Vince Kelly - President and Chief Executive Officer Shawn Endsley - Chief Financial Officer Hemant Goel - President

Good morning and welcome to Spok’s First Quarter Investor Call. Today’s call is being recorded. On line today we have Vince Kelly, President and Chief Executive Officer; Shawn Endsley, Chief Financial Officer, and Hemant Goel, President of the company’s operating company. At this time, for opening comments I would like to turn the call over to Mr. Endsley. Please go ahead, sir.

Good morning. Thank you for joining us for our first quarter investor update. Before we discuss our operating results, 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 on the date of this conference call and are not intended to give any assurance as to actual future results. Spok’s 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 in which we compete contained in our 2015 Form 10-K, our first quarter Form 10-Q, which we expect to file later today 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.

Thanks, Shawn and good morning. We are pleased to speak with you today regarding our first quarter operating results and what we believe was a solid quarter for Spok and a good start for 2016. During the quarter, we made further progress toward our goal of transitioning Spok to a growth model and long-term provider of critical communications solutions. Our performance in the first quarter was consistent with our expectations. We were very pleased as we saw continued reduction in the decline of our paging units and wireless revenue. Software sales were in line with the prior year quarter, but down sequentially from the typically more robust fourth quarter. Software maintenance bookings and related revenue, which is recurring in nature, continued to grow. We are not yet at the point where our software revenue growth overcomes our paging revenue erosion on a year-over-year basis, but we believe we are on plan and tracking with our strategy. For the first quarter, we saw strong performance in the number of key operating measures, including operating expense management, cash flow and subscriber retention. We achieved these results as we increased our investment in our business by enhancing and upgrading our product development team and tools as well as our sales infrastructure and management. We believe these investments will yield significant future benefits in the form of our improved integrated communications platform, Spok Care Connect as well as higher future bookings levels supported by an enhanced and upgraded sales team. Overall, we continue to operate profitably, enhance our product offerings and further strengthen our balance sheet with strong cash levels and no debt. Our ability to generate healthy cash flow has allowed us to execute against our capital allocation strategy, make key strategic investments and return nearly 80% of our operating cash flow to…

Thanks, Vince. Before I discuss the financial highlights for the first quarter, I would again encourage you to review our first quarter Form 10-Q, which we expect to file later today as it contains far more information about our business operations and financial performance than we will cover on this call. As Vince noted, we were pleased with our overall operating performance in the first quarter. Continued operating expense management and software maintenance renewal rates that exceeded 99%, coupled with the lower levels of churn in both paging units and wireless revenue enabled us to maintain positive cash flows and a strong balance sheet. We also continued to make steady progress towards our long-term business goals. Overall, we believe we are off to a solid start in 2016. This morning, I will review four key areas that influenced our first quarter financial performance, they include; number one, factors related to first quarter revenue, number two, selected items that influenced first quarter expenses, number three, a brief review of the balance sheet including deferred tax assets and finally, number four, an update on our financial guidance for 2016. As usual, if you have specific questions about these items or any of our quarterly financial results, I will be glad to address them during the Q&A portion of this morning’s call. With respect to revenue for the first quarter, consolidated revenue totaled $45.4 million. Of the total, software revenue contributed $17.2 million, while wireless revenue comprised $28.2 million. Our software revenue represents 37.9% of our total revenue in the first quarter 2016 compared to 36.2% of total revenue in the first quarter 2015, reflecting the continued transition of our revenue base. First quarter software revenue reflected an increase of nearly 13% in maintenance revenue to $9.1 million compared to the first quarter…

Thank you, Shawn and good morning. Our sales and marketing teams delivered software bookings of $15.1 million, down 14.8% from Q1 in 2015. However, an all-time record number of qualified marketing leads and strong tradeshow activity reflect the forward momentum we expect to create as the market recognizes the value of our enterprise critical communications platform. Maintenance renewal rates remain strong at more than 99% and clinical alerting was one of our best performing solutions with sales up 28.5% over Q1 2015. This quarter, we welcome more than 35 new customers to the Spok family, primarily in the healthcare and government sectors. However, our largest six figure deal of the quarter came from an existing hospitality customer in the Southeast. This long time customer trusts our solutions to support the comfort and safety of their patrons. This deal is an expansion project as well as the addition of a new hotel. Healthcare remains an important part of our growth, comprising 77% of overall bookings in the U.S. for Q1. While much of that business represents customers who are expanding their enterprise communications and adding more of our services and solutions, nearly a fifth comes from new hospitals and health systems that have never worked with us before. These organizations join a prestigious list of customers that includes all of U.S. News and World Reports 2015-2016 Best Hospitals Honor Roll. These 15 adult hospitals and 12 children’s hospitals rely on our solutions to help them provide the best care. Among our new customers is a midsized regional hospital in the Northwest. This facility is replacing their existing contact center solutions, because staff needs a console that supports robust search capabilities, locations and staff contact information. This hospital selected Spok because of our contact center solutions healthcare-centric features and integration options, our…

Thanks, Hemant. Before we open up the call for your questions, I would like to comment briefly on a couple of items. First, I want to update you on our current capital allocation strategy. And second, I want to review our key goals and business outlook for 2016. With respect to our current capital allocation strategy, our overall goal is to achieve sustainable business growth while maximizing long-term stockholder value. Towards that end, the allocation of capital will continue to be a primary area of focus for us. Our multifaceted capital allocation strategy includes dividends and share repurchases as well as key strategic investments that include augmenting our operating platform and infrastructure as well as potential acquisitions that provide additional revenue streams. As most of you know, we have spent substantial time over the past few years evaluating many acquisition opportunities to enhance our portfolio of software solutions. As such, we have reserved capital for one or more such acquisitions. Today, we have not yet identified the candidate that meets our acquisition criteria, primarily due to what we see as unacceptable valuation expectations. Nonetheless, we remain optimistic and will continue to review candidates that will be a good strategic fit. As we have discussed in the past, we will remain disciplined in our approach ensuring that any acquisition demonstrates both synergistic and strategic value for Spok as well as being accretive. With regard to other uses of capital, we expect to continue paying in our quarterly dividend of $0.125 per share, or $0.50 annually for the foreseeable future based on our current projections for operating cash flow. In addition, we may buyback additional shares of our common stock from time-to-time under our share repurchase authorization. As I noted earlier, we repurchased approximately 292,000 shares of common stock in the first…

Okay. So look I know it’s a real busy earnings week, since a lot of companies are putting their numbers out today. And I know folks and investors have a lot to focus on. We don’t seem to have any questions right now, but we are always available to take questions and you can always call Al Galgano, our Investor Relations professional and he can get back to you as well. So thank you very much for joining us this morning. We look forward to speaking with you again after we release our second quarter results in July. Everyone have a great day.

Thank you. This does conclude today’s call. You may disconnect at anytime and do have a great day.