Good morning, and welcome to Spok Holdings' third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Al Galgano. You may begin.
Hello, everyone, and welcome to Spok Holdings' third quarter 2023 earnings call. I am joined by Vince Kelly, Chief Executive Officer, Mike Wallace, President of Spok Inc. and Chief Operating Officer, and Calvin Rice, Chief Financial Officer. After a brief presentation by management, we will open up the call to your questions. 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 the 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 2023 Form 10-Q 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.
Good morning. Thank you for joining us for our third quarter 2023 earnings call. I'm very pleased with how our team performed in the third quarter. We are excited by the growth we are generating in terms of revenue, profitability, and cash flow, and we are excited by our prospects and our outlook. Our strategic focus remains the same. That is, to generate cash and return capital to our stockholders over the long term. We're accomplishing this by responsibly investing in our business to support growing revenue while closely managing our operating expenses and capital expenditures. While the dividend level we declared when we announced our pivot in 2022 may have initially seemed high, we believe Spok has struck an excellent balance between making the necessary investments to fuel future growth, while continuing to demonstrate our prowess in generating cash flow and in returning capital to our stockholders.
We believe we are on a sustainable path to continue paying our quarterly dividend at these levels for the foreseeable future. Further, we believe our cash flow is on a path to grow into our current dividend level, and based on our updated and increased guidance for the full year of 2023, we expect to cover at least 95% of our $25 annual dividend this year, based on the midpoint of our adjusted EBITDA guidance less capital expenditures. Today, we'll share with you an update on how our strategic business plan is progressing in support of this goal, as well as our financial results for the quarter. I'll start by reviewing the agenda for today's call. The order will be as follows: We'll begin by reviewing our strategic focus and goals and looking at our progress against those goals.
Next, I'll turn the call over to Michael Wallace, our President and COO, who will provide a review of our operational performance for the quarter. Mike will then turn the call over to Calvin Rice, our CFO, to review our third quarter 2023 financial highlights in more detail. We will then conclude our prepared remarks with our business outlook and updated financial guidance for 2023. And finally, we will then open up the call to your questions. Any discussion regarding Spok's third quarter results has to start with how truly proud I am of this team and the continued growth momentum that we were able to generate in the period. That momentum continued in the third quarter after our record-high software operations bookings in the second quarter. Our second quarter results included some new customer contracts that we had anticipated to close in the third quarter.
Software operations bookings are always going to be lumpy, and we believe the best way to view them is over a broader window. Through the first nine months of this year, our software operations bookings are up over 38% compared to the same nine-month period in 2022. Again, we were able to grow total revenue as we achieved year-over-year software revenue growth of 12% for the quarter and 7.9% growth on a year-to-date basis. We were also able to keep wireless revenue levels consistent with the prior year quarter and slightly up on a year-to-date basis. We continue our focus on expense management as adjusted operating expense levels through the first nine months of the year are down nearly 12% from the same period in 2022.
As part of our continuing focus to manage expense levels in September, we exercised an option for the early termination for the lease on our corporate headquarters in Alexandria, Virginia. Consistent with how we have been operating since the onset of COVID-19, employees of the Alexandria headquarters will continue to work remotely. Calvin will provide more detail regarding the lease termination when he reviews the financial results, but the bottom line is that we expect to save approximately $1 million annually, beginning after the conclusion of our lease in September 2024.
However, our focus on expense management as a driver 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, professional services to support the growth of our Spok Care Connect and wireless solutions. Our cost savings focus also does not come at the expense of our employees, who make Spok's success a reality, as we mindfully address compensation levels for all employees to be sure we are fair and competitive in a heightened inflationary environment. We look forward to continued success and believe our extensive experience operating our established communication solutions will unlock even more efficiencies and create significant value for stockholders over time. In short, we continue to fire on all cylinders and are confident about the future as we close out 2023.
Based on our performance in the third quarter, we are, once again, increasing our guidance estimates for revenue and adjusted EBITDA generation. I want to point out, we have increased our guidance each quarter this year, every time we have reported. We are increasing the midpoint of our revenue and adjusted EBITDA guidance by $1.75 million, or an additional almost 7% demonstrating our ability to generate cash. All of our increase in revenue guidance this quarter is falling to the bottom line. Calvin will go in more detail later in the call, but we expect to grow consolidated revenue for 2023 on a year-over-year basis for the first time in the company's history. The low point of our revenue guidance reflects our confidence. We believe we will do so again in 2024.
