Q1 2024 Spok Holdings Inc Earnings Call
Operator: Ladies and gentlemen, greetings and welcome to the Spok Holdings First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Al Galgano.
Ladies and gentlemen, greetings and welcome to the Spark Holdings fourth quarter 2020 full earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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.
Al Galgano: Please go ahead.
Al Galgano: Hello everyone, and welcome to Spok Holdings' first quarter 2024 earnings call. I am joined today by Vince Kelly, Chief Executive Officer, Mike Wallace, President of Spok Inc. and Chief Operating Officer, and Calvin Rice, Chief Financial Officer.
Al Galgano: Hello, everyone and welcome to spoke holdings first quarter 2024 earnings call I am joined today by Vince Kelly, Chief Executive Officer, Mike Wallace President of spoke gang, and Chief operating Officer, and Calvin Rice, Chief Financial Officer.
Al Galgano: 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 dependent upon future events or conditions. These statements represent the company's estimates only as of the date of this conference call and are not intended to give any assurance as to actual future results.
Al Galgano: I 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.
Al Galgano: And upon future events or conditions.
Al Galgano: 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 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.
Al Galgano: Spok's actual results could differ materially from those anticipated in these forward-looking statements because, 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 related to our operations and the business environment, which are contained in our first quarter 2024 Form 10-Q and related documents filed with the Securities and Exchange Commission. Please note that Spok assumes no obligation to update any forward-looking statements from past or present filings and conference calls. With that, I will turn the call over to Vince Kelly. Vince?
Al Galgano: To be reasonable they are subject to risks and uncertainties. Please review the risk factors section relating to our operations and the business environment would you contained on our first quarter 2020 for Form 10-Q and related documents filed with the Securities and Exchange Commission.
Al Galgano: Please note that spoke assumes no obligation to update any forward looking statements from past or present filings and conference calls with that I will turn the call over to Vince Kelly Vince.
Vincent D. Kelly: Thank you, Al, and good afternoon, everyone. Thank you for joining us for our first quarter 2024 earnings call. I'm very proud of the strong performance our team was able to deliver in the first quarter, and I believe these results position us well for the remainder of the year. We've gotten off to a great start, and we are maintaining that momentum. Let me also take this opportunity right up front to remind everyone that our mission remains solidly unchanged.
Vincent D. Kelly: Thank you al and good afternoon, everyone. Thank you for joining us for our first quarter 2024 earnings call.
Vincent D. Kelly: I am very proud of the strong performance our team was able to deliver in the first quarter and I believe these results position us well for the remainder of the year, we've gotten off to a great start and we are maintaining that momentum.
Vincent D. Kelly: Let me also take this opportunity right upfront to remind everyone that our mission remains solidly unchanged that is to generate cash and return capital to shareholders over the long term, while responsibly investing in and growing our business.
Vincent D. Kelly: That is, to generate cash and return capital to shareholders over the long term while responsibly investing in and growing our business. As we've demonstrated with our performance over these last two years, we believe we are on a sustainable path to doing so and that our cash flow is on the path to grow into our current dividend level and cover it in full on an annual basis. That's our job and our primary focus.
Vincent D. Kelly: As we've demonstrated with our performance over these last few years. We believe we are on a sustainable path to doing so and that our cash flow is on a path to grow into our current dividend level and cover it in full on an annual basis, that's our job and our primary focus returning capital to shareholders as our legacy and we feel good about.
Vincent D. Kelly: Returning capital to shareholders is our legacy, and we feel good about executing a strategy we believe in and with which we have had a lot of historical success. Today, we'll share with you an update on how 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 is going to be as follows.
Vincent D. Kelly: Our strategy, we believe in and that we have had a lot of historical success with.
Vincent D. Kelly: Today, we'll share with you an update on how 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 is going to be as follows.
Vincent D. Kelly: We'll begin by providing a review of our company performance for the court. I'll then turn the call over to Michael Wallace, our President and Chief Operating Officer, to review some of our quarterly sales highlights. Then our Chief Financial Officer, Calvin Rice, will review our first quarter financial highlights and financial guidance for 2024. I'll then wrap up the call and open it up for your questions.
Vincent D. Kelly: I'll begin by providing a review of our company performance for the quarter.
Vincent D. Kelly: I'll, then turn the call over to Michael Wallace, Our President and Chief operating Officer to review some of our quarterly sales highlights.
Michael W. Wallace: <unk> financial Officer, Calvin Rice, when we do our first quarter financial highlights and financial guidance for 2024.
Speaker Change: I'll, then wrap up the call and open it up for your questions.
Vincent D. Kelly: On the startup front, we're proud of what the Spok team has been able to accomplish in the first quarter and believe our results provide a solid springboard for the year ahead. First quarter highlights include a more than 5% year-over-year growth in total revenues driven by a more than 15% growth in software revenues. A strong year-over-year increase in net income and adjusted EBITDA levels. A 39% year-over-year increase in software operations bookings spoke to the second highest first quarter bookings level in our history. Year-over-year growth in all categories of software revenue, including maintenance, license, professional services, and hardware. Improved wireless trends as net unit churn again dropped below 2% from the prior quarter.
