Spok Holdings, Inc.
Q4 2014 Earnings Call Transcript

Published: 5 Mar 2015

[Operator:]

Good morning and welcome to Spok’s Fourth Quarter and Year End Investor Call. Today’s call is being recorded. Online today, we have Vince Kelly, President and Chief Executive Officer; Shawn Endsley, Chief Financial Officer and Colin Balmforth, President of the company’s Operating Company. At this time for opening remarks, I will turn the call over to Mr. Endsley. Please go ahead, sir.

[Shawn Endsley:]

Good morning. Thank you for joining us for our fourth quarter and 2014 year end investor update. Before we discuss our operating results, 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 business environment, which we compete contained in our 2014 Form 10-K, which we expect to file later today, and related documents filed with the Securities and Exchange Commission. Please note that Spok assumes no obligation to update any forward-looking statements from past or present filings and conference calls. With that, I’ll turn the call over to Vince.

[Vince Kelly:]

Thanks, Shawn, and good morning. We’re pleased to speak with you today about our fourth quarter and 2014 operating results, what we believe of an outstanding year for Spok. Key accomplishments during the past year included strong performances for both our software and wireless sales teams, integration of our two operating subsidiaries, expansion of software sales in both international and domestic markets, continued improvement in wireless subscriber and revenue trend, implementation of our rebranding program and new corporate name and strengthening of our senior management team. On a consolidated basis, we met or exceeded our internal expectations, as well as our external financial guidance for revenue and operating expenses. We also made significant progress last year toward our goal of becoming consistently growing business and long-term provider of critical communications solutions. In addition to these important achievements, consolidated revenue for the fourth quarter increased for the second consecutive quarter. Software revenue and bookings reached an all-time high and our backlog and pipeline remained very strong at year end. At the same time, wireless trends continue to improve as paid return reached its best level in more than a decade and we ended the quarter ahead of our operating goals for total revenue and gross placements. Overall, we met or exceeded virtually all of our operating goals, enhanced the product offerings, expanded our market reach, strengthen our balance sheet, operate profitably and once again returning capital to stockholders in the form of cash dividends and share repurchases. Shawn and Colin will provide details on our financial performance and operating activity shortly, but first I want to review some other key results for the fourth quarter and 2014. Number one, continued demand for our software solutions in wireless services resulted in consolidated revenue of $200.3 million for 2014, a decline of only 4.5% from $209.8 million in 2013. Consolidated revenue increased to $51.3 million in the fourth quarter and $49.8 million in the third quarter and marked the second straight quarter of revenue growth. As expected, the increase in software revenue once again more than offset the modest decline in wireless revenue. Although, we are greatly encouraged by this pattern of revenue growth during the second half of 2014. We expect it will take more time for the company to grow consistently on an annual basis. Nonetheless, we believe our recent quarter-to-quarter revenue performance is another positive step in positioning Spok for sustainable long-term growth. Number two, software revenue increased 12.5% to a record high of $57.9 million in 2014 from $60.3 million in 2013. Total bookings for the year increased 23.7% to an all-time high of $78.5 million and operations bookings also reached a new high of $45.1 million. In addition, backlog grew $42.4 million year-end, an increase of 5.5% from 2013, while our pipeline of marketing qualified sales leads also reached record levels. Demand for our solutions remain strong as the North American markets, specifically among hospitals and other healthcare organizations, where we sold solutions for critical smartphone communications, call center management, secure texting, clinical alerting and emergency notification to both, new and existing customers. We also continued to expand our international sales efforts in 2014 and broadened worldwide focus beyond healthcare in such market segments as public safety, business, hospitality, education and government services. Number three, wireless