Spok Holdings Inc (SPOK) 2014 Q4 法說會逐字稿

Good morning, and welcome to Spok 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 comments I will turn the call over to Mr. Endsley. Please go ahead, sir.

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 in 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.

Thank you Shawn, and good morning. We're pleased to speak with you today about our fourth quarter and 2014 operating results, and what we believe is 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 trends, 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 a consistently growing business and long-term provider of critical communication solutions. In addition to these important achievements, consolidated revenue for the fourth quarter increased for the second consecutive quarter. Software revenue and bookings reached all-time highs and our backlog and pipeline remain 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 our product offerings, expanded our market reach, strengthened our balance sheet, operated profitably, and once again returned capital to stockholders in the form of cash dividends and share repurchases.

Shawn and Colin will provide details on our financial performance and operating activities shortly, but first I want to review some other key results for the fourth quarter in 2014. Number one, continued demand for our software solutions and wireless services resulted in consolidated revenue of $200.3 million in 2004, a decline of only 4.5% from $209.8 million in 2013. Consolidated revenue increased to $51.3 million in the fourth quarter, from $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 revenues increased 12.5% to a record high of $67.9 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 to $42.4 million at 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 remained 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 our worldwide focus beyond healthcare, in such market segments as public safety, business, hospitality, education, and government services.

Number three, wireless subscriber and revenue trends continued 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 a record low of 8.7% for 2014, compared to 9.2% for 2013, and 13.4% five years ago. While paging unit erosion in the fourth quarter fell to 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, up slightly from 11.3% a year ago, but significantly better than 15.4% 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 in our top performing healthcare segment, which now exceeds 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 disconnects.

Number four, consolidated operating expenses excluding depreciation, amortization, accretion and impairment, increased 4.3% to $155.4 million in 2014, from $149.1 million in 2013. While annual expenses were consistent with our financial guidance for the year, they came in higher than planned due largely to an increase in product cost and sales commissions, 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 in conjunction with accelerated software installations required to meet customer commitments, along with higher commissions associated with over performance in sales bookings. As a result, fourth quarter operating expense increased to $42.6 million versus $38.7 million a year earlier. I'll talk more about our goals for operating margins in a couple of 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 our earnings before interest, taxes, depreciation and amortization was $44.8 million in 2014 versus $60.7 million in 2013. This represented a consolidated EBITDA margin of 22.4% versus 28.9% a year ago. consolidated EBITDA was $8.7 million for the fourth quarter compared to $16 million in the year earlier quarter, while our consolidated EBITDA margin was 16.9% versus 29.2% a year earlier. While the modest decline in our year-over-year margin was expected, as we have indicated on previous calls, the sharp decline in the fourth quarter resulted from the one time jump in certain expenses related to product costs and commissions. 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 stockholders 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 a share. Also our Board of Directors yesterday declared our next regular quarterly dividend up $0.125 per share to be paid on March 30th. In addition, during the fourth quarter the Company repurchased 263,772 shares of common stock under our stock buyback program for approximately $4.3 million, at an average price of $16.36 per share. Over the past ten years, we have now returned $428.4 million to our stockholders in cash dividends, and repurchased $64.1 million of our common stock. I'll comment further on our capital allocation strategy in a few minutes.

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 of 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 and corporate brand, and returned capital to stockholders. We also moved closer to our goal of transforming Spok into a company with a clear path for long-term growth. We're proud of this record of achievement and 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.

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 which 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 won't review our fourth quarter income statement on a line by line basis, since much of that information is contained in our news release, schedules, and Federal filings. However, to the extent you have specific questions about our quarterly financial results, I'd be glad to address them during the Q&A. Rather, I want to focus instead this morning on four specific areas that 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 and 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 was 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, now generally recognized on a ratable basis, and increased 38% to $11.6 million in the fourth quarter from $8.4 million in the first quarter. The increase was driven in part by the large number of projects completed in the fourth quarter, with the average contract value higher than in previous quarters. This uptick in project size 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 for 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're pleased with this performance in what continues to be a very competitive wireless marketplace. We have included an additional schedule detailing the components of our software and wireless revenue in our earnings release.

Turning to operating expenses, reported consolidated operating expenses including depreciation, amortization, and accretion, $42.6 million for the fourth quarter, compared to $38.7 million in the fourth quarter of 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 over the fourth quarter of 2013. Of that increase, $3.1 million can be attributed to an increase in cost of revenue expense. Cost of revenue expense reflects the cost of both internal and external implementation services, including travel, as well as third-party hardware, software purchased for our customer implementation. In the fourth quarter of 2014, we increased the use of more costly third-party implementation services, and the purchase of third-party hardware and software to meet customer commitments. This increased our cost of revenue expense and impacted our margins in the fourth quarter.

