workflow analysis and organizational change management. These value added services help this partner derive maximum value from our solutions. Looking ahead, we're excited about the prospects of expanding Spoke Mobile and implementing Spoke Smart Suite in other locations within this organization.

Those of US modeling out do you know can you give us kind of a range or is it too soon to talk about potential growth rates next year look I mean this is obviously the first time, Eric that we're gonna grow the company in the company's history from a topline perspective, and you know right now.

Everything is going right, we're hitting on all cylinders when we looked at our plan we'd beat on total revenue we beat on adjusted EBITDA, We're beating our our guidance we're beating your model you know when we break our service lines out and look at software and wireless we're doing the same across the board bookings is a huge plus for us up 38% compared to the same nine.

Month period last year, the gross additions on our wireless plan or beating Jan a sales are beating our plan you know professional services their hours there right all that speeding maintenance is beating plan, we're managing our operating expense managing our capex. Our R&D team has made great progress, we're going to have some great things to read.

Michael Wallace: Spoke boasts a remarkable history of delivering efficient communication solutions to health care facilities. Another of our standout customer contracts last quarter was with a leading academic teaching hospital with over 900 beds and almost 10,000 employees across its campuses. This five-year engagement with Spoke was for enterprise consolidation across multiple facilities on Spoke Smart Suite, Spoke Messenger and speech solutions, as well as Spoke's value added service solution, at the end of the day.

We'll next year on the software side employee turnover is about as low as we've ever had in the company and morale is really high so yeah, we're going to grow in 'twenty 'twenty four will put guidance out probably before the end of the year, we haven't decided on exactly when but we've been talking about that internally a lot of good things going on I mean, our sales results.

<unk> are significantly ahead of our internal plan and where they were at this time last year.

Michael Wallace: Finally, we executed another five-year engagement with one of the world's most respective comprehensive cancer centers with over 500 inpatient beds and over 5,500 attending physicians and nurses. This contract was for new licenses and upgrades across multiple facilities on Spoke Smart Suite, e-notify, and our messenger solutions as well as the solution assessment value added service. Our third quarter success continues to showcase our commitment to providing unmatched communication solutions to our clients and we are confident that our software solutions will continue to drive positive change for healthcare institutions nationwide.

Our team already this year sold 26 multi year engagements that had a total booking value of about $15 million. We've got four of those reps over two and a half million dollars in sales alone. This year and last year, we had none and you know our average deal size. This year is doubled over 2022 it's tripled over 2021 and and we've sold.

Over 15000 Gen eight pages this year and our target. This year is 20000, and we're going to do even more next year. So we're in a growth posture right now, but you know, it's it's going to be disciplined from the standpoint that we still focus on free cash flow and returning capital to shareholders. That's still our number one goal.

Michael Wallace: While we are certainly pleased with the continued momentum that we saw in the third quarter coupled with the historic level of second quarter software operations bookings, as we have noted in previous quarterly earnings calls, we believe it is more appropriate to look at software operations bookings on a calendar year basis. While of course we spend a great deal of time analyzing sales on a contract-by-contract basis, when assessing overall performance of our software operations bookings, a full year basis better normalizes both positive and negative timing anomalies that can arise out of the sales cycle.

We expect that.

The industry is still going to be somewhat challenged in terms of health care spending and their internal resources, what we do for our customers is almost like a utility we're making I think responsible improvements to that with our investment back into our platform. I think we got a really good business model here right now might not growing like a rocket like some people.

Do but you know what you're getting paid along the way and so yeah, we'll will grow next year.

We'll get some guidance out for you guys as soon as we can we let the dust settle and do some more modeling and hopefully we'll have some up some news for you before the end of the year on what we expect for next year, but the the answer is it's going to grow.

Michael Wallace: We believe looking at growth in software operations bookings over an annual period is more reflective of the momentum that we are generating and is most appropriate for investors as well. With that said, we now expect 2023 year-over-year software operations bookings growth in percentage terms to be in the upper teens of the low 20s for the full year.

Understand thanks for taking my questions and good luck in Q4.