subscriber revenue trends continue to improve in 2014 as we again exceeded our plan for both additions, net unit churn, revenue and ARPU. Our year-over-year rate of paging unit erosion improved to our record level 8.7% for 2014 compared to 9.2% for 2013 and 13.4% five years ago. While paging unit of erosion in the fourth quarter sales of 1.4%, our lowest unit loss rate in more than a decade. The year-over-year rate of wireless revenue erosion was 11.4% for 2014, our slightly from 11.3% in year ago, but significantly better than 16.4% five years earlier. We were pleased to see the continuation of these positive trends impacting our wireless revenue, and look for further improvements over time. We are especially pleased to see these positive trends continue on our top-performing healthcare segment, which now see 77% of our direct paging subscriber base. Healthcare remained our best performing market segment in the fourth quarter with the highest rate of gross placements and lowest rate of unit disconnect. Number four, consolidated operating expenses excluding depreciation, amortization, accretion and impairment increased 4.3% to a $155.4 million in 2014 from a $149.1 million in 2013. While annual expenses were consistent with our financial guidance for the year that came in higher than plan and largely to an increasing product cost and sales commission. Most of which occurred in the fourth quarter. Shawn will review details in a few minutes, but essentially the higher costs involved both third party and internal professional services and conjunction of accelerated software installations require to any customer commitments, along with higher commission associated with performance – over performing the sales revenues. As a result, fourth quarter operating expense increased to $42.6 million versus $38.7 million year-earlier. I’ll talk more about our goals for operating margins in a couple minutes. We continue to manage operating expenses closely especially as we continue to make investments in areas that support our strategy for long-term growth. Number five, consolidated EBITDA or earnings before interest, taxes, depreciation and amortization was $44.8 million in 2014 versus $60.7 million in 2013. This represented consolidated EBITDA margin a 22.4% versus 28.9% a year ago. Consolidated EBITDA was $8.7 million for the fourth quarter compared to $16 million year-earlier quarter, while our consolidated EBITDA margin was 15.9% versus 29.2% a year-earlier. With the modest decline in our year-over-year margin was expected as we’ve indicated on previous calls, the sharp decline in the fourth quarter resulted from one-time junk and certain expenses related to product cost and commission. Going forward, we expect to remedy that increase with our recently implemented margin improvement plan. I’ll share more details about this in a few minutes. Number six, finally we again generated sufficient free cash flow in 2014 to return capital to stockholder in the form of cash dividends and share repurchases. During the year, the company paid quarterly cash dividends to stockholders totaling $10.8 million or $0.50 per share. Also, our Board of Directors yesterday declared on nets regular quarterly dividend of $0.125 per share to be paid on March 30. In addition during the fourth quarter, the company repurchased 263,772 shares of common stock on the stock buyback program for approximately $4.3 million and an average price of $16.36 per share. Over the past 10 years, we have now returned $428.4 million to our stockholders and cash dividends and repurchased $64.1 million of our common stock. I’ll comment further on our capital allocation strategy in a few minute. Overall, we’re very pleased with our operating performance in the fourth quarter and the company’s substantial progress in 2014. We met or exceeded virtually all our key operating goals achieved record results generated significant free cash flow, expanded our services in geographic reach, fully consolidated our two operating businesses, successfully introduced a new name in corporate brand and return capital to stockholders. We also move closer to our goal of transforming Spok into a company with a clear path the long-term growth. We’re proud of this record of achievements, and we look forward to continued success in 2015. I’ll make additional comments on our operating performance and related business activities in a few minutes. But first, Shawn Endsley, our Chief Financial Officer will review financial highlights for the quarter. Colin Balmforth, President of our operating company will also comment on our fourth quarter sales and marketing activities. Shawn?