We expect to rebalance the use of these third-party services in 2015, and will do more with internal implementation employees to manage this cost. Vince will also discuss in a moment other actions that we have undertaken to address the impact of these costs. These actions will be consistent with our overall goal of profitable growth and our critical communications business. The remaining increase of $0.8 million in the fourth quarter 2014 operating expenses includes increased commissions of $0.3 million, 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 to meet the changing requirements of our business. Full time equivalent employees or FTEs were 587 at December 31st, 2014, versus 631 FTEs on December 31st, 2013.

Looking ahead, we expect recurring operating expenses will reflect the level of our investments, grow software revenues and bookings, and to support the Company's goals for wireless revenues and infrastructure. Depreciation, amortization and accretion increased in both the fourth quarter and full year 2014 compared to the same periods in 2013, primarily due to increased 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 requirements.

Looking at our deferred tax assets or DTAs, we had approximately $138.3 million in DTAs at year-end for a 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 amount in Federal alternative minimum tax, which we expect to be approximately $0.8 million for 2014. The DTAs primarily consist of net operating losses that will expire in the years 2021 through 2029. Based on the availability of 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 DTAs and the amount that we expect to use in the future, based on a tee year forecast of taxable income. Based on our current expectations of future taxable income, if we reduce 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 and other financial items, the 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, as well as potential share repurchases in 2015. Also, ended the year with no debt outstanding and continued 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, with respect to our financial guidance for 2015, we currently expect consolidated total revenue to range from $183 million to $201 million, with wireless revenue between $112 million and $122 million, and software revenue between $71 million and $79 million. Consolidated operating expenses including depreciation, amortization and 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 that those trends are always subject to change. With that, I will turn the call over to Colin Balmforth to update you on our fourth quarter sales and marketing activities. Colin.

Thank you Shawn, and good morning. The fourth quarter in 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 their 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's secure texting application, Spok Mobile, because of that positive experience with us, the application's device agnostic 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 improve 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 customer to route myriad device alarms and alerts. In this instance the customer will centralize alerting for 24 different building monitors, including supply system 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 for gross additions to our paging services, including paging additions to long-standing enterprise software customers. A large mid-Western healthcare customer added several thousand Spok pages to a 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've also talked before our five pillars for growth. They represent Spok's strong strategy for meeting our long range objectives, and I would like to update you on our progress in each area. Our first pillar is the mid market healthcare space, which includes hospitals with 200 to 600 beds. We are proud to have the majority of the large healthcare systems and facilities in the US as our customers, and we continue to see the mid market as a growth opportunity for new customers. We recognize the value of our integrated communication solutions. An example is a highly regarded US Children's Hospital that selected Spok to meet a number of their business needs. Their contact center teams seeks more automation and advanced technology to improve their efficiency. And Spok's console and web solutions would enable them to achieve these goals. Also physician leadership at this hospital seeks more advanced technology to support clinical workflows with our mobility solutions such as Spok Mobile, which improves the speed, security, and ease of communication among care providers. We expect to expand on our success in the mid market with solutions that will allow us to offer hospitals in the small and mid market segments products that enhance their communications while reducing information technology cost of ownership.

For the international pillar, we continue to expand our presence outside the US. Sales bookings in our international markets are up 13% over last year. Clinical alerting and mobility 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 the UK. This institution is making investments in 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 our 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 9-1-1 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 US military locations remain an important part of this growth. Combined with municipal sales, we tripled our sales with a 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 consul deal in Q4 with a global energy management company looking to consolidate their contact center onto a single platform, streamline their 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 communications 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 CMIO, CIO, 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 are still evaluating potential acquisitions adjacent to our core space. We remain 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 the 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 of 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 inspire trust and loyalty in our brand. Many customers attend the conference year after year to learn about our product road map, talk directly with our executive team, and plan expansion of their communications into the future. This year we achieved the 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 the 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.

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 of 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 recognize that many of our wins in the Federal military space required common solution templates that allow for better efficiency going forward, along with improved sport ability 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 to help deliver on customer commitments as evidenced by our fourth quarter software revenue results. Note our software revenue was up $2.7 million over the third quarter. We recognized this during the quarter and put plans into 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 than our typical software license heavy deal. 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 led 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 the Company expects to generate strong operating cash flow and currently carries cash balances in excess of $100 million. As I previously said, our Board and management team have spent a great deal of time over the past few years evaluating numerous acquisition opportunities that would enhance our software applications, service capabilities, and market penetration. Accordingly, we expect to reserve a certain amount of capital for one or more such acquisitions.

