Spok Holdings, Inc. (SPOK) Earnings Call Transcript

Good morning. Can everyone hear me okay? Look, thanks for joining us this morning. We have a lot of exciting things to share with you. Before we get started, I want to introduce a few people that are here with us today, supporting the company, the management team and our shareholders the Chair of our Board, [ Chris Kane, ] Would you raise your hand? Thank you, Chris. Also a Chair of our Audit Committee, Todd Stein, can you raise your hand? And then the Chair of our Compensation Committee, Randy [ Han, ] would you raise your hand? Thank you. Appreciate you joining us. We'll go ahead and get started. Before I jump into the main part of the presentation, all of you are familiar with the safe harbor statement. We're going to share a lot of information with you guys today, and we're going to talk about how we see the future -- what this basically says is what we're telling you today is information based on the best of our knowledge as it stands today. Things can change in the future and it might change our outlook. What I'm going to do today is go over our mission with you and then Mike Wallace, he's the President of our operating company and our Chief Operating Officer, will dive deeper into the tactics that we're employing to achieve our strategy. Product development, you'll hear from Tim Tindle, our CIO. You've got to hear our go-to-market strategy from John Wax, our EVP of Global Sales; and then Calvin Rice, our Chief Financial Officer, will regale you with all our recent financial results and our outlook. And I'll come back up and wrap it up with capital allocation. Now I said on our earnings call this morning, our mission is pretty straightforward. We're here to make money for our shareholders and return capital to our shareholders. And we think we're pretty good at that. We've been doing that for a long time. Now this morning, we told you about how we did that in the first quarter and what our outlook is for 2023. Today, we're going to go a little bit further than that and talk to you about the things that we're putting in place that will allow us to do this over the long term because we think we can pay this dividend for a long time out to the future, and we think we can grow into the current level of dividend quite comfortably. So we're focused on maximizing the cash flow but maximizing it over the long term. So we are making still investments in the business. We're doing everything we can to protect that revenue stream going forward because that's the source of all the cash that flows down to the bottom line and into your pockets. When you look at the investment highlights of the company, one of the most important assets that this company has is our customer base, and we have a blue chip customer base who represents the who's who in healthcare. And many of these customers have been customers of ours for a very, very long time. We have relationships with those customers at very, very high levels inside those organizations. And that's a very valuable attribute that Spok brings to the table. We have a very stable revenue base reoccurring in nature. All of our wireless revenue is essentially reoccurring in nature in our software and maintenance revenue is reoccurring in nature. And Mike will give you a deeper dive on both of those later this morning. We have bookings momentum in our software operations bookings. We had a good year in 2022. That has continued in 2023, including through April. Thank you very much, John. So we're on a role this year. We think we've got more good things to come there. Tim Tindle has done a phenomenal job with our product road map. We're still spending a little over $11 million a year on R&D. We don't intend to spend more than that, but it's important that we do make those investments. And when you see Tim's presentation today, I think you'll agree with me, these are important investments to protect that future revenue stream and grow it going forward. And then last but not least, obviously, we have significant annual free cash flow. We've got a fortress balance sheet. We've got a decent amount of cash on the balance sheet. We've got significant amount of deferred tax assets, we don't think we'll be in a taxpaying situation based on our outlook for quite a while. Not quite 10 years but maybe 7 or 8 years. So we're really in good shape from a balance sheet perspective. Some attributes of the company, we are a leader in healthcare communications. We've been doing it for a long time. We have relationships inside those hospitals, and we understand the workflows of hospitals, particularly the top hospitals in the United States, very, very thoroughly. We interface with all the critical systems that they operate. So we interface our software with our electronic health record systems, any important clinical communication system inside a hospital in general, is integrating with Spok where we deliver our messaging. Largest patient carrier in the United States with over 800,000 subscribers out there. Paging is an asset that a lot of people just ignore or assume it's going to go away or doesn't have value. I can tell you that in this environment, particularly in healthcare, where communications matter, and it's a matter of life and death. Making sure that the clinicians get those messages is critically important, and paging is better at that than a lot of other technologies, particularly when there's an emergency. And if nothing else, it's a redundant form of communication and Tim will walk you through why that's important going forward. He was the CIO at Harris Health, which is the third largest health system -- public health system in the nation, and he was a big supporter of paging in his organization. because it saves lives. We've got intellectual property in our R&D. We've been at this for many, many years. We've got incredible workflows that are very specific to how hospitals operate. Really good at operating the business. We know how to generate cash flow and run this business. And we've been a pioneer in health care communications for a long time. Like I said, we have phenomenal relationships with those hospitals. It's tightened hospitals right now but people still like to buy stuff, right? But people like to buy stuff from people they like, and people like people that actually have relationship with them and care about them and that's something that we are really, really good at. And our sales force has long-standing relationships. Our whole ecosystem in terms of the solutions that we offer, that centers around our contact center software, our call center software. Many of our customers have some of these many of our customers don't have all of these. And so we have an opportunity not just to go after new logo in the healthcare space, but also go after our existing customers, not just with upgrades, but selling them additional solutions in our portfolio. Our plan is pretty straightforward. The long-term objective is to generate that cash, return capital to shareholders. But what do we have to do in the short term to make that happen and be very, very successful? Software bookings is very, very important. We have to achieve plan. We want to show year-over-year growth. That's in our plan this year. As I just said, we're hitting our plan. We're beating our plan this year. We're 11% ahead of plan year-to-date through April. Very, very happy about that. So that's very important. The product road map progress is important. And Tim will walk you through that. We need to continue delivering those upgrades in the technology and the operating systems and the databases and the cyber that these hospital CIOs need to feel comfortable about managing their business safely. And then wireless revenue stabilization is really, really important. We had positive unit and service variance from our plan but also positive ARPU. Last year, we did a couple of things. We did price increases late in the year. In the third quarter of last year, we did about a 3% price increase to our subscriber base. But that price increase only hit about 70% of our subscribers because the other 30% are on long-term contracts and you just don't have the ability to contractually to increase. And we're going to consider doing that again this year in the third quarter. So there's some opportunity there. The other thing that we've done is we initiated a new technology, a new paging device called the GenA pager, Tim will break that down for you today in great detail. But what I want you to understand from my perspective on the GenA pager is we're getting an ARPU of about $10 a month, average revenue per unit, about $10 a month on our GenA pagers that we're putting out there. Our normal average revenue per month inside hospitals is about $6.68. So if you think about it, GenA pagers worth 1.5x of a regular pager. It's just a much higher ARPU. So it's something that we really want to have is a big part of our future. It's exclusive to SPOK. Nobody else can get it out there. We paid for the technology to design it, our IP and it's really a phenomenal device and the hospitals are loving it and they're going out the door. We were touring the Board through our logistics center the other day. And I didn't plan it this way, but we just don't happen to walk by module in the shipping and receiving department and that GenA pager was there with the actual name of the hospital on the front of it on that kind of paper white screen, if you will. And it's just a very impressive device, super long battery life. Really good RF characteristics and hospitals are loving it so far. So that's going to help breathe life and continue that revenue flywheel, if you will, with respect to our wireless business. What's going on with our customers. It's no secret you can read in the paper. Healthcare still has some fiscal challenges that came about as a result of the pandemic. One of the things that happened is they lost a lot of clinicians during the pandemic. Nurses that have been around for a long time burned out and left. Other nurses were looking at the market and figuring out that they could be traveling nurses and make 1.5x with what they were making inside their institution. And so it got very, very tough on hospital operating budgets. Inflation has caused things to go up, capital budgets are tight. And so what these hospitals are doing and how they're reacting to it is they're not buying a lot of brand new stuff we have a Board member that sits on our Board. Her name is Dr. Bobby Byrne. She's the CIO at Advocate Aurora Health and she tells us, look, we're not buying the shiny new thing. What we want to do is we want to leverage the existing assets that we have, improve them learn how to operate them more efficiently and get more out of them. And so that's what they're interested in doing. Ironically, that falls right into our strength. So the way we're reacting to that is we've gone to these hospitals, and we said, look, we're going to limit major upgrades to a 3-, 4-year cycle for you. So you buy an upgrade, you're going to get all your technology upgraded, your database is going to get upgraded, your operating systems you operate on from a cybersecurity standpoint, you're going to be much more protected we're going to come in, we're going to analyze how you're doing business because remember, we have 2,200 hospitals, and we understand the workflows in these hospitals, and we understand the best practices of the best hospitals in the nation. So we're going to come in with a value-added services team. We're going to analyze how you're doing business, and we're going to make recommendations to you on which modules you're using well, which modules you've already bought that you're not leveraging as much as you possibly could which modules we have to sale, we have for sale to you that you could employ and maybe get rid of another third-party vendor and save money. And that's playing, and we're doing this over 3- and 5-year maintenance and managed service deals. So we're signing up a lot of these big hospitals for these multiyear deals out into the future. The other added benefit of that is it's going to reduce your churn, right, because they're going to be locked in for a long time going forward and we're having great success. So notwithstanding some of the financial challenges at the hospitals and what they're facing today with the inflation and the tight capital markets, et cetera. It's actually helping us this year. We're actually in a very, very good place. We were just talking with one of our advisers, one of the investment bankers at Piper Sandler, we were talking about this very issue and he said, Yes, no, you guys are really our analysis suggests that you guys are really in a good spot with what you're doing in your strategy, and you've got several more years like that before things get better with these hospitals. So we're going to make [indiscernible] the sun shines with this strategy. You probably saw this morning, we did change our financial guidance. Sorry to do it so quick on last quarter, we gave you some financial guidance and already a quarter later, we had to up it. So my takeaway from this is if you look at the spreads on our revenue guidance, and you look at the spreads on our adjusted EBITDA guidance, the midpoint of that guidance, we raised from a revenue perspective, $1.5 million. And the midpoint of the guidance from an adjusted EBITDA perspective we raised $0.5 million. So if you think about it, the incremental leverage we're getting off of $1 of added revenue, $0.33 of that is falling away to the bottom line. It's pretty good, and we probably can do better than that. Another way to look at this thing, and I don't want the finance guys to get mad at me. But the way I look at it fairly simply is, let's just say, we did $26 million of adjusted EBITDA this year. Not promise of it, but it's entirely possible. It's within our guidance range. And we're going to -- kind of old school about thinking about cash. We're going to spend $3.5 million or so on CapEx. That leaves about $22.5 million of stack of cash that this business is going to generate this year. And we're going to pay you guys $25 million in dividends. So that leaves a hole of about $2.5 million. It's not a problem. We've got a big balance sheet with a lot of cash and no debt. But we're on the hunt to break that even. So we are on the hunt to make that $2.5 million to zero to get back to cash flow breakeven. It's entirely possible we do that sooner than what we have in our plan, and I'm really focused with the team and the team is really focused on getting to that number sooner rather than later. 2024, I feel like we could really get there now. A lot of things have to happen to get there. You can't have some big exogenous issue in the economy that we can't control that locks everything up. But I mean, if everything kind of stays the way it's been going while we're on the pace to be able to do that. It's something I think would be an incredible accomplishment. We had planned on doing that eventually, but it looks like things are going better than we thought. And so we'll keep you updated. Who knows? Maybe at some point in the future, we'll improve this guidance again. A couple of things in terms of the customer base we have. Every year, Black Book Research does a secure clinical communication survey with hospitals, and they go out there and they ask about the hospitals, what packages do you use? They have all these attributes, [indiscernible] them. And for the last 6 years, we've been #1 in that annual survey. And we're proud of this. Look, we're #1 not just by a little, right? Because we're #1 in 11 of the criteria. And if you look at the next closest to this 1 would have 3, and that would be Epic and then the rest are just 2 or 1. So we're really crushing it in terms of how our customers perceive us. Remember, I talked about those relationships. I mean that kind of thing has in a mentality of a CIO who's filling out a survey when they like you, you might get better scores than if they don't like you. So some of this is subjective, too. So it's something we're proud of. And then I talked about our customer base and some of the tenure of our long-standing customers. Every year, U.S. News and World Report does a survey, and they put out what they call their honor roll. And they put 10 children's hospitals on the honor roll, and they put 20 adult hospitals on the honor roll. And we've always had the overwhelming majority of those hospitals as customers, whether it's in the wireless column with the green checkmarks or in the software column with the green check marks. And as you could see, the overwhelming majority, both columns with the green check marks are our customers. And that just really -- those are the best hospitals in the United States, right? There's other good hospitals that aren't on this list. But I mean, these are the ones that got ranked the best. And they're our customers, not only they are customers, they've been our customers on average for 22 years. It's a great asset for this company and something that I think bodes well for the future. They're buying from us this year. I think they'll buy from us in the future. I think the investments that we're making with our team with Tim Tindle and his R&D group are going to pay future dividends. We're going to be careful how much we invest there. We learned our lesson with Spok, but we're doing this to make money, and we're doing this to return capital to our shareholders. We'll go a little bit deeper in just a second. This is our management team. It's a great management team. Michael Wallace, who's our President and Chief Operating Officer. You're going to hear from him and just as soon as I'm done talking and he's going to go a lot deeper into what we're doing on a tactical basis with our strategy. Sharon Woods [indiscernible] Sharon, you want to raise your hand. She's our Treasurer, Secretary and basically does everything for us on building leases to you name it. Tim Tindle, our CIO, you'll hear from him in a little bit. He was the CIO at Harris Health before he came to us. John Wax, our EVP of Sales, you'll hear from him today. Since we promoted John last year to this position, he hasn't missed a single number. That's nice than a sales guy, and we really, really appreciate that, John. Please continue that. Rene Hall runs our human resources. She's also our Chief Compliance Officer, a phenomenal job. Calvin Rice, the youngest member of our management team gives us the ability to drill down so deep. The metrics now that we have with the software that we use in our internal reporting systems allows us to do a lot of analysis to make us more efficient and he's really, really an expert at that plus he keeps us all entertained. Calvin is wonderful. And then Mick Ling, who's in charge of our maintenance on the software side, he's not here with us today, but that's a very important position. We go out there and we get what, 4%, 5% annual uplift on those maintenance contracts. And that's hard to do in this environment, and he's ahead of plan this year through April continuing to do it. So we put them up there because we really appreciate and he's a real proud, very important to the team. So I'll stop talking now for a little while and turn it over to the hardest working man and to business, Michael Wallace.