[Shawn Endsley:]

Thanks, Vince. Before I review our financial highlights for the fourth quarter and 2014, I would again encourage you to review our 2014 Form 10-K, we expect to file later today as it contains far more information about our business operations and financial performance than we will cover on this call. As Vince noted, we were pleased with our overall operating performance for the fourth quarter and 2014 along with the substantial progress we made toward meeting our long-term business goals. Record high software revenue and bookings along with improving wireless trends contributed to positive cash flows and a strong balance sheet at year end. In addition, results were consistent with our previously announced financial guidance for 2014. Given this performance, we believe we are well-positioned for another successful year in 2015. In the interest of time today, I want to review our fourth quarter income statement on a line-by-line basis. Since much of that information is contained in our news release schedule and federal filings. However, to the extent you ask specific questions about our quarterly financial results, we glad to address them during the Q&A. Rather I want to focus instead this morning on four specific areas and may be of interest. They include first, a review of certain factors that impacted fourth quarter revenue. Second, a review of selected items that impacted fourth quarter expenses, third a brief review of deferred tax assets in the status of our valuation allowance along with other balance sheet items and fourth, our financial guidance for 2015. With respect to revenue for the fourth quarter, total revenue was $51.3 million, our highest quarterly revenue for 2014 and with the second quarter in a row in which consolidated revenue grew quarter-over-quarter. Of the total, software revenue reached a record $19.6 million, wireless revenue was $31.7 million. Total fourth quarter software revenue reflected increases in both, operations and maintenance revenue compared to the three previous quarters of 2014. As I have noted on previous calls, our software operations revenue is now generally recognized on a ratable basis, an increased 38% to $11.6 million in the fourth quarter from $8.4 million in the first quarter. The increase was driven in part as a large number of projects completed in the fourth quarter with the average contract value higher than in previous quarters. This uptake in project side also resulted in an increase in the ratable revenue recognized during the period. Maintenance revenue, the other component of software revenue increased 13.1% to $8 million in the fourth quarter versus $7.1 million in the fourth quarter of 2013. The increase reflects our continuing maintenance renewal rates in excess of 99% from our installed software solution base. Wireless revenue in the fourth quarter remains solid climbing 3.6% from the third quarter. This solid retention reflected another strong performance by our sales team, who again generated significant wireless growth additions, minimizing churn and maintaining stable unit pricing. Overall, we are pleased with this performance by continues to be a very competitive wireless marketplace. We have included an additional schedule detail in the components of our software and wireless revenue at earnings release. Turning to operating expenses, reported consolidated operating expenses fully depreciation, amortization and accretion $42.6 million for the fourth quarter compared to $38.7 million in the fourth quarter 2013. For the year, operating expenses totaled $155.4 million versus $149.1 million a year ago. Our operating expenses in the fourth quarter increased approximately $3.9 million for the fourth quarter of 2013. Of that increase, $3.1 million can be attributed an increase in cost of revenue expense. Cost of revenue expense reflects the cost of both internal and external implementation services in travel, as well as third party hardware, software purchase for our customer implementation. In the fourth quarter of 2014, increase the use of more costly third party implementation services and the purchase of third party hardware and software the customer commitments. This increased our cost of revenue expense an impacted on margins in the fourth quarter. We expect the rebalance the use of this third party services in 2015 and will do more with internal implementation employees demand this costs. Intend will also discuss in a moment other actions that we have undertaken direct the impact of these costs. These actions will be consistent for overall though affordable growth our critical communication business. Remaining increase of $0.8 million in the fourth quarter of 2014 operating expenses, those increase commissions of $0.3 million to higher software revenue and $0.5 million in higher payroll and related expenses, reflecting investments for future growth and new employees. We continue to adjust our employee levels with changing requirements of our business. Full-time equivalent employees or FTEs were 587 at December 31, 2014 versus 631 FTE at December 31, 2013. Looking ahead we expect recurring and operating expenses will reflect level of our investments, grow software revenues and bookings and to support the company’s goals for wireless revenues and infrastructure. Depreciation, amortization, accretion increased about the fourth quarter full year 2014 compared to the same period in 2013. Primarily due to increase amortization expense associated with our intangible assets. Due to our rebranding, buys the amortization period intangible assets associated with the Amcom name, resulted in increased amortization expense. Our capital expenses for the fourth quarter were approximately $1.4 million, and were incurred primarily for the purchase of pagers and infrastructure to support our wireless customers. We do not expect any significant changes to the level of our capital expense requirement. Looking at our deferred tax assets or DTA, we had approximately $138.3 million in DTAs at year-end, for recognition of our valuation allowance. These DTAs allow us to shelter virtually all of our regular federal taxable income. However, we are required to pay a minimal in federal alternative minimum tax. We expect to be approximately $0.8 million for 2014. The DTAs primarily consist of net operating losses that will expire on the years 2021 through 2029. Based on the availability these DTAs, we do not expect to pay a significant amount in federal income taxes for the foreseeable future. The DTA valuation allowance adjusts the total balance of the DTA, the amount that we expect to use in the future, based on a three year forecast of taxable income. Based on our current expectations of future taxable income and reduced both the valuation allowance and income tax expense by $5.1 million in the fourth quarter of 2014. We will adjust the level of the valuation allowance either up or down as our expectation for taxable income changes. Turning to the balance sheet of the financial items, company generated $41.6 million in cash, operating activities during 2014, and ended the year with a cash balance of $107.9 million. We expect to use a portion of that cash in connection with quarterly cash dividends filed as potential share repurchases in 2015. Also ended the year with no debt outstanding and continue to operate as a debt free company. I would also note that we closed our $40 million line of credit in December, largely due to our current cash position. However, we continue to review our financing requirements on a regular basis and may reestablish a credit line at some point in the future if it was consistent with our business goals. Vince will comment further on our capital allocation strategy shortly. Finally, back to our financial guidance for 2015, currently expect consolidated total revenue to range from $183 million to $201 million with wireless revenue in a $112 million to $122 million and software revenue in $71 million and $79 million. Consolidated operating expenses including depreciation, amortization, accretion of $145 million to $154 million, capital expenses to range from $5.5 million to $7.5 million. Finally, I would remind you once again that our projections are based on current trends and those trends are always subject to change. With that, I’ll turn the call over to Colin Balmforth, who will update you on our fourth sales and marketing activities. Colin?

