Good morning, and welcome to Spok’s 2020 Third Quarter Investor Call. Today’s call is being recorded. Online today, we have Vince Kelly, President and Chief Executive Officer; and Mike Wallace, Chief Operating Officer and Chief Financial Officer. At this time, for opening comments, I will turn the call over to Mr. Wallace. Please go ahead, sir.

Good morning. Thank you for joining us for our third 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 third 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 will turn the call over to Vince.

Thanks, Mike and good morning everyone. I hope all of you, your families and friends, remain safe during this challenging time in the midst of this global pandemic. We are very proud of our team and the part we are playing to support our customers, many of whom are on the front line, fighting COVID-19 and saving lives. We are so grateful for the efforts of the doctors, nurses, administrators and all the first responders, who risk their lives daily. We believe Spok provides a critical function, which has become even more important in this environment, providing hospitals with a system of action, not just of record, to deliver reliable communication and clinical information, including clinical test results to care teams when and where it matters most to improve patient outcomes. We know that smarter, faster communication is more important now than ever. And as the health care industry continues to transform, we remain committed to supporting the hospitals across the nation with reliable communication technology through Spok Go, our new cloud-native platform powered by Amazon Web Services, or AWS. While we are still operating under the impact and uncertainty of the pandemic and many of our customers who are already challenged by constrained operating margins continue to struggle with the challenges presented by COVID-19, our outlook is improving as we saw many positive developments during the quarter. Third quarter results were encouraging. We saw strong performance in a number of key operating measures with both sequential and year-over-year improvements. Most importantly, I am pleased to announce that during the quarter, we closed our first two significant Spok Go deals totaling $812,000 in aggregate contract value. In a few moments, I will provide more color on our performance that our Chief Operating Officer and Chief Financial Officer, Michael Wallace, will…

Yes, thank you, Vince. Let me start by giving you a bit more detail on our financial performance in the third quarter. And as always, I would again encourage you to review our third quarter 2020 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, our outlook is improving, and we saw many positive developments during the third quarter, especially in comparison to the conditions experienced in the second quarter. Most importantly, however, we were pleased to close our first two significant Spok Go deals totaling $812,000 in aggregate total contract value, or TCV, with annual recurring revenue, or ARR, of $233,000 and an average contract length of approximately 3 years. Key drivers of our financial performance during the quarter were software bookings of more than $21 million, up almost 39% from the prior quarter and a 5% increase from the prior year and resulting in a 7% increase in the software revenue backlog level from the prior quarter. Also contributing to our third quarter were those portions of our business, which are recurring in nature with software maintenance and wireless revenue. Sustained levels of software maintenance revenue renewals and stable ARPU and strong performance in gross additions and disconnects impacted units and service in our wireless business, each contributing significantly during the quarter. And lastly, our continuing discipline in the management of operating expenses has also allowed us to absorb the impacts of our planned investments in product research and development for Spok Go as well as mitigating the negative impacts from the current operating environment. At this time, I want to review the key areas, which drove our third quarter financial performance. They include: one,…

Thank you, Mike. Before we open the call up for your questions, I’d like to comment briefly on a couple of items. First, I want to update you on our current capital allocation strategy. Second, I want to review our key goals and business outlook for the remainder of the year. With respect to our current capital allocation strategy, our overall goal is to achieve sustainable, profitable business growth while maximizing long-term stockholder value. Towards that end, the allocation of capital remains a primary area of focus. Our multifaceted capital allocation strategy includes dividends and share repurchases as well as key strategic investments that include augmenting our product development and operating platform and infrastructure. Our strategy also includes the potential for acquisitions that are both strategic in nature and that are accretive to earnings. However, as I mentioned in prior quarters, our main focus is on the development and enhancement of Spok Go versus acquiring additional functionality right now. We believe the cost of acquisitions and the integration of disparate architectures is a much less efficient and ultimately limiting situation than the internal build approach we have taken. As we have outlined in the past, we’re in a transition from a wireless company and a seller of premise-based software solutions to a provider of cloud-native, SaaS-based software solutions in the form of Spok Go. We believe that financial flexibility of the long term is important to the success of our strategy. Spok is laser-focused on selling and enhancing the next generation of our software platform, and we believe that our cloud-native and fully integrated clinical communication platform, Spok Go, will be a game-changer in our chosen markets. I am happy to report that we’re on track with our development efforts and rollout plans, and we look forward to taking advantage…

[Operator Instructions] We will take our first question from Ryan Vardeman with Palogic Capital.