Okay. Good morning, everyone. It's good to see people in person for a change. It's been about, what, 2 or 3 years before we've been able to be together. And hello to everybody on the webcast. Hopefully, you guys can all hear us quite well. I want to take Vince's thoughts and just drill a bit deeper into what we're doing from a software perspective and a wireless perspective as we move forward kind of post pivot from the Spok Go days. And it's really three pillars, right? So the first is from a software perspective is very straightforward, right, is to grow bookings and revenue ultimately as it relates to our software business. And we're going to do that a couple of ways. First, Tim, when he walks you through what we're doing from an R&D perspective, we are back to being 100% focused on Spok Care Connect. So our on-premise solution that really drives kind of our historical legacy software business and that's really a function of being able to do two things: continuing to drive enhancements so that we can drive value to that customer base that Vince showed, that really blue-chip customer base that we've got. And then really by allowing us to go out and get new logos because new logos are really ultimately what's going to drive what we're doing. We've got a dominant market share as it relates to the large hospitals, so over 600 beds. What we're going to talk to you today as we go through these slides is we have a product now, a hosted solution that's going to be hosted here in our [indiscernible] facility so that we can go and attack the small and midsized hospitals which historically, we haven't been able to attack mainly because the cost of an on-premise solution is just too big for them at the outset from an investment standpoint. The second pillar is really around our wireless business. So the idea here is this is a great franchise, as Vince mentioned, but it is not a business that we would expect to grow in the long term. Having said that, we did show year-over-year growth in the first quarter, which was certainly very nice to see. But the goal with this business is to maximmize it for what it's worth. So making sure that we've got the network reliability to service our customers. The price increases that Vince mentioned in order to drive some top line. We're going to walk you through the GenA pager and what that's doing for the business. And as I'll get through into wireless here in a minute, we really have the ability to scale this business in order to maintain the margins, even if we do have a little bit of erosion from a revenue perspective. And then the third pillar is the one that you've come to know us pre-Spok Go and now, which is to flat out, maximize free cash flow. Our goal is to -- is to do that, to drive as much as we can from a dividend perspective. I liked Vince's example of $22.5 million of cash and growing that to the ability to be able to cover that dividend 100% in the next call it, 18 to 24 months. So let's dive a little bit deeper. We'll start out from a software perspective. And Spok Care Connect is really the moniker, if you will, that contains the suite of products that is our software business. And the center of that business is really the contact center itself. So that's really the sun at which a number of the other products like Messenger, which is our critical alerting, Spok Mobile, which is encrypted messaging, et cetera, kind of all work around the center of that universe, that contact center. And these are all on-premise solutions. And the core services, the sort of crown jewel is the directory. So think of a constantly curated database of all of the communication information in a hospital setting, whether that be clinicians, i.e., doctors, nurses, administrators, third parties that the hospital uses maintenance facilities. All of that contact information is critical in having the ability for the hospital to actually function the way that they need to. You also got things like on-call scheduling, you've got message routing, et cetera. And look, we've been doing this a long time. We know how to attack this business. We've got lots of very referenceable customers. The reality is, is that we're in that period where we are refocusing, as we've been telling you the last kind of 12 to 15 months on this Spok Care Connect product. From a product direction standpoint, kind of three areas to touch on. So one is tackling some technical debt that we've got as well as driving enhancements and features. So we can continue to serve that very valuable franchise. We've got from a large hospital perspective. The second is what I talked about briefly before, which is this hosted version of Spok Care Connect so that we can go after the small in midsized hospitals that we have historically not had a great penetration in. And then thirdly, over time and Tim is going to walk you through this in more detail is to really develop a more common and efficient architecture as it relates to our Spok Care Connect solutions so that we can get savings and efficiencies throughout not only our customers, but internally as well through product and development, through professional services, customer support, et cetera. And very importantly, even though I'm talking about software, we do have wireless integration. So our wireless paging business connects, if you will, through our Spok Mobile product. So we have about $6 million to $7 million a year in revenue of folks that use our Spok Mobile app. So think of your smart app on your phone. And they get their pages through that app. So it's a common architecture that allows you to have both the paging business as well as the software side of the house. So on the wireless side, really a function, again, as I said, this is a great franchise, not one that is going to grow a great deal. So the reality is what we're constantly doing, and this company has been great at this long before I got here, which is being able to groom the network so that we can maintain the margins that we've got in this business, even if we see a little bit of erosion from a revenue perspective. On the revenue side, we're doing a couple of things. Vince mentioned the rate increases. We're in an inflationary environment. We're not getting much in the way of pushback as it relates to these small increases that we're doing. And then you see the first picture here of the GenA pager, Kindle white background screen. You see that there's icons that are very similar to what you see on your smartphone, et cetera. Vince mentioned, we're getting $2, $3, $4 more from an ARPU perspective. So those are the things that are driving the top line to offset what we're seeing from an erosion standpoint in units and service, which continue to decline just a little bit on a year-over-year basis. So healthcare continues to be a big focus of ours. And -- over the last 10 years or so, you can see that it's gone from a little over 60% to more than 85% at this point. It's interesting. Vince had a couple of good slides up there about the challenges that the healthcare world has been seeing. It's a market though that is still, what, 20% of GDP in this country. So something that's certainly not going away anytime soon. And what we saw with SPOK Go is they continue to spend, but they're just not going to spend on new platforms. They're going to spend on things that they understand that are critical to what they do. And let's face it. What we do at Spok is really -- essentially a utility for what the hospital does. It allows the hospital to essentially run. We are basically the system of action as it relates to what they do in the hospital setting. Again, taking a step back, just looking at the software side of the business, the CC and C markets, so clinical communication and collaboration market is a market that looks to grow to about $4 billion in 2030. It's about half of that today, about $2 billion. It's growing at about 11% a year. And of course, our biggest market is in North America. That's about $600 million growing to about a little over $1 billion in 2030. To some perspective, we're doing about $60 million in revenue on the software side. So today, we're about a 10% player in this market. So a lot to still go after, especially the white and green space in the large hospital market and certainly in that small to midsized hospital market that we're going to attack with our hosted solution. So looking at some competitive positioning, kind of the four corners here. On the far left, you've got the contact center. It's interesting you don't see a lot in the way of competitors. This company called Arch, very small company, we rarely see them. We see [indiscernible] a little bit, but there's not a lot in the way of contact center solutions that are out there. You may ask, well, then who are they using? They use a lot of internal developed systems, offshoots of PBXs, et cetera. But the products that we provide to them are critically important because we match the workflows within the hospitals. It's a very esoteric market being in healthcare at the end of the day. At the top is on-call scheduling. I think most of you have probably heard of QGenda, Amion, et cetera. The good news is that for all of these, except for the contact center solutions, we largely interoperate with them so even though a hospital may have them, we interoperate with them. Clinical alerting connects all that's a company in Canada doesn't have a huge presence in the U.S. And then you see the big conglomeration of companies in care coordination. You've got the big players like Epic and Cerner or the electronic health record companies. They're really the system of the system of record, i.e., if you guys have gone to a doctor lately, you sit there and he's hardly ever looking at you when he's doing his work because he's typing into one of the electronic health record systems. You've got texting-type players like Tire Connect. You've got Vocera involved in -- that kind of crossover from a clinical alerting system. But for the most part, we interoperate with virtually all of these companies. So that SPOK sits at the middle of this chart because it allows you from one platform to get the right message to the right device at the right -- to the right person at the end of the day. As I said, so we're the system of action as opposed to maybe an Epic or Cerner which are the systems of record. And it is critical for us and something that Tim works on a great deal is to make sure that we are interoperable, like I said, with the majority of these players that we can sit in the middle from a competitive standpoint. So just a couple of slides just to reorient everybody I thought it was important as we've gone back and sort of refocused our efforts on our on-premise set of solutions, I thought it was good for this audience to really kind of set the stage and level set that from 2012 to, call it, 2018, 2019, our operations bookings, which John Wax is responsible for, but the whole company is responsible for. We were doing $35 million to $37 million, pretty much on average, each and every year. What's labeled as #2 there is a couple of years where we were clearly focused on Spok Go, less of a focus on our on-premise solutions. And then you see what's labeled as #3 is essentially the pivot that we've been talking about away from SPOK Go back to our products. The reason I wanted to show you this is that Step #1 is really just getting where we're at back to where we've been. So we're not trying to go and do something more than we've even done in the past. And then from there, we look to, of course, grow. But step one over the next couple of years is to really get back to the levels that we saw kind of in the 2012 to 2018 range. Vince mentioned maintenance. Obviously, reoccurring extremely profitable from a gross margin perspective. This is an 80-plus percent margin piece of our business. As you can see from 2012 to 2018, it grew along with essentially the bookings that you saw on the previous page. You have a little bit of a dip as it relates to we saw the decline in bookings label #2 here. And then what we would expect is with a lag, you'll essentially see maintenance revenue begin to have the same trajectory ultimately is what we see from an operations bookings perspective. So from an investment perspective, I would tell you, the tip of the spear, as you would guess, is clearly operations bookings at the end of the day. Just wanted to reorient everybody just to give you a look at where we had been in the very recent past as far as Spok Care Connect. So with that, I will turn it over to my friend, Tim Tindle.