[Colin Balmforth:]

Thank you, Shawn, and good morning. The fourth quarter and 2014 was another record setting quarter as well as our highest quarterly software bookings to-date. Our sales and marketing teams helped us close Q4 with software bookings of $22.3 million. Included in this figure is 125% increase in new logo business from the fourth quarter of 2013. In total, 2014 bookings were up 23.7% over 2013 with an overall increase of 62.4% in new logo software bookings over the previous year. Our long time customers continue to place their trust in us by returning for upgrades to their existing applications, adding new products and expanding that portfolio of communication solutions. For example, a mid-sized northwestern hospital needed a solution to help keep patient data secure and protect patient privacy while getting providers an easy way to communicate with one another. Already a customer for our contact center solution, this hospital selected Spok a secure texting application, Spok Mobile, because of that positive experience with us, the application device diagnostic design and our ability to offer guidance and expertise around communication strategies. A mid-sized southeastern hospital added our clinical alerting solution to their product portfolio after patient exit surveys noted dissatisfaction with nurse responsiveness. To decrease response times and improved patient satisfaction, this hospital seeks to send messages from their nurse call system directly to the staff’s wireless communication devices. At a small specialty hospital on the East Coast, also added our clinical alerting solution. This robust software is used by our customers to route myriad device, alarms and alerts. In this instance, the customer will centralize alerting for 24 different building monitors including supply systems sensors for oxygen, medical air, nitrous oxide and both gas and liquid nitrogen. They want notification of service disruptions to appear directly on staff monitors in the contact center for efficient response. We continue to exceed our goals to gross additions to our paging services, including paging additions to longstanding enterprise software customers. A large Midwestern healthcare customer added several 1000 Spok pages to the suite of enterprise communications in Q4. And the collaboration among our wireless and software sales representatives was very effective in Q4 with cross selling efforts resulting in some 30 deals representing more than $1.8 million in additional bookings. I also talked before about our five pillars for growth. They represent Spok’s strategy for meeting our long-range objectives. I would like to update you on our progress in each area. Our first pillar is the midmarket healthcare space, which includes hospitals with 200 to 600 beds. We are very proud to have a majority of large healthcare systems and facilities in the U.S. as our customers and we continue to see the midmarket as a growth opportunity for new customers, we recognize value of our integrated communication solutions. An example is a high regarded U.S. Children’s hospital with selected Spok to meet of our business names, their contacts center teams seeks more automation and advance technology to improve our efficiency. And Spok’s console and web solutions will enable them to achieve these goals. Also physician leadership at this hospital seeks more advanced technology to support clinical workflows with our mobility solution to Spok Mobile, which improves the speed, security and ease of communication among care providers. We expect to expand on our success in the midmarket with solutions that will allows us to offer hospitals in a small and midmarket segments, products that enhance the communications while reducing information technology cost of ownership. For the international pillar, we continue to expand our presence outside the U.S. Sales bookings in international markets of 13% over last year, clinical alerting and ability strategies are global topics of interest with building momentum. In the Asia-Pacific region, our webinar presentations on these topics were well received, and four of our Q4 bookings came from hospitals looking to streamline their notification process for patient monitoring and clinical alerts. We also hosted the final event of our 2014 mobility and healthcare seminar series. The series is gaining popularity and reputation as evidenced by 40% growth in seminar attendance in 2014 over 2013. In the EMEA region, one of our notable Q4 bookings