Spok Holdings, Inc.

Greetings and welcome to the Spoke Holdings Inc. Fourth Quarter 2022 Earnings Results Call. At this time, all participants are in 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 then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Al Golgano. Thank you, sir. Please go ahead.

Hello, everyone, and welcome to Spoke Holdings' fourth quarter 2022 earnings call. I am joined today by Vince Kelly, Chief Executive Officer, Mike Wallace, President of Spoke, Inc., and Chief Operating Officer, and Calvin Rice, Chief Financial Officer. I want to remind everyone that today's 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 condition. 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. folks' actual results could differ materially from those anticipated in these forward-looking statements. Although these statements are based upon assumptions that the company believes to be reasonable, they are subject to risks and uncertainties. Please review the risk factor section relating to our operations and the business environment, which are contained in our 2022 Form 10-K and related documents filed with the Securities and Exchange Commission. Please note that SPOKE assumes no obligation to update any forward-looking statements from past or present filings and conference calls. With that, I'll turn the call over to Vince.

Thank you and good morning, everyone, and thank you for joining us this morning for our fourth quarter and full year 2022 earnings call. Today, we will share with you an update on how our strategic business plan is progressing, as well as our financial results for the quarter. I'll start by reviewing the agenda for today's call. The order will be as follows. We will begin by providing a review of our operational performance for the quarter and full year. I'll then turn the call over to Mike to review our fourth quarter and full year 2022 financial highlights, as well as our pro forma results. We will then conclude our prepared remarks with our business outlook and financial guidance for 2023. And finally, we'll wrap up with some Q&A. In general, I want to reiterate how proud I am of what the SPOKE team has been able to accomplish in 2022 and believe that we have established a solid foundation for the future as we continue to execute. We now have a singular focus of generating cash flow and returning capital to shareholders. We did it last year and we'll do it again this year. In terms of operating results over the last year, we made progress in key performance areas, including wireless trends, software bookings and backlog levels, as well as expense management as we successfully aligned our cost structure with our updated business plan. Going forward, we believe our extensive experience operating our established communications solutions will create significant value for stockholders by maximizing revenue, cash flow generation, and return of capital. Certainly, 2022 was a year of change. In an effort to quickly respond to marketplace dynamics, as well as demand for our products and solutions, last February, we announced a new strategic business plan that set a priority on maximizing cash flow with the goal of returning capital to our shareholders. As part of that strategic pivot, we made the tough decision to discontinue the development and sales of SpokeGo and eliminate all associated costs. Additionally, we expanded upon our already disciplined expense management track record to right-size the company to focus on cash flow generation. This was accomplished by streamlining spokes management and board structure by approximately 50 percent, reducing our employee headcount by about 30 percent, rationalizing external costs, reducing capital expenditures, and consolidating offices. These difficult steps were taken Due to the challenging financial and resource environment our hospital customer base has experienced and continues to experience due to the pandemic. This was and is not a good environment for new projects as hospital resources and budgets remain tight and are focused on getting more out of their existing solutions. Spoke's wireless and CareConnect Suite service lines are ideally situated for this environment. Spoke has an excellent track record of driving revenue and cash flow from these business lines and enjoys a significant market leadership position in narrowband personal communication services and hospital call center software. Since our strategic pivot last February, morale has been high and SPOKE has seen a significant improvement in virtually all areas, including sales, product development, and overall execution. In 2022, SPOKE generated nearly $25 million of pro forma adjusted EBITDA and has returned $25 million in cumulative capital to shareholders since the implementation of the Strategic Business Plan. And as you've seen from our guidance, we're on track to do it again this year. Despite the difficult changes that SPOKE implemented in 2022, we've remained true to our mission of being a global leader in healthcare communications. 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. Spoke solutions for critical communications provide a vital service for our trusted customers. These customers include 18 of the top 20 adult hospitals and all 10 children's hospitals named to the U.S. News and World Report's 2022-2023 Best Hospitals Honor Roll. In fact, over the past decade, nearly every hospital named to that honor roll has been Spoke customer. We have over 2,200 healthcare facilities as customers representing the who's who of hospitals in the United States. We've built our solutions over many years and have longstanding valuable customer relationships. We honor and respect our customer service in providing world-class healthcare, and we value our place in their communications ecosystem. This is coupled with a financial strength that over 83% of our revenue is reoccurring in nature. We're a company with no debt, which provides us significant flexibility. We continue to focus on investing in