Hey, guys. Congrats on the Spok Go wins.

Thank you.

You referenced a large market opportunity, early on in the development you referenced the Gartner report that suggested maybe it was a $3 billion opportunity and then maybe talked about really being a $1 billion subscription opportunity for the solution that we are designing for. Now that we are further on in the development and have customer data points, can you talk to maybe what the total subscription opportunity for us might be over the next 5 or 10 years?

Yes. $1 billion, just like we said before, we think it’s an enormous market opportunity. Obviously, there’s a bit of a hiccup right now with the pandemic, but that hasn’t changed our long-term outlook.

Great. And so then the 2 Spok Go wins that we have, across how many hospitals are those contracts?

Well, there are two individual health care organizations. One of them, in particular, has a lot of physical locations associated with it, the other one, not quite as many. So it’s like two out of 7,000 healthcare systems in the United States.

Okay, great. Thank you very much.

You are very welcome.

[Operator Instructions] We will take our next question from Richard Dearnley with Longport.

Good morning. The wins that you referenced that the large – the new logos, some of which were founded quite large, well, why would they not go with Spok Go or is that a matter of they want to see it in – they will be a follower rather than a leader?

Great question and we have a little bit of both. So I was talking to one of our major customers, U.S. News & World Report’s Honor Roll, Adult Hospital, huge research center, academic center, and they are very interested in Spok Go. It’s just that they’re saying, hey, we just want to see someone else our size and scale using it first. We don’t want to take a flyer. The other big deals that were not Spok Go deals that we sold were deals, for instance, with our contact center solution. So Spok Go is a cloud data platform that is a communications layer that ultimately, all our service lines will spring off. So whether it’s a nursing solution, whether it’s an EB solution, whether it’s a critical test result solution and ultimately, whether it’s a contact center solution. Those will be service lines that ride on top of a platform that is Spok Go. But right now, the components of that platform that we offer do not include a cloud-based contact center solution. We’re still selling our prevalence-based contact center solutions and still selling upgrades to existing customers for their solutions, and so a lot of their larger deals are just customers doing big upgrades to their existing premise-based contact center solutions. But the good news with that is, those upgrades were – that they are purchasing are also essentially the gateway to migrate up Spok Go when Spok Go is ready, because it essentially puts the database and the connectors in place that allow us to once they buy Spok Go, very quickly set them up and move them up into the cloud and onto our platform. So you’re going to see – and this is going to go on throughout. I mean, just to be honest, the next couple of years you are going to see a hybrid situation. You’ll see us picking up some new logo, and you’ll see us selling some upgrades and some Spok Go to existing customers and finally transitioning, which continue to happen here in the fourth quarter in October. So far, we expect that it will continue for the rest of the quarter. And really, frankly, I think really for the next couple of years because a lot of customers will have different budgetary priorities. They will have different things that they’re trying to accomplish or triage some of the early adopters, which is good because we want them. We want those reference customers. And others will be fast followers, and some will just wait. So that’s why we had a kind of blend there.

Right. Well, you answered one of the follow-ons along the way, so good answer. In wireless, it’s logical during COVID and the recovery process that people were not going to start new things. Is it logical that the wireless churn would pick back up as you go into the first half of ‘21?

That is a great question. And it’s – I don’t think it’s going to tick up a lot. If it ticks up, it will tick up a little. We have had a situation where almost every year since 2004, our rate of wireless churn subscriber revenue erosion has decreased. So if you think, if you graft it, it looks like a ski slope and like you are approaching a limit. I mean, we have had the lowest churn in terms – or erosion in terms of revenue last quarter, I think, in our history. So if it bumped up a little, 20 basis points, 40 basis points, that wouldn’t surprise me, but it wouldn’t, I think, much change the outcome at all in terms of the kind of glide path that we seem to be on now with respect to trend.

Great, okay. Thank you very much.

You are very welcome.

[Operator Instructions] I am showing no questions in queue. I would like to turn the call back to Vince Kelly.

Thank you very much for joining us this morning. We look forward to speaking with you again after we release our fourth quarter and full year results in February. And again, I want to remind you our investor update on November 10 and highlighting the presentations from our Connect 20 user conference, I think you’ll find this quite interesting and rewarding use of your time. And we will get the details on how to access those presentations to you shortly through our Investor Relations portal and our Investor Relations professional, Al Galgano. Thank you very much. Stay safe out there, and have a great day.

This concludes today’s call. Thank you for your participation. You may now disconnect.