was with a National Health Service hospital in UK. This institution is making investments and communication technology to drive a greater level of patient service and staff responsiveness by enhancing the efficiency of their emergency notification process using clinical alerting and pagers. In the area of vertical markets pillar, public safety is one of our fastest growing markets. These customers rely on our products to support emergency call handling, as the 911 dispatch centers. Because of our solutions dependability which has been verified by extensive testing to acquire joint interoperability test command or JITC certification, the government sector and U.S. military locations remain an important part of this growth. Combined with municipal sales, we tripled our sales with the total of 67 public safety software deals in 2014, compared to 19 deals in 2013. In addition to the 2014 growth in the number of deals, the average size of these bookings also increased by 44%. Our enterprise sales vertical is also experiencing significant growth. Enterprise customers are companies outside the healthcare public safety and hospitality markets that depend on our contact center solutions to support communications for their organization. One example, we closed a console deal in Q4 with the global energy management company looking to do consolidate their contact center onto a single platform, streamline or internal communications and provide better quality service for their customers. Regarding progress for our innovation pillar, Spok’s annual connect conference in October was an opportunity to talk directly with our customers one-on-one. These discussions with communication directors and CMIOs continue to provide insight into clinical workflows and involving communication challenges. We also demonstrated prototypes of our design for the next generation console solution and we see valuable feedback directly from the people who rely on the solution every day. We can increase the value of our solutions with additional functionality that will improve patient care and provide efficiency. In 2015, we are launching two new forums based on feedback from our customers. The first is our strategic advisory council, made up of C level executives, including CIMOs, CIOs, CTO and CNO from our marquee brand healthcare institutions to provide strategic direction for our company. And second, an innovation partner alliance program that will bring us collaborative innovation teams together from our extensive customer base. These will supplement our highly successful user groups both directions which is now 367 members strong at the end of 2014. Under our fifth and final pillar, mergers and acquisitions as Vince mentioned we’re still evaluating potential acquisitions adjacent to our cost space. We remained highly active and vigilant in our search. Finally, I want to provide an update on our marketing activities. 2014 was an exciting year as we unified our company under a new single brand identity. A significant accomplishment, it meant launching a new company with a new name and zero brand recognition. We’ve made great strides in reclaiming our brand visibility and search engine rankings. In fact, web visitors to our site from Google increased 21.6% in the fourth quarter alone. We continue to see a positive return from our ongoing marketing investments and e-marketing campaigns, webinars, content development and website improvements. These activities and materials helped us to drive leads and fill the sales pipeline. In 2014, marketing achieved another record for identifying qualified leads. In Q4, leads were up 13.5% over Q4 the previous year and up 30.4% over 2013. Our marketing team is also responsible for the annual connect conference I mentioned earlier held in San Antonio last fall. These conferences is a great opportunity for us to strengthen our customer partnerships and inspired trust and loyalty in our brand. Many customers attend the conference year-after-year to learn about our product roadmap, talk directly with our executive team, and plan expansion of are their communications into the future. This year, we achieved a best connect satisfaction score ever from our customers, with a 97% approval rating for the conference at either very good or excellent. In summary, I’m very pleased with the results in fourth quarter and for the entire year. We look forward to continuing this positive momentum into 2015. With that, I’ll pass it back over to Vince. Vince?

[Vince Kelly:]