Michael W. Wallace: As I said upfront we're proud of what the spoke team has been able to accomplish in the first quarter and believe our results provide a solid springboard for the year ahead first quarter highlights include a more than 5% year over year growth in total revenues driven by a more than 15% growth in software revenues.
Speaker Change: Strong year over year increases in net income and adjusted EBITDA levels.
Vincent D. Kelly: A 39% year over year increase in software operations bookings spokes second highest first quarter bookings level in our history.
Vincent D. Kelly: Year over year growth in all categories of software revenue, including maintenance license professional services and hardware.
Vincent D. Kelly: Improved wireless trends was net unit churn again dropped below 2% from the prior quarter.
Vincent D. Kelly: Continued expansion of our wireless average revenue per unit, further reflecting the impact of prior pricing actions and sales of our encrypted, HIPAA compliant, alphanumeric, Gen A pagers. And we were able to accomplish all this while continuing to invest in our products and infrastructure. In short, I believe Spok is doing an excellent job of balancing our goal of returning cash to our stockholders with those investments in order to fuel future growth. In the first quarter of 2024, we generated over $7 and a half million of adjusted EBITDA, which more than covered the 6.3 million we returned to our stockholders.
Vincent D. Kelly: Continued expansion of our wireless average revenue per unit further reflecting the impact of prior pricing actions and sales of our encrypted HIPAA compliant alphanumeric Gen a pager.
Vincent D. Kelly: And we were able to accomplish all this while continuing to invest in our products and infrastructure.
Vincent D. Kelly: In short I believe slope is doing an excellent job of balancing our goal of returning cash to our stockholders, but those investments in order to fuel future growth.
Vincent D. Kelly: In the first quarter of 2024, we generated over $7 5 million of adjusted EBITDA, which more than covered the $6 3 million and we returned to our stockholders. However at the same time, we increased our first quarter research and development investment in our products by half a million dollars or 18, 4% on a year over year basis.
Vincent D. Kelly: However, at the same time, we increased our first quarter research and development investment in our products by half a million dollars, or 18.4% on a year-over-year basis, and believe we're on track to invest approximately $11 million in product research and development expenses in 2024.
Vincent D. Kelly: And believe we are on track to invest approximately $11 million in product research and development expenses in 2024.
Vincent D. Kelly: We believe this investment will fuel future software revenue growth, and our extensive experience selling and operating our established communication solutions will create significant value for stockholders by maximizing revenue and cash flow generation. As I mentioned, Spok has a proud legacy of creating shareholder value through free cash flow generation, and we intend to continue this track record. In fact, over the last 20 years, Spok has returned a total of more than $680 million to our stockholders, either through our regular quarterly dividend, special dividends, or share repurchase.
Vincent D. Kelly: We believe this investment will fuel future software revenue growth and our extensive experience selling and operating our established communication solutions will create significant value for stockholders by maximizing revenue and cash flow generation.
Vincent D. Kelly: As I mentioned smoke is a proud legacy of creating stockholder value through free cash flow generation and we intend to continue this track record in fact over the last 20 years spoke as we turned a total of more than 680 million to our stockholders through our regular quarterly dividend special dividends or share repurchases.
Vincent D. Kelly: When you take into consideration our current cash balance distributions to stockholders, share repurchases, debt repayments, and acquisitions, since our inception, Spok has generated over one billion of free cash flow. Our focus on maximizing cash over the long term supports the four major tenets of our strategy. Those are number one.
Vincent D. Kelly: When you take into consideration our current cash balance distributions to stockholders share repurchases debt repayment and acquisitions since our inception spoke has generated over 1 billion of free cash flow our focus on maximizing cash over the long term supports the four major tenants of our strategy.
Vincent D. Kelly: Those are number one.
Vincent D. Kelly: Continued investment in our wireless and software solutions. Number two, growing our revenue.
Vincent D. Kelly: Continued investment in our wireless and software solutions number two growing our revenue base number three continued disciplined expense management and number four a stockholder friendly capital allocation plan.
Vincent D. Kelly: Continued Disciplined Expense Management 4. Stockholder-Friendly Capital Allocation Going forward, we believe our extensive experience selling and operating our established communication solutions and world-class customer base will create significant value for stockholders through solid revenue growth, disciplined expense management, and further cash flow generation. Before I turn the call over to Mike, let me take a moment to review what I think is a tremendous recognition that we received right at the end of the first quarter and a major accomplishment by the entire Spok team.
Vincent D. Kelly: Going forward, we believe our extensive experience selling and operating our established communication solutions and world class customer base will create significant value for stockholders to solid revenue growth disciplined expense management and further cash flow generation.
