Good morning, ladies and gentlemen. And welcome to Spok's 2020 First Quarter Investor Call. As a reminder, today's call is being recorded. On line with us today, we have Vince Kelly, President and Chief Executive Officer; Mike Wallace, Chief Operating Officer and Chief Financial Officer. At this time, for opening comments, I would like to turn the floor over to Mr. Wallace. Please go ahead, sir.

Good morning. Thank you for joining us for our first quarter 2020 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 2019 Form 10-K, our first quarter 2020 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'll turn the call over to Vince.

Thank you, Mike, and good morning. Thanks, everyone, for joining us on our first quarter 2020 update call. I hope all of you, your friends and families are well and remain safe. So far, to the best of our knowledge, our Spok team remains COVID-19 free. Like many companies, the majority of our team is in a work-from-home posture. This pandemic has impacted the sales and installation of our software solutions. However, we have continued to operate with both our corporate goals in mind and with the health and welfare of our employees and customers at the top of our priorities list. As Jill Smith, our Director of Content Marketing recently said in her blog "Every day I'm reminded that what we do in health IT matters, that although we're not on the front lines, we're not on the sidelines either. Across the country, in more than 2,200 hospitals, providers are using Spok solutions to connect with one another as they battle this insidious disease. Through our paging systems, contact center software and secure messaging applications, they're staying connected as they scramble to secure personal protective equipment, battle for testing, monitor test results and connect with patients during, what for many is, the most challenging times of their lives." This is but one example of the incredible people we have on our team at Spok. And a great respect and appreciation for what our customers, who are on the front line, are doing every day. It humbles me and puts all things into perspective. This is the foundation on which we stand. This is what drives our long-term vision, which is for Spok to become the strategic partner of choice for enterprise-grade clinical communications and patient care coordination. Like many of our peers, we were negatively impacted in the first…

Thanks, Vince. Let me give you a little more detail on our financial performance in the first quarter. I would again encourage you to review our first quarter 2020 Form 10-Q, which we expect to file later today as it contains a lot more information about our business operations and financial performance than we will cover on this call. As Vince noted, we were negatively impacted in the first quarter as the majority of our customer base struggled with the impacts presented by COVID-19. It has been a challenging selling environment. And during the quarter, we were focused on understanding the impact of the pandemic on our business from both an operational as well as a sales and marketing perspective, particularly given the impact of COVID-19 on the rollout of our Spok Go software business. However, in the first quarter, we were encouraged by nearly 7% growth in year-over-year software bookings and contributions from our recurring revenue streams, which represents approximately 83% of our revenue. In the first quarter, software maintenance revenue renewal rates continue to exceed 99%, and we saw lower-than-anticipated levels of churn in paging units and wireless revenue. Continued operating expense management has also allowed us to absorb the impact of our planned investments in product research and development expenses as well as the impact of COVID-19. Overall, we are encouraged by what our team was able to accomplish in the first quarter and confident in our ability to take immediate steps to mitigate the impact of COVID-19 and react to changes in market conditions where necessary. Today, I will review 4 additional key areas which drove our first quarter financial performance. It include: one, a review of certain factors impacting first quarter revenue; two, selected items which influenced first quarter expenses; three, a brief review of…

Thank you, Mike. Before we wrap up today's call, I'd like to comment on the few governance issues. First, I want to update you on the unsolicited offer we received from B. Riley in March. Second, I want to give you our recent thoughts on our capital allocation policy. And finally, I want to highlight the recent changes to our Board of Directors as we continue to look for exceptional Board members that add expertise in health care, software, public safety and government over the past 5 years. With respect to the unsolicited offer from B. Riley, on March 17, Spok announced that it had been made aware of a public announcement from B. Riley Financial for an unsolicited offer to acquire all the outstanding shares of Spok's common stock for $12 per share in cash. The offer was indeed unsolicited and no one within our organization, nor any of our advisers had any prior communication with B. Riley regarding the offer. I'd like to take this opportunity to remind stockholders that after careful evaluation, the Board of Directors is unanimous, in our belief that the indication of the interest from B. Riley severely undervalues Spok's business. As was outlined in our press release yesterday, we believe that this offer undervalued Spok given: number one, our strong cash reserves; number two, our lucrative legacy wireless business; number three, our valuable software business with a highly profitable maintenance revenue base and revenue renewal rates in excess of 99% on maintenance; number four, our Spok Go platform that is poised for growth and has been developed by Spok with significant customer interest prior to COVID-19; and number five, the value of our deferred tax assets. For these reasons, the Board of Directors does not believe that the proposal from B. Riley provides…