Thank you, Colin. Before we take your questions, I want to comment briefly on several items that may be of interest. First, discuss our current goals with regard to our operating margins, second, briefly update you on our current capital allocation strategy and third, review our business outlook and key initiatives for 2015. With respect to our current goals for operating margins, our target is to run at an EBITDA margin up 20% or better. That is where we expect to be for both the first quarter of 2015 as well as the full year. During 2014, our growth and expansion led to increased investment costs in developing new solutions for delivery in the public safety segment that we believe can be leveraged in the future. As an example, we’ve recognized many of our wins in the several military space required common solution that allow for better efficiency going forward along with improved supportability and consistency in customer service. Additionally, our fourth quarter professional service cost was higher due to our increased use of more costly third-party professional service providers help deliver on customer commitment as evidenced by our fourth quarter software revenue results. Note our software revenue was up $2.7 million over the third quarter. We’ve recognized this during the quarter and put plans in the place to rebalance our resources in 2015 and do more with our internal service teams. Those plans are already bearing fruit in terms of our margin improvement which we’ll talk about next quarter. Further, our equipment costs were higher in the fourth quarter due to a number of deals that included a higher ratio of third-party hardware and software, which generally have lower margins in our typical software license heavy deals. We made a number of changes to how we approach bidding these deals and where we put our sales focus for 2015 to address this issue. Finally, as noted previously, we exceeded our plan for operations bookings in the fourth quarter and as a result, a number of our sales leaders hit year-end commission accelerators. As a company, we’re always happy to reward such achievements, which lead to a healthier revenue in the quarter and an improved backlog as we enter into 2015. Turning to our capital allocation strategy, as we communicated last quarter, we’ve set forth clear goals of achieving sustainable business growth while maximizing long-term stockholder value. Indeed, the allocation of capital will be a primary area of focus for us this year as a company expect to generate strong operating cash flow and currently carries cash balances in excess of $100 million. As I previously, our board and management team has spent a great deal of time over the past few years evaluating numerous acquisition opportunities that will enhance our software applications, service capability and market penetration. Accordingly, we expect to reserve a certain amount of capital for one or more such acquisitions. We remain optimistic, continue to review viable candidates that we believe will be a good strategic fit. As we continue our pursuit of acquisition candidates, I assure you, we will remain disciplined in our approach. With regard to other uses of capital, we expect to continue paying our quarterly dividend to $0.125 per share or $0.50 annually for the foreseeable future based on our current projections for operating cash flow. We believe the current dividend rate provides an appropriate yield on common stock. In addition, we may buyback additional shares of common stock from time-to-time under our existing share repurchase program, depending on the price and market condition. As I noted earlier, we repurchased 262,772 shares of common stock during the fourth quarter for approximately $4.3 million. In addition, $15 million remains authorized for purchase under the buyback plan, which extends the year end 2015. As I noted on our third quarter earnings call, the company is committed to return a total of $26 million in capital to shareholders in 2015 in the form of cash dividends and share repurchases. While the exact manner of distribution has yet to be determined, along with the actual distribution dates, it will likely include some combination of regular quarterly dividends, periodically purchases of common stock, and potentially a special dividend later in 2015. Beyond our commitment to return $26 million in capital to shareholder this year, I note that going forward the board may also consider various other options for deploying capital from time-to-time. These options might include additional special dividends, investing in a product development opportunity that provides a unique solution to our customers critical communications needs. But in the meantime, we’ll continue to manage our balance sheet prudently by maintaining ample liquidity to support our working capital needs. Finally, with regard to our business outlook and key initiatives for 2015, we believe our strong performance in 2014 has laid the groundwork for additional progress this year. Our 2015 goals are simple and straight forward. Number one, grow our software revenue and bookings profitably, number two, retain our wireless subscribers in revenue, number three, invest in our future, and number four, commit to acquisitions that are accretive to our business, can accelerate our revenue growth and utilize our valuable deferred tax assets. Key to accomplishing these objectives, of course, is managing a disciplined and balanced approach to both internal and external growth. Internally, we will continue to redeploy a portion of our capital to accelerate the development, growth and expansion of our critical communication solutions and services worldwide. These includes developing new products and services, expanding our sales reach both within and beyond existing market segments, extending sales into new geographic regions and promoting our brand in key global markets. At the same time, we will continue to leverage the value of our paging and related wireless infrastructure to meet our customers need, as well as our cash flow and capital formation requirements. Beyond that, as I noted earlier, we’ll continue to explore acquisition opportunities. As I mentioned previously, none of this will be easy or happen overnight. Indeed, it will take a lot of hard work and time. However, I believe our talented and dedicated team members are more than up to the task. Collectively, we made enormous progress last year and we have set our sights on executing our plan for 2015. In summary, 2014 was a great year for substantial progress for Spok. We met or exceeded the majority of our key performance goals, expand our sales capabilities, extended our reach in key geographic and vertical markets, strengthened our balance sheet and continued to operate the company profitably. We also fully integrated our software and wireless subsidiaries, redefined our missions of global provider of critical communication solutions, adopted a new name and brand, and recruited a number of highly qualified business executives to strengthen an already solid senior management team. We also made significant investments in the product and services to better meet the needs of our customers. The net result of these achievements over the past year is an organization that now functions as an unified team professionals with a well-defined business plan and identified future goals. Moreover, we believe we have created a solid foundation, not only for sustainable growth, but one that over time will enable us to reach our strategic goal of becoming a recognized worldwide provider of critical communication solutions. Toward that end, we will continue to aggressively execute our business plan and pursue all opportunities to create additional value for our stockholders. At this point, I’ll ask the operator to open the line up for your questions. We would ask that you limit your initial questions to one and a follow-up, and then after that, we’ll take additional questions as time allows. Operator?