Vincent D. Kelly: Yeah.
Speaker Change: Before I turn the call over to Mike, Let me take a moment to review what I think is a tremendous recognition that we received right at the end of the first quarter and a major accomplishment by the entire spoke team for the seventh consecutive year in a survey of health care industry clients by Black book market Research on top rated clinical communications platforms.
Vincent D. Kelly: For the seventh consecutive year in a survey of healthcare industry clients by Black Book Market Research on top-rated clinical communications platforms, Spok received the number one overall survey rank. We're honored by the unwavering trust our healthcare clients at Placement speak as their go-to partner for clinical communication. The achievement of securing the top position for seven consecutive years underscores our commitment to delivering critical communication technology that enhances hospital and health system communication, which ultimately enhances patient care and safety.
Speaker Change: Spoke received the number one overall survey rank were honored by the unwavering Trust our health care clients are placed and spoke as their go to partner for clinical communications. The achievement of securing the top position for seven consecutive years underscores our commitment to delivering critical communication technology.
Michael W. Wallace: It enhances hospital and health system communication, which ultimately enhances patient care and safety.
Vincent D. Kelly: NetSurvey Spok received the highest honors for customer satisfaction in 12 of the 18 copyrighted Key Performance Indicators Black Book Research Measures, including strategic alignment of client goals, innovation, breadth of offerings, account management support, and customer care, and best-of-breed technology and process improvement. We're particularly honored by this recognition because, unlike other rating programs, no participation or subscriber fees are involved. We believe that honors such as these are indicative of the strong industry reputation that we have built. With that, I'll turn the call over to Michael Wallace.
Speaker Change: Net survey spoke received the highest honest for customer satisfaction in 12 of the 18 copyrighted key performance indicators Black book research measures, including strategic alignment of client goals.
Speaker Change: <unk> breadth of offerings account management support and customer care and best of breed technology and process improvement.
Speaker Change: Particularly honored by this recognition because the researches truly independent and unlike other rating programs no participation or subscriber fees are involved we believe that honor such as these are indicative of the strong industry reputation that we adult.
Speaker Change: With that I'll turn the call over to Michael Wallace Mike.
Michael W. Wallace: Mike. Thanks Vince, and thank you everyone for joining us this afternoon. As Vince pointed out, it was a very strong quarter, and we made tremendous progress in a number of key areas. Yet amidst all the progress in creating a solid financial platform and shareholder-friendly capital allocations, we remain true to our mission of being a global leader in healthcare communication. We deliver clinical information to care teams when and where it matters most to improve patient outcomes, as Spok enables smarter, faster clinical communication.
Michael W. Wallace: Vince and thank you everyone for joining us this afternoon.
Michael W. Wallace: As Vince pointed out it was a very strong quarter and we made tremendous progress in a number of key performance areas yet.
Michael W. Wallace: Amidst all the progress in creating a solid financial platform and shareholder friendly capital allocation strategy. We remained true to our mission of being a global leader in health care Communications we.
Speaker Change: We deliver clinical information to care teams, when and where it matters most to improve patient outcomes and spoke enables smarter faster clinical communications to our customers.
Michael W. Wallace: We have 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 a long standing, valuable customer relationship. This is coupled with the financial strength that over 80% of our revenue is reoccurring in nature, and we are a company with no debt, which provides significant flexibility. In the first quarter, our 7.9 million software operations bookings included 19 six-figure customers, [inaudible] Most impressively, that included four multi-year engagements, and those six-figure contracts had an average contract size that was up nearly 40% from the prior quarter. We are extremely pleased with this start to 2000.
Speaker Change: We have over 2200 health care facilities as customers, representing the who's who of hospitals in the United States.
Speaker Change: We have built our solutions over many years and have longstanding valuable customer relationships.
Speaker Change: This is coupled with the financial strength that over 80% of our revenue is reoccurring in nature and we are a company with no debt, which provides us significant flexibility.
Speaker Change: In the first quarter or $7 9 billion of software operations bookings included 19, six figure customer contracts sustaining the momentum that we saw last year.
Speaker Change: Most impressively that included for multiyear engagements and those six figure contracts had an average contract size that was up nearly 40% from the prior quarter. We are extremely pleased with the start to 2024.
Michael W. Wallace: Let me take a few minutes to highlight a few of the customer engagements that we saw in the last quarter. The First Health System serves more than 1.4 million patients and 200,000 health plan members, covering an extensive area of 250,000 square feet. This rural health organization sends over 120,000 messages and handles more than 3,000 codes per month using Spok's solutions. Through this multi-year commitment, they benefit from three years of steady budgeting, upgrades, the New Test System, Value Added Services, and the Flexibility to Adopt Upgrades as Required for CTI-Dependent
Speaker Change: Let me take a few minutes to highlight a few of the customer engagements that we signed last quarter.
