Greetings, and welcome to the Spok Holdings, Inc. Fourth Quarter 2022 Earnings Results Call [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Al Galgano. Thank you, sir. Please go ahead.

Hello, everyone, and welcome to Spok Holdings' Fourth Quarter 2022 Earnings Call. I am joined today 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 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, which are contained in our 2022 Form 10-K 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, and good morning, everyone, and thank you for joining us this morning for our fourth quarter and full year 2022 earnings call. Today, we will 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 review of our operational performance for the quarter and full year. I'll then turn the call over to Mike to review our fourth quarter and full year 2022 financial highlights as well as our pro forma results. We will then conclude our prepared remarks with our business outlook and financial guidance for 2023. And finally, we'll wrap up with some Q&A. In general, I want to reiterate how proud I am with what the Spok team has been able to accomplish in 2022 and believe that we have established a solid foundation for the future as we continue to execute. We now have a singular focus of generating cash flow and returning capital to shareholders. We did it last year, and we'll do it again this year. In terms of operating results, over the last year, we made progress in key performance areas, including wireless trends, software bookings and backlog levels as well as expense management as we successfully aligned our cost structure with our updated business plan. Going forward, we believe our extensive experience operating in our established communications solutions will create significant value for stockholders by maximizing revenue, cash flow generation and return of capital. Certainly, 2022 was a year of change. In an effort to quickly respond to marketplace dynamics as well as demand for our products and solutions, last February, we announced a new strategic business…

Thanks, Vince, and good morning, everyone. I would now like to take a few minutes and provide a recap of our fourth quarter and full year 2022 financial performance, which we reported yesterday. I encourage you to review our 10-K, when filed, as it includes significantly more information about our business operations and financial performance than we will cover on this call. But before I do, I would like to briefly outline for you our updated definition of adjusted EBITDA as contained in our financial statements and the associated adjusted EBITDA reconciliation table included in our earnings release. We believe that this treatment will give you greater clarity into the performance of the ongoing operations of our company as well as be more reflective of best practices of our software peers. Under the old method, adjusted EBITDA started with net income and then subtracted capital expenses and added back stock-based compensation and any noncash charges for asset impairment. Under the new method, the calculation, again, starts with net income, and then adds back the stock-based compensation, any noncash asset impairment and any severance or restructuring charges. The difference between the two methods being: previously subtracting capital expenses, which were $3.8 million for 2022, and now adding back severance and restructuring charges. Again, we believe this will give you greater visibility into our operational performance as it takes out much of the noise that was created from the strategic pivot in 2022. And of course, impacts from severance and restructuring costs will be significantly less impactful in 2023. As such, the results being reported today in this deck and in our earnings press release, reflect this new definition for all periods presented, unless otherwise noted. Turning to our income statement. In the fourth quarter of 2022, GAAP net income totaled $24.2…

Thank you, Mike. Finally, before we open the line up to questions, I'd like to dive a little deeper and answer some analyst questions we received prior to today's call. The first one was about sales full-time equivalent levels that being down relative to prior years. Do you feel you have the necessary levels to achieve your sales goals? I think, yes, our pipeline is growing every month. Many of the deals we're looking at are multiyear deals with additional licensing value-added service engagements and further future upgrades. Our sales team coverage is good. They're more efficient now than they've been in the past. Most of the headcount we took out of our salespeople was from Spok Go and much less from our Care Connect suite solutions. And we're in the process of adding inside sales roles now, a new channel director just came on board and two new regional sales directors as well. So we're going to continue to add talent when needed to support our sales targets, and we feel good about those resource levels. Second question has to do with customer sales engagement. During COVID, it was hard to get face-to-face meetings. How is this going in today's environment? Actually a great question. So we're still seeing a hybrid mix of meetings. Some are in person, some are outside the hospitals and some are still remote. It's getting better, but it's still a challenge. We're always pushing to get on site. And when we can, we're traveling much more strategically. We're maximizing every meeting opportunity. And it's important to understand that the way our business works on both the software and the wireless side and the associated sales we drive, they're almost exclusively the result of our sales team's direct interaction with our customers versus responding to…

[Operator Instructions] Our first question is from Eric Martinuzzi of Lake Street Capital Markets.