Thank you, Mike. All right. Good morning. I'll start off with a little bit of a discussion on our wireless business. For those of you who aren't familiar with the broader business. SPOK is the largest U.S. paging network in the United States and by a sizable percentage. With over 100 million messages a month, we really, really have a robust network that's capable of scaling to just about anything that our customers can throw at it. It's a network that's been around for quite a while. It's standardized across the United States, both standard products and services and our field service team, and we have substantial availability at 99.9% plus availability nationwide. It's secure from end to end, using satellite communications as well as terrestrial and encryption across the network, which is absolutely critical for HIPAA security in the healthcare space. We dominate the paging space and the critical communications using this technology. And as mentioned before, it's integrated with our software solutions. So why does paging remain relevant. In healthcare, it's really, really life and death. We support hospitals and hospitals are dealing with the trauma centers, the critical, critical patients. And it means that doctors and nurses and people have to get those messages, they depend on them to the point where they carry a pager. They all have cell phones, but they carry a pager. And so why is it so reliable? It's not as obvious as you might think. But a cell phone, for instance, connects to one cell tower at a time, that towers transfers at 100 watts. Now when you take a look at any commercial building, you've been in a building where you couldn't get self-service. You get into a hospital where you get lead line walls and MRI machines CT scanners and those kinds of things. And that's a truly hostile environment and communications inside a hospital are challenging. In a paging network, we have 900 megahertz had 3,500 plots. And it's not one tower to one pager. It is a cluster of towers that are transmitting simulcast all at the same time at that amazingly high wattage to that pager. So we can penetrate concrete, steel, you name it, and that's why it is so reliable and it's such a critical difference between using a wireless device like a cellphone versus a pager. Another key thing for doctors, especially doctors see thousands of patients a year. And it's difficult to keep home and work separate. When you have so many people you talk to giving them your cell phone number is a kind of risky thing if you want to have any kind of privacy at all. A pager, however, you can really separate the messages that you're getting that are critical and important to your patient and your healthcare practice versus your cell phone, which is going to be mixed. It's going to have some business, but certainly, it's something you want to keep separate. The transmitters we talked about is also one of the most survivable networks on the planet. We have two separate wireless networks that go through two separate satellites that go to transmitters on the ground that are on each network. We have A transmitters and B transmitters. And as I told you, they simulcast to the pagers. But if we lost a satellite, we still have a completely separate channel. And so that's one of the reasons that hurricanes, earthquakes, you name it. The one form of communication that's still there is paging. The cost factor, obviously, when I was at Harris Health, I was faced with putting cell phones across the floors. And when you add the battery pack and a lot of the other hardening that you need to do in an environment like that, I was looking at over $2,000 of device. Versus a pager, which is just $10 to $15 a month. So it is a tremendously more cost-efficient option and everybody doesn't need a smart device. The folks that take care of cleaning the rooms the transportation people that go move patients from place to place. There are many workers in a health care institution that you don't need to give a $2,000 cell phone to in order to get that job done. When I was at Harris, one of the things I really enjoyed was discussions with the residents. We had both Baylor College Medicine Texas. And the residents young, aggressive, good folks, and they would hit me up and say, "how do you work this thing? They're a cell phone generation". They looked at that pager and they went, I'm not sure I get this. And so when I got to SPOK, one of the things we had a conversation about is how do we make this more appealing to the smartphone generation, they just don't really kept this kind of a user interface. And that's because that user interface was designed in the '90s, okay? So there was a huge gap. And so together, the engineering team at SPOK is quite remarkable. We put our heads together. We found this an amazing paper wide display. It's super high resolution. If you look at a normal pager, it only has 1 or 2, maybe 3 lines, and they're really big characters. And so you can't get much on the screen. This can have up to 10 lines. That's super easy to read. It's got -- you don't see all the different screens, but it's a graphical user interface with icons and look a lot like a smartphone. And just some basic stuff, it has the -- you can put the doctor's name on there. I watch doctors go into the OR, and they put their pagers on a table because they couldn't take them into the OR. They come out, there's 9 pagers there. They all look identical and they sit there and sort through which ones mine, which one's mine. Just simple things like that can make a really big difference. And so during the pandemic, as we were doing the development, it just seemed to also make sense that to make an on antimicrobial housing for those help us contribute to the infection control issues associated with handling devices across the hospital system. So and then a feature that no other page that I know of has, which is the ability to program this over the air. Many organizations, all hospitals have things like a rapid response team which are doctors and nurses that if a patient has an emergent problem, they'll activate that team, and that team goes to that patient's aid. If you're on the rapid response team in a lot of hospitals, you'll have your regular pager. And then you'll have the rapid response pager which is kind of you're starting to look like Tim the tool man, right? And so with this kind of technology, we actually are able to over-the-air program your pager that you're now on this shift as part of the rapid response team is you keep your pager, it's still your pager or we'll put you in some other group if you need to be put into a paging group for any special reason. It used to be that we had to have the pager back all the way to the factory to put those paging groups on the pagers and send them back out, which really just wasn't practical. So now these pagers can perform many services and large groups without having to go anywhere because we can program them remotely. From a strategy point of view, this is exactly what the market wanted. We made huge investments and functionality and improvements in battery life and many, many other things. And because of that, we're seeing that our strategy is working. It's slowing the erosion of the units and service trends and actually starting to turn it around. And the customers see the value so much that we are getting about 50% more ARPU from one of these devices versus the other. And so we actually leveraged our existing infrastructure and wireless and our software to produce this device and in doing so, it really was remarkably inexpensive to develop this. Let's talk a little bit about CareConnect suite. This [wheel] is an important tool that we use with our customers because it really talks about hospitals that are incredibly complex. And this wheel has critical communication elements that represent different solutions that we offer organizations. And so when we have conversations with customers, we oftentimes will change the color of the puzzle piece to represent, which components they currently have and as we discuss their problems, we talk about which puzzle piece they might need in order to fill that hole. Kind of one of the very first products that we have that's really core to the Care Connect suite is the console itself. So if you can imagine a contact center that's handling all of the inbound phone calls, all the internal phone calls and they're expected to know what to do with that. And handling calls and finding the right place and to the right person and transferring that when they used to do it on a phone, it's kind of a laborious test. These consoles are very sophisticated the information of the caller is automatically placed up there. If they want to go to a specific service, which is common, there are quick and easy buttons that they can click on and immediately handle the transfer of that call. So this console has not only shortcuts and ways to handle the inbound calls and outbound calls, but also to have all the information they need in order to handle the goal. A healthcare system has an incredibly complex workforce. You have doctors, many of which are not employed, they're contracted. You have employees that work for your organization. You have contractors that work for your organization. So at Harris Health in the Houston campus, we may have had 20,000 employees, but we had another 11,000 contracted employees. And so how do you keep track of all those folks? For them to be able to do their job, they not only need that entire workforce, but they need to know each member of that workforce, how am I supposed to contact them? Do they have our mobile secure messaging app? Do they want -- do they have a cell phone, what's their SMS number, what's their department number. All of these facts need to be kept and on hand for these operators to immediately be able to access that person for whatever collar they have. And so when Mike was talking about curating this data, these folks are on the front line. And if that data isn't any good, they're the ones that are caught in the middle trying to help somebody and oftentimes in a critical situation. And so they also have a process where if they have bad data, they fix that bad data and use our system to update it. So in the future, that data becomes extremely valuable. In fact, in many organizations, the directory that we have for our customers and part of the Care Connect suite is the source of truth the workforce information for who is our workforce, what is their role? What is their department? How do I access that person? And so a very, very key component to this. The other thing the console does is -- they get codes, emergency codes, all kinds of critical communications traffic. And even in some cases, they act as an answering service for doctors. All of that is a pretty wide variety of tasks with a lot of different data that has to be communicated to folks. And so the console actually has workflows that will pop up and they use it as a template to them to know what information to put wear in order to handle that code and make sure that the right people are notified and can respond to whatever emergency has just been activated. So I could go on and on and on, but the console is absolutely a key component for any hospital for the critical communications. The on-call schedule. So at Harris, I had 6,000 doctors included residents and medical students. I cannot tell you how many medical services that represented. But if you can imagine, if I need somebody in the emergency room stat from cardiology, I actually when I first got there, there were sticky notes, there were binders, there were spreadsheets that were printed out the -- it was kind of horrifying to be honest with you. And until you get a solution like this where you have an on-call schedule, which each department maintains 24 days, 24 hours a day, some days a week, 365 days a year. Each department maintains their on-call schedule, and that is available to our console, to our mobile devices, to all of the applications in the Care Connect suite to make sure that we know how to get alerts or other critical communications to those folks. Spok Voice Connect. We look at these call centers. We work with our customers and quite frankly, it's a very labor-intensive area. And SPOK Voice Connect was created to help offload a lot of routine calls. And so you can call a hospital number with Spok Voice Connect and interact. It does speech recognition and/or touchdown, and it can help just give hours of operation, address, directions, basic information, which handles a substantial amount of the calls. But it can also -- you can ask for individuals' names or departments and it will transfer to those people or those departments. And so obviously, that takes a huge load off the operators, and they're left to really handle the most critical communications, challenges for that health system. So this has a tremendous ROI and that it typically reduces dramatically the overhead required in a call center to handle of calls coming into it. The other element of Spok Voice Connect is integrated voice response. And that's the ability to take this and create an application that either through voice or touch down allows folks to interact with one of the healthcare systems information systems. So a good example of that would be appointment reminders. Before I implemented a solution like this, my ambulatory appointments at Harris had a 30% no-show rate. So that's an incredible impact to your ability not only for revenue but cost of idle personnel that are sitting there with nothing to do and revenue, my gosh, what's the revenue impact of that to a hospital? And so if you want to talk about ROI, taking a platform like this and designing