Speaker Change: The first health system serves more than one 4 million patients in 200000 health plan members covering an extensive area of 250000 square miles. This rural health organization sends over 120000 messages and handles more than 3000 codes per month using spoke solutions.
Speaker Change: This through this multi year commitment they benefit from three years of steady budgeting upgrades, a new test system value added services and the flexibility to adopt upgrades as required for CPI dependencies and desired feature functionality enhancements.
Michael W. Wallace: Next, we secured another contract with a customer who has been with Spok for almost 20 years. This customer operates across six hospitals with a workforce exceeding 10,000 employees. They use the Spok HairConnect platform to initiate nearly 400,000 codes.
Speaker Change: Next we secured another contract with a customer who has been with spoke for almost 20 years. This customer operates across six hospitals with a workforce exceeding 10000 employees.
Speaker Change: They use the spoke care connect platform to initiate nearly 400000 codes annually dispatching approximately 6 million messages are pages and oversees nearly 3000 oncall groups per year.
Michael W. Wallace: Dispatching approximately 6 million messages or pages and overseeing nearly 3,000 on-call groups. Our multi-year engagement with this health system includes SpokeSmartSuite upgrades, SpokeSmartSuite console licenses, eNotify, Messenger, and Spok Mobile Usage for the Organization 7000. As an existing Spok customer, the health system also opted for two value-added services, Data Integrity and Workflow. We will help our partner derive maximum value from their services. Another customer contract is with a longstanding Spok partner of over 20 years to support their clinical communication needs across the organization's growing enterprise.
Speaker Change: Our multi year engagement with this health system include spoke smart suite upgrades spokes Marts Wii console licenses you know.
Speaker Change: <unk> messenger and spoke mobile usage for the organization 7000 licenses.
Speaker Change: As an existing spoke customer the health system also opted for two value added services data integrity, and workflow analysis, which will help our partner derive maximum value from their spokes solutions.
Speaker Change: Another another customer contract is with a longstanding spoke partner of over 20 years to support their clinical communication needs across the organizations growing enterprise.
Michael W. Wallace: This health system covers about 80 specialties to more than 100,000 hospitalized patients, nearly 370,000 emergency room cases, and oversees approximately 3 million outpatients. As a Spok console client, this multi-year engagement includes the extensive use of the Spok Care Connect platform, including Spoke Console, Web Directory, Spoke Mobile, Encrypted Paging, Messenger, eNotify, and EHR ADT integration with Epic, which will expand to a new state-of-the-art facility opening. Additionally, this agreement includes two of our valued.
Speaker Change: This health system covers about 80 specialties to more than 100000 hospitalized patients nearly 370000 emergency room cases, and oversees approximately 3 million outpatient visits per year.
Speaker Change: As I spoke console client this multi year engagement encompass has extensive use of the spoke care connect platform, including spoke console web directory spoke mobile encrypted paging messenger, you notify and EHR ADT integration with epic, which will expand to a new state of the art facility opening next year.
Speaker Change: This agreement includes two of our value added services.
Michael W. Wallace: And last, we executed a strategic three-year agreement focusing on the expansion and optimization of a customer's FolkCare Connect environment. Their flagship hospital has over 24,000 employees staffing more than 1400. Our partnership includes Medi-Call, Consul-Live, the expansion of the Health Systems All-in-One Device Initiative, powered by Spok Mobile, to a total of 2,000 users and our AI-powered interactive voice responses. In addition, this customer also opted for various value-added services to help them drive maximum value.
Speaker Change: And last we executed a strategic three year agreement focusing on the expansion and optimization.
Speaker Change: Customer spoke care connect environment.
Speaker Change: Their flagship hospital has over 24000 employee staffing more than 1400 beds. Our partnership includes medical console upgrades the expansion of the health systems. All in one device initiative powered by spoke mobile to a total of 2000 users and our AI powered interactive voice response system spoke voice connect.
Speaker Change: In addition, this customer also opted for various value added services to help them drive maximum value from our solutions.
Michael W. Wallace: On a final note, I would also like to highlight our successful participation in the HIMSS 24 conference in. There, we showcased our top-rated clinical communication. Spok Solution Experts also demonstrated the power of the new Spok Care Connect hosted solution and the new reporting dashboards and user capabilities of Spok Care Connect. The event attracted more than 10,000 healthcare leaders from around the country, and we're very pleased with the customer, prospect, and partner meetings we participated in at this year's conference.
Speaker Change: On a final, though I would also like to highlight our successful participation in the Hens 24 conference in March.
Speaker Change: There we showcased our top rated critical communication platform.
Speaker Change: Spoke solution experts also demonstrated the power of the new spoke care connect hosted solution and the new reporting dashboards and user capabilities a spoke messenger.
Speaker Change: The event attracted.
Speaker Change: More than 10000 health care leaders from around the globe.
Speaker Change: We were very pleased with the customer prospect and partner meetings. We participated in at this year's conference events such as these are critical to our success as they provide a referral source for further growth through our sales pipeline.
