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

Thank you, and good morning. Thank you for joining us for our 2018 Fourth Quarter and Full Year 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 day 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 on 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 in which we compete, contained in our 2018 Form 10-K, 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. Also, on January 1st, 2018, Spok adopted Accounting Standards Codification, ASC 606. Revenue from contracts with customers using the modified retrospective method applied to those contracts which were not completed as of January 1st, 2018. Unless otherwise stated results for reporting periods beginning after January 1st, 2018 are presented under ASC 606, while prior period adjustments would have not been adjusted and continue to be reported in accordance with the Company's historical accounting under ASC 605. Please refer to the tables provided in yesterday's press release to obtain revenue, net income, earnings per share and EBITDA results under both ASC 606 and 605 formats. With that, I'll turn the call over to Vince.

Thank you, Mike and good morning everyone. Thanks for joining us on today's call, we are encouraged with our performance in the fourth quarter of 2018 and believe it provides a solid basis for continued improvement in 2019. We were particularly pleased with our growth in software bookings and the continued improvement in our wireless trends. Noteworthy was our performance in the second half of the year, as software revenue grew nearly 10%, compared to the first half of 2018 and fourth-quarter sequential wireless revenue declines slowed to a record low 0.7%. These metrics give us confidence as we start the New Year and launch the next evolution of our Spok Care Connect platform. Before we get into the details of the quarter and full year. I want to underscore, where we are strategically and with respect to our business plan and outlook. For the past few years, we've laid out a strategy for you. Were Spok would pivot from a telecommunications Company to a provider of software solutions with an initial primary focus on the North American healthcare market that transformation included substantial investment in the evolution of our Care Connect solution, and I'm proud to report that our transformation is on track and we continue to see the benefits from the investments in our software solutions platform. Last October, the announcement of the introduction of that platform was well received by over 150 of our customers at our Annual Connect Conference. A couple of weeks ago, we continue to build on our industry-leading reputation when we publicly launch the next evolution of the Spok Care Connect platform at the HIMSS Conference in Orlando. The announcement and our progress was incredibly well received and we continue to receive positive feedback on it. Let me take this opportunity to thank…

Thanks, Vince. Before I review our financial highlights for the fourth quarter and full year 2018. I would again encourage you to review our 2018 Form 10-K, which again we expect to file later today. Since it contains far more information about our business operations and financial performance, than we will cover on this conference call. As Vince noted, we were pleased with our overall operating performance for the fourth quarter and full year of 2018, along with the progress we made toward meeting our long-term business goals. A 7.4% increase year-over-year and software revenue and record-low attrition of wireless revenue combined with continuously focused expense management to generate approximately $10 million in net cash provided by operating activities in 2018. Spok was able to achieve this performance as we continue to return cash back to our shareholders in the form of dividends and share repurchases and invest in our business for the long term. Our balance sheet remains strong. With a cash, cash equivalent and short-term investments balance of $87.3 million at December 31st 2018 and we continue to operate as a debt free Company. We believe this provides a solid financial platform and are well positioned to execute against our long-term goals in 2019 and beyond. In the interest of time today, I will not review our fourth quarter and full-year 2018 income statement on a line by line basis. Since much of that information is contained in our news release schedules and SEC filings. However, to the extent you have specific questions about our quarterly financial results, I would be glad to address them during the Q&A portion of this call. Rather, I want to focus instead this morning on four specific areas. These include revenue, operating expenses, a brief review of our balance sheet and our…

