Greetings, and welcome to Spok Holdings, Inc. Fourth Quarter 2024 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Al Galgano. Thank you, Mr. Galgano. You may begin.

Hello everyone, and welcome. I am joined by Vince Kelly, Chief Executive Officer; Michael Wallace, Chief Operating Officer; and Calvin Rice, Chief Financial Officer. After a brief presentation by management, we will open up the call to your questions. 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 Form 10-K for 2024 and related documents which will be filed with the Securities and Exchange Commission after this call. 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. Vince?

Thank you, Al, and good afternoon. Thank you for joining us for our fourth quarter 2024 earnings call. Let me preface my comments by saying how proud I am of our Spok team and our ability to end the year strong, generating a very impressive performance in 2024 while staying true to our mission. I'm very pleased with the momentum that this team has created. We are excited by our prospects and outlook. Since the strategic pivot we announced about three years ago now, our focus has not changed that is to grow our software revenue, generate cash, and return capital to stockholders. In 2024, for the third consecutive year, we again accomplished that mission. We returned $26.4 million of cash to our stockholders while generating in excess of $29 million of adjusted EBITDA. We were also successful on our stated goal to grow software revenue driven by double-digit growth in our professional services business and our software operations bookings. Coupled with a continued focus on expense management, Spok generated $15 million or $0.73 per diluted share of net income, and we accomplished this while responsibly investing in our product and service offerings. Spok has struck excellent balance between making the necessary investments to fuel future growth, while continuing to generate cash flow and returning capital to our stockholders. Today, we'll share with you an update on how our strategic business plan is progressing in support of our goals, as well as our financial results for the quarter and full year. I'll start by reviewing the agenda for today's call. The order will be as follows. First, a review of our strategic focus and goals, reporting our progress against those goals. Next, Michael Wallace, our COO will provide a review of our sales performance. Then Calvin Rice, our CFO will…

Thanks, Vince, and good afternoon. Thank you all for joining us for what we believe was another solid quarter and full-year results from Spok. We are pleased to report that we have continued to execute on our business plan. And in 2024, we generated GAAP net income of $15 million or $0.73 per diluted share, which was in line with prior year results and a sharp increase from the breakeven adjusted GAAP net income performance from two years ago. Importantly, we accomplished this bottom line performance while continuing to generate double-digit software operations growth, which drove revenue in 2024 as well as significantly building our professional services and maintenance backlog levels to more than $62 million. Growth of nearly 22% and will drive revenue in future periods. On a full-year basis, software operations bookings totaled $34.1 million up more than 13% from prior year levels. Also, total 2024 software operations bookings reached levels not seen for the past five years and continue on a trajectory of growth following our pivot three years ago. Amidst all the progress in creating the solid financial platform and stockholder friendly capital allocation strategy, we remain true to our mission of being a global leader in healthcare communications. We deliver clinical information to care teams when and where it matters most to improve patient outcomes as Spok enables smarter, faster clinical communications for our customers. And importantly, we continue to maintain our reputation as a thought leader in the healthcare communication space as we continue to see customer satisfaction ratings increase. Spok has over 2,200 healthcare facilities with customers, representing the who's who of hospitals in the United States. We have built our solutions and industry leading reputation over many years and have long standing valuable customer relationships. This is an amazing and valuable asset…

Thanks, Mike, and good afternoon, everyone. I would now like to take a few minutes and provide a recap of our fourth quarter and full-year 2024 financial performance, which we reported earlier today. As always, 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. Turning to our income statement. In 2024, GAAP net income totaled $15 million or $0.73 per diluted share compared to net income of $15.7 million or $0.77 per diluted share in 2023. In 2024, total GAAP revenues were $137.7 million down from revenue of $139 million in 2023. Wireless revenue of $73.5 million for the year was down from revenue of $76 million in the prior year. However, this was partially offset by growth in software revenue to $64.1 million in 2024, driven by a nearly 22% increase in professional services revenue and the success of our managed services offering we had discussed in our last earnings call. With respect to wireless revenue, 2024 performance continues to be primarily driven by improvement in average revenue per unit or ARPU, which saw growth of $0.26 on a year-over-year basis. Much of this increase was driven by previous pricing actions and to a lesser extent, incremental pass through taxes and fees. We did see an improvement in net unit churn as net units and service declined in 2024 by roughly 5.9% from the prior year as compared to a 6.4% decline in 2023. While we are happy with the year-over-year decline in the net unit churn rate, and it was still within the 4% to 6% we've seen over the last five to seven years, we believe that the improvement in the rate would have been even greater…