Michael W. Wallace: Events such as these are critical to our success as they provide a referral source for further growth in our society. I will now turn the call over to Calvin Rice, our Chief Financial Officer, to briefly review our first quarter financial performance.
Speaker Change: I will now turn the call over to Calvin Rice, our Chief Financial Officer to briefly review the first quarter financial performance Calvin.
Calvin C. Rice: Thanks, Mike, and good afternoon, everyone. I would now like to take a few minutes and provide a recap of our first quarter 2024 financial performance, which we reported today. I encourage you to review our 10-Q when it is filed, as 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 2024, gap net income totaled $4.2 million or $0.21 per diluted share compared to net income of $3.1 million or $0.15 per diluted share in 2023.
Calvin C. Rice: Thanks, Mike and good afternoon, everyone.
Calvin C. Rice: I would now like to take a few minutes and provide a recap of our first quarter 2024 financial performance, which we reported today 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.
Calvin C. Rice: Turning to our income statement in the first quarter of 'twenty 'twenty four GAAP net income totaled $4 2 million or 21 cents per diluted share compared to net income of $3 1 million or 15 cents per diluted share in 2023.
Calvin C. Rice: For the first quarter of 2024, total gap revenue was $34.9 million, up from prior-quarter revenue of $34 million and compared to revenue of $33.2 million in the first quarter of 2023. Revenue for the quarter consisted of wireless revenue of $18.6 million, which was down 2.3% from the prior year, and software revenue of $16.3 million, up 15.3% from last year. With respect to wireless revenue, we saw improvement in quarterly net unit churn at 1.6% in the first quarter, down from 2.5% in the prior quarter, and a 30 cent increase in ARPU by 4% from the prior year.
Calvin C. Rice: For the first quarter of 2024 total GAAP revenue was $34 9 million.
Calvin C. Rice: Up from prior quarter revenue of 34 million and compared to revenue of $33 2 million in the first quarter of 2023.
Calvin C. Rice: Revenue for the quarter consisted of wireless revenue of $18 6 million, which was down two 3% from the prior year and software revenue of $16 3 million up 15, 3% from last year.
Calvin C. Rice: With respect to wireless revenue.
Calvin C. Rice: Improvement in quarterly net unit churn at one 6% in the first quarter down.
Calvin C. Rice: Down from two 5% in the prior quarter and a 30 <unk> increase in <unk> or 4% from the prior year.
Calvin C. Rice: The increase in ARPU was primarily driven by the success of our pricing actions undertaken in late 2023 and, to a lesser extent, continued sales of our new Gen 8 pagers. While we believe the demand for our wireless services will continue to decline on a secular basis as reflected in our declining pager units and service, we are hopeful that our focus on pricing and other initiatives like the Gen-A pager will continue to further offset revenue lost through pager unit decline.
Calvin C. Rice: The increase in <unk> was primarily driven by the success of our pricing actions undertaken in late 2023 and to a lesser extent continued sales of our new Gen eight pager.
Calvin C. Rice: While we believe the demand for our wireless services will continue to decline on a secular basis as reflected in our declining pager units in service. We are hopeful that our focus on pricing and other initiatives like the journey Pedro will continue to further offset revenue lost through pager unit decline.
Calvin C. Rice: Turning to first quarter software revenue, maintenance revenue totaled $9.3 million and was up from the prior year quarter by approximately 3.8%. Given the nature of maintenance revenue, higher license sales will work through revenue on a lagging basis, and we are beginning to see the positive impact on maintenance revenue from higher software operations booking levels over the past several quarters. Professional Services revenue was a healthy $4 million versus $3.2 million in the first quarter of 2023.
Calvin C. Rice: Turning to first quarter software revenue maintenance revenue totaled $9 3 million and was up from the prior year quarter by approximately three 8% given the nature of maintenance revenue higher license sales will we'll work through revenue on a lagging basis and we are beginning to see the positive impact on maintenance revenue from software opt.
Calvin C. Rice: <unk> bookings levels over the past several quarters.
Calvin C. Rice: Professional services revenue was a healthy 4 million versus $3 2 million in the first quarter of 2023.
Calvin C. Rice: Much of this was driven by an increase in personnel in the second half of 2023 and continuing into the first quarter, with 16 additional hires over the last nine months. As software operations bookings continue to expand, we expect an ongoing need to increase services personnel to maintain pace with our growth in the professional services backlog. We generally expect new personnel to be fully billable within roughly three months from the time they are hired.
Calvin C. Rice: Much of this was driven by an increase in personnel in the second half of 2023 and continuing into the first quarter with 16 additional hires over the last nine months.
Calvin C. Rice: Our software operations bookings continue to expand we expect an ongoing need to increase services personnel to maintain pace with our growth in the professional services backlog.