Before we dive into our operational highlights for the third quarter, let me take this opportunity to briefly summarize our mission for those of you that may be new to our story. Our strategic goal is simple: run the business profitably, generate cash flow, and return that capital to stockholders. Spok has a proud legacy of creating stockholder value through free cash flow generation, and we intend to continue this track record. Since the beginning of our strategic pivot, which started about 20 months ago, Spok has returned approximately $44 million or $2.20 per share to our stockholders in the form of our regular quarterly dividend. In fact, since we founded this company in 2004, Spok has returned nearly $670 million to our stockholders, either through our regular quarterly dividend, special dividends, or share repurchases.
In the third quarter of 2023, the history of returning cash to our stockholders continues, as we again generated impressive levels of adjusted EBITDA and returned $6.2 million to our stockholders. We expect to pay dividends totaling approximately $25 million in 2023, as we did in 2022. Spok remains committed to our dividend policy and returning capital to our stockholders. When you take into consideration our current cash balance, distributions to stockholders, share repurchases, debt repayments, and acquisitions, Spok has now generated more than $1 billion of free cash flow since our 2004 inception. Our focus on maximizing cash over the long term supports the four major tenets of our strategy, and those are: one, continued investment in our wireless and software solutions. Two, stabilizing and growing our revenue base. Three, disciplined expense management.
And four, a stockholder-friendly capital allocation plan. Going forward, we believe our extensive experience operating our established communication solutions and world-class customer base will continue to create significant value for our stockholders. Now I'll turn the call over to our President and Chief Operating Officer, Michael Wallace, who will talk about our operational accomplishments. Mike?
Thanks, Vince, and good morning, and thank you all for joining us for another solid quarter of results from Spok. We are happy to report that we have continued to execute on our business plan. I n the third quarter of 2023, we generated GAAP net income of $4.5 million, or $0.22 per diluted share, which represents a 52% increase from net income of $2.9 million, or $0.15 per diluted share in the prior year period. We accomplished this while continuing to generate year-over-year third quarter software operations bookings growth. Again, on a year-to-date basis, software operations bookings have totaled $26 million, up more than 38% from the prior year levels and have already surpassed our full year total for 2022.
Also, total 2023 software bookings are on track to reach levels not seen since 2019. Amidst all the progress in creating a solid financial platform and stockholder-friendly capital allocation strategy, we remain true to our mission of being a global leader in healthcare communications. We deliver clinical information to care teams, when and where it matters most, to improve patient outcomes as Spok enables smarter, faster clinical communications for our customers. And importantly, we continue to maintain our reputation as a thought leader in the healthcare communication space. Now, let me take a couple of minutes to tell you about two recent events that underscore our industry-leading reputation. First, earlier this month, we released the results of Spok's 13th annual survey on communications in healthcare.
This year, more than 150 executives, physicians, nurses, IT personnel, and contact center representatives responded with input about the state of communication at their respective organizations. The survey results unveiled three major takeaways. First, unified communication across the organization is essential for modern healthcare. Healthcare leaders want a unified communication platform that integrates features such as secure messaging, on-call scheduling, clinical alerting, and mass communications. One that is a centralized approach rather than one that is siloed, all of which Spok provide. Second, addressing burnout across the organization, from clinicians to IT personnel, is imperative. Although we have seen a positive shift on this front, as about 2/3 of respondents noted their organizations are trying to tackle work-related stress and burnout. Lastly, diversity in communication devices remains relevant. Healthcare organizations recognize the importance of versatile communication devices, whether that be smartphones, Wi-Fi phones, or encrypted pagers.
Despite the challenges hospitals and healthcare systems face, we realize that effective and efficient communication is crucial for improving patient safety and outcomes and mitigating the risk of clinician burnout. While budget and resource constraints remain the biggest challenge for healthcare leaders when considering new technology, the quality and safety of patient care remains paramount. The same week we released the survey results, Spok hosted our annual user conference, Connect. We held the event again this year on a virtual basis and had over 150 attendees representing nearly 100 organizations. The event included presentations by both our management teams and our customers, as well as breakout roundtable discussions and general Q&A sessions.