Thanks, Calvin. And, look, before we open the call up to your questions, let me say again how proud I am of our entire Spok team and the results we posted for 2024. It's their efforts and dedication which provides confidence for our outlook and guidance for another strong year in 2025. We are focused on the opportunity in front of us in critical communications. From a business configuration and strategy perspective, we believe we are strongly positioned to grow our franchise while returning capital to our shareholders. We have a long-term organic growth engine in Spok Care Connect. We maintain a source of strong recurring revenue in our wireless service line. We run the largest paging offering in the world integrated with our software operations. We have enhanced our paging platform and user devices to serve our core health care customer base. We believe with these two assets going for us, our best financial results are ahead of us and Spok's future is bright. I'd also like to take this opportunity to thank our stockholders for their continued support and want to assure you that our primary focus remains on generating cash and increasing stockholder value. We're committed to our current dividend and capital allocation policy. I believe that today we have provided you an appreciation with some of the great things that are happening at Spok and the market opportunities that lay ahead of us. While we have shared our initial guidance with you for 2025, we will work to exceed those expectations, and we will update you each quarter. We started the year off strong, and we very much look forward to speaking with you again in two months when we report our first quarter results in late April. That concludes our prepared remarks. So at this point, I'll ask the operator to open the call up for your questions. We'd ask you to limit your initial questions to one and a follow-up, and then after that, we'll take additional questions as time allows. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. The first question comes from the line of Kyle Bauser with B. Riley Securities. Please go ahead.

Great. Thank you. Hi, everyone. Thanks for all the updates today. Great progress. Maybe I'll start with, software operations bookings. I think there are 26 -- figure contracts and for the year is up 13%, which is great. Can you talk a little bit about some of the key attributes of this growth? I mean, is it winning contracts from competitors or adding new offerings within existing accounts or greenfield opportunities from new clients that are innovating their operations, if you will? So I guess that's the first part of the question is kind of key attributes of the growth. And then, how should we think about the metric of six and seven figure customer contracts going forward? I mean, is it, 20-ish a decent number or reasonable? Thank you.

Yes, Kyle. Let me take that one. The answer to your first question is it's a little bit of everything. You have to go back to 2022 when we made the pivot in the first quarter, and we kind of stood down, Spok go, we said, hey we're going forward with Care Connect Suite. We're going to start enhancing it. We're investing in it. Our R&D now is going into Care Connect Suite. During the course of '24, we started doing a lot of work on it from a product roadmap perspective and really saw some success there in terms of delivering things like a new UI on Spok Console, Care Correct reporting package, the whole contact center, look and feel was upgraded. And that really happened kind of, as the year progressed and late in the year. And because of that road map and because of that progress we were making, we had good success finding multi-year engagements. Customers look at us like we're a utility. We just work, but they want to know, are we enhancing our platform or are we taking them into the future? Are we doing things like adding Agentic AI and making it easier for them to interface CTI up to the UCaaS, CCaaS, folks in the cloud, et cetera. So it was -- our success was across the spectrum of some new customers, some takeaways from competitors, a lot of existing customers renewing and re-upping for multi-year engagements, and then some incremental sales to existing customers who just wanted to add some more functionality and some more of our solutions in that Care Connect suite, that circle if you will, that we have on our website. And so I really think we've positioned ourselves quite well with those investments for 2025, and we're seeing that. We're just talking with our board today. As a matter of fact, we look at our pipeline and we look at the top deals in our pipeline. And the top deals in our pipeline, they're all over $0.5 million a piece. I mean, it just fills over a page and a half. And two years ago, it was probably not uncommon to see a $100,000 deal, a $120,000 deal, a $50,000 deal. So the size of the deals are getting larger, and it's the opportunity as we deliver more functionality in the consoles and we do more of this opportunity will shift more toward new business and more license than what we've seen in the past. And that's something that we're looking forward to in 2025. So it was a little bit of everything last year, and we're looking to expand our license thrust and our license efforts this year because that begets more maintenance revenue and it's just very profitable.