Calvin C. Rice: We generally expect new personnel to be fully billable and roughly three months from the time. They are hired so there's some margin impact in the very short term, but nothing that would present, a meaningful impact on a calendar year basis.
Calvin C. Rice: So there's some margin impact in the very short term, but nothing that would present a meaningful impact on a calendar year basis. License and hardware revenue totaled $3 million, up from $2 million in the same period of 2023. Again, this results from the strong levels of software operations bookings we continue to see. First quarter adjusted operating expenses, which excludes depreciation, accretion, and severance and restructuring costs, totaled $28.5 million in the first quarter compared to $27.2 million in the prior year period, while year-over-year expenses were up $1.3 million.
Calvin C. Rice: License and hardware revenue totaled $3 million up from $2 million in the same period of 2023.
Calvin C. Rice: Again this results from the strong levels of software operations bookings, we continue to see.
Calvin C. Rice: First quarter, adjusted operating expenses, which excludes depreciation and accretion and severance and restructuring costs totaled $28 5 million in the first quarter compared to $27 2 million in the prior year period.
Calvin C. Rice: While year over year expenses were up $1 3 million.
Calvin C. Rice: Nearly half of the increase was due to about $0.6 million increase in Spok's cost of revenue, primarily due to the aforementioned hiring and services, and directly related to the $2.2 million increase in software revenue. The remainder was driven by increased investment in our software products through research and development, as well as selling and marketing.
Calvin C. Rice: Nearly half of the increase was due to about 0.6 million increase in spokes cost of revenue primarily due to the aforementioned hiring in services and directly related to the $2 2 million increase in software revenue. The remainder was driven by increased investment in our software products through research and development as well as <unk>.
Calvin C. Rice: Selling and marketing.
Calvin C. Rice: Adjusted EBITDA totaled $7.5 million, a 9.2% increase from Adjusted EBITDA in the same quarter of 2023, a reflection of our strong top-line results to begin the year. I'd also like to address our cash balances, which were just over $23 million at the end of the first quarter. As we have mentioned in the past, cash disbursements in the first quarter are traditionally the peak of what we experience in a given calendar year, and this quarter was no different.
Calvin C. Rice: Adjusted EBIT totaled $7 5 million or nine 2% increase from adjusted EBITDA in the same quarter of 2023, a reflection of our strong topline results to begin the year.
Calvin C. Rice: I'd also like to address our cash balances, which were just over $23 million at the end of the first quarter as we have mentioned in the past cash disbursements in the first quarter are traditionally the peak of what we experienced in a given calendar year.
Calvin C. Rice: And this quarter was no different based on our current outlook, we fully expect to exit 2024 with cash balances substantially higher than where we ended the first quarter.
Calvin C. Rice: Based on our current outlook, we fully expect to exit 2024 with cash balances substantially higher than where we ended the first quarter. On a final note, as you've probably already seen in today's press release, based on our performance in the first quarter, we are reiterating our financial guidance for 2024. This year, we expect total revenue to range from $136 million to $144 million, with wireless revenue ranging between $72 million to $75 million, and software revenue ranging between $64 million to $69 million, and adjusted EBITDA to range from $27.5 million to $32.5 million. With that said, I will now turn the call back over to Calvin. Thank you very much, Calvin. Before I open the call up to...
Calvin C. Rice: On a final note as you probably already seen in today's press release based on our performance in the first quarter. We are reiterating our financial guidance for 2024. This year, we expect total revenue to range from $136 million to $144 million with wireless revenue ranging between 72 million to $75 million and.
Calvin C. Rice: Software revenue ranging between 64 million to $69 million and adjusted EBITDA to range from $27 5 million to $32 5 million, but that said I will now turn the call back over to Vince.
Vincent D. Kelly: Thank you very much, Calvin. Before I open the call up to your questions, I'd like to again point out how proud I am of the strong performance our team was able to deliver in the first quarter and believe these results position us well for the remainder of the year. We believe we're in a great spot to grow our franchise while we're turning capital to our shareholders. We have a long-term, organic growth engine in our software solutions through Spok Care Connect, and we maintain a source of strong recurring revenue in our wireless service line.
Vincent D. Kelly: Thank you very much Calvin before open the call up to your questions I'd like to again point out how proud I am with strong performance. Our team was able to deliver in the first quarter and believe these results position us well for the remainder of the year.
Vincent D. Kelly: We believe we're in a great spot to grow our franchise, while growing while returning capital to our shareholders. We have a long term organic growth engine and our software solutions through spoke care connect and we maintain a source of strong recurring revenue and our wireless service line, we run the largest paging offering in the world integrated with our Sop.
Vincent D. Kelly: We run the largest paging offering in the world, integrated with our software operations, and we have enhanced our paging platform and user devices to serve our core healthcare customer base. We believe, with these two assets going for us, our best financial results are ahead of us, and Spok's future is bright. We appreciate your support and interest in Spok, and we look forward to updating everyone again next quarter when we report our second quarter results in July. Thank you very much for joining us, and have a great day. Operator, you may now open the call for questions.