Sure.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Calvin Rice: With that, I would like to turn the call over to our chief financial officer, Calvin Rice. Calvin, thanks Mike and good morning everyone. I would now like to take a few minutes and provide a recap of our third quarter 2023 financial performance which we reported yesterday.

Our next question comes from Christopher Iron. Please proceed with your question.

Hi, guys fantastic quarter. Thank you very much for everything just wanted to touch on a couple of things that you said last quarter and see if you can update last quarter, you had talked about receiving interest outside interests are in the company kind of unsolicited interests wondering if theres anything new in that.

Calvin Rice: I encourage you to review our 10Q when filed. I think 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 third quarter of 2023, gap net income totaled 4.5 million or 22 cents per diluted share compared to net income of 2.9 million or 15 cents per diluted share in the same 2022 period and in line with our record second quarter performance.

In that regard you had also talked about potentially raising the dividend at some point I know I don't don't want to.

Get ahead of anything in and certainly don't want to lineup because it was a great quarter, but I just wanted to see if you can offer an update on those two things.

Yeah, Let me take the second one first the first goal was to grow into the existing dividend you know at the beginning of the year, we were talking about covering 80% of our dividend with free cash flow with our adjusted EBITDA less capex.

Calvin Rice: For the third quarter of 2023 total gap revenue was 35.4 million compared to revenue of 33.7 million and the third quarter of 2022. Revenue for the quarter consisted of wireless revenue of 19 million which was essentially flat to revenue of 19.1 million in the prior year period and software revenue of 16.5 million up 12% from last year. Reflecting the significant year-over-year increase in professional services revenue driven by the significant increase in bookings and related backlogs of professional service projects.

And so yeah, we obviously, beating that significantly I think we will cover about what is 95% carbon this year or adjusted EBITDA less capex. So we're.

We're not gonna be burning through a lot of cash obviously in 2024. So we're getting very very close to that we want to get above 100% before we.

Determined what we want to do with that and frankly.

I think we have time to make that decision. So I would say for 2020 for $1 25 is probably what you should you got what you should back on and I would say for 2025, if we were going to make a change that's where we would be looking so that's that look your first question. We're a public company we're for.

Calvin Rice: With respect to wireless revenue, third quarter performance continues to be primarily driven by improvement in average revenue per unit or R2 with shoulder growth of 19 cents on a quarterly basis year-over, for a year. This improvement is largely the result of additional pricing actions taken in September of 2023. These pricing actions will be fully reflected in our fourth quarter results and we anticipate a corresponding increase of 15 to 19 cents in R2 in relation to the $7.59 realized in the third quarter, all things being equal.

Sell in the market every day.

With where interest rates have gone in what's been a you know kind of going on out there in the sponsor community you know, it's it's tough sledding for those guys right now it doesn't mean, we haven't got calls you know we've gotten a couple of calls we're not running a process right now.

Calvin Rice: Net Unit Charn continues to remain at historically low levels, as Net Unit and Service Declined by roughly 4.7% from the prior year period. While we believe that demand for our wireless services will continue to decline on a secular basis, as reflected in declining major units and service, we are hopeful that our focus on pricing and other initiatives like the Gen A major will continue to further offset revenue lost through major unit decline.

Not for sale right now is their interest in the company I can tell you absolutely theres interest in the company a company like us that has been kind of customer base. We have has the kind of sales results, we have and throws off a ton of cash is a very rare bird in the market right now.

No.

Not many of these sponsors have an asset like this so if they want us come on and get us boys, but you're going to have to pay up okay. Because we've got good things going on here at spoke we got a great team morale is really high and we're all about executing and we're going to execute so if you want someone that can execute in your portfolio, maybe unlike some of them.

Calvin Rice: This is further reflected in our updated financial guidance, which I will walk through shortly. Turning to software revenue in the third quarter, license revenue of $2.4 million was up by more than 12% from the third quarter of 2022. Maintenance revenue totaled $9.4 million and it was up from revenue of $9.2 million in the prior year quarter. As we have discussed in previous quarterly calls, 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.

