Spok Holdings, Inc 2026 Q3 Earnings Call

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. 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 Spok's future financial and business performance. Such statements may include estimates of revenue, expenses, and income as well as other predictive statements or plans which are dependent upon future events or conditions. These statements represent the company's estimates only on the date of this conference call and are not intended to give any assurance as to actual future results. Spok's actual results could differ materially from those anticipated in these forward-looking statements.

Although these statements are based upon assumptions that the company believes to be reasonable, they are subject to risks and uncertainties. Please review the Risk Factors section relating to our operations and the business environment, which are contained in our third quarter 2026 Form 10-Q and related documents, which will be filed with the Securities and Exchange Commission. Please note that Spok assumes no obligation to update any forward-looking statements from past or present filings and conference calls. With that, I'll turn the call over to Vince.

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 Spok 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 Spok 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. Additionally, Spok is 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 Care Connect 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 Spok Care Connect solution offerings.

The first nine months of 2026, Spok 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 will provide you with a sense of how our strategic business plan is progressing. First, I will provide a review of our third quarter sales performance. Second, I will 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. 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 Spok enables smarter, faster communication throughput for our customers. 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 in this uncertain macroeconomic environment.

I would like to highlight a couple of the notable customer agreements from the third quarter as Spok continued to strengthen relationships with longstanding customers across the healthcare industry. First, Spok 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 Spok's footprint and strategic value across the organization, marking another milestone in our nearly 20-year partnership, and reinforces Spok's role as a trusted provider of mission-critical communications. Beyond renewing its existing Spok SmartSuite, Spok Messenger, and Spok Mobile Solutions, this healthcare system will expand deployment to additional facilities, increasing its Spok Mobile user base to approximately 4,500 users, and adopt new capabilities, including Spok Facility Alerting, Epic interfacing, multi-carrier SMS messaging, and Spok Care Connect 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 Spok technology environment. Second, a nationally ranked pediatric healthcare system located in the Southeast renewed and expanded its Spok 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 4 NICU. This new agreement includes upgrades to Spok SmartSuite, Spok Smart Web, Spok e.Notify, Spok Voice Connect, as well as our reporting, consulting service, and Spok Academy. The renewal of this partnership of more than 20 years reinforces Spok's position in specialty healthcare and reflects strong customer confidence in our platform.

Spok remains committed to delivering effective solutions that enable smarter, faster clinical communication for hospitals and healthcare systems. Our third quarter results reflect focused execution and continued progress against our strategic priorities. With many more exciting developments planned for the remainder of 2026, we look forward to continuing to deliver our solutions that support healthcare organizations and their evolving communications needs. I'd also like to take this opportunity to point out a few recent accomplishments that we believe position Spok well for the future. 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 Sensus USA, a 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 Spok 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 with 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 as of September 30th, 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 Spok customers include all the children's hospitals and 18 of the 20 adult hospitals named to the 2026 and 2027 U.S. News & 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 place in Spok 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 Spok 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 Gopalkrishnan as Executive Vice President and General Manager. Shiv will lead Spok's engineering, product strategy, and sales organizations. 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 Spok 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 Spok, we are bringing engineering, product strategy, and sales together under one experienced leader as we position Spok 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.

Spok has 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 are 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, Spok has 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, Spok has 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.