Got it. Yes, appreciate that. That's helpful. And maybe my second question on the EBITDA guidance. So, great to see. It looks like it's about 100 basis points above what we were thinking. So, nice leverage. Can you talk a bit more about kind of the key contributors for this earnings leverage? Sounds like a greater mix of software sales will help, but also curious about kind of the expense reduction that you'll focus on as well.

Go ahead, Calvin.

Yes, sure. I'll take that one. Hey, Kyle. Yes, so I think, you pointed out a lot of that leverage going in '25 is really going to be focused on the software and the top line. We've made that pivot, about three years ago at this point. A lot of that leverage on the operating expense side has been factored in. And, from this point forward, we're really looking to grow that top line and the software license component comes with significant margin with much of that dropping to the bottom line. So that's really going to be the critical focus for us in the '25 and beyond.

Yes, and I think also just adding on to that, we seen our churn go down on the software side, which is very encouraging because that makes us much more profitable. And Mike has done a phenomenal job with our professional services group, and on the managed service contracts that we sold in making us more efficient in terms of professional services. Our billing rate, our utilization, that combined with the churn going down, it just made that whole maintenance portion of our revenue stream much more profitable in the professional services component that you see in the income statement, much more profitable. So that's something that's also helping our bottom line. The margins in the software business are improving.

Okay. Great. Appreciate that. Sounds great and excited to see the progress continue this year. Thanks for the guidance and the update.

Thank you, Kyle.

Thank you. [Operator Instructions]. Next question comes from the line of John Dixon with Artemis Investment Group. Please go ahead.

Hello, Vince. Can you all hear me fine?

We hear you, yes.

All right. I noticed that you guys actually moved your headquarters from Virginia down to Plano. Can you kind of expound on why that occurred? What prompted you guys to make that change?

Sure. We basically closed all of our real estate from a cost perspective except for two locations. Plano, we've got a small location up in Bedford, New Hampshire where we have some CTI testing. And it's just to save on cost. It's just that simple. Before we close that other offices and consolidated everything just to Plano, we had about half the company before the pandemic, about half the company was essentially working out of an office anyway, because we've got technicians and salespeople spread out all over the country, and we've gotten very good at operating like that. So just -- yes, we're trying to drive every cost we can out of the business, make some margin, generate some cash, and give it back to our shareholders as long as it doesn't negatively impact the business. And we're finding that we can get our work done. We're a business, so we know somebody is contributing or not contributing. We are very good at looking at productivity of people across the board in various categories and getting out the bad actors and bringing in new actors where you need to. So we're finding it's very effective. Now we need that office in Plano. It's a large distribution facility for us. We do a lot of inventory management out of there. So -- but we even took that office and we cut it in half literally, in half to save money. So we're just -- we're trying to drive cost out of the business everywhere we can possibly drive out cost.

Well, that, that sounds great, Vince. My -- one of my other questions really goes back to the gentleman from B. Riley as it relates to the -- to your bookings. I know and I've seen this repeatedly, because we've been invested with you now for about three years. 80% of your revenue is really recurring. So is that a good metric to assume that about 80% of your bookings are -- is coming from recurring current customers?

Mike, why don't you take that one?

Yes. It's a good question, John. And, yes, the metrics that we've talked about, historically, somewhere around 15% to 20% of our operations bookings are what you would consider to be new logos. So a 100% new customers that we do not have today. Historically, again, about 80% of our bookings tend to be, in our install base with either add on type functionality, upgrades, things like that. But when we mentioned the 80% recurring aspect of our revenue, what we're really referring to there is the entirety of our wireless business, which sort of by definition is recurring on a monthly basis. And then the software maintenance component, on the software side where we know, well in advance, we know what our backlog is related to maintenance. So those two combined make up about 80% of our revenue. So when we start every year, we essentially know where 80% of our revenue is coming from. So a little bit of apples and oranges, but I think your question is spot on.

Yes. One easy way to look at it is, is if you look at our P&L that's attached to the press release, you would take all of the wireless revenue that's reoccurring, and then you would look at the software revenue and you would take the maintenance component, which is obviously the largest portion of our software revenue. That's reoccurring. Add those two together, and that's where you're getting your 80 plus percent from.