The other investments you know come take a look at us but in the meantime, we're going to do what we do and we're doing it well right now and we're very pleased with our results and we're very pleased with our outlook.

Yeah excellent. Thank you very much perfectly says.

Yep. Thanks.

Our next question comes from George Melas with MJ. Each management. Please proceed with your question.

Calvin Rice: Given the nature of maintenance revenue, higher license sales will work through revenue on a lagging basis, so we look first to stabilizing that revenue decline, which we believe we are close to accomplishing and the beginning to grow it. Professional services revenue was a healthy $3.8 million versus $2.8 million in the third quarter of 2022 and consistent with the record levels achieved in the second quarter of 2023. We continue to see sustained improvement and resource utilization, delivering on our internal initiative to better align total resources with our backlog and driving a higher rate of net cash flow.

Thank you good morning events, making calls and good job on that.

On the quarter again.

The question is for Mike, Mike you outlined those too.

Any sizeable deals that you closed in the quarter I was not sure where they are those with new customers.

And on the new customer side.

Tracy are you, replacing internal systems.

Racine.

Third party software providers.

Yeah, Hey, George good to talk to you yeah. The three deals that I talked about where all our existing customers are in this quarter I'm. So none of those were new logo.

Calvin Rice: We have been hiring service professionals in the second half of 2023 to meet our current backlog needs and we expect that to continue throughout 2024 to meet anticipated sales demand. Third quarter adjusted operating expenses, which excludes depreciation, amortization, and accretion and severance and restructuring costs, totaled $27.9 million, representing no change from the prior year period. Increases in research and development were largely timing in nature with reductions in technology operations driven by our normal practice of cost reduction and relationship to declining wireless revenues.

Yeah to answer your question more broadly.

When we do displace somebody a lot of times it is internal.

Systems that they use internally.

There are some competitors out there that we typically displace I, obviously won't mention names.

But look the reality is we're in a position where the majority of our bookings.

Our still to our install base, we do have about probably 10 or 15% of our business is new logo as I've said in previous calls the.

Calvin Rice: Increases in selling costs, which primarily relate to commissions and higher French costs, were more than offset by savings in GNA, which continues to see year over year benefit from our cost saving initiatives. As we look at the fourth quarter and into 2024, we foresee a need for additional sales resources and would expect sales and marketing costs will continue to marginally increase as a result. These resources will support our robust sales pipeline and generate additional sales activity as we look to extend the sales success we have achieved over the last two years.

Patient is over the next several years as we continue to execute on the plan that we've talked about from an R&D perspective, you know and and are focused again on.

Our on premise solution as opposed to spoke go is as you know being a shareholder for quite a while and putting new things out in the market that will allow us to get more new logo business than we've experienced over the past several years. So that's really the plan. If you will if you look out over the next kind of two to three years and George just just to add onto it.

Calvin Rice: Also, while we are on the topic of operating expenses, let me briefly add some detail to Vince's prior comments regarding the early termination of our lease of the Alexandria headquarters building. In September 2023, we exercised an early termination option for the lease of our corporate headquarters in Alexandria, Virginia. The lease will now end two years early on September 30th, 2024. As a result of the early termination, we paid a one-time termination fee of 0.7 million, reflected in our cash balances as of September 30th, 2023.

Like I said, you know we had our board meeting yesterday, and we had some of our top sales managers and to talk to our board a couple of the very large deals that we got both our eastern Division and Western Division. This year were takeaways from competitors and when we look at our pipeline a couple of the large deals that we have from each division in the pipeline.

Right now our specific takeaways from competitors and I'm not going to name the competitors, but I will tell you. The common characteristic of these takeaways is that these competitors are offering more of what you and I would refer to as point solutions and spoke offers the enterprise suite. So we do a lot of things we don't have to do a specific <unk>.

Calvin Rice: Thereafter, we expect to save approximately 1 million annually as a result of this decision. And as Vincent mentioned previously, a portion of this benefit will go towards offsetting salary increases expected in the fourth quarter. In light of our strong financial performance and the heightened inflationary environment we have all been experiencing, we believe it's important that we take care of the people that make these results a reality. These increases will be company-wide based on certain qualifications at all levels below senior management.