Thank you Michael and good morning. On today's call, I'll start by reviewing software bookings for the fourth quarter. I'll then update you on our software development progress. I'll give you some details on two key customer wins recap the success of our wireless efforts and provide an update on our Professional Services seen. I'll conclude by remarks with a few comments on our marketing initiatives, before turning the call back over to Vince. Our sales and maintenance teams delivered software bookings in the fourth quarter of 2018 totaling $23.1 million. Fourth-quarter quarter performance was up 7% from $21.6 million in the previous quarter and increase more than 20% from prior-year quarter. Our maintenance revenue, renewal rate remained strong at 99%. Healthcare remains a key part of our growth and primary focus making up 96% of overall software bookings in the US for the fourth quarter. We completed 29, six-figure healthcare deal including three with customers who have never worked with us before. During the quarter we added 17 new healthcare customers to more than 1,900 hospitals and health systems that rely on Spok solutions. Our software development team exceeded expectations in the fourth quarter, delivering the first phase of the next evolution of Spok Care Connect. As Vince mentioned earlier, we believe our cloud native platform is a game changer in healthcare communications. I'd like to discuss the distinction between cloud native which we are developing at Spok, and cloud hosted, which is what many of our competitors are doing. To take full advantage of cloud technology, we are collaborating with Amazon Web Services to build up software from the ground up. We're not simply hosting our existing software in the cloud, but designing a complete cloud services solution, which will give us customers the most and security, majority…

Thank you, Hemant. Okay. With respect to our key goals and business outlook. Let me take a few moments to outline our strategy. As I mentioned in my opening comments about three years ago, we embarked on a transformation that was a title shift in our strategic direction for healthcare, our largest customer segment. The strategy pivoted is a five-year plan that signaled a very intentional move from offering our customers point solutions or single product solutions or call center software, alarm management and secure messaging to offering them a cloud-based single, integrated clinical communication and collaboration platform called Spok Care Connect. As we previously outlined our decision to make this shift and focus on the Spok Care Connect platform resulted for many reasons including customer needs. As our healthcare customers were telling us they needed a more unified approach to communications across their enterprise. The large market potential, an opportunity as we further penetrate the multi-billion dollar healthcare IT communications market. Business simplification as we've been offering our customers too many different products in multiple versions on several different platforms, and competitive positioning as we concluded that no one else offers a single integrated platform for healthcare communications. Listening to what our customers have been telling us and as a result of our work with our innovation partners at the HIMSS '19 conference we were proud to introduce the next generation of our Spok Care Connect platform. Our core foundation of clinical communication is strong and we are proud of the work our employees have done in support of this mission. We've accomplished so much together since we became Spok. We are laser focused on making Spok Care Connect, the leading clinical communication and collaboration platform for the healthcare industry. So, with that as background, and with respect to…

[Operator Instructions] We'll go first to the line of Ryan Vardeman from Palogic.

Hey guys, thanks for taking my question. What is success criteria as it relates to the investment that we're making in Spok Care Connect 2.0 in 2019 and beyond?

The success criteria in 2019 is embedded in the guidance range that we gave for revenue and for operating expenses and for capital expenditures, which then you can imply are cash flow. But we're not going to see a lot of benefit or push on the upside or the top line in 2019 from this Care Connect platform. We're continuing to develop it, we are certainly be selling more of it by end of the year, you'll see more in 2020 and certainly a lot more in 2021 and next year when we report our fourth quarter earnings we'll give you the guidance for 2020 and we'll will do the similar thing in 2021. We don't provide multi-year guidance. So hopefully that answers your question. But what we're trying to do, Ryan, and I think, I've had this discussion is tap what we see is a very large total adjustable market with clinical communications, we see from Gartner that they've estimated it's anywhere from $2.5 billion to $4 billion. We have done some of our own estimates, we'll share those with you when we see you in May and we agree with that kind of range. We only need to access a little bit of that to make this a very, very good ROI for our shareholders and have a very good outcome here and we think it's entirely doable. We're on track, the Company is executing, our pipeline have qualified sales leads is up significantly right now from where it was a year ago, we got a lot of good things going on here, our research and development people are executing and we've got momentum. So yeah, I think these investments, although they were a hard thing from a Company that was traditional telecom Company to make this pivot. They are paying off and they're going to continue to pay off. Thanks for your question.

Yeah, Let me -- the follow up, I guess to that would be then in 2019, as relates to your guidance, what sort of embedded annual recurring revenue from the Spok 2.0 platform is embedded in that revenue guidance? -- kind of on an exit run rate? I think there's not going to hold our revenue but some bookings and kind of contracts like what would be embedded in that guidance on that exit rate?

