Hello, everyone, and welcome to Spok Holdings' third quarter 2022 earnings call. I am joined by Vince Kelly, Chief Executive Officer; Mike Wallace, President of Spok Inc. and Chief Operating Officer; and Calvin Rice, Chief Financial Officer. 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 on 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, which are contained in our third quarter 2022 Form 10-Q and related documents 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, and good morning, everyone. And thank you for joining us for our third quarter 2022 earnings call. Today, we'll share with you an update on how our strategic business plan is progressing, as well as our financial results for the quarter. I'll start by reviewing the agenda for today's call. The order will be as follows; we will begin by providing a corporate and strategic overview of Spok, including an update on our strategic business plan. Then we'll cover our third quarter and year-to-date 2022 as well as year-to-date pro forma results. Next, we'll cover our updated guidance for 2022, as well as review one-time restructuring costs related to our strategic pivot. And finally, we'll wrap up and take your questions. To begin, I want to provide an updated corporate and strategic overview of Spok. Smarter, faster clinical communication is more important today than ever before. Today, I will share with you how Spok, with our combination of software and wireless products, delivers smarter, faster clinical communications across our customer base, and especially in the hospital setting where time and delivery consistency is critical to patient outcomes. For those of you who are new to the Spok story, Spok was formed in 2004 through the combination of Metrocall and Arch Wireless. The company was renamed to USA Mobility and adopted a free cash flow business and rightsizing strategy designed to harvest and distribute cash to shareholders, mitigate subscriber erosion and focus on our core healthcare sector. In 2011, USA Mobility acquired Amcom Software in order to provide a future platform for growth, arrest the erosion of our top line, and mitigate our paging churn in the healthcare market. These two integrated service lines were rebranded, in 2014, as the business of Spok that you know today. On February…

Thanks, Vince, and good morning, everyone. And before I begin, I as well would like to congratulate Calvin on his promotion and new role. With that, I would now like to take a few minutes and provide a recap of our third quarter and year-to-date 2022 financial performance, which we reported yesterday. I encourage you to review our 10-Q when filed, as it includes significantly more information bout our business operations and financial performance than we will cover on this call. For the third quarter of 2022, total GAAP revenue was $33.7 million, compared to revenue of $35.9 million in 2021. Revenue for the quarter consisted of wireless revenue of $19.1 million, which was down $500,000 or 3% from $19.6 million, and software revenue of $14.7 million down 9.4% from $16.2 million largely in line with our expectations. With respect to wireless revenue, third quarter 2022 performance was driven by a continued decline in pager unit churn on a year-over-year basis. Net pager decline during the trailing 12 months was 3.4%, another record low with units in service declining by only 29,000 units. As a result, wireless revenue for the third quarter remain solid, declining 3% compared to the prior year and in the range of our expectations. The monthly paging revenue component of wireless, which represents 97% of overall wireless revenue, declined by only 2.3% on a year-over-year basis. The remainder of wireless revenue relates to product sales primarily through lost pager fees, which are one-time in nature and far less impactful to the ongoing value of this business. On a year-to-date basis, wireless revenue declined by 5.1% compared to the prior year, and again in the range of our expectations, with monthly paging revenue component of wireless declining only 4.3% on a year-over-year basis. Turning to the third…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kyle Bauser with Lake Street Capital Markets. Please proceed with your question.

Good morning. Thanks for taking the questions, and congrats on the great results and progress here. Maybe first, ARPU came in nicely, well above our estimate. Can you talk a little bit about the push-and-pull dynamics here, and what's influencing it? And I'm thinking about things like price increases and mix change by hospital size, and the next-gen version, et cetera.

Sure, Kyle, and thank you for your comments, much appreciate it. Calvin, why don't you take the overview question?

Sure, thanks, Vince. Hey, Kyle, good morning. Yes, so three primary factors on the ARPU front that want to point out. The first is USF, which is the Universal Service Fund, which is really just a pass-through tax, it's established at the direction of the FCC, it's updated every quarter, and it's pretty variable. And on that front, it can go up and it can go down. But as I mentioned, it's largely a pass-through. So, as it goes up or down you're going to see that impacting product cost as well from a cost standpoint in the same manner. Really a net-net wash when it comes down to the bottom line. That's going to be one of the biggest components that we've seen in that change in ARPU. Secondarily, we've got the GenA product which you mentioned. We're seeing great traction on that front. We get great feedback from all of the customers that we've introduced that to. But right now, it's still in its early stages, and we're really seeing a relatively minor impact on overall ARPU, although we are again really excited at that traction we've seen, especially over this last quarter. Thirdly, we've got the price increases, as you've mentioned. We did, on about a third of our customer base, put into effect a price increase on September 1. So, you're really only seeing a partial effect of that in the third quarter. We have another tranche of customers that we anticipate increasing prices on in Q4. And there's a smaller subset of customers that have longer-term contracts that we'll work with over as our contract renew. I do want to point out we're very sensitive to customer churn here, and we're just rolling this out in a very cautious manner. But we do anticipate, as we head into next year, really seeing the full impact of those price increases.

Good job, Calvin. Thank you.

No, I appreciate that, that's great. And maybe second question, excluding the restructuring cost, you mentioned being on track to generate the $20 million in EBITDA on an annualized basis, and even more next year, which is excellent. And this is a little under the dividend payments, but the strong cash balance should support this for years to come as you kind of mentioned in the press release prepared remarks. Could you talk about some of the key levers that you're focusing on to drive margins further and close this gap?