[Operator:]

[Operator Instructions] We’ll take our first question from Rich Murphy with Cross River. Your line is now open.

[Rich Murphy:]

How you guys doing. I’ve got a question on the guidance for 2015. How should we look at that revenue growth in terms of, are we looking at about a 5% decline, continued decline in the wireless, and Amcom growth at 10%? And I have a follow-up after that.

[Vince Kelly:]

Yes, Rich, we don’t break out the guidance by the wireless versus the software, I mean you can look at the trends and probably come up with the pretty good approximation and you probably are fairly close right there. Our guidance for revenue this year, it’s interesting if the same range of consolidated revenue that our guidance was for last year, so we’ve been in a business that for the last 10 years has been primarily a wireless business supported by paging infrastructure, and as you know paging has continue to erode over the years, although that rate of erosion continues to slow, but every year, our revenue in total was going down. So from a management perspective, it’s nice to see revenue finally starting to stabilize a bit and then obviously our goal is on a consolidated basis to have revenue that grows on a year-over-year fashion and we’re very much focused on that as a strategic outcome and so far so good.

[Rich Murphy:]

And on the Amcom, in all of the stuff you talked about on marketing type, it seems all very positive, and you had 30% growth in the Amcom business from 2012 to 2013, that was around it looks like a slower growth this year, around 3%. Is this going to be a lumpy, I’m just going to trying to understand that, it seems like a very big adjustable market, the healthcare space. How do I view, since it is a relatively new company, the type of growth expectations?

[Shawn Endsley:]

Well, our bookings group quite a bit this year which when I look at our business, and I think about what’s important, operations bookings for 2014 was over $45 million and in 2013, it was $35 million. So, we sold a lot this year relative to past years and ultimately bookings, when the products and solutions get installed and the revenue gets recognized, bookings turn into revenue. So, we’re very happy with how the software business is growing. It’s doing what we expected it to do, and it’s beating its plan for revenue, and that’s what’s it really matters.

[Rich Murphy:]

And so I should look at bookings, is bookings a good lead indicator, essentially?

[Shawn Endsley:]

Absolutely, yes.

[Rich Murphy:]

Okay. Could I ask one more question?

[Shawn Endsley:]

Yes, go ahead.

[Rich Murphy:]

On the capital allocation, you have $107 million in cash, you talked about M&A, you’ve done a good job on obviously, the dividend side you seemed to mention a little more on this call about the special dividend. I’ve been with the stock a long time. I was used to the dollar special dividend at the end of the year. The business – just from your guidance, you business is going to generate about $45 million in EBITDA with a $170 million in cash. What would preclude you from and I guess how are you thinking about that cash balance with a business that generates a lot of cash? And you said, I guess in relation to your comment that you think the dividend ratio is sufficient.

[Shawn Endsley:]

What we said this year is that we would return $26 million in capital of our shareholders, so that would be a big percentage if you will the free cash flow that the company generates is only about $11 million of that and I’m using round numbers, is the recurring dividend. So, the other $15 million would be to share repurchases and/or a special dividend and we wouldn’t make a decision to pull the trigger on the special dividend to round the end of the year as we have the share repurchase plan function. So that’s how we’re thinking about that, yeah, that does mean our cash balance in total, we’ll grow during the year even after distributing $26 million to our shareholders. We’re using that as I said in my prepared comments, there are other things we might do, we might do a more aggressive stock buyback, we might do extra special dividends. We might do an acquisition. We’ve been disciplined on acquisitions. I will tell you that we’ve look at a lot of companies, I’m sure this is no surprise to anybody, but there is a lot of financial sponsors out there, there is a lot of cash out there, chasing deals on the private side, and the private market valuations have gotten really high, almost bubbly from my perspective and in some cases quite frankly, so we haven’t pulled the trigger on some of those obviously for those reasons. So we are watching this very closely, we will continue to look at it. We think we are giving back a lot of capital this year, but we know we run for shareholders, we are a shareholder friendly company, and we will continue to evaluate that.