Based on the feedback we received and the amount of customer participation in our group chat, questions, and forums, we believe this was the most successful virtual customer event we have ever hosted. A nd we are proud of the unparalleled reputation we have built within the market that we serve and want to take this opportunity to thank our customers for their loyalty and their support. Spok has over 2,200 healthcare facilities as customers, representing the who's who of hospitals in the United States. We have built our solutions over many years and have long-standing, valuable customer relationships. This is an amazing and valuable asset for this company, and these hospitals buy from us regularly and renew maintenance at a high level.
Despite the record $14 million of software operations bookings in the second quarter, that saw several large deals pulled forward that were anticipated to close in the second half of 2023, our team was still able to generate year-over-year growth in software operations bookings for the third quarter. Included in this quarter's bookings were 11 new six-figure customer contracts and one seven-figure contract. Our achievements in the third quarter can largely be attributed to three multi-year engagement contracts we secured. The first was with one of the largest nonprofit integrated academic healthcare systems in the United States, another with a large university medical system in the Northeast, and the final with a leading cancer center hospital in the Northeast.
The first health system boasts over 27,000 employees across 14 hospitals and leverages the Spok Care Connect platform for answering over 200,000 monthly operator calls, sending over 35,000 pages per month, and managing over 120,000 on-call assignments each month. We are delighted to announce today that our multi-year engagement with this health system includes Spok Smart Suite upgrades, unlimited Smart Suite console licenses, extended Spok Mobile usage for all of the organization's almost 4,000 users, one of the largest deployments of Spok Mobile in the country, and additional Spok professional services for small engagements outside of the identified upgrades. As an existing Spok customer, the health system also opted for a variety of Spok's value-added services, including data integrity, workflow analysis, and organizational change management. These value-added services help this partner derive maximum value from our solutions.
Looking ahead, we're excited about the prospects of expanding Spok Mobile and implementing Spok Smart Suite in other locations within this organization. Spok boasts a remarkable history of delivering efficient communication solutions to healthcare facilities. Another of our standout customer contracts last quarter was with a leading academic teaching hospital with over 900 beds and almost 10,000 employees across its campus. This five-year engagement with Spok was for enterprise consolidation across multiple facilities on Spok Smart Suite, Spok's Messenger and Speech Solutions, as well as Spok's value-added service solution assessment. Finally, we executed another five-year engagement with one of the world's most respected comprehensive cancer centers, with over 500 inpatient beds and over 5,500 attending physicians and nurses. This contract was for new licenses and upgrades across multiple facilities on Spok Smart Suite, e.Notify, and our Messenger solutions, as well as the solution assessment value-added service.
Our third quarter success continues to showcase our commitment to providing unmatched communication solutions to our clients, and we are confident that our software solutions will continue to drive positive change for healthcare institutions nationwide. While we are certainly pleased with the continued momentum that we saw in the third quarter, coupled with the historic level of second quarter software operations bookings, a s we have noted in previous quarterly earnings calls, we believe it is more appropriate to look at software operations bookings on a calendar year basis. While, of course, we spend a great deal of time analyzing sales on a contract-by-contract basis, when assessing overall performance of our software operations bookings, a full year basis better normalizes both positive and negative timing anomalies that can arise out of the sales cycle.
We believe looking at growth in software operations bookings over an annual period is more reflective of the momentum that we are generating and is most appropriate for investors as well. With that said, we now expect 2023 year-over-year software operations bookings growth in percentage terms to be in the upper teens to low 20s for the full year. With that, I'd like to turn the call over to our Chief Financial Officer, Calvin Rice. Calvin?
Thanks, Mike, and good morning, everyone. I would now like to take a few minutes and provide a recap of our third quarter 2023 financial performance, which we reported yesterday. I encourage you to review our 10-Q when filed, as it includes significantly more information about our business operations and financial performance than we will cover on this call. Turning to our income statement, in the third quarter of 2023, GAAP net income totaled $4.5 million, or $0.22 per diluted share, compared to net income of $2.9 million, or $0.15 per diluted share in the same 2022 period and in line with our record second quarter performance. For the third quarter of 2023, total GAAP revenue was $35.4 million, compared to revenue of $33.7 million in the third quarter of 2022.
Revenue for the quarter consisted of wireless revenue of $19 million, which was essentially flat to revenue of $19.1 million in the prior year period, and software revenue of $16.5 million, up 12% from last year, reflecting the significant year-over-year increase in professional services revenue, driven by the significant increase in bookings and related backlogs of professional service projects. With respect to wireless revenue, third quarter performance continues to be primarily driven by improvement in average revenue per unit, or ARPU, which saw growth of $0.19 on a quarterly basis year-over-year. This improvement is largely the result of additional pricing actions taken in September of 2023.