We remain optimistic, and 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 our common stock. In addition, we may buy back additional shares of common stock from time to time under our existing share repurchase program, depending on the price and market conditions.

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 buy back plan, which extends through 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, periodic repurchases of common stock, and potentially a special dividend later in 2015. Beyond our commitment to return $26 million in capital to shareholders 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 customer's critical communication 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 straightforward. No. 1, grow our software revenue and bookings profitably. Number two, retain our wireless subscribers and 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. This 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 needs, 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, expanded 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 mission as a 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 our products and services to better meet the needs of our customers.

The net results of these achievements over the past year is an organization that now functions as an unified team of 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 Instructions). We'll pause a moment to allow questions to queue. We'll take our first question from Rich Murphy with Cross River. Your line is now open.

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%? I have a follow-up after that.

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 a pretty good approximation, and you probably are fairly close right there. Our guidance for revenue this year, it's interesting, it's the same range of consolidated revenue that our guidance was for last year, so we've been in a business that for the last ten years has been primarily a wireless business supported by paging infrastructure, and as 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 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.

And on the Amcom, in all of the stuff you talked about marketing 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 trying to, 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?

Well, our bookings grew 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 really matters.

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

Yes. That's how I view the business.

Could I ask one more question?

Yes, go ahead.

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'm been with the stock a long time, I was used to the dollar special dividend at the end of the year. Just from your guidance, you business is going to generate about $45 million in EBITDA. With $170 million in cash. What would preclude you from 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.

Well, what we said this year is that we would return $26 million in capital to our shareholders, so that will be a big percentage, if you will, of the free cash flow that the company generates this year. Only about $11 million of that, and I'm using round numbers, is the recurring dividend. So the other $15 million would be through share repurchases and/or a special dividend, and we wouldn't make the decision to pull the trigger on the special dividend until around the end of the year to see how the share repurchase plan functions. That's how we're thinking about that. Yes, that does mean our cash balance in total will grow during the year, even after distributing $26 million to our shareholders. We're cognizant of that as I said in ,y prepared comments.

There's other things we may 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 looked at a lot of companies, I'm sure this is no surprise to anybody, but there are a lot of financial sponsors out there, there's 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, silly, so we haven't pulled the trigger on some of those, obviously for those reasons. So we're watching this very closely. We'll continue to look at it. We think we're giving back a lot of capital this year. But we know we are running for shareholders, we're a shareholder friendly company and we'll continue to evaluate that.

Great. Thanks. Good quarter, guys.

Thank you very much.

(Operator Instructions). We'll take our next question from Josh Paulson with Claragh Mountain. Your line is now open.

Hi, good morning.

Hi, Josh.

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

You're on the right track. Let me just say that each year management works 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 the other 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, we don't say, here's where we expect to be two years 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 and the management team, the goal is 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. We go into big customer accounts in the old days we'd go, I don't want to name specific accounts because we're probably not allowed to, but you'd go to a nationally recognized healthcare institution, and you'd be having a meeting, and there were customers of 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 thank you and say, why do we need all those people from Spok? Back in those days it was USA Mobility and Amcom, why do we need all of those people? Now we don't do that.

We've got one integrated sales team, we send much less people into those meetings, and we service everything. So at some point, yes, software is going to exceed wireless, but we want to keep that wireless revenue as long as possible. We'll continue to provide new guidance on, annual guidance, we've been pretty good at beating the midpoint of that guidance, probably no surprise that the midpoint of that guidance is not far off from kind of how we're forecasting, and then we work 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're managing it.

Yes, indeed. I have a 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 about the deferred tax assets, but I was wondering, when do you expect to use the remainder of that current deferred tax asset?

So we've been, I would say, it's fair to say, relatively conservative with respect to releasing the valuation allowance on the deferred tax asset. That I think is going to change over time. We are now in, I guess it's a couple of years in a row now where we've gotten better results with our software topline than what we had forecast internally, and so we're 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, bookings things like that, can be a bit lumpy and it's a little bit difference of a business, not always as predictable. We've done a number of things over the past couple of years to make it more predictable, and now in fact it is, and we're getting better at that. So I would imagine each year we'll 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.

Great. Thanks.

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

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

This does conclude today's teleconference, you may now disconnect. Thank you. Have a great day.