[Rich Murphy:]

Great, thanks. Good quarter, guys.

[Shawn Endsley:]

Yeah thank you very much.

[Operator:]

[Operator Instructions] We will take our next question from Josh Paulson with Claragh Mountain. Your line is now open.

[Josh Paulson:]

Yes hi, good morning.

[Vince Kelly:]

Hi Josh.

[Josh Paulson:]

I was wondering if you could comment on, let me think in your modeling for software sales will surpass your wireless revenue, I realize this will probably be a few years down the road. I wanted to hear your thoughts on long term growth of your software business, and a decline or a more stabilization of your wireless revenue.

[Vince Kelly:]

You know you are on the right track, let me just say that each year we managed to work very hard, in the fall, we complete what we call our long range plan, which is a five year, it’s more than a five year forecast, it’s much more than a set of projections because it includes a lot of market competitive information, who are the players are out there, we really kind of break everything down by product analysis. So we actually have that, however we only provide guidance on an annual basis, and so you know we don’t say here is what we expect to be two year from now, or three years from now. Obviously, the focus of this business is to grow on an aggregate basis. And we had a Board meeting yesterday and I told the Board management team that those are not for the software revenue to hurry up and exceed the wireless revenue. We absolutely want that to happen, but we want to keep that wireless revenue as long as possible as well. You know we go into big customer accounts, in the old days, we’d go – I don’t want to name the specific accounts because we’re probably not allowed to, you know you go to a nationally recognized healthcare institution, and you will be having a meaning, and they were customers who both our software and wireless, and there would be six people from our company in the meeting because you’d have three people from the software side and three people from the wireless side, and the CIO would look at you and say, why do we need all these people from Spok, and back in those days, it was USA Mobility and Amcom, why do we need all these people. Now we don’t do that, we have got one integrated sales team, we send less people into those meetings, and we service everything, so at some point, yeah, software is going to exceed wireless, but we want to keep that wireless as long as possible. We will continue providing guidance on – annual guidance, we have been pretty good at beating the midpoint of that guidance. In finest spot, the midpoint of that guidance is not far off from you know kind of how we are forecasting and then we worked very hard to beat that forecast. So I hope that gives you a little window into how we think about the business and how we are managing it.

[Josh Paulson:]

Yeah indeed, I have follow-up as well, if it’s all right. So I was wondering if you could comment on, I know you talked a little bit already about the deferred tax asset, but I was wondering when do you expect to use the remainder of that, current deferred tax asset.

[Vince Kelly:]

So we’ve been – I’d say, it’s fair to say relatively conservative with respect to releasing the valuation allowance and the deferred tax asset. That I think is going to change over time, we are now in I guess it’s couple of years in a row now where we have gotten better results with our software top-line than what we had forecast internally. And so we are building I think a confidence in our ability to understand and know that business. We had been very, very good on the wireless side in terms of being able to forecast and hit numbers and beat numbers, and on the software side, you know bookings, things like that could be a bit lumpy, and it’s a little bit different of the business, not always is predictable. We have done a number of things over the past couple years to make it more predictable and now it in fact it is, and we are getting better at that. So I’d imagine that each we will take a look at that and we look at it on an annual basis, and we can use a little bit lower of a discount rate, we can use a little bit longer of a projected term, and probably take some of that allowance off over time.

[Josh Paulson:]

Great thanks.

[Vince Kelly:]

Yeah.

[Operator:]

And it appears we have no further questions at this time. I’ll turn it back to Mr. Vince Kelly for any closing remarks.

[Vince Kelly:]

Sure. Thanks very much for joining us. We look forward to speaking with you again after we release our first quarter results. That will probably be in about 60 days. So everyone have a great day, and hopefully this is the last snow storm most of us in the country get this year. We will talk to you soon, good bye.

[Operator:]

This does conclude today’s teleconference, you may now disconnect. Thank you and have a great day.