<unk> solution as well as a competitor to win it's kind of the same.

No tactic frankly that epic took years ago to consolidate the EHR space or that Microsoft took what was that the whole office suite that they have.

You can offer an integrated suite.

You're gonna stay that C. I a lot of headache in the long term and then they'll sign a multiyear engagement with you and you're off to the races. So our R&D budget and our focus is all about building on that strength and making that suites more powerful and more flexible and more extensible going forward and so I think you'll see as we make progress on the road.

Calvin Rice: Additionally, it's important that we take care of our employees to ensure we can compete in what is still a highly competitive market. The company anticipates relocation of its headquarters to the existing corporate location in Plano, Texas and does not expect material costs to be incurred as a result of this change. Approximately 30 employees will be impacted as a result of this decision. As Vincent pointed out, these employees will formally transition to remote work.

Map in 'twenty, four and 'twenty five.

A lot more potential in terms of new logo coming into the business right now I think our best years 'twenty four is gonna be a huge transition for us in terms of our platform I think our best years are going to be 24, and 25 I think we got a lot of good things in front of us hope that helps.

Calvin Rice: We see no risk related to this transition and expect no issues given it has largely been our posture since early 2020. While this decision was not made lightly, the company expects to benefit greatly from the significant cash savings, greater flexibility for our employees, and higher levels of productivity we have seen from the pre-existing work from home posture. Lastly, as Vincent pointed out earlier in the call, the justice EBITDA was a near record $8.4 million in the third quarter.

Definitely.

Very interesting.

And then maybe a quick question maybe for Calvin.

You've had amazing software bookings.

This year, especially in the second quarter, but also in the third how does that flow in through the P&L I mean is it just like.

I see that the maintenance revenue increased nicely. So I think that's an incredibly indication of success.

Calvin Rice: Up nearly 25% from $6.7 million in the same quarter of 2022, reflecting the progress made to date with our strategic pivot. In fact, through the first nine months of 2023, the justice EBITDA has totaled nearly $24 million up nearly 156% from the prior year period.

But does it slow.

Yeah, so the direct correlation isn't going to exist between bookings and the P&L generally speaking there's a significant breakout in terms of the bookings mix that's within that number between license services maintenance and equipment and so it's.

Calvin Rice: Our performance in the first nine months of 2023, in terms of strengthening software operations bookings, robust backlog levels, improvement in wireless trends, and strong adjusted EBITDA has led us to again increase our expectations across all categories for the full year. As a reminder, the figures I'm going to discuss today are included in our guidance tables in the earnings release. In 2023, we now expect total revenue to be in the range of 136.25 million to 139.25 million, a 1.75 million increase from the previous guidance midpoint.

You know when we make a sale it's gonna go into our backlog so bookings and backlog are are really relevant and you've seen that similar growth in the back log, which ultimately represents future revenue yet to be recognized so that's a that's a critical element license and equipment are generally.

<unk> relatively book in turn so those wells are going to be the two components that generally when sold are going to flow through.

Either immediately or within the next several months from a revenue standpoint, and then the maintenance that's going to get recognized over the contract period, which can be anywhere from one to that typically three years and then on the services front, that's generally going to be recognized as the projects are completed themselves.

Calvin Rice: More importantly, as Vincent pointed out, this represents the first time in the company's history that we expected growth and solidated revenue from the prior year, and the low end of our guidance reflects that, with a 3.5% annual growth rate at the high end of our revised guidance. Included in the revised guidance, we expect wireless revenue to range between 75.25 million to 76.25 million, a $750,000 increase from the previous guidance. Midpoint as we expect recent trends will continue to improve as I discussed earlier.

Those projects typically five to seven months and completion time, but it can take a couple of months to get up and running depending on our resource allocation at the customer sites.

And so you know generally speaking, we kind of look to to about 12 months for those those projects to flow through as well.

Okay, great great.

Find me software window, while I appreciate that thanks a lot.