Vincent D. Kelly: Our operations and we have enhanced our paging platform and user devices to serve our core health care customer base.
Calvin C. Rice: We believe these two assets going for us our best financial results are ahead of us and spokes future is bright.
Speaker Change: We appreciate your support and interest in spoke and we look forward to updating everyone again next quarter. When we report second quarter results in July. Thank you very much for joining us and have a great day. Operator, you may now open the call for questions.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 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 key. Ladies and gentlemen, we will wait for a moment while we poll you for questions. Our first question is from the line of Eric Martinuzzi with Lake Street Capital. Please go ahead.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star and one on the telephone keypad.
Speaker Change: A confirmation tone will indicate your line. So just a question for you.
Speaker Change: You May press star and Sue if you'd like to remove your question from the queue.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east.
Speaker Change: Ladies and gentlemen, we will wait for a moment, let me pull for questions.
Speaker Change: Our first question is from the line of Eric watching Newsy with Lake Street Capital. Please go ahead.
Speaker Change: Yes.
Eric Martinuzzi: Congratulations on a successful start to the year. I wanted to just start the questions with what jumped off the page for me was your software bookings number, that 39% growth. I know it's wrong to get too excited in any given quarter, but certainly having that 7.9 million number, you know, that was, as you said, the second highest quarter, second highest Q1 in the company's history. So just are we still kind of like to take it back out to a full year view? Are we still looking for double-digit growth on a full year basis for software bookings?
Eric: Hey, congratulations on a successful start to the year I wanted to just start the questions.
Eric: What jumped off the page for me was yourself for a bookings number that 39% growth I know, it's wrong to get too excited in any given quarter, but certainly having that seven 9 million number that was as you said I think our second highest quarter second highest Q1 in the companies.
Speaker Change: History so.
Speaker Change: Just are we still kind of like to take it back out to a full year view are we still looking for double digit growth on a full year basis for the software bookings.
Vincent D. Kelly: That would be yes, and it's okay to get a little bit excited, Eric. Thank you.
Speaker Change: That would be yes, and it's okay to get a little bit excited Eric.
Eric: [laughter] yeah.
Vincent D. Kelly: As far as the pipeline goes there, was this just kind of, you know, we had a confluence of large deals coming in, or is there something else behind it?
Eric: As far as the pipeline goes there was this just kind of.
Eric: We had a confluence of large deals coming in or is there something else behind it.
Vincent D. Kelly: The pipeline continues to grow. One of the things that's really helping us this year is that we've put a lot of investment in time now since the pivot into our roadmap, and we've been giving previews of our roadmap and the functionality that we're adding to our solutions to our customers, and they're buying it. Our sales team is knocking the cover off the ball right now.
Eric: The pipeline continues to grow one of the things that's really happened to helping us this year as we've.
Eric: Put a lot of investment in time now since the pivot into our roadmap and we've been giving previews of our roadmap and the functionality that we're adding to our solutions to our customers and they're buying it and our sales team is knocking the cover off the ball right now had a fantastic first quarter and April was phenomenal right. So you never know.
Vincent D. Kelly: I had a fantastic first quarter, and April was phenomenal. You never know what May and June and the rest of the year are going to bring, but we've gotten off to a good start. The first four months were incredibly strong compared to the first four months last year. Now, having said that, you'll recall that in the second quarter last year, we had one big, gigantic, colossal $5 million deal, which really bumped the second quarter numbers way up.
Speaker Change: What may and June and the rest of the year are going to bring but we've gotten off to the first four months is incredibly strong compared to the first four months last year now having said that you'll recall that in the second quarter last year, we had one big gigantic colossal 5 million dollar deal, which really bumped the second quarter numbers way up.
Vincent D. Kelly: And so we could always get another one of those big whales. We did pull a pretty good-sized whale into April. Right now, just to be honest, I don't have a $5 million single deal in the target, in the crosshairs right now, but I think we're going to end up having a pretty darn good second quarter as well.
Speaker Change: And so yeah.
Speaker Change: We could always get another one of those big Wails, we did pull a pretty good sized well into April but yeah right now just to be honest I don't have a $5 million one single deal and the target in the crosshairs right now, but I think we're going to end up having a pretty darn good second quarter as well Hey, Eric its Mike I guess I would add one little piece of color to that.
Michael W. Wallace: Hey, Eric. It's Mike. I guess I would add one little piece of color to that. The first quarter was really positive in the area of we actually didn't have one of those really big deals. You know, we had 19 six-figure deals, and the highest deal within those 19 was about $600,000 or $700,000. So we were hitting a lot of singles, doubles, and triples, if you will, which I think portends for good things for the rest of the year. We're doing the basics really, really well.
Michael W. Wallace: The first quarter was was really a positive in the area of we actually Didnt have one of those really big deals.