These pricing actions will be fully reflected in our fourth quarter results, and we anticipate a corresponding increase of $0.15-$0.19 in ARPU in relation to the $7.59 realized in the third quarter, all things being equal. Net unit churn continues to remain at historically low levels, as net units in service declined by roughly 4.7% from the prior year period. While we believe the demand for our wireless services will continue to decline on a secular basis, as reflected in declining pager units in service, we are hopeful that our focus on pricing and other initiatives, like the GenA pager, will continue to further offset revenue lost through pager unit decline. This is further reflected in our updated financial guidance, which I will walk through shortly.
Turning to software revenue in the third quarter, license revenue of $2.4 million was up by more than 12% from the third quarter of 2022. Maintenance revenue totaled $9.4 million, and it was up from revenue of $9.2 million in the prior year quarter. As we have discussed in previous quarterly calls, as we continue to make progress on our product roadmap with Spok Care Connect, we expect bookings will continue to grow in the coming years and maintenance revenue along with it. Given the nature of maintenance revenue, higher license sales will work through revenue on a lagging basis. So we look first to stabilizing that revenue decline, which we believe we are close to accomplishing, and then beginning to grow it.
Professional services revenue was a healthy $3.8 million versus $2.8 million in the third quarter of 2022, and consistent with the record levels achieved in the second quarter of 2023. We continue to see sustained improvement in resource utilization, delivering on our internal initiatives to better align total resources with our backlog and driving a higher rate of net cash flow. We have been hiring service professionals in the second half of 2023 to meet our current backlog needs, and we expect that to continue throughout 2024 to meet anticipated sales demand. Third quarter adjusted operating expenses, which excludes depreciation, amortization, and accretion, and severance and restructuring costs, totaled $27.9 million, representing no change from the prior year period.
Increases in research and development were largely timing in nature, with reductions in technology operations driven by our normal practice of cost reduction in relationship to declining wireless revenues. Increases in selling costs, which primarily relate to commissions and higher fringe costs, were more than offset by savings in G&A, which continues to see year-over-year benefit from our cost-saving initiatives. As we look at the fourth quarter and into 2024, we foresee a need for additional sales resources and would expect sales and marketing costs will continue to marginally increase as a result. These resources will support our robust sales pipeline and generate additional sales activity as we look to extend the sales success we have achieved over the last two years.
Also, while we are on the topic of operating expenses, let me briefly add some detail to Vince's prior comments regarding the early termination of our lease of the Alexandria headquarters building. In September 2023, we exercised an early termination option for the lease of our corporate headquarters in Alexandria, Virginia. The lease will now end two years early on September 30th, 2024. As a result of the early termination, we paid a one-time termination fee of $0.7 million, reflected in our cash balances as of September 30th, 2023. The termination fee and remaining lease costs will be amortized to severance and restructuring through September 30th, 2024. Thereafter, we expect to save approximately $1 million annually as a result of this decision. As Vince mentioned previously, a portion of this benefit will go towards offsetting salary increases expected in the fourth quarter.
In light of our strong financial performance and the heightened inflationary environment we have all been experiencing, we believe it's important that we take care of the people that make these results a reality. These increases will be company-wide, based on certain qualifications at all levels below senior management. Additionally, it's important that we take care of our employees to ensure we can compete in what is still a highly competitive market. The company anticipates relocation of its headquarters to the existing corporate location in Plano, Texas, and does not expect material costs to be incurred as a result of this change. Approximately 30 employees will be impacted as a result of this decision. As Vince pointed out, these employees will formally transition to remote work. We see no risk related to this transition and expect no issues, given this has largely been our posture since early 2020.
While this decision was not made lightly, the company expects to benefit greatly from the significant cash savings, greater flexibility for our employees, and higher levels of productivity we have seen from the pre-existing work-from-home posture. Lastly, as Vince pointed out earlier in the call, adjusted EBITDA was a near record $8.4 million in the third quarter, up nearly 25% from $6.7 million in the same quarter of 2022, reflecting the progress made to date with our strategic pivot. In fact, through the first nine months of 2023, adjusted EBITDA has totaled nearly $24 million, up nearly 156% from the prior year period.