Calvin Rice: Software revenue is expected to range from $61 million to $63 million, with a midpoint implying total software revenue growth of more than 5% from prior year levels. Lastly, based on these improving trends in our performance in the third quarter, our revised adjusted EBITDA guys for 2023 is $27.5 million to $29 million. A $1.75 million increase or almost 7% from the previous guidance midpoint.

[laughter].

There are no further questions at this time I would now like to turn the floor back over to Vince Kelly for closing comments.

Look thanks, everyone for your participation today, we're proud of what this company is accomplishing and we're very excited about the future like I said, we're going to consider when we want to put our 24 guidance out and we'll get back to the market then and we'll also be at the Piper Conference in New York next month next month, so look forward to seeing some of you there.

Vince Kelly: With that said, I will now turn the call back over to Benz. Thank you, Calvin.

Vince Kelly: Before we open up the call to your questions, let me just reiterate how proud I am of the entire Spok team and their ability to maintain a momentum and generate further growth despite coming off a record second quarter that shattered all performance metrics. It is their efforts which gave us the confidence to increase guidance yet again and we believe will provide the springboard to take us into an even stronger 2024. I would also like to thank our stockholders for their continued support and want to assure you that our primary focus remains on generating cash and increasing stockholder value. We are committed to our current dividend and capital allocation policy.

And we will report our fourth quarter year end results in late February and then talk to you there as well and everyone have a great day and thanks for being a supporter of smoke.

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

Yeah.

[music].

Yeah.

[music].

Yeah.

Vince Kelly: On a final note, I would like to tell everybody about Spok's presentation at the upcoming Piper Sandler Healthcare Conference in New York. Look for a press release soon with the dates and timing of our presentation. We hope to see many of you there and will continue to look for opportunities to tell our story to the investment community and focus on investor marketing activities. Though we know the ultimate attraction will come as a result of our consistent and successful business execution.

Okay.

Yeah.

[music].

Operator: That concludes our prepared remarks. At this point, I will ask the operator to open the call up for your questions. We would ask you to limit your initial questions to one and a follow up and then after that we will take additional questions as time allows. Operator.

Okay.

[music].

Operator: Thank you. We will now be conducting a question answer session.

Yeah.

Operator: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.

Okay.

Hum.

Okay.

Yes.

Yeah.

Okay.

[music].

Eric Martinuzzi: Our first question comes from Eric Martin Newsy with Lake Street. Please proceed with your question. Big rats on the revenue and profitability as well as the second quarter in our own out of year-on-year growth.

Yeah.

[music].

Calvin Rice: I have a question regarding the price increase that your role has been in September. How much was the price increase and what percentage of the install basis has been impacting? Good morning. This is Calvin. Yeah, so we wrote out a 6% price increase in September to the customer base that impacted probably somewhere between 65 and 70% of that customer base and we expect that to be fully reflected in the fourth quarter here.

Okay.

Yeah.

Yes.

Yeah.

Hum.

Okay.

Calvin Rice: Okay, and then I did see an uptick in turn in the third quarter. You guys have been, I think queue two is 3.5%, queue one was 3.2 and then we saw it uptick to 4.7% in queue three. What are you expecting for churn, you know, kind of a range that investors can look to? Yes, so we've been very fortunate for probably the last nine months preceding the third quarter in terms of the lowest churn rates on record probably over the last decade or so, and it's been a consistent decline.

Yes.

Hum.

[music].

Okay.

Hum.

Okay.

Yeah.

Okay.

Hum.

Calvin Rice: I would say that uptick and third quarter is isolated. We don't believe it's part of any new trend, you know, those will, you know, be variable from one quarter to the next. We'd expect to see churn anywhere in the range of probably three and a half to five percent give her give her take. Okay, and then I noticed a disconnect between your adjusted EBITDA and the cash from ops the adjusted EBITDA coming in at 8.4 million and yet you're your cash balance decline sequentially and the cash from ops was 3.2 million.

Okay.

[music].

Yeah.

Okay.

Yeah.

Mhm.

Hum.