Michael W. Wallace: We had 19 six figure deals and the highest deal within those 19 was about six or 700000. So we're hitting a lot of singles and doubles and triples, if you will which I think portends for good things in the rest of the areas. We're just we're doing the basics really really well.
Eric Martinuzzi: You noted in the press release the investment, the slight incremental R&D dollars being spent. Where are we pointing those as far as, you know, is this going to the contact center? Is there an element that's going into the wireless product? What's the incremental lift on R&D dollars?
Michael W. Wallace: Okay.
Michael W. Wallace: <unk> in the press release, the investment slight incremental R&D dollars being spent.
Speaker Change: Where are we pointing those as far as you know is this going to the right.
Speaker Change: Contact center is there an element that's going into the wireless product, what's the incremental lift.
Vincent D. Kelly: primarily going to our operator console and also our alerting solution, which we call messenger, which does kind of clinical alerting out there, but there's a lot to do with the operator console and bringing new functionality to it.
Speaker Change: Primarily go into our operator console and also our alerting solution, which we call a messenger, which is does kind of clinical alerting out there.
Speaker Change: A lot to do with the operator console and bringing new functionality to it.
Eric Martinuzzi: Okay, I assume this is, you know, feedback from customers and just working through a punch list. Absolutely. All right.
Speaker Change: Okay.
Speaker Change: Feedback from customers and just working through a bunch list.
Speaker Change: Absolutely.
Speaker Change: Okay Alright.
Eric Martinuzzi: And then the cash, as Calvin mentioned, you talked about stepping down here in Q1, Q1 always being seasonally more challenging. Based on the outlook that you've got for the year, on my model, I had the, you know, roughly midpoint adjusted even 30 million converting into around 26 million of free cash flow. Is that still in the ballpark for what you would expect on a full year basis? Yes, yeah, sure.
Speaker Change: Alright, and then the <unk>.
Speaker Change: Cash.
Speaker Change: As Kevin mentioned, you talked about stepping down here in Q1, Q1 always being the seasonally or challenging.
Speaker Change: Based on the outlook that you've got for the year.
Speaker Change: On my model I had the roughly midpoint adjusted EBITDA of 30 million converting into around $26 million of free cash flow is that still in the ballpark for what you would expect on a full year basis.
Vincent D. Kelly: Yep, yeah, it sure is Eric.
Speaker Change: Yep, Yeah sure is there.
Speaker Change: Okay.
Eric Martinuzzi: All right, and then last question. You talked about the churn being down here in Q1. That's great to see. I know on a trailing 12 months basis is really more how you like to look at it, and it was around a little over 7% for the 12-month period ending Q1. What is that expectation, you know, the full-year outlook? What's the expectation for the full-year term?
Speaker Change: Alright, and then.
Speaker Change: Last question, you talked about the churn being down here in Q1, that's great to see I know on a trailing 12 months basis is really more how you like to look at it and it was around a little over 7% or.
Speaker Change: For the 12 month period ending Q1.
Speaker Change: What are you what is that expectation in our full year outlook, what's the expectation for the full year sure.
Calvin C. Rice: Yeah, I would say that our expectation is consistent with what we've been saying. We saw that drop quite significantly in the first quarter. I can tell you here for the first month of the second quarter that we are very pleased with those results, and I would expect them to drop from what we saw in Q1. So, still in line with what we've been saying, I expect a kind of return to the mean in the 4 to 5 percent range on an annualized basis. I got it.
Speaker Change: Yeah, I would say that our expectations consistent with what we've been saying we saw that dropped quite significantly in the first quarter I can tell you here for the first month of the second quarter that we are very pleased with those results and I would expect it to drop from what we saw in Q1, so still in line with what we've been saying I expect that kind of return to the mean in the four to five kind of percent.
Speaker Change: On an annualized basis.
Speaker Change: Got it.
Eric Martinuzzi: All right, well, congratulations and good luck for the rest of the year. Thank you very much, Eric.
Speaker Change: Alright, well congrats and good luck the rest of the year.
Speaker Change: Thank you very much sir.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and 1. As there are no further questions, I will now hand the conference over to Vincent Kelly for his closing comments.
Speaker Change: Ladies and gentlemen, a reminder.
Speaker Change: If you wish to ask a question please press star and one.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: I've got no further questions I would now hand, the conference silver to Wilfred.
Wilfred: Kelly for his closing comments.
Vincent D. Kelly: Okay, everyone. Well, thank you very much for your support and for joining us this evening. This does conclude today's teleconference. We look forward to speaking with you in July when we report our second quarter numbers. Everyone have a nice evening.
Vincent D. Kelly: Okay, everyone well. Thank you very much for your support and for joining US. This evening. It does conclude today's teleconference. We look forward to speaking with you in July when we report our second quarter numbers, everyone have a nice evening.
Speaker Change: Okay.
Operator: Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect your lines.
Wilfred: Thank you.
Speaker Change: Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect your lines.
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