Our performance in the first nine months of 2023, in terms of strengthening software operations bookings, robust backlog levels, improvement in wireless trends, and strong adjusted EBITDA, has led us to again increase our expectations across all categories for the full year. As a reminder, the figures I'm going to discuss today are included in our guidance tables in the earnings release. In 2023, we now expect total revenue to be in the range of $136.25 million-$139.25 million, a $1.75 million increase from the previous guidance midpoint.
More importantly, as Vince pointed out, this represents the first time in the company's history that we expect to grow consolidated revenue from the prior year, and the low end of our guidance reflects that, with a 3.5% annual growth rate at the high end of our revised guidance. Included in the revised guidance, we expect wireless revenue to range between $75.25 million-$76.25 million, a $750,000 increase from the previous guidance midpoint, as we expect recent trends will continue to improve, as I discussed earlier. Software revenue is expected to range from $61 million-$63 million, with a midpoint implying total software revenue growth of more than 5% from prior year levels.
Lastly, based on these improving trends and our performance in the third quarter, our revised adjusted EBITDA guidance for 2023 is $27.5 million-$29 million, a $1.75 million increase, or almost 7% from the previous guidance midpoint. With that said, I will now turn the call back over to Vince.
Thank you, Calvin. Before we open up the call to your questions, let me just reiterate how proud I am of the entire Spok team and their ability to maintain the momentum and generate further growth, despite coming off a record second quarter that shattered all performance metrics. It is their efforts which gave us the confidence to increase guidance yet again, and we believe will provide the springboard to take us into an even stronger 2024. I'd also like to thank our stockholders for their continued support and want to assure you that our primary focus remains on generating cash and increasing stockholder value. We're committed to our current dividend and capital allocation policy. On a final note, I'd like to tell everybody about Spok's presentation at the upcoming Piper Sandler Healthcare Conference in New York.
Look for a press release soon with the dates and timing of our presentation. We hope to see many of you there, and we'll continue to look for opportunities to tell our story to the investment community and focus on investor marketing activities, though we know the ultimate attraction will come as a result of our consistent and successful business execution. That concludes our prepared remarks. At this point, I'll ask the operator to open the call up for your questions. We'd ask you to limit your initial questions to one and a follow-up, and then after that, we'll take additional questions as time allows. Operator?
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Eric Martinuzzi with Lake Street. Please proceed with your question.
Congrats on the revenue and profitability, as well as the second quarter in a row now of year-on-year growth. I had a question regarding the price increase that you rolled in in September. What, how much was the price increase, and what percentage of the install base is this impacting?
Eric, morning, this is Calvin. Yeah, so we rolled out a 6% price increase in September, to the customer base. That impacted probably somewhere between 65%-70% of that customer base, and we expect that to be fully reflected in the fourth quarter here.
Okay. And then I did see an uptick in churn in the third quarter. You guys had been, I think, Q2 was 3.5%, Q1 was 3.2%, and then we saw it uptick to 4.7% in Q3. What are you expecting for churn? You know, kind of a range that investors can look to.
Yeah, so we've been very fortunate for probably the last nine months preceding the third quarter in terms of the lowest churn rates on record, probably over the last decade or so, and it's been a consistent decline. I would say that uptick in third quarter is isolated. We don't believe it's part of any new trend. You know, those will, you know, be variable from one quarter to the next. We'd expect to see churn anywhere in the range of probably 3.5%-5%, give or take.
Okay. And then I noticed a disconnect between your adjusted EBITDA and the cash from ops. The adjusted EBITDA coming in at $8.4 million, and yet your cash balance declined sequentially, and the cash from ops was $3.2 million. So just walk me through the delta between the adjusted EBITDA and the cash from op.
Yeah, Eric, we had a couple one-time things in the third quarter that affected working capital. One of the things we did is we paid out all our PTO and went to a different policy. That's gonna save us about $500,000 a year going forward, but we had to spend about $3 million to do that. And then the other thing was the early termination on the lease. We spent about, what, Calvin? $750,000 buying that out. That's gonna save us about $1 million a year going forward. All this stuff is focused on, you know, getting to free cash flow. Those are working capital items that were both in the third quarter, that won't be obviously in the fourth quarter or the first quarter or ever again.
Mm-hmm. Okay, and then lastly, just stepping back here, you're tracking to year-on-year growth here in 2023. I've got you up about 2% on the year. Obviously, that's roughly flat on the wireless and up about 5% on the software side of the house. You did comment in your prepared remarks about anticipating growth in 2024. For those of us modeling out, you know, can you give us kind of a range, or is it too soon to talk about potential growth rates next year?