and enhancing our integrated Spoke CareConnect software solutions and wireless products in order to continue our longstanding relationships with the nation's leading healthcare providers. In 2022, though we sharply reduced our research and development spend from the previous year, we still spent approximately $8.7 million to support development of our Spoke CareConnect platform as well as wireless products such as our new Gen A pager. We expect to expand that investment to approximately $11.3 million this year in line with spending levels prior to the introduction of SpokeGo. This investment is important relative to our plans for stabilization and eventual growth of future software revenue, and these incremental costs are embedded in our guidance that Mike will cover later in this call. We believe these attributes, combined with our experienced, dedicated, and committed employee base, are what will allow us to generate significant cash flow into the future and return capital to our shareholders. So with that said, let me take you through a few highlights for the fourth quarter of 2022. We were successful in stabilizing our business and positioning SPOKE for future growth. In addition to the highlights listed on the slide, other noteworthy fourth quarter performance included a nearly 17% annual increase in year-over-year software operations bookings, Next, we ended the year with a $44 million software backlog up from the prior year and built by our success in software operations bookings. Third, quarterly unit erosion of our wireless pagers averaged less than 1%, resulting in a full-year unit erosion of 3.5%, down 80 basis points from the prior year. Next, we were able to implement a 28% reduction in year-over-year adjusted operating expenses primarily through phased-in actions I outlined previously with respect to our strategic pivot, and as a result, we generated $5.6 million of adjusted EBITDA. Our team was able to accomplish all this during the quarter while returning $6.25 million of cash to our shareholders in the form of our regular quarterly dividend, and we ended the year with approximately $36 million in cash and cash equivalents with over $52 million of deferred tax assets. At the same time, We generated 17 new six-figure customer contracts during the quarter. Let me take a few moments and highlight a couple of these. First, I'd like to highlight a multi-year agreement signed with a large health system in Oregon. This locally-owned, nonprofit, six-hospital health system includes a full-service children's hospital, a 24-hour mental and behavioral health services center, and more than 70 primary care, specialty, and urgent care clinics. With 14,000 employees and nearly 3,000 healthcare providers, the organization provides comprehensive healthcare services across the region and has the most five-star ratings for hospitals in the area. A customer for more than 20 years, this health system signed a five-year agreement that's an example of our new multi-year contract strategy. With multi-year contracts, customers have predictable annual spending, ensured supportability, quicker access to new functionality, and a streamlined procurement process among the many other benefits. The other customer contract I'd like to highlight for you is with a large health system in Minnesota that's received nationwide recognition across multiple areas of care. Founded in academics and with extensive deep roots in community medicine, this health system has 15 hospitals and nearly 100 primary, urgent care, specialty, and skilled nursing facilities and clinics. They have 12,000 employees and 4,500 healthcare providers. A spoke customer for over a decade, the health system signed a multi-year agreement for premium support and professional services for their spoke solutions. Even while the healthcare industry is under considerable financial pressure, the customer's leadership understood the value and role that spoke solutions play in delivering critical communication when seconds matter. Our multi-year agreement was ideal for the customer because they wanted a predictable annual spend deeper partnership with support, current software feature releases, and value-added services to maximize their investment in Spoke solutions. When we implemented our strategic pivot last year, I had said that I believed that this strategic shift would create significant value for our shareholders while allowing Spoke to continue to provide critical communication services to healthcare customers. The two examples I just shared provide a good sense of the value we're creating. Certainly our performance in the fourth quarter and for the full year demonstrates a company that has stabilized its operation and is poised to take advantage of growth opportunities in our chosen markets. Now, before I turn the call over to Mike for a more detailed discussion of our financial highlights and forward-looking guidance, I want to outline some of the assumptions that drive our financial expectations for 2023. First, we anticipate moderate growth in our software operations bookings as our customers operate within their resource constraints while we continue to focus on multi-year contracts and value-added service engagements. Next, we anticipate that we will be able to continue to minimize unit churn and maximize average revenue per unit, or ARPU, in our wireless products as we continue to benefit from the pricing actions that we took in 2022 and the deployment of our Gen A pager. And lastly, we take great pride in our ability to control costs, and although we have taken out the majority of costs related to the strategic pivot, we expect to continue driving incremental savings in 2023. Finally, Mike will provide more detailed guidance information in a few moments, but we believe that these assumptions can drive our business to generate adjusted EBITDA in the range of $24 to $26 million in 2023. With that said, I'd like to turn the call over to Mike Wallace to review our financial performance. Mike?