SPOK Spok Holdings Inc.

NASDAQ
$11.78

Spok Holdings Inc. Q3 F2026 Earnings Call Transcript

AI Conference Call Analysis

Sign in or subscribe to read.
Conference Operator
Operator
Greetings. Welcome to the Spoke Holdings, Inc., Q3, 2026 earnings results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Al Galgano, Investor Relations. Thank you, Al. You may begin.
Al Galgano
Investor Relations
Hello, everyone, and welcome. I am joined today by Vince Kelly, Chief Executive Officer, and Michael Wallace, Chief Operating Officer and Chief Financial Officer. After a brief presentation by management, we will open up the call to your questions. But before we begin, I want to remind everyone that today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to spokes' 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. Spokes' 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 factor section relating to our operations and the business environment, which are contained in our third quarter, 2026, form 10Q and related documents, which will be filed with the Securities and Exchange Commission. Please note that SPOKE 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 Kelly
Chief Executive Officer
Good afternoon. Thank you for joining us for our third quarter 2026 earnings call. Let me preface my comments by saying how proud I am of our spoke team and that we remain true to our mission. Since the strategic pivot we announced a few years ago, our focus has not changed. That is to grow revenue, generate cash, and return capital to our stockholders. We believe that SPOKE has struck an excellent balance between making the necessary investments to support those goals while aligning our organization with the market demand that we are seeing. In the third quarter, we were able to deliver a more than 200% year-over-year increase in net income, a nearly 30% year-over-year increase in adjusted EBITDA, and an additional 12 basis point improvement in wireless unit attrition from the already low second quarter rate, as well as an increase in year-over-year wireless average revenue per unit. While driving our top line, we also continued our focus on expense management as operating expense levels fell in the third quarter and were down more than 7% from the prior year. Much of that improvement is a result of the benefits from the strategic realignment that we announced in April. focus implementing artificial intelligence to drive further operational efficiencies across the organization with a particular focus on accelerating product development timelines, reducing time to market for new CareConnect Suite capabilities and other internal uses. It is important to note that our focus on expense management as one of the key drivers to generate increased cash flow does not come at the expense of our product platform. As we continue to make the necessary investments in product development, Sales and Marketing, Customer Support, and Professional Services to support the growth of our Spoke CareConnect solution offerings. The first nine months of 2026, Spoke invested nearly $10 million in product research and development, a more than 8% increase from 2025. Investments such as these are critical to creating a best-in-class product platform and to maintaining our solid industry reputation. Today, we'll provide you with a sense of how our strategic business plan is progressing. First, I'll provide a review of our third quarter sales performance. Second, I'll review a few of the recent key highlights that position our company for the future. Next, Michael Wallace, our COO and CFO, will provide a review of our third quarter financial highlights, including our financial expectations for the balance of 2026. And finally, I will conclude our prepared remarks with a brief wrap-up before opening the call up for your questions. Amidst all the progress in continuing to create this solid financial platform and stockholder-friendly capital allocation strategy, I want to reiterate that we remain true to our mission of being a global leader in healthcare communications. As we remind the listeners each quarter, simply put, we deliver critical information to care teams when and where it matters most to improve the patient outcomes as Spoke enables smarter, faster communication throughput 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 at very high levels. In the first three quarters of 2026, we were able to execute 42 six-figure and seven-figure customer contracts. We are pleased with our performance this year, especially with the headwinds our team has faced and that's uncertain macroeconomic environment. I'd like to highlight a couple of the notable customer agreements from the third quarter as Spoke continued to strengthen relationships with long-standing customers across the healthcare industry. First, Spoke successfully secured a strategic three-year renewal expansion with one of the largest nonprofit and integrated healthcare systems in the Midwest that is comprised of 24 hospitals and hundreds of clinics and service organizations. This agreement expands Spoke's footprint and strategic value across the organization, marking another milestone in our nearly 20-year partnership and reinforces Spoke's role as a trusted provider of mission-critical communications. Beyond renewing its existing Spoke Smart Suite, Spoke Messenger, and Spoke Mobile solutions, this healthcare system will expand deployment to additional facilities, increasing its Spoke Mobile user base to approximately 4,500 users and adopt new capabilities including spoke facility alerting, epic interfacing, multi-carrier SMS messaging, and spoke CareConnect reporting and dashboards. These investments are designed to enhance enterprise-wide communication, streamline clinical workflows, strengthen operational visibility, and support timelier coordinated care delivery. The new agreement also includes ongoing premium