an appointment reminder system, and I was able to drop that no show rate from 30% to 8%. And if you -- we do 2 million visits a year, do the math, and that's a lot of money that we put back into the call for the organization. So those are just -- that's just one example of what you can do with this platform. Spok Mobile is a mobile secure messaging application that again, it's part of the Care Connect suite. So it has access to that wonderful directory. So when you have it, you know who to contact either by role or individual. You know whether they have a SPOK mobile themselves or whether you need to call them. But basically, and you have their on-call information for all those departments. That is an endpoint for the Care Connect where we can send the alerts and alarms and all the different critical communications that come in, that can route to these folks. And so it's a key element in the Care Connect Suite for messaging. Speaking of messaging and alerts, SPOK Messenger is an alert management system. So when you think of alert management, you cannot believe all of the systems and equipment and things in a healthcare institution that can go wrong that alarm. There are refrigerators that store blood that have to be kept within a certain range. There's refrigerators for tissue. There's refrigerators for special medication. That's just refrigerators. There's patient monitoring equipment. The nurse call button at the bedside that they push. That's an alarm. We interface with over 200 systems, both clinical and nonclinical in the health care environment and then you have to understand each one of them? And where is that information supposed to go? If that refrigerator is malfunctioning, who's supposed to be notified that, that refrigerator needs to be addressed? And so the institution then begins to use that platform to program the workflows and the logic and the escalation necessary to make sure that issues that come up or patient conditions that are alarming that either the right maintenance department gets it or a physician's notified or a nurse is notified that they have a condition to respond to. So this is the Swiss Army knife, if you will, of alert management at interfaces to over 200 systems. It has a rules-based engine that allows us to establish escalation processes and who to communicate and in what time frame to do it in and is an incredibly valuable platform. SPOK's e-Notify as an incident management system, another form of critical communications, but if the lab has a chemical spill, there's a hazmat protocol, and there are key people in the organization that must be notified and there's a protocol that must be followed. And so in systems like this, you can pre-stage those type of incidents and then immediately activate that and it notifies all the appropriate people. It also tracks their response. So you know they were notified but did they respond? Because if they didn't respond, I need to go escalate that to the next available resource. These can be very complex and range from a clinical environment like a lab spill, infant abduction, a security incident, even IT outages. So if you have an outage of a system in IT, you want to alert only [is] the people that are responsible for that system. And you can preconfigure those type of things in the system like this to make sure that those folks are notified, and that you can track and manage that incident to make sure people are responding correctly. So value-added services. This is a win-win for everybody because this is where our folks go in to work with our customers to see how they're doing, a health check, if you will. They talk to them about their challenges that they're having in communications and understand how they can improve or solve those challenges. We not only work with them and understand and listen to their issues and desires. But we look at each module, and we understand how they're using it and whether they're using it correctly, whether we can make improvements out of it, and I talked about having a product road map, but this is how we translate our product road map and what they have and what they're going to have in these -- especially these multiyear managed services agreements. A customer road map of what we can do to help improve their system, additional workflows we can add, additional products that we can add to the suite to address different issues. And so these services are absolutely critical for our customers to maximize the value that they get out of their investment in the Care Connect suite and to take on the challenges that they have. I'm going to switch now. I'm going to talk about the road map, the Care Connect road map. This is the inputs to that process. And so on the far left at the bottom, you see voice of the customer. And obviously, that's one of the most important inputs to any road map is what do our customers ask for. And I'll tell you right now, we've had relationships with our customers for decades. We have tremendous relationships with our customers and that helps because they are not bashful. They will share all their wants and desires and their frustrations. They have no problem. I can't tell you how many of them I'll go visit a customer, and they know the manager of our support group. And they'll tell jokes about a conversation they have with them. But we're part of their team. And we listened, not only do we listen from a sales point of view, but from a professional services, our support people every inch of the company as we engage our customers, we ask for feedback and certainly, they offer it. And that's a key input to that process. Obviously, a competitive landscape, we pay very close attention to what else is happening in the industry and make sure that we stay in front of our competition. We have our own product vision and business strategy, obviously. And so that is an overarching we want to stay in our lane. We want to expand and deliver more value but we won't -- don't want to lose focus. And so we look at our own strategy and ask ourselves and when we're faced with an opportunity to go in another direction, does that really fit in the business plan and strategy that we have. Technology life cycle management. We're also at the mercy of Microsoft and Oracle and other technology vendors and the products they have. And cybersecurity is a big deal everywhere, but especially in healthcare. And so we cannot allow our customers to have operating systems, databases and third-party software that is no longer supported, isn't getting security patches and those type of things. And so -- we have a very complex method of tracking what all those third-party components are in software, what their life cycle is so that, that plays a big role. And when we do upgrades and changes with those components to make sure that our customers have everything fully supported in their environment. Implementations upgrade, support and integration. Every release has a component in it where we take input from our support, our professional services, and they tell us we're having trouble with upgrades in this one little area. And we constantly improve how we do upgrades and installs and integrations to third-party components. And so that's a component that comes into that product road map. And then customers they sometimes do things we never thought you could do with our products. And so they'll occasionally do something pretty remarkable. And we work with them to understand what they did. And we typically are asked to help do something different with the product to make it easier for them to do it. And then we take those and we make that part of our product and make other customers aware of what they can do and what some customers have done that they may be interested in doing as well. So that's a lot of input and process, but it's really not as daunting as it looks, but it's all -- those are all key elements to make sure we focus on the right things on the road map. A specific area of focus is -- it's really reduced the life cycle cost for our customer. I think we talked a little bit about healthcare today, there's a lot of financial pressures and changes that they're going through. And they ask us to do our part. And we're a strategic partner with these folks. So we're sensitive to that. But we also look at this as a way for us to be able to optimize our platform. And so we look at how we can impact life cycle costs as well as enhance our products. We want to eliminate hardware dependencies because we're telephony-based, telephone systems have often still had copper circuits. And so we had special equipment that had to go into the servers to connect to those telephony lines. That creates a big problem for a data center that's trying to make all of their solutions into their virtual cloud of their own because now, all of a sudden, these servers can't be treated the way the rest of the services in that institution are. And so we've worked hard as the technology has allowed us and now have moved to SIP or the digital telephone circuits and no longer and wherever possible, eliminating any hardware dependencies that prevent us from allowing our solution to fit into the infrastructure of our customers. Server consolidation reduces implementation and upgrade costs. So it's being received very, very well, and it's making SPOK much more efficient at the same time. From a release themes and the products, what are we doing with our Care Connect software. First and foremost, we want to refresh the user interface. We have web-based applications. We have desktop in general, time moves on. There's new techniques. There's reducing the clicks is always important making your solution as agile as you can. And so refreshing those user interfaces and providing those more advanced features is a key part of what we're focused on. I have never seen an information system that I said, I don't need any more information. I have plenty of reports. Well, there were no exception, but we are very focused on providing as much robust information for our customers and putting it in their hands to do analysis with so that they can look at their critical communications. And so we've, in fact, are delivering new dashboard platforms and reporting tools across the Care Connect Suite. Deeper clinical integration. The EMR, I spent years of my life rolling out and working with doctors and nurses on electronic medical records. And at first, I had to wear a riot gear into the room to keep from being murdered for putting those things on them. Later on to find out, they couldn't tear it out of their hands and the feedback was. And so the more that we can take that passive record and activate it, create actions, make sure that if there's critical information in there, that we notify the appropriate folks of that information so that they can act. Expand enterprise support. With the pressures and the financial pressures we're seeing more and more hospitals have their call center move from a hospital to a region or even corporate where they're handling multiple hospitals out of a single call center. And so to do that, we have to have data organized in a certain way. So it's very easy for those -- all users of the Care Connect system to be able to sort that data by facility, by practice, by all of the different ways that you end up having a much more complicated environment when all of a sudden, this is an enterprise application that's spanning multiple hospitals. We're currently a leader in CTI and PBX integration. We integrate to Avaya, Cisco, and I can go on and on and on, a lot of on-premise vendors. But there's over 22 cloud vendors now that are coming out of the woodwork. Now they don't have much of the market right now, but there's a lot of interest because they have a cost advantage in some cases. And so us maintaining our leadership position means we have to pay attention to these new trends and develop mechanisms to make sure that we support our customers whichever direction they tend to go from a PBX and a primary call center technology point of view. Client configuration options. You don't want to put a customer in a complex environment like this without giving them the ability to control their own destiny. So as more and more, as we look at our products, we find ways that our customers can configure some of these complex workflows without having to engage SPOK's professional services. And so our customers are responding very well to that. and all the all faster time to market. This is a change we made last year. The type of software releases we do was briefly discussed earlier. The major infrastructure upgrades are every 3 to 4 years. Those are operating systems, databases, major third-party components. And this is a heavy lift. It's a big job. It's not unique to us. Any on-premise software has to be upgraded. But we don't want to do it more often than necessary. So we then move to feature releases and they used to be annual, but we moved them to every 6 months. So now when customers we're working with them, we have a lot of interest in new capabilities and new features. We now have the ability to create those features, and they don't have to wait a year, they have to wait 6 months maybe. So this accelerates their ability to realize benefits out of that. And then, of course, software patches as needed. And this really combined with the 3-year managed services that has the upgrades included. And it's really designed with those specialized services around their needs. And as I said before, kind of the customers' road map of what we want to do with them with our solutions to improve what they have. We're allowing our customers the ability to much more rapidly get ROI out of their investment in Spok Care Connect Suite. And now, John.