Awesome. Well, that sounds really good. And I just want to reemphasize to you guys. We -- we're investors not really analysts. And I just want to reemphasize to you and your team, we're very appreciative of what you've done. Being a part of your company has been a really good ride over the last three years, and just want to tell you thank you.

Well, thank you for your support, and get ready to collect another dividend here in the not too distant future, because we've approved it today and announced it this afternoon, and it's going to be paid, I think on March 31st.

Well, we look forward to it. And, like I said, you're a great company. We're very impressed with you and planning to stay with you. So thank you.

Thank you.

Thank you. As there are no further questions, ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to -- we have one more question. Do you want to take it speakers?

Sure.

Yep. It's from the line of George Milas [ph] with MJH Management. Please go ahead.

Great. Thanks a lot, everybody. Just squeaked in at the end there. Congratulations on continued really good results. I have two questions. One of them may be a little complicated, but it's about the product roadmap. And Vince, you talked about sort of good progress in the product roadmap in 2024. Can you give us a little bit of sense of that? What are you trying to accomplish and what are the timelines you're trying to achieve?

Yes. So we have a new UI on the Spok operator console. So instead of having kind of an older software, older look and feel that it's had for many, many years, it's all completely new UI, completely state-of-the-art, completely updated, and it's much easier sale now going in with that that clean look. Our operator console, which is the core of our business has always had by far the most functionality in the industry, George, in terms of healthcare specific workflows, operator workflows that work at hospitals, how that hospital functions, when they're setting up a code team, a code blue, when they're calling a code red, et cetera, how they contact everybody? That that -- we've always had that functionality, but they're hitting a lot of like, function keys and stuff that the operators had memorized over the years. We've completely changed that and built a new eye. And the new eye has hooks in it for Agentic AI, which will make them a lot more efficient going forward in the future, think of ways for them to save money. We also did a major update on our Care Connect reporting package for one of our major consoles where the old console, the old reporting package was not really that good to be honest with you. And customers have been asking for a lot of things for many, many years. We got that done this year. That's done, completed. We're out there selling it now, selling it in the first quarter, seeing some really good results from it quite frankly. Care Connect contact center that is complete. It's out there. We came -- we updated our SaaS hosting and our managed hosting platform that's out there. We've got some more coming here in in the first quarter. We've…

Wow. It's hard to take note. There's so much going on. Okay. Great. And does that -- is that what gives you some confidence that license sales should pick up in 2025?

Yes. It does. That gives me the confidence as well as for the pipeline that we've built. Give me confidence. Our pipeline keeps growing and it's qualified leads, and we're seeing great success with it. We also created a new business development team, George, and we really -- it's got, I think, seven people in it right now. It doesn't have a ton of people in it, but we only had two new hires. We reallocated some other people inside the company to it, and they've already started making some great tractions. As a matter of fact, we just had one huge hospital system that we've been chasing for years. This new business development team got in there, showed them everything we can do, and talked to them about what we're planning to do. And the CIO said, I want all of it, and we're going to meet with that CIO next week in him. So that kind of stuff gives you confidence. The morale of the company is really high right now. We're hitting our numbers. We beat our numbers in January. We're going to turn in a real strong February. A lot of these investments takes time to do product development. You got to listen to the customer. Murphy lives inside of software, so that only something coming up. But we're just making progress across the board, and it's going to help us. And that license is very profitable, and it creates maintenance revenue. So I think from a perspective of the future, I'm feeling pretty good. And we're obviously not going to [indiscernible] like NVIDIA. But relative to ourselves, I think we're going to we're get stronger. And our customers, again, they look at us like we're a utility. They count on us to work, and we're going to show them that not only can we continue to work, we can work better and we can interface with a lot of modern things that are coming down the pipe in terms of this Agentic AI.

Sounds good. Okay. Good luck in '25. Thank you very much.

Thank you, George. Thanks for your question.

Okay, folks. I think that was the last question. I just want to thank everybody for their participation, and all our shareholders for your support. This is going to wrap up the fourth quarter conference call. We are going to talk to you in about two months with our first quarter results, and we're really looking forward to that. So, everyone have a great day. Have a great week end, and we'll be back to you real soon with another update. Thank you.