maintenance, managed services, and professional services to support continued modernization and optimization of its SPOKE technology environment. Second, a nationally ranked pediatric healthcare system located in the Southeast renewed and expanded its SPOKE contract. Last year, it saw over 70,000 emergency department patients, making it the busiest pediatric emergency department in the Southeast and has the state's only level four NICU. This new agreement includes upgrades to Spoke Smart Suite, Spoke Smart Web, Spoke eNotify, Spoke Voice Connect, as well as our reporting consulting service and Spoke Academy. The renewal of this partnership of more than 20 years reinforces Spoke's position in specialty healthcare and reflects strong customer confidence in our platform. Spoke remains committed to delivering effective solutions that enable smarter, Thank you for joining us today. As you may remember, in June, we announced the entry into an agreement to sell certain narrowband spectrum licenses in our two-way paging inventory to CensusUSA, the designer and manufacturer of metering and automatic meter reading products. The purchase price was $8 million, with a portion of the consideration deferred until existing spoke users were migrated to alternative frequencies. The transaction was subject to approval by the Federal Communications Commission. I am pleased to report that this transaction has fully closed All licenses cleared for transfer. After the customary closing fees and transaction costs, the sale generated in excess of $7.5 million in cash. Resultingly, cash and cash equivalents totaled in excess of $30 million on September 30, 2026. We believe that there may be additional opportunities such as this to create stockholder value through monetizing our asset base. Also during the quarter, we announced that Spoke customers include all the children's hospitals and 18 of the 20 adult hospitals named to the 2026 and 2027 US News and World Report Best Hospitals Honor Roll. We congratulate these honor roll hospitals on their outstanding achievement. Their recognition reflects years of dedication to patient care and clinical excellence. We are grateful for the trust they placed in Spoke to strengthen communication across their care teams and remain committed to providing communication infrastructure that helps their teams deliver outstanding care. Also, this is particularly important to spoke as consumers widely reference these rankings because they emphasize factors that directly impact patient care, including clinical outcomes, adherence to best practices, and the quality of hospital resources. Finally, I'd like to highlight the announcement we made last week regarding the appointment of Shiv Gopalakrishnan as Executive Vice President and General Manager. Shiv will lead Spoke's engineering, product strategy, and sales organization. He is an industry veteran with 25 years of experience in building and scaling healthcare software businesses across electronic medical records, revenue cycle management, virtual care, clinical workflow, and patient engagement. We are excited to welcome Shiv to the Spoke team, as he is a rare leader who combines deep product knowledge and engineering expertise with a strong commercial mindset and unwavering focus on customer outcomes. He understands what it takes to help longstanding customers move forward with confidence. At this very critical juncture for Spoke, we are bringing engineering, product strategy, and sales together under one experienced leader as we position Spoke to move faster, serve our customers better, pursue new growth opportunities, and further leverage artificial intelligence technologies. Before I turn the call over to Mike to review our financial performance, let me briefly summarize the goals that support our critical and important mission. Our strategic goal is simple. Run the business for profitable growth, generate cash flow, and return that capital to stockholders. Spoke as a proud legacy of creating stockholder value and returning capital through free cash flow generation, and we intend to continue that track record. Our dividend level represents a yield in excess of 10% for our stockholders, and we're proud of our legacy there and our ability and commitment to continue funding it. Since the beginning of our strategic pivot, which started in 2022, Spokas returned approximately $125.2 million or nearly $6 per share to our stockholders in the form of our regular quarterly dividend. In fact, since we created the company in 2004, Spokas returned nearly $750 million to our stockholders either through our regular quarterly dividend, special dividends or share repurchases. In the third quarter of 2026, our history of returning cash to our stockholders continued as we returned $6.5 million in dividends. We expect to pay dividends in excess of $27 million in 2026, and we remain committed to our dividend policy and return capital to our stockholders. When you take into consideration our current cash balance, distribution to stockholders, share repurchases, debt repayments, and acquisitions, Our focus now generated nearly $1.1 billion of free cash flow since our creation in 2004 and returned approximately two-thirds of it to our stockholders. Our focus on maximizing cash over the long term supports the four major tenets of our strategy. Those are number one, continued investment in our product platform, number two, growing our revenue base, number three, disciplined expense management, and number four, a stockholder-friendly capital allocation plan. Going forward, we believe our extensive experience operating our established communication solutions and world-class customer base will continue to create significant value for our stockholders. Now, I will turn the call over to our Chief Operating Officer and Chief Financial Officer, Mike Wallace, who will talk about financial performance and earnings guidance. Mike?