Good morning. Thank you, Tim. So we're going to jump right in and talk a little bit about our initiatives for 2023 because for me, these initiatives are our road map for success for the year and the out years as well. I'm going to talk about a few of these throughout this presentation. I know some have already talked about, we talked a lot about the GenA product. We're going to talk a lot about cross-sell collaborations and value-added services as well. So I think you'll see some of the things that we're going to talk about are pretty exciting for the team. First thing I want to talk about is I really want to say how fortunate we are to have such an amazing group of people in the sales team and in our company as an organization. We currently have 29 quota-carrying reps. Those span across the software team, the wireless team and the business development team. In addition to that, we have a passionate operations team that helps make sure the salespeople get all the information they need, make sure our quotes, our order forms are accurate and make sure that we're protecting both the customer and the business with each one of these that we do. And our sales engineering team, they are heroes in this group. They not only make sure that what we're quoting is accurate, but they're also making sure what the customer is getting is exactly what they need to get to make sure the engagement goes up really well. And our value-added services group, small people in this group that help drive the services piece that gives our customers such great benefits. From the software side, I want to talk a little bit about on the left, you'll see we have 1,850 total customers. Of that, we've seen over 2,200 locations. You look in the blue screen, it's 847 wireless-only customers. And on the bottom, software-only customers, we have 486. The combination of the 2 is 345 or 21%. Now this is a huge opportunity for us to go after a big group of people that are already paying us for something. So we are building this both column up every month. We're adding to this, and we're going to continue to let this grow. If you look on the other side, that's our market share. So for the 199 beds, we have a very small footprint, roughly 5%. And our subscription model that Tim has alluded to, and I'm going to talk a little bit about on upcoming slides is really what we think can help us win a lot more of that space. From the 200 to 599 beds, 30% of that market over 382 customers. And the 600 beds, we have over 50% of that market. We're also going to talk a little bit about how we're going to attack that as well. And a lot of it has to do with our multiyear engagements. And I know you've heard a lot about already this morning. So the first thing we're going to talk about is the multiyear engagements. I know you've heard a lot from everybody that's been up here that's talked about it. We think this is a huge, huge asset to our business. Our customers are protected from a financial perspective with a very predictable spend over the course of this term. We're guaranteeing that they're getting our latest current software that we want them to have over that same span. And it also allows us to add additional licensing for them to get more of our products out there and our value-added services group to help make sure it's optimized. These are very valuable to us. Customers tend to love these because they're not getting surprised throughout the term with something additional added that they may have needed to all-inclusive of these agreements. Our small hospital strategy, as I alluded to earlier, with the 1 to 199 beds, this is our new subscription offering. We see a lot of the challenges we have in that space is upfront capital or small IT departments that don't necessarily have the resources to install our products. So this particular solution is going to allow us to host it ourselves in Plano and give them easy access with the subscription model, they pay us a monthly price, no upfront capital. They don't need a big IT department because we send them basically links after we sign these deals that they can click on and have immediate access to it. And this is also scalable, where we're going to start off with a messaging on call and a web directory package. However, many operators they have, we can add individual operator console seats as well. So they can start off small and grow it based upon size. This is a second half initiative, so we're not going to see a lot of success on this until late second half, but we're excited about what this is going to bring for us. Channel partner is another area that we're spending a lot of time building. We think we can more than double our channel partner growth over the next 12 to 24 months. And we're going to do that by prioritizing the top partnerships, build more strategic relationships, which we're working on today and conducts business reviews, but not just conduct business reviews, do account mapping with them. Many of our partners have hundreds of salespeople out in the field. We know that we can maximize that with our solution, our team as well as their team and continue to train and educate on the value of what Spok brings to the table. As we start offering these new solutions with the subscription model, some of the easier-to-install upgrades to our current solutions. These are a great fit for many partners out there in the field. We changed our strategy in APAC in '22 by bringing on a partner in technology. It is a very, very big partner over there, and they're doing much of our work for us. They are managing the Spok relationships. They're managing our maintenance. They are doing our sales and they're doing our services while they're over there. We regularly speak with them, work with them as far as customer trainings. We're having a roadshow in July, bringing a couple of our people out there to talk to some of the big customers in the hospital space for them. And we think this is going to grow big for us in the next year to 2 years. The key products they're going to look on is what you've seen a lot of this morning, Messenger, our console piece and our mobile messaging as well. I want to talk a couple of the wins that we received this year so far. One of them is a major hospital in the Northeast. They've been with us, believe it or not, 43 years. It's incredible, incredible amount of time. As you see, they have over 18,000 pagers in service. So 2,000 of those are GenAs and they're a premium maintenance customer, which we'll talk a little bit about the software aspects of this as well. If you look to the wheel to the right that Tim mentioned, when we highlight some of the things that they utilize and change colors and some of the things they don't have yet, the deal that we just closed with them is in the dark blue, which we'll show on the next slide. Some of the other opportunities that are in use today that we're working on now for upgrades are in the teal and the gray or light gray is stuff they don't necessarily have in place today. But they have a whopping 272,000 messages a month through our console. That's a huge number. Tim talked a little bit about our speech services. If you look at the 44,000, it's 44,000 messages that are self-service. So the operators are not being tasked to touch those because that's being done for them, which is helping them really focus on the things that are more important for them and 14,000 web messages as well. It's another area of self-service that they can reach out to docs on their own and get some answers without having to involve anybody else and that saves time. And they have 600 code notifications a month. Seconds count with codes, and they have 600 a month going on average. It's just really big numbers. So what was the deal? Well, this is a 3-year multiyear engagement for them, which primarily was driven by security functionality, as Tim talked about, making sure all of our solutions are up to date and the most secure that they can be. We also added the new speech solution, which you also heard about. As you saw in the previous slide, they use a significant amount of self-service speech of the applications. And we did also have some value-added services to help better optimize the solutions that they use today and help us grow that by tomorrow. On the right side, you see how much the value of the deal was. The total company value was almost $1.5 million. Sales booking value was $571,000. Difference is the maintenance over the terms of those 2 years that are not considered booking value. But if you look inside that, there's software that was sold, there's professional services, hardware and additional maintenance. Great deal for the customer, a great deal for Spok, and it's opening up the door for us for significantly more opportunities down the road, which are down the bottom. Spok messenger expansion, adding in nurse calls, adding in more enterprise console for other areas that are not necessarily the operator's areas and wireless GenA growth, which we're working on with them today. So great opportunity that we sold a great customer. But as you can see, there's a lot more coming from this particular customer as well. Another one we closed in the Midwest. They've been a customer since 2008. They do over 100,000 messages a month. Of that, 224 of those are codes. They have 40 workstations, so they're a bit smaller than the previous one, but they also purchased value-added service as well to help optimize that. And if you look to the right in the teal, that's what they utilize today from us and there's a lot of white space as well for this particular customer. This one is also driven primarily by security and some of the additional functionality that our solutions offer. They also -- we had to go against a group of people over there that try to displace us with a small group from Cisco with a very small call center manager. That did not go well. And as you see, they signed back on for us, and we are now also in communication to sell them more that you've seen at the bottom in some of these future opportunities with our middleware. The deal break down on this one, $935,000 for the $523,000 sales booking value. And there's a lot of things in here. Maintenance, which is managed service maintenance. I mean, managed services, I'm sorry. Future upgrades, third-party components, value-added services. So there was a lot that was in this order. And again, a lot more coming down the line. Now our value proposition, as I think you've heard a lot, is making sure that we improve patient outcomes. As you see, the care team communication piece, making sure that our consoles can send those messages quickly and efficiently to care teams and know that all of them are going to get the message. Our efficient clinical workflows. While we do that through our middleware, our messenger solution that make sure that the right message is getting to the right person at the right device and it's filtered so that we're not sending the wrong things to the wrong people. And lastly, the enterprise called processing where, as you can see, we can send messages right from the clinician's fingertips, and they're sure that, that's going to get to the right people. How does Care Connect set us apart? Well, first of all, we're a healthcare-grade enterprise platform. Now we have the ability to help put it into 1 site, and we can scale to hundreds of sites, which is enormous. We have an extensive interoperability that Tim talked about with hundreds of integrations. Why is that valuable? Because most hospitals have very disparate solutions that don't talk to anybody else. Our middleware and our console can bring that all together to make sure that even though they had a disparate solution that they do get the messaging to the right people. Our directory, which is the single source of truth in many hospitals is the heart of their communication platform, touches everybody in the building, whether it's the CEO, whether it's the Vali, everybody is in that directory, and yes, we can filter that out to their own people aren't messaging their own people and we're device-agnostic. So anybody that has a device that can take a message, we can get a message out to them. And lastly, as you heard, security is huge for us. And every one of these upgrades have some level of security upgrade that's keeping us current and keeping us with the times to make sure that not only is focus-protected, but our customers are protected as well. And with that, I'd like to introduce Calvin.