Look, I mean, this is obviously the first time, Eric, that we're gonna grow the company in the company's history from a top-line perspective. And, you know, right now, everything is going right. We're hitting on all cylinders. When we look at our plan, you know, we beat on total revenue, we beat on adjusted EBITDA, we're beating our guidance, we're beating your model. You know, when we break our service lines out and look at software and wireless, we're doing the same across the board. Bookings is a huge plus for us, up 38% compared to the same nine-month period last year. The gross additions on our wireless plan are beating. GenA sales are beating our plan. You know, professional services, their hours, their rate, all that's beating. You know, maintenance is beating plan. We're managing our operating expense, managing our CapEx.
Our R&D team has made great progress. We're gonna have some great things to reveal next year on the software side. Employee turnover is about as low as we've ever had in the company, and morale is really high. So, you know, we're gonna grow in 2024. We'll put guidance out probably before the end of the year. We haven't decided on exactly when, but we've been talking about that internally. A lot of good things going on. I mean, our sales results are significantly ahead of our internal plan and where they were at this time last year. Our team already this year sold 26 multiyear engagements that had a total booking value of about $15 million. We've got four of those reps, over $2.5 million in sales alone this year, and last year we had none.
You know, our average deal size this year has doubled over 2022. It's tripled over 2021, and we've sold over 15,000 GenA pagers this year, and our target this year is 20,000, and we're gonna do even more next year. So we're on a growth posture right now, but, you know, it's, it's gonna be disciplined from the standpoint that we still focus on free cash flow and returning capital to shareholders. That's still our number one goal. We expect that the industry is still gonna be somewhat challenged in terms of healthcare and spending and their internal resources. What we do for our customers is almost like a utility. We're making, I think, responsible improvements to that with our investment back into our platform. I think we got a really good business model here right now.
Might not grow like a rocket like some people do, but you know what? You're getting paid along the way. And so, you know, we'll grow next year. We'll get some guidance out to you guys as soon as we can. We've let the dust settle and do some more modeling, and hopefully, we'll have some news for you before the end of the year on what we expect for next year. But the answer is, it's gonna grow.
Understand. Well, thanks for taking my questions, and good luck in Q4.
Sure.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Christopher Irons. Please proceed with your question.
Hi, guys. Fantastic quarter. Thank you very much for everything.
Sure.
Just wanted to touch on a couple of things that you said last quarter and see if you can update. Last quarter, you had talked about receiving interest, outside interest, in the company, kind of unsolicited interest. Wondering if there's anything new in that. In that regard, you had also talked about potentially raising the dividend at some point. I know I don't, don't want to get ahead of anything and certainly don't want to headline it because it was a great quarter, but I just wanted to see if you can offer an update on those two things.
Yeah. Let me take the second one first. You know, the first goal was to grow into the existing dividend. You know, at the beginning of the year, we were talking about covering 80% of our dividend with free cash, with our adjusted EBITDA less CapEx. And so, you know, we're obviously beating that significantly. I think we'll cover about, what is it? 95%, Calvin, this year, of adjusted EBITDA less CapEx. So, you know, we're not gonna be burning through a lot of cash, obviously, in 2024. So we're getting very, very close to that. We wanna get above 100% before we determine what we wanna do with that. And frankly, I think we have time to make that decision.
So I would say for 2024, $1.25 is probably what you should, you know, what you should bank on. And I would say for 2025, if we were gonna make a change, that's where we would be looking. So that's that. Look, your first question, we're a public company. We're for sale in the market every day. You know, with where interest rates have gone and what's been, you know, kind of going on out there in the sponsor community, you know, it's tough sledding for those guys right now. It doesn't mean we haven't got calls. You know, we've gotten a couple calls. We're not running a process right now. We're not for sale right now. Is there interest in the company? I can tell you absolutely, there's interest in the company.
A company like us, that has the kind of customer base we have, has the kind of sales results we have, and throws off a ton of cash, is a very rare bird in the market right now. And-
Correct.
Not many, not many, not many of these sponsors have an asset like this. So if they want us, come on and get us, boys, but you're gonna have to pay up, okay? 'Cause we got good things going on here at Spok. We got a great team, morale is really high, and we're all about executing, and we're gonna execute. So if you want someone that could execute in your portfolio, maybe unlike some of your other investments, you know, come take a look at us. But in the meantime, we're gonna do what we do, and we're doing it well right now, and, and we're very pleased with our results, and we're very pleased with our outlook.