[Operator Instructions] The first question comes from the line of [ Sid Demetnis ].

Hello?

Can you hear me?

Yes.

Thank you, Vince and Mike for keeping everybody safe and navigating through this time. My question is what's currently preventing existing customer to migrate from your enterprise product to the Go platform? I know you built this based on the customer's mind. And secondly, is -- what is the sales strategy for the Go products, because right now your competitor also said the renewal rate is 90%. So it's a sticky business. So what's your strategy there?

[ Sid ], I think I heard your question. I'll try to repeat what I think you said, and if I got it wrong, just correct me. But the first one was, what was preventing us from selling our Spok Go platform. Spok Go platform sales have been put on hold because of the pandemic. Basically, these hospitals and health care institutions that were looking at the platform has frozen up. We're starting to see that actually break loose. We're actually starting to see much better traction in April. But time will tell how long this pandemic is going to impact these hospitals. They were hit by an initial wave from the pandemic, and they were literally putting tents up in parking lots and conference centers and it wasn't time to do a whole lot of new purchases. We have continued to sell our CCS 1.9 upgrade, and that is to existing customers, and that has also the gateway to our Spok Go platform. You have to have that installed first. We've had the customers not allow our professional services teams into their facilities. And obviously, you need the professional services teams to go into the facilities to install your premise-based software and that includes the CCS version 1.9. So this whole thing is still in a bit of a monkey wrench into our business plan. But we're hopeful that, that's going to be easing up and that long jam is going to break shortly. I think that gets to your question. Mike, is that what you heard?

I think so. Yes.

[Operator Instructions] Moving on, we have David Chanley with White Hat Capital Partners.

Vince and Mike, glad to hear that you're both well and the employee base at Spok are healthy and safe. The largest shareholder on your Board is Braeside, who you settled with in 2018. It appears that Braeside standstill agreement expires today. Has Braeside elected to extend its standstill agreement with Spok? And specifically, are you expecting Todd Stein, Braeside's representative on the Board to continue as a corporate director?

A couple of things. I want to keep our answers, as I said in my opening comments here to our historical financial performance. However, I think Todd is a fine Director. I think he does a great job and he has my support. Thanks a lot, Dave.

I was just looking for yes or no.

[Operator Instructions] It looks like we do have a follow-up from [ Sid Demetnis ].

Yes. Follow-up question is, what is the current sale strategy for the Go platform? Because it seems like your competitor also bringing out 90% renewal rates. So it seems like it's a sticky business. So -- and how do you position yourself better than some of the competitors that have equipment attached to it as well consider only the software? Is it actually better to have only the software versus selling the equipment as well?

[ Sid ], I really want to apologize, but I'm having a hard time understanding your question. I think you said something like with respect to a sales tax -- sales of Spok Go. So we've developed the Spok Go platform. We've been out there marketing it. We've got a very large pipeline right now. I think it's over 50 deals in the hopper right now. And I think the total is over $27 million in potential. We have to get that across the finish line, obviously, and it takes time to do that. But it's being very well received. We've built enormously flexible and powerful platform that's based on a cloud-native architecture. And we think architecture matters in the long run. We've partnered with AWS to do it. Right now it has a very strong messaging capability associated with it. It has nursing workloads, including a workflow engine associated with it. It has on-call scheduling associated with it, which is a huge issue right now inside our health care customers, and we're also building critical test results into it. There will be other service lines that we will be adding into it as the year progresses. We have shown this to many customers. They are very interested in this. We have shown these strategics. They have looked at it and told us that it's very powerful. We have shown this to huge financial sponsors that have a lot of experience in the health care industry that have said that you've built the best platform out there. So it's just a question of time. We think we've got a winner, and it will take some time. And this pandemic certainly did not help. We had 100-plus meetings scheduled at HIMSS. We have phenomenal booth space and location. But it is what it is, and we're going to make the best of it. And we're going to go forward, and we're committed to making our shareholders some money and appreciate the patience and support.