Michael Wallace
Chief Operating Officer and Chief Financial Officer
Thanks, Vince, and good afternoon, everyone. I would now like to take a few minutes and provide a recap of our third quarter 2026 financial performance, which we reported earlier today. As always, I encourage you to review our 10Q 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 the third quarter of 2026, Gap Net Income totaled $9.7 million, or 46 cents per diluted share. compared to net income of 3.2 million or 15 cents per diluted share in the prior year. However, adjusting for the one-time after-tax impact of the gain on the narrow band license sale we completed this quarter and some remaining severance and restructuring expense from the strategic realignment in April, third quarter 2026 net income would have been approximately 4.5 million up from the prior year quarter. Also, adjusted EBITDA of 8.6 million in the third quarter of 2026 was up nearly 30% from the prior year quarter, as expense reductions resulting from the strategic realignment more than offset the year-over-year decline in total revenue. Overall, a very strong quarter from a profitability perspective. With respect to wireless revenue, the year-over-year sequential quarter revenue decline improved by 220 basis points. bolstered by continued improvement in the rate of reduction in the units and service, as well as the impact from previously taking pricing actions over the course of the last couple of years. Product sales also continue to augment any losses related to units and service. Average revenue per unit, or ARPU, which totaled $8.36 and was up 17 cents from prior year levels, continues to be our primary tool in partially offsetting revenue decline from unit loss. Sustained ARPU levels have been driven by previously discussed pricing actions and, to a lesser extent, incremental pass-through taxes and fees, as well as an increased mix of our higher ARPU Gen A pagers in use. Turning to our software revenue for the quarter, revenue totaled $16 million in the third quarter and was essentially flat to the prior year period, despite the lower total operations bookings. License revenue totaled $1.4 million, compared to 1.1 million in the same period of 2025, up nearly 30% on a year-over-year basis. As we have said consistently, software bookings are lumpy and can vary significantly from quarter to quarter based on the timing of larger contracts. We also continue to see the trends we discussed last quarter. Longer decision cycles as hospital customers conduct more extensive evaluations before committing and a preference for shorter-term agreements which lowers the initial booking value of those contracts. Given that variability, we continue to believe bookings are best evaluated over a long period rather than any single quarter. Additionally, the continued solid performance of professional services revenue, albeit slightly lower than last year due to the timing of some higher dollar value projects and overall backlog levels was a key driver in third quarter software revenue levels. specifically, managed professional services revenue of $2.4 million in the third quarter was up over 30% from revenue in the prior year quarter. We will continue to align total resources with our backlog, and we should continue to see benefit from our higher margin managed services mix. Third quarter adjusted operating expenses, which excludes depreciation, amortization, and accretion, and severance and restructuring costs, totaled $26.1 million. down from 28.5 million in the prior year, or more than 8%. Drilling down into the specifics, cost of revenue was down from the prior year primarily due to the decline in operations bookings from the level that we saw in the third quarter of 2025. Increases in research and development reflect our continued investment in our product and services platform, with reductions in technology operations driven by our normal practice of cost reduction in relationship to declining wireless revenues. Selling and marketing costs decreased approximately 23% from the prior year, consistent with what we saw in the first half of the year, reflecting lower commissions and lower trade show and event expenses. And year-over-year general and administrative costs also declined by nearly 7% as a result of the expense reductions from the strategic realignment we announced in April. Regarding our cash balances, At the end of the third quarter, they totaled $30.1 million. The sharp increase in cash and cash equivalents from the second quarter total of $16.6 million results from two factors. First was the impact on the sale of the narrow band licenses. After the contribution from the purchase price, as well as the additional premium from the holdback from the license