All right. Good morning, everybody. So I'm just going to spend a couple of slides going through some of the financial highlights over the last year and for the first quarter. And I just wanted to start off by kind of summarizing these first 3 bullet points, which Vince had mentioned earlier. We initiated this strategic shift in our business plan early last year, largely completed it in the second half, and we've seen great success in pretty much all areas from a cost savings perspective. And we are really looking to the future towards driving that top line. This was proved out in our $24.5 million of pro forma adjusted EBITDA that we generated in 2022 and a return of about $25 million in capital returned to shareholders last year with another $6.9 million delivered here in the first quarter. We released earnings yesterday and we went through our earnings call this morning, and we provide a lot more details on these numbers in both of those. So I'd highly suggest that you hadn't had a chance to go and revisit those. But I do want to highlight one number here, in particular, for the quarter ended March 31, adjusted EBITDA was $6.9 million for the first quarter of 2023 and that is in comparison to negative $2.1 million in the first quarter of 2022. So a clear reversal really shows that we've had significant success in executing that strategic plan, and we expect that to continue forward. As I mentioned earlier, $6.9 million was returned to shareholders through our regular dividend in the first quarter. We're operating with about $29.5 million of cash on the balance sheet as of the end of the first quarter and no debt. Some highlights from the first quarter, again, and this will be a recurring thing, but wanting to highlight the $6.9 million of adjusted EBITDA that we drove through in the first quarter, we were very pleased with those results. Software operations bookings, which you heard from John and Vince earlier as well, we increased at almost 9% from last year with 15 6-figure contracts. Wireless revenue, very impressive for the first quarter. Units in churn -- units in service, the churn was only down to 3.2%, continuing to be at the lowest levels we've seen in many years, with ARPU actually growing up to 759 or about 4.8% over where it was last year. And finally, Vince went through it, but we increased our financial guidance for the full year of 2023. So just comparing for a second, where we were at last year for pro forma and the midpoint of our guidance for adjusted EBITDA for 2023. On the right, where you see 2023, that's the midpoint of our updated financial guidance at $25.5 million. Last year, we drove about $15 million in adjusted EBITDA. But when you account for some of those costs that we removed related to Spok Go that were really here in the first half, some of the terminated employees, some of the nonpayroll costs and outside services. We had a pro forma adjusted EBITDA of $24.5 million. So really about a growth of $1 million to that number. From a balance sheet highlight perspective, we have an exceptionally clean and simple balance sheet. Our 3 major assets, cash, goodwill and deferred tax assets. We have no debt, a very simple equity structure. We have only common stock. We have $29.5 million of cash and equivalents at the end of the first quarter. I do want to just remind you that first quarter is typically our heaviest usage from a net working capital perspective. So while we did go down from the end of the year, we would anticipate to see similar levels, maybe even slightly up as we move through the rest of this year from a cash perspective. Finally, significant deferred tax assets. So we anticipate being able to shelter that earnings and that generation of income from taxes for many years to come. With that, I'll pass it back on to Vince to talk on capital allocation.

