Spok Holdings, Inc.

Really 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 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. 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 of 12% for 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. 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. Calvin 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 annually beginning after the conclusion of our lease in September of 2024. However, our focus on expense management as a driver to generate 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's 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. 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. I 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. Colin 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. 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. 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 return 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 as return nearly $670 million to our stockholders due to 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 our 2004 inception. Our focus on maximizing cash over the long term supports the four major tenets 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. 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, 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, we generated gap net income of $4.5 million, or $0.22 per diluted share, which represents a 52% increase from net income of $2.9 million, or $0.15 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, 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. We deliver clinical information to care teams when and where it matters most to improve patient outcomes as folk enable smarter, faster clinical communications for our customers. And importantly, we continue to maintain our reputation as a thought leader in the healthcare communication 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 SPOKE's 13th 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. 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, as about two-thirds of respondents noted their organizations are trying to tackle work-related stress and burnout. 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 pagers. 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. The same week we released the survey results, SPOKE hosted 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 forums, we believe this was the most successful virtual customer event we have ever hosted, 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 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 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 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 new 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. 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 SpokeCareConnect 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. 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 organization's almost 4,000 users, one of the largest deployments of Spoke Mobile in the country, and 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. Spoke boasts a remarkable history of delivering efficient communication solutions to healthcare 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 campus. This five-year engagement with Spoke was for enterprise consolidation across multiple facilities on Spoke Smart Suite, spokes messenger and speech solutions, as well as spokes value-added service solution assessment. 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 spokes smart suite, eNotify, 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. 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 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 to low 20s for the full year. 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 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. Turning to our income statement, in the third quarter of 2023, GAAP net income totaled $4.5 million or $0.22 per diluted share compared to net income of $2.9 million or $0.15 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 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 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 ARPU, which saw growth of 19 cents 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 cents in ARPU in relation to the $7.59 realized in the third quarter, all things being equal. Net unit churn continues to remain at historically low levels, as net units in service declined by roughly 4.7% from the prior year period. While we believe the demand for our wireless services will continue to decline on a secular basis, as reflected in declining pager units in 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. 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 SpokeCare Connect, we expect bookings will continue to grow in the coming years and maintenance revenue along with it. Given the nature of maintenance revenue, Higher licensed 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 and resource utilization delivering on our internal initiatives to better align total resources with our backlog and driving a higher rate of net cash flow. 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 in relationship to declining wireless revenues. Increases in selling costs, which primarily relate to commissions and higher fringe costs, We're more than offset by savings in G&A, 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. 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 30, 2023. The termination fee and remaining lease costs will be amortized to severance and restructuring through September 30, 2024. 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 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. 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 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 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 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, 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. 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 $136.25 million to $139.25 million, a $1.75 million increase from the previous guidance midpoints. 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 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. 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.