Calvin Rice: And so just walk me through the delta between the the adjusted EBITDA and the cash from ops. Yeah, Eric, we had a couple one time things in the third quarter that affected working capital. One of the things we did is we paid out our PTO and went to a different policy. That's going to save us about a half a million dollars a year going forward, but we had to spend about three million dollars to do that.

Okay.

Yeah.

Okay.

Yeah.

Okay.

Calvin Rice: And then the other thing was the early termination on the lease. We spent about what Calvin 750,000 dollars buying that out. That's going to save us about a million dollars a year going forward. All this stuff is focused on, you know, getting the free cash. So those are working capital items that were both in the third quarter that won't be obviously in the fourth quarter or the first quarter ever again.

Okay.

Yeah.

Mhm.

Okay.

[music].

Okay.

Yeah.

Okay.

[music].

Okay.

Vince Kelly: Okay, and then lastly, just stepping back here, you're tracking two year on year growth here in 2023. I've got you up about 2% on the year. Obviously, that's a roughly flat on the wireless and up about 5% on the software side of the house. You did comment and you prepared remarks about anticipating growth in 2024 for those of us modeling out. Can you give us kind of a range or is it too soon to talk about potential growth rates next year?

Hum.

Okay.

Yeah.

Yes.

Yeah.

[music].

Okay.

[music].

Uh huh.

Okay.

Vince Kelly: Look, I mean, this is obviously the first time Eric that we're going to grow the company in the company's history from a top line perspective. And right now, everything is going right. We're hitting on all cylinders. When we look at our plan, you know, we beat on total revenue, we beat on adjusted EBTA, we're beating our guidance, we're beating your model. You know, when we break our service lines out and look at software and wireless, we're doing the same across the board.

Yeah.

[music].

Vince Kelly: Bookings is a huge plus for us up 38% compared to the same nine month period last year. The gross additions on our wireless plan are beating Gen A sales or beating our plan, you know, professional services, their hours, their rate, all that's beating. You know, maintenance is beating plan. We're managing our operating expense, managing our capex. Our R&D team has made great progress. We're going to have some great things to reveal next year on the software side.

Vince Kelly: Employee in turnovers about as low as we've ever had in the company and morale is really high. So, you know, we're going to grow in 2024. We'll put guidance out probably before the end of the year. We haven't decided on exactly when, but we've been talking about that internally. A lot of good things going on. I mean, our sales results are significantly ahead of our internal plan and where they were at this time last year.

Vince Kelly: Our team already this year sold 26 multi year engagements that had a total booking value of about 15 million dollars. And we've got four of those reps over two and a half million dollars and sales alone this year. And last year we had none. And you know, our average deal size this year is doubled over 2022. It's tripled over 2021 and we've sold over 15,000 JNA pages this year. And our target this year is 20,000 and we're going to do even more next year.

Vince Kelly: So, we're on a growth posture right now, but you know, it's going to be disciplined from the standpoint that we still focus on free cash flow and returning capital shareholders. That's still our number one goal. We expect it. The industry is still going to be somewhat challenged in terms of health care and spending and their internal resources. What we do for our customers is almost like a utility. We're making I think responsible improvements to that with our investment back into our platform.

Okay.

Vince Kelly: I think we got a really good business model here right now. Might not grow like a rocket like some people do, but you know what you're getting paid along the way. And so we'll grow next year. We'll get some guidance out to you guys as soon as we can. And we'll let the dust settle and do some more modeling and hopefully we'll have some news for you before the end of the year on what we expect for next year. But the answer is if you're going to grow. Understand.

[music].

Eric Martinuzzi: Well, thanks for taking my questions and good luck and keep for sure.

Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad.

Christopher Irons: Our next question comes from Christopher Irons. Please proceed with your question. Hi guys, fantastic quarter. Thank you very much for everything just wanted to touch on a couple of things that you said last quarter and see if you can update last quarter you had talked about. Receiving interest outside interest in the company kind of unsolicited interests, wondering if there's anything new in that. In that regard, you had also talked about potentially raising the dividend at some point.

Uh huh.