Thank you, Calvin. Important to shareholders always as a discussion on capital allocation. And it's pretty simple here at Spok. Rule #1 is money that we're generating belongs to you, our shareholders. And our job is to return it to you. And it's a strategy we use to employ with incredible success and we've come back to it. In many respects, it kind of feels like coming home again. It feels good. We're good at it. We're going to keep doing it. So rule #1 is we're going to generate capital and return it to our shareholders. There's a lot of things companies can do with their capital, right? One of them is they can pay down debt. We don't do that because we don't have any debt. So we don't have to worry about that. I just told you rule #1 is returning capital to shareholders. There's a couple of ways you can do that. Dividends and distributions to the shareholders or you can do share repurchases. We've chose to do the former and not the latter. It's an art, not a science. We just think longer term, it will be better for our shareholders if we pay that dividend, potentially at some point in the future, even increase that recurring dividend. There's an internal investment you can make. You can spend money on CapEx, you can spend money on R&D. Our CapEx is pretty predictable, and most of it is for pagers. So that's fairly simple. And I think you saw this morning with respect to what we're spending in R&D in Tim's category that we're really getting a good return on that. You've seen it with the results that John has got in terms of sales. You see these customer sign multiyear agreements very, very good for our long-term prospects because that's going to lower our churn in the future, and we're going to continue this strategy of generating capital and returning it. M&A is out there. It's not a current priority and not a current focus, and that goes in both directions. We're doing a lot of good things right now, and people reach out to us. I had 2 unsolicited outreaches yesterday. Who knows what will happen in the future, but that's something that the Board is open-minded to and we'll take a look at that. Also, companies acquire companies. We're not currently looking at acquiring a company. If there would be an acquisition that could support the return of capital, i.e., it had an amount of revenue associated with it, and we could get a lot of synergies out of it and generate even more cash, it might be something we consider. But again, it's not the focus right now. Remember, rule #1 is to return capital to shareholders. So please don't take away the wrong message with respect to that. I just want you to know that we're open-minded on all of this. And again, I said we have a good track record of doing it. We've been doing this since 2004 when we formed the company. This quarter, we're going to bust through $1 billion of free cash flow generated. We've returned the overwhelming majority of that capital to our shareholders over many years, 20 years. I guess, I'm getting old. I've been around a while. We've paid off all the debt we had when we formed the company. We did an acquisition of Amcom and we've got about $30 million of cash on the balance sheet now. So look, we threw a lot at you this morning. And there's a lot of information, a lot of data, I saw many people taking notes and taking pictures and all. We will put the deck up on the investor website. So you guys will have access to the deck. So don't be concerned about that. I think we can file with the SEC. That's correct. Look, that was a lot of information. I kind of look at this fairly simply and straightforward. Our wireless business, when I looked at the numbers, through April, on a trailing 12-month basis, the churn in our wireless business a year ago, April was 4.2%. On a trailing 12-month basis, the churn in terms of units and service in our wireless business through this April was 3.3%. Now we just told you we're getting more average revenue per unit with the GenA pagers as that base grows out there and we're considering another price increase. So you have to ask yourself, how much can their wireless revenue really go down, right? I mean, if it was -- if you weren't going to do anything with your average revenue per unit and you're going down at 3.3% on wireless, it's going to go down about 3.3%. But if you're getting higher average revenue per unit on units that you're putting out compared to units that are coming off, that's going to mitigate that 3.3%. And if you can do some successful price increases, that further mitigated. So I think that cash flow revenue fly with wireless is going to do this time, it's going to be around for a long time. On the software side, I think it's pretty simple the way I look at it is last year, we did about $24.5 million of software operations bookings. This year, we're going to do more than that. But the amount that we're going to do this year isn't anywhere close to what we were doing pre-pandemic, pre Spok Go. Do I think we'll be able to get back to that level with these investments that Tim talked about that we're making and as our customers get a little more wind in their sales? Absolutely. We're going to climb back to those levels at some point in the future. And so I think this is a pretty good business. I don't think there's a whole lot of downside right now. I think we're looked at by our customers as almost a utility. They got to have us, and they've proven that. And so I think we're in a really good position here at Spok. I don't think it's rocket growth through the moon, but I think it's very profitable. And right now, it's yielding about, what, 10% or something like that in terms of dividend, and so I think we're in a really, really good place and it's a fairly straightforward business and not to be overly complex. So again, we'll put the deck up there. We appreciate you guys coming to the meeting today and those that are participating on the web. Thank you. Take a little bit of time now and the management team is available to answer your questions, and Al's going to take questions from the Internet as well. Okay. We got lunch. So you can ask us questions at lunch, too, but the people just won't be able to hear it online. [Break]