transfers, which Vince pointed out is now complete, we were able to add approximately $7.6 million to our cash balances. Consistent with prior years, our cash balances declined in the first half of the year as a result of typical working capital needs that include items such as the payment of our short-term incentive plans and prepaid annual renewals of technology contracts. Additionally, first-half cash flow financing activities are typically higher than in the second half of the year, reflecting payments on the company's long-term incentive plans. As anticipated, cash balances increased in the third quarter due to the lower working capital needs coupled with the strong adjusted EBITDA performance. Given the contribution from the license sale and the anticipated reduction in working capital needs throughout the remainder of the year, we anticipate that we will exit 2026 with approximately $28 to $32 million in cash and cash equivalents. On a final note, I'd like to address our software operations bookings backlog, which totaled $52 million at September 30, 2026, down nearly 15%, from the third quarter of 2025. As a reminder, since 2024, we have reported software backlog excluding contractual obligations that customers can cancel without significant penalty. As shown in our earnings release tables, that exclusion totaled 15.7 million this quarter compared with 11.2 million in the prior year quarter. On a gross basis, which is how we manage the business internally, backlog totaled 67.7 million down approximately 6% from a year ago. The growth in the excluded amount reflects how hospitals are buying today. With budgets consistently tight and technology changing quickly, customers increasingly prefer shorter terms and more flexibility over long-term commitments. That changes how our contracts are structured, but we do not believe it changes how they perform. Historically, very few of our cancelable obligations have actually been canceled, and that track record reflects the customers behind them. As Vince mentioned earlier, we serve all 11 children's hospitals and 18 of the 20 adult hospitals on the 2026-2027 U.S. News and World Report Best Hospitals Honor Roll with an average relationship tenure of more than 20 years. That is why we view gross backlog as the more meaningful measure of the revenue out of us. So moving on to financial guidance for 2026. Based on the anticipated full year impact of the strategic realignment and our visibility into our product sales pipeline, we are reiterating our full year 2026 financial guidance estimates. The guidance ranges for revenue and adjusted EBITDA are contained in the press release that we issued earlier today. With that said, I will now like to turn the call back over to Vince.
Vince Kelly
Chief Executive Officer
Thanks, Mike. Let me reiterate our focus 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 shareholders. We have advantages over the competition in our core healthcare software contact center space, including long-term and deep relationships with the top healthcare systems in the nation who continue to purchase from us on a regular basis, offering customers an integrated platform as opposed to multiple point solutions, and continue to invest in and enhance our platforms consistent with what our customers are requesting. We are a pioneer in healthcare communications with the best-in-class product offering and have built an industry-leading reputation over the years. Before I open the call up to your questions, let me take a moment to enumerate Spokes' significant positive attributes. As a leader in healthcare communications, we maintain the largest paging network in the United States, We control significant narrow band personal communication services spectrum, an asset that we have shown can be monetized. We have a blue chip customer base of more than 2,000 hospitals. We've created a large portfolio of intellectual property via strategic R&D investments, and we continue to generate significant cash flow and return it to our investors on a quarterly basis. I'd 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. 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?
Conference Operator
Operator
Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Operator? We have reached the end of the question and answer session. I'd like to turn the floor back over to Vince Kelly for closing comments.
Vince Kelly
Chief Executive Officer
Thanks, everyone, for joining us today for our third quarter earnings release. We look forward to speaking with you in February when we release our fourth quarter results. Everyone have a great day.
Conference Operator
Operator
This concludes today's SIL conference. You may disconnect your lines at this time. Thank you for your participation.