Christopher Irons: I know I don't don't want to get ahead of anything and certainly don't want to line it because it was a great quarter. But I just wanted to see if you can all turn up data on those two things.

Yeah.

Uh huh.

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Vince Kelly: Yeah, let me take the second one first. You know, the first goal was to grow into the existing dividend. You know, at the beginning of the year, we were talking about covering 80% of our dividend with free cash with with with our adjusted. We're not going to be burning through a lot of cash obviously in 2024. So we're getting very, very close to that. We want to get above 100% before we determine what we want to do with that.

Okay.

[music].

Okay.

Yeah.

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Vince Kelly: And frankly, I think we have time to make that decision. So I would say for 2024, $1.25 is probably what you should, you know, what you should bank on. And I would say for 2025, if we were going to make a change, that's where we would be looking. So that's that.

Yeah.

Uh huh.

[music].

Vince Kelly: Look, your first question. We're a public company. We're for sale in the market every day. You know, we're interest rates have gone and what's been, you know, kind of going on out there in the sponsor community. You know, it's tough sliding for those guys right now. It doesn't mean we haven't got calls. You know, we've gotten a couple calls. We're not running a process right now. We're not for sale right now.

Uh huh.

[music].

Okay.

[music].

Vince Kelly: Is there interest in the company? I can tell you absolutely there's interest in the company. A company like us that has a kind of customer base we have has a kind of sales results we have. And those off a ton of cash is a very rare bird in the market right now. And not many not many of these sponsors have an asset like this. So if they want us come on and get us boys, but you're going to have to pay up.

Vince Kelly: Okay, because we got good things going on here. It's spoke. We got a great team. Morales really high and we're all about executing and we're going to execute. So if you want someone that could execute in your portfolio, maybe unlike some of the other investments, you know, come take a look at us. But in the meantime, we're going to do what we do. And we're doing it well right now. And we're very pleased with our results. And we're very pleased with our outlook.

Christopher Irons: Yeah, excellent. Thank you very much. Perfectly says.

George Melas: Yep, thanks. Our next question comes from George Melas with MJH Management. Please proceed with your question.

Yes.

[music].

Michael Wallace: Thank you. Good morning, Vince Mike and Calvin. Good job on that on the quarter again. The question is for Mike, Mike, you out find those three very sizable deals that you close in the quarter. I was not sure whether those were new customers and on the new customer side, who are you replacing? Are you replacing internal systems or are you replacing other third party software providers? Yeah, hey, George, good to talk to you.

Okay.

Yes.

Hum.

[music].

Okay.

Yes.

Michael Wallace: Yeah, the three deals that I talked about were all existing customers in this quarter. None of those were new logo. You had to answer your question more broadly. When we do display somebody, a lot of times it is internal systems that they use internally. There are some competitors out there that we typically display. I obviously won't mention names. But look, the reality is we're in a position where the majority of our bookings are still to our install base.

Mhm.

[music].

Michael Wallace: We do have about probably 10 or 15 percent of our businesses new logo, as I've said in previous calls. The expectation is over the next several years as we continue to execute on the plan that we've talked about from an R&D perspective, and are focused again on our on-premise solution, as opposed to spoke as being a shareholder for quite a while. Putting new things out in the market, that will allow us to get more new logo business than we've experienced over the past several years. So that's really the plan, if you will, if you look out over the next kind of two to three years.

Vince Kelly: George, just to add on to what Mike said, we had our board meeting yesterday and we had some of our top sales managers in to talk to our board. A couple of the very large deals that we got in both our Eastern Division and Western Division this year were take away from competitors. When we look at our pipeline, a couple of the large deals that we have from each division in the pipeline right now are specific take away from competitors.

Vince Kelly: I'm not going to name the competitors, but I will tell you the common characteristic of these takeaways is that these competitors are offering more what you and I would refer to as point solutions and spoke offers the enterprise suite. So we do a lot of things. We don't have to do a specific point solution as well as a competitor to win. If kind of the same tactic, frankly, that Epic took years ago to consolidate the EHR space or that Microsoft took with the whole office suite that they have.