Yeah, excellent. Thank you very much. Perfectly said.
Yep, thanks.
Our next question comes from George Melas with MKH Management. Please proceed with your question.
Thank you. Good morning, Vince, Mike, and Calvin. Good job on the quarter again. The question is for Mike. Mike, you outlined those three very sizable deals that you closed in the quarter. I was not sure whether those were new customers. And on the new customer side, who are you replacing? Are you replacing internal systems, or are you replacing other third-party software providers?
Yeah. Hey, George, good to talk to you. Yeah, the three deals that I talked about were all existing customers in this quarter. So none of those were new logo. Yeah, to answer your question more broadly. Y ou know, when we do displace somebody, a lot of times it is internal, you know, systems that they use internally. There are some competitors out there that we typically displace. I obviously won't mention names. But look, the reality is, we're in a position where the majority of our bookings, you know, are still to our install base. We do have about probably 10% - 15% of our business is new logo, as I've said in previous calls.
The expectation is, over the next several years, as we continue to execute on the plan that we've talked about from an R&D perspective, you know. A nd are, you know, focused again on our on-premise solution as opposed to Spok, as you know, being a shareholder for quite a while. A nd putting new things out in the market, that will allow us to get more new logo business than we've experienced over the past several years. So that's really the plan, if you will, if you look out over the next kind of two to three years.
And George, you know, just to add on to what Mike said, you know, we had our Board meeting yesterday, and we had some of our top sales managers in to talk to our Board. A couple of the very large deals that we got in both our Eastern division and Western division this year were takeaways from competitors. And when we look at our pipeline, a couple of the large deals that we have from each division in the pipeline right now are specific takeaways from competitors. And I'm not gonna name the competitors, but I will tell you the common characteristic of these takeaways is that these competitors are offering more what you and I would refer to as point solutions, and Spok offers the enterprise suite, so we do a lot of things.
We don't have to do a specific point solution as well as a competitor to win. It's kind of the same, you know, tactic, frankly, that Epic took years ago to consolidate the EHR space or that Microsoft took with the whole Office, you know, suite that they have. If you can offer an integrated suite, you're gonna save that CIO a lot of headache in the long term, and then they'll sign a multi-year engagement with you, and you're off to the races. So, our R&D budget and our focus is all about building on that strength and making that suite more powerful and more flexible and more extensible going forward.
So I think you'll see, as we make progress on the roadmap in 2024 and 2025, a lot more potential in terms of new logo coming into the business right now. I think our best years, 2024 is gonna be a huge transition for us in terms of our platform. I think our best years are gonna be 2024 and 2025. I think we got a lot of good things in front of us. Hope that helps.
Definitely. That's, that's really interesting. And then maybe a quick question, maybe for Calvin. You've had amazing software bookings this year, especially in the second quarter, but also in the third. How does that flow in through the P&L? I mean, is it just like, I mean, I see that the maintenance revenue increased nicely, so I think that's an incredible indication of success. But how does it flow?
Yes, so, the direct correlation isn't gonna exist between bookings and the P&L, generally speaking. There's a significant breakout in terms of the booking mix that's within that number between license, services, maintenance, and equipment. And so, it's, you know, when we make a sale, it's gonna go into our backlog. So bookings and backlog are really relevant, and you've seen that similar growth in the backlog, which ultimately represents future revenue yet to be recognized. c
And then the maintenance, that's going to get recognized over the contract period, which can be anywhere from one to typically three years. And then on the services front, that's generally going to be recognized as the projects are completed themselves. And those projects, typically five to seven months in completion time, but it can take a couple of months to get up and running, depending on resource allocation at the customer sites. And so, you know, generally speaking, we kind of look to about 12 months for those projects to flow through as well.
Okay, great, great. You remind me, Software 101. I appreciate that. Thanks a lot.
You're welcome.
There are no further questions at this time. I would now like to turn the floor back over to Vince Kelly for closing comments.
Look, thanks, everyone, for your participation today. We're proud of what this company is accomplishing, and we're very excited about the future. Like I said, we're gonna consider when we want to put our 2024 guidance out, and we'll get back to the market then. We'll also be at the Piper conference in New York next month. So look forward to seeing some of you there. We'll report our fourth quarter year-end results in late February, and talk to you there as well. Everyone, have a great day, and thanks for being a supporter of Spok.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.