Congratulations on a strong finish to 2022. It's -- really a lot was accomplished in a relatively short period of time. My question has to do -- just starting off with the 2023 financial outlook. On the wireless revenue side, we had kind of a balance, if you will, in 2022 in the unit churn versus the ARPU. Just wondering what the expectation is for 2023, given the revenue guide for wireless?

Yes, our thought process is that we'll continue to see unit churn pretty much consistently with what we've seen in '22. We have, as you've probably noticed, actually seen an uptick from an ARPU perspective. And that's a function of some of the pricing actions that we took, the GenA pagers that Vince talked about in his remarks, all of that's having a solid impact, if you will, from an ARPU perspective. So those are kind of the underlying drivers, if you will, that's driving that range that we have there for '23 in wireless revenue.

And then just a Q4 question. The license revenue of $1.27 million, I only call it out just because it was down 15%, and that's the first negative comp we've seen in that revenue category since Q3 of 2021. What's going on there? And what's the expectation?

There's nothing going on there really. It's just a function of mix at the end of the day. From any given quarter, you can have some ups and downs as it relates to what the mix is from a license perspective. And it's just -- it's tough as we go through the different quarters for that to be sort of static and grow in a linear fashion. The reality is that as we expect to grow bookings in total, we would expect that over, let's say, an annual period, you will certainly see license bookings and thus, license revenue to be up. So it should track with overall bookings.

And I realized it was a good comp for the year in 2022 full year. The 17 -- congrats, again, also on the 17 6-figure deals that you had in Q4 and the 66 for the full year. You talked about your pipeline growing as you've exited the year here. What -- do you have a number for us? Is there a certain percentage you can give us, either by customer category or just raw numbers of large deals versus a year ago?

Look, we don't provide guidance in terms of what our total pipeline growth is. We did start from a pretty low base last year because our focus, prior to the pivot in February of '22, was on Spok Go. So we really started growing that pipeline with our Care Connect suite solutions in, say, mid-2022. But it's been growing pretty nicely since then, and we did a lot of big deals in the last year, and we expect to do a lot more than this year.

And my last question has to do with the cash. Obviously, you returned $25 million to shareholders in 2022, and that's the plan, again, in 2023. How much of that is coming from operations? Or maybe another way to ask it is, given this midpoint adjusted EBITDA of $25 million and let's call it $4 million of CapEx, is the assumption here that we'll generate about $21 million of the return to shareholders from operations and dip into the balance sheet for the remaining $4 million?

You're spot on.

I answered my own question.

It doesn't look like we have any other questions in the queue. Operator, are there?

No, we have no have further questions, sir. So if -- I will hand the floor back to you.

Yes, we're going to wrap up. I want to thank everyone for joining us today. We appreciate your support and interest in Spok. We look forward to updating you, again, next quarter. And I want to -- on a final note, kind of under the one more thing category, we think it's important to give our customers and our investors the opportunity to see our business and talk with our broader management team. We have customer meetings on a regular basis. And with respect to our investors, we're going to have an Investor Day on Thursday, May 4, 2023. We're going to host this one in Dallas, and we may do another one in the fall and do that up north. The program is going to have management presentations. So I'll be there. Mike and Calvin will be there. So will our Head of Sales, Jon Wax; and our CIO, Tim Tindle, will all be presenting. There'll be Q&A opportunity. And the event will also be webcast for those that can't join us in person. We'll get more details on that out to you over the course of the next quarter. But if you have any questions about it, just reach out to Al Galgano, our Investor Relations contact, and he'll coordinate things with you. Anyway, look, thanks all for joining us this morning, and have a great day. We really look forward to talking to you next quarter when we report our first quarter earnings. Take care.

Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.