Okay.

Yeah.

[music].

Vince Kelly: If you can offer an integrated suite, you're going to stay that CIO, a lot of headache in the long term and they'll sign a multi-year engagement with you and you're off to the races. So our R&D budget and our focus is all about building on that strength and making that suite more powerful and more flexible and more a lot more potential in terms of new logo coming into the business right now.

Okay.

Yes.

Yeah.

Okay.

Vince Kelly: I think our best years 24 is going to be a huge transition for us in terms of our platform. I think our best years are going to be 24 and 25. I think we've got a lot of good things in front of us.

[music].

Yeah.

Okay.

George Melas: Hope that Definitely, that's really interesting.

[music].

Okay.

Calvin Rice: And then maybe a quick question, maybe it's for Calvin. You've had amazing software bookings this year, especially in the second quarter, but also in the third. How does that flow in through the PNL? I mean, is it just like, I mean, I see that the maintenance revenue increased nicely, so I think that's an incredible indication of success? But how does it flow? Yes, so the direct correlation isn't going to exist between bookings and the PNL generally speaking.

Uh huh.

[music].

Uh huh.

Okay.

[music].

Calvin Rice: There's a significant breakout in terms of the booking mix that's within that number between licensed services, maintenance and equipment. And so it's, you know, when we make a sale, it's going to go into our backlog. So bookings and backlog are really relevant. And you've seen that similar growth in the backlog, which ultimately represents future revenue yet to be recognized. So that's a critical element. License and equipment are generally relatively booking turns.

Yeah.

Calvin Rice: So those are going to be the two components that generally when sold are going to flow through either immediately or within the next several months from a revenue standpoint. And then the maintenance that's going to get recognized over the contract period, which can be anywhere from one to typically three years. And then on the services front, that's generally going to be recognized as the projects are completed themselves. Those projects typically five to seven months in completion time, but it can take a couple months to get up and running depending on resource allocation at the customer sites. And so, you know, generally speaking, we kind of look to about 12 months for those projects to flow through as well.

Yeah.

Uh huh.

[music].

Hum.

[music].

Operator: Okay, great, great. Are you mind me? Software 101? I appreciate that. Thanks a lot. There are no further questions at this time.

Vince Kelly: I would not like to turn the floor back over to Vince Kelly for closing comments. Look, thanks everyone for your participation today. We're proud of what this company is accomplishing and we're very excited about the future. Like I said, we're going to consider when we want to put our 24 guidance out and we'll get back to the market then. And we'll also be at the Piper Conference in New York next month.

Vince Kelly: So look forward to seeing some of you there. And we'll report our fourth quarter year end results in late February and talk to you there as well. And everyone have a great day and thanks for being a supporter of spoke.

Yeah.

Uh huh.

[music].

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

Okay.

[music].

Okay.

[music].

Yeah.

Okay.

[music].

Okay.

[music].

Yeah.

Okay.

[music].

Yeah.

[music].

Hum.

Yeah.

Right.

Okay.

Yes.

Yeah.

Okay.

Yeah.

Okay.

Yeah.

Okay.

[music].

Unnamed Speaker: George Melas, Vincent Kelly, Michael Wallace, David Wright George Melas, Vincent Kelly, Michael Wallace, David Wright, Michael Wallace, David Wright,[inaudible] Michaelis, Vincent Kelly, Michael Wallace, David Wright, Maxwell Michaelis, David Wright, Maxwell Michaelis, David Wright, Maxwell[inaudible] Michael, Michael, Michael, Michael, George Melas, Vincent Kelly, Michael Wallace, David Wright, Michael Wallace, David Wright[inaudible] George Melas, Vincent Kelly, Michael Wallace, David Wright, Michael Wallace[inaudible] Michael Wallace, David Wright, Michael Wallace, David Wright, Michael Wallace, David Wright,[inaudible] Michael Wallace, David Wright, Michael Wallace, David Wright, Michael Wallace, David Wright,[inaudible] George Melas, Vincent Kelly, Michael Wallace, David Wright, Michael Wallace, David Wright[inaudible]

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