[Operator Instructions] And next from [ AU Consulting ], we have [ Brad Gold ]

I'm glad that everyone is healthy. Vince, I'm just having trouble sort of rationalizing the valuation that you put on the firm in your press release of basically $3.50 for cash and $6.50 for the wireless. And in the last call, you had talked about you strongly believe that your best financial results were ahead, and you believe that remaining independent is the best way to maximize value. But as we sit here, the stock is trading at $11 basically is valuing the wireless, give or take, $20 million after the money you've invested and the amount of time that's gone on since you bought Amcom. How are we going to sort of close the gap in the value that you perceived in the company in a reasonable period of time rather than this long-term view that you keep referring to?

Well, I think a couple of things, [ Brad ], and thank you very much for the question. First of all, none of us could foresee this pandemic and what it was going to do to us. I'd just be totally honest. We had huge expectations from what was going to happen at HIMSS. We have huge expectations for sales on the new platform as a result of that, and all that got pushed back. We are painfully aware of everything that's going on with our stock. And we are looking very closely at lots of options, lots of things we can do to create value. We think sale in Spok Go is a very, very important way to drive our value north. We understand well the wireless business. We see this trend continuing to improve. It's going to be around a long time and has a lot of work. We've pulled some significant levers now to make sure that we are free cash flow positive going forward. So we're not going to be burning cash from operations. We will, though, however, continue to be paying our dividends as we go forward. And as I said in my comments, yes, we're going to look at this very closely for the balance of this year. And if we don't see improvement, we can't make folks happy with respect to our share price. We'll look at other alternatives, and we'll find a way to either run this thing in a free cash flow maximization model or some other way to unlock more value. It's important to me as well as a shareholder. I know it's important to you as a shareholder. Thank you for your question.

It's -- one thing. I appreciate the -- obviously, the virus was not anticipated. But a lot of the issues that I'm discussing were pre-virus. So for example, the stock was trading between $9 and $10 before the virus and before B. Riley's bid. So we can't just sort of say the virus is the issue. There are other sort of bigger issues that need to sort of be dealt with. And I think that most shareholders, and I'm going to be speaking for myself, and there have been some other ones who have come out publicly, the discrepancy between your share price and the value that you perceive for the firm is way, way too wide. And I think that people's patience is being pressed. So I just want to press that upon you, at least from my perspective.

[ Brad ], thank you very much. I don't disagree with you that people's patience is being pressed. My patience is being pressed. We are investing a lot of money to deliver this cloud-native platform. It has 0 revenue to show for it yet. That cannot continue. Either we're going to get revenue to show for it, we're going to start getting a return, get some appreciation in our share price as a result of that, but we won't be investing $28 million a year in R&D. And we'll be running cash flow maximization strategy. So I don't disagree with anything you just said. Again, we're very aware of it and we're taking steps, I feel, to address it. And there'll be more on that in future quarters and future releases for you, and we'll talk to you in July when we release our second quarter earnings, and we'll go from there. Thank you.

[Operator Instructions]

Okay. Operator, thank you. That looks like that's it for the queue. I want to thank everyone for joining us this morning. And we do look forward to talking to you in July when we release our next quarter's earnings. Everyone, it's still a tough environment out there. Stay safe, and stay healthy and with your families and friends. And God bless you all. We're a great country, and we've got a great company here. We're going to get through this together. Thank you.

Again, ladies and gentlemen, that concludes the conference. Thanks for joining. You may now disconnect.