Yes, hey, Kyle, it's Mike. I'm going to go ahead and take that question. Yes, a couple of things here. I think I'd start out from a cost perspective, kind of the easiest to discuss. I mean we've taken the majority of costs, as you would expect, out of the organization. Now, we will obviously continue to push that dynamic and take as much cost out of the company as possible. But really the biggest lever that we have as it relates to margin expansion is going to be on the top line, specifically with wireless through the dynamics that Calvin just walked you through. To the extent that we can slow down the erosion of our wireless revenue helps. And here's the thing, both on wireless and software, at the end of the day we get a lot of operating leverage to the extent that in the case of wireless we slow down erosion. And as we've talked about previously on the software side, we're looking to stabilize that revenue, and then ultimately grow it in the next several years. And like I said, there's a great deal of operating leverage because we have a fairly large fixed cost number already embedded in our business. So, a lot of that sort of top line benefit falls right to the bottom line. So, over the next several years, that dynamic is going to come from really what we're able to do on the top line.

That's great, thanks for that. And kind of following up on that, how should we think about the additional restructuring costs going forward? You talked about it in the prepared remarks a little bit, but presumably we're through -- once we get through Q4 we should be past the majority of it. Is that correct? I guess any help here with modeling would be great.

Yes, hey, Kyle. This is Calvin; I can take that one as well. And you're absolutely right, once we get through Q4 those should largely be wrapped. And really from a modeling perspective, certainly there'll continue to be some of those costs sprinkled in, but they're going to be very minor in nature relative to kind of what we've seen over the last decade, and really related to the wireless business as we continue to optimize those costs in relation to their revenues.

Okay, got it. And then two more quick ones here, it was great to see the strong bookings in the quarter. Would love if you could provide any additional color regarding the six-figure deals, size of the hospitals, were they new clients, product categories, et cetera?

Yes, Kyle, it's Vince, I'll take that one. And I think the best way is probably by way of some examples. But first, I mean, since we've announced the pivot our sales force is now 100% focused on kind of what they grew up with, what they had their longstanding relationships with, the solutions and the applications where we're still the dominant player in the market with respect to contact center solutions inside the hospital. So, they're operating in their sweet spot right now. And that's a good thing, and they're turning in really, really good numbers. We're also benefiting from the tailwinds of coming out of COVID. For two years during COVID, hospitals really didn't start any new projects, they didn't want to buy a whole lot of new stuff, and that's getting better. They're not 100% healthy financially and resource-wise, but it's getting a lot better. With respect to some of the deals we got this year, I mean, here's a couple examples of a couple really big ones, and then I'll give you a couple examples of some medium sized deals that were a result of cross-selling between our wireless and our software service lines. The first one is a $700,000 deal we got with a large hospital system in the Northwest. They bought our entire platform including our Console across entire enterprise. It's a multiyear deal. The total contract value across three years is about $1.5 million. But this deal will include $500,000 of software license upfront, including three years of maintenance and support and professional services as well. And so, a really good example of the value that I think a large health system finds on our software, and really expanding our software to other locations where they currently didn't have Spoke solutions and really…

No, that's great. Thanks for those examples and great to hear that. I guess just lastly, curious, you mentioned a little bit, Vince, in the call, but how has the launch of GenA been going? I guess any client feedback or anything you can provide here, installed base numbers, et cetera?

Yes, I mean we're really excited about it. It's like Calvin said there, it's early days. I mean we think the feedback has been fabulous. We had our Connect conference a couple weeks ago, over 300 registrants. Some of the best feedback we got from that conference was on the GenA pager, and the piece that our CIO did with respect to talking about its benefits. We've more than doubled our units in service in the third quarter. And I think right now we're up to close to 6,000 units out there. They're getting a significantly higher ARPU than what our normal pagers get. But I want to caution you on that because we're still at a point where we're evaluating what the proper price for that product should be in the market because we want to balance a much higher ARPU with kind of volume and getting more units out in service. And we also have to time that with and coordinate that with some supply chain challenges that we've had in this past year that seem to be mitigating. I've mentioned in my comments that the CapEx has been lumpy on the paging side. Look, our CapEx is going to be right in the sweet spot of where we said our guidance would be this year, if the vendors can ship everything to us in the fourth quarter that they promised. And so, part of that's going to impact it too. We think GenA is a great future ARPU enhancer for our revenue line in wireless for us. As you know, it's exclusive to us; no one else can have it. It's something that we developed, it's got a kind of Paperwhite-type screen too, and so you can read it outside. It's just a much more modern user interface, and that helps us with the younger interns and medical professionals. So, we're really excited about it. It's going to breathe new wind into that wireless service line. That business is going to be around for a long time, it's going to throw us a lot of cash, and we're going to take that cash and give it back to our shareholders.

Okay, well, hey, great update. Vince, Mike, Calvin, thanks for taking my questions.

Perfect.

Thank you. [Operator Instructions] Our next question comes from the line of David Wright with Henry Investment Trust. Please proceed with your question.

Yes, good morning. Thanks for taking my question. That was a really excellent management presentation, gave a great overview of the company. Made me wonder if Spok has any plans to kind of go out on the IR circuit to tell the story. Thanks.

Yes. Yes, we are. We're actually working with a couple of organizations right now to get much more aggressive in telling the story. I wanted to do that overview today just to kind of reintroduce us because it's been a couple of quarters since we announced our pivot. Things are going really well. As I said, morale is up, our customers are really happy with what we're doing and with the feedback on our business plan. So, agree that we need to get out there and tell the story more aggressively, get more analyst coverage. And it is at the top of our to-do list as soon as we finish this call today.

Okay, well, good luck going forward.

Thank you very much.

Thank you. Our next question comes from the line of -- I'm sorry, it seems that we have no other questions at this time. I'll turn the floor back to Mr. Kelly for any final comments.

Okay, well, look, I want to thank everybody for joining us today. We really appreciate your support and your interest in Spok. We look forward to updating you again next quarter when we report and hopefully more good news from Spok coming down the pike. Everyone had a great day.