Yeah. Hey, Ryan, it's Mike Wallace. As Vince noted, I mean the majority of 2019 is going to be from a revenue standpoint, driven by, if you will our existing platform. What our expectations are, is that the new Care Connect platform as it begins to come online, we'll be able to begin selling that in the marketplace in the back half of this year. So, any amount in 2019 will de minimis at the end of the day, but it should provide a launching point as Vince mentioned for 2020.

Okay. I guess, I'll get back in the queue. Assuming that there's somebody else in there have got or would you prefer me, just ask one more question from you?

I don't -- I can't see the queue. Operator, do we have anyone else? Because we can let Ryan ask his question if there's no one else in the queue.

Currently, we have no others in the queue. [Operator Instructions]

Okay. Ryan, go ahead.

Yeah. So the service -- rental and maintenance ticked up meaningfully as a percentage of paging revenue. Is this a new run rate or what's that a function of?

No, it's more a function of a reclass, if you will. So it's just a function of how we grouped expenses, but at the end of the day, we continue to spend a great deal of time, grooming our paging network to maintain the margins that we've got in that business. So there has been no fundamental uptick in the expense, it’s really just a classification issue.

Got it. And then in the Q3, 10-Q, there is an allowance for doubtful that went up a little bit, what side of the business is this relate to, and is that trend continued or is that one-time in nature. I'll wait and see the K later today, but...

Yeah, it's -- during 2018, we put in a more mechanical calculation if you will, from an allowance for -- for bad debt standpoint. So, we've been building that through 2018. We fundamentally don't believe it is significant in the context of our receivables, probably about 3% or so. So it's pretty much a one-time event in 2018, Ryan, of us just building what I felt was the appropriate allowance for doubtful accounts, kind of when I came onboard. But as you would expect, it's primarily on the software side of the business, the wireless business has been pretty straightforward and stable as far as customers paying certainly with hospitals in today's day and age depending on the financial health of those hospitals you can, you can certainly have instances where you have some non-payers at the end of the day. So, it was primarily on the software side i.e., through hospitals and it's primarily a one-time event in 2018.

Thanks. And then directionally, how are you thinking about professional services next year? And what your target margins there?

Yeah, we brought in a new leader of professional services, about a year and a half ago. We've done a great deal of work to transition that's from, if you will, sort of a kind of departmental effort to really a business and we're finally at a stage where we're able to increase the utilization of people that we've got in that group. We've got a lot better at the outset of deals getting statements of work that are aligned with our customers. At the end of the day in a software business, obviously you're PSG business, your Professional Services Group, is largely going to drive lower margins, simply because of the amount of people time embedded in that, but I would expect kind of a 30% to 40% margin in that business. And as we begin to make this evolution to the Care Connect platform, we should be able to see less time needed to implement our solutions from a professional services standpoint, such that a number of those expensive resources can be used more a consultative type of manner, which would be additional revenue producing. So we're going through a transition within PSG as Hemant mentioned in his comments as well, and it's getting better, each and every year.

Thank you. That's very helpful. And I guess my final one would be, as the bookings that you're seeing, how does that span across the various revenue line items, be it revenue, maintenance, hardware services, licenses?

Yes, it's fundamentally at least right now with our current on-premise solution, it's a bit heavily focused as it relates to services. We're doing a lot of things internally to drive far more license revenue, such that obviously, it's a much higher piece of business, if you will. And then secondarily, you get the follow on maintenance component that comes from the license revenue, but it's a transition that we're going through as we're evolving into certainly a much more sophisticated software Company that our deals are being driven much more by license revenue as opposed to services. The hardware component is always going to be relatively smaller in the grand scheme of things, but as we move out into the future and what we are already beginning to see is deals where we can get a higher proportion of license revenue as opposed to the services.

Thank you very much. That's helpful. Good luck.

Thank you.

Thanks for your questions, Ryan. Any other questions?

We have no further questions at this time. [Operator Instructions]

Okay. Well, look, operator if there's no more questions, I just want to thank everyone for joining us this morning and we look very much forward to speaking with you again when we release our first quarter earnings in April and then hopefully we'll see many of you in May at our Investor Day. So, everyone have a great day and thank you very much.

Thank you. And we'd like to thank everybody for their participation on today's conference. Please feel free to disconnect your line at anytime and have a good day.