The floor is open for questions. If folks in the room want to kick it off with some questions, and then we'll go to the folks that are participating online. Al, you want to kick it off with some online questions?

The working capital that Calvin may have talked about or Mike, just earlier in the year, how does that work seasonally in terms of EBITDA and free cash flow maybe being the biggest gap in the first quarter?

So in the first quarter, we have a bunch of traditional net working capital-heavy items. I think your prepay, your big annualized subscription contracts, sales force and those types of things where the full cash is going out the door and the expenses being amortized across the period. You've got things like bonuses, some compensation items, things like that, that traditionally are heaviest in the first quarter. And so you're generally in a negative net working capital position relative to your adjusted EBITDA. So more cash is going out the door than what adjusted EBITDA is coming in, and that's where we see kind of the drop from the end of the year to the first quarter cash balance. And then as I mentioned earlier, with an expectation that cash would likely be at similar levels, maybe even slightly up through the remainder of the year. You kind of see that reversing where our adjusted EBITDA is ultimately equaling or higher than the cash flows going out the door for each of those quarters going forward.

Okay. We do have a question from the webcast. I'm going to start with the elephant in the room as the person described it, and that's the inclusion in the Russell. Obviously, a couple of years ago, I had a big impact when we were delisted. What's your expectation this year, especially with the new market cap requirements?

So look, I mean, we've talked to several people about this. I mean, we think the current requirement is going to be $150 million for a market cap. We're significantly higher than that right now. We're well up in the list. So they're going to reconstitute the list. We'll see the list, I think, on May 19 now, is that right? And we expect we'll be in there. And then I think the actual reconsultation happens on June 23. So it's -- that's coming. I think that's probably people figured that out by now.

I'll continue on. I have a -- this is a multipart question, one on wireless, one on software. I'll start with wireless. What kind of retention did you see after the price increase? The -- what percent -- what was the percent increase in price in '22? And do you expect to increase prices in '23? And then what percentage of the pagers are GenA? What's your expectation for GenA growth over the next 3 years? And the last question for wireless was do you only offer the GenA pager? Or do you still offer the legacy pager?

So it's a lot of questions. But basically, we did the price increase in the third quarter last year, about 3% across about 70% of our base. We had virtually no pushback. We didn't lose a customer over it. We expect to do another price increase this year in the third quarter at a percentage that we'll figure out and we'll let you know when we do it. And we don't expect we're going to get a lot of pushback there either. GenA with respect to percentage of our base, I think through the end of April, we had just over 13,000 units in service with that higher ARPU, I gave us 13,000 across an 800,000 base. We expect that's going to continue to grow. We've got a big initiative on in the company to get those out. But we want to maintain the discipline of getting the higher average revenue per unit. Wouldn't that miss any?

Yes. No. I think for GenA, it's a function of us learning what's the right volume price elasticity match there. So how long do we keep it at the higher price? Do we bring it down in order to get more volume out there? Those are the things that we're working with John and his team on the sales side to kind of try some different pricing strategies that would -- that makes sense.

As far as the number of devices that we currently ship -- in addition to GenA, we have the T5, which is a one-way paging device very similar to just the '90s vintage version of it. And we have a numeric pager that we ship. And then we have our ReadyCall line, which is a more of a waiting room oriented. We have 2 different pagers for that. So we have multiple products that we do ship in the paging line.

And one of the reasons our CapEx is so low is obviously, we have a lot of pagers going out the door every month to customers. We have a lot of pagers coming in the door every month from customers, and we refurbish those pagers. We get a very high yield on refurbishing those pagers and then we put them back out in the market. Pagers are incredibly resilient devices. They don't cost a lot. There's not a whole lot of complicated parts inside of them other than the circuit board. And so we're able to reuse and repurpose a lot of those, and that keeps our CapEx down.

Did we hit them all? I don't know if we hit them all.

You got them all.

Do you want me to continue? Anybody else? Okay. Why don't we switch to software? Of the 4 new logo deals that you talked about, were they all competitive displacements? The second part of that was talking about bookings. Do you have an expectation of where you think bookings levels will come in for the year for '23? Could you talk a little bit about your go-to-market strategy vis-a-vis the hosted solution for the small and mid-cap which you did, but some follow-up on that? And then on maintenance levels, what's your expectation to when we would see maintenance levels return to historical levels?

So do we have an expectation on bookings' growth for this year? Yes. That's the answer to that. And we -- not to be cute about it, but I think I said during the presentation, we did about $24.5 million last year in software operations bookings that doesn't count maintenance bookings. We will improve upon that this year. And we'll continue to improve upon that in future periods. John, do you want to take the part about the competitive year?

Yes, the 4 new logos, it was a combination of competitive takeaways as well as just additions to the people who haven't had any solutions at all.

And the maintenance side?