Spok Holdings Inc
NASDAQ:SPOK
Earnings Call Analysis
Q4-2023 Analysis
Spok Holdings Inc
In a year marked by significant advancements, the company reported a sharp increase in GAAP net income, reaching $15.7 million, a substantial rise from the prior year's breakeven adjusted figure, driven by an all-time high in software operations bookings, with growth of 22% reaching over $30 million. This improvement reflects a confident forecast for 2024 underpinned by a solid sales pipeline. Four standout multi-year contracts were signed with prestigious healthcare facilities, underscoring the company's effectiveness in delivering communication solutions and its strong competitive stance within the market.
Spok has introduced the Spok Care Connect hosted solution, offering mid-size and smaller hospitals access to advanced communication tools traditionally reserved for larger institutions. This strategic move is anticipated to widely expand the company's market reach, which currently involves about 26% of U.S. healthcare facilities. The proposal offers an attractive alternative for potential customers with the need for minimal initial capital investment and greater resource flexibility, aiming to improve Spok's market share beyond the 50% held in large hospitals and grow from the current standings in the mid-size and smaller hospital segments.
Spok celebrated a record year with total GAAP revenue rising to $139 million and wireless revenue growing due to increased average revenue per unit. Software revenues also saw a significant increase, with license revenue up over 21%, maintenance revenue exceeding anticipations, and the professional services arm demonstrating sustained growth. Moreover, the company effectively managed operating expenses, which fell by almost 9%, and committed to investing in service personnel and sales resources to support future growth. Adjusted EBITDA for 2023 surged to $30.3 million, more than doubling from the previous year, reflecting the company's successful strategic shift.
Going into 2024, Spok has set a positive outlook, projecting total revenue to be between $136 million to $144 million and signaling another potential year of revenue growth at the high end of the guidance. While anticipating a single-digit decline in wireless services, software revenue is expected to achieve a growth of 5% to nearly 10%, and adjusted EBITDA is forecasted to range from $27.5 million to $32.5 million. These projections consider the anticipated increase in costs due to company-wide salary increments and further investments in sales resources. Riding on the tailwinds of a record-setting 2023, Spok expresses conviction in its business strategy and strong positioning for growth, eyeing an opportunity for high single-digit expansion in adjusted EBITDA at the far end of the 2024 guidance range.
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Greetings. Welcome to Spok Holdings Fourth Quarter 2023 Earnings Call. [Operator Instructions] Please note this conference is being recorded.I will now turn the conference over to Al Galgano from Investor Relations. Thank you. You may begin.
Hello, everyone, and welcome. I am joined today by Vince Kelly, Chief Executive Officer; Michael 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 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 2023 Form 10-K 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, Al, and good afternoon. Thank you for joining us for our fourth quarter 2023 earnings call.Let me preface my comments by saying how proud I am of our Spok team and our ability to generate very impressive performance in 2023, while staying true to our mission. I'm very pleased with the momentum our team has created, and I'm excited by our prospects and outlook.Since the strategic pivot we announced about 2 years ago, our focus has not changed, that is to grow revenue, generate cash, and return capital to our stockholders. For 2023, it was mission accomplished. We returned $25.6 million of cash to our stockholders, while more than covering that total by generating in excess of $30 million of adjusted EBITDA.We were also successful in our stated goal to grow revenue. I'm proud to report that for the first time in Spok's history, we were able to grow consolidated total revenue with revenue growth for both wireless and software. We accomplished 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 February of 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 generate cash flow and 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 and are encouraged by our prospects.Today, we'll share with you an update on how our strategic business plan is progressing in support of our goals, as well as our financial results for the quarter and full year. I'll start by reviewing the agenda for today's call. The order will be as follows: First, a review of our strategic focus and goals and reporting our progress against those goals. Next, Michael Wallace, our president and COO, will provide a review of our operational performance and review our market opportunity. Then, Calvin Rice, our CFO, will review our fourth quarter and full year 2023 financial highlights in more detail. We will then conclude our prepared remarks with a review of our business outlook and financial guidance for 2024. And finally, we'll open up the call to your questions.In 2023, our team achieved numerous operational and financial milestones. Significant accomplishments were made regarding top line revenue growth, record profitability levels, continued expense management, cash flow generation, progress on our product roadmap and development, augmentation of our sales team, generating 6-figure customer contracts and multi-year engagements, GenA pager placements, maintenance contract bookings and retention, increased professional services revenue, coupled with improvements in resource utilization, and enhancing our industry reputation and improving our customer satisfaction scores.Investment in our product and sales team resulted in an historic increase in consolidated total revenues with both a 7% growth in software revenue and a modest growth in wireless revenue. Overall, software revenue growth was driven by growth in each of the 4 software revenue categories, license, professional services, hardware, and maintenance.In 2023, Spok generated over $30 million of software operations bookings. This was a 22% increase from the prior year, but more importantly, a level not seen since 2019 and an annual growth rate not seen in almost a decade. While we were very happy with our bookings level last year and believe that we are certainly trending in the right direction, let me take a moment to provide some perspective on our software operations bookings trajectory.As we have said in the past, software operations bookings tend to be lumpy from quarter to quarter, and timing is a major factor. While it's easier to move sales through the various stages of the pipeline, the ultimate closing of a contract is a bit harder to predict and by a matter of days can impact the quarterly total significantly. This is why we believe it is more appropriate to look at bookings on a 12-month basis.A full year basis better normalizes both positive and negative timing anomalies in the normal course of the sales cycle. For example, some of the contracts we anticipated to close in the fourth quarter of 2023 were postponed to the beginning of the year, and consequently 2024 has started out extremely strong. In fact, January was a company record, and February has been strong as well. So we did not spend a great deal of time analyzing the sales performance of an individual month or quarter as opposed to viewing bookings in the broader context of our pipeline execution and anticipated annual results. We expect 2024 operations bookings to grow well above our 2023 levels.Switching to operating expenses. While driving our top line, we also continued our focus on expense management as operating expense levels for the year were down more than 12% from 2022. As an example, you may remember, in September 2023, as part of our continued focus on managing expense levels, we exercised an option for the early termination for the lease on our corporate headquarters in Alexandria, Virginia. The bottom line is that we expect to save approximately $1 million annually beginning after the conclusion of our lease in September of 2024.Our focus on expense management as 1 of the key drivers to generate increased cash flow does not come at the expense of our product platform as we continue to make the necessary investments in product development, sales and marketing, customer support, and professional services to support the growth of our Spok Care Connect and Wireless solutions.In 2023, Spok invested more than $10.5 million in product research and development. Investments such as these are critical to creating a best-of-breed product platform and to maintaining our solid industry reputation. In 2023, I believe that 2 key proof points of our premier market position were evidenced by a couple of results. One, receiving the number one spot for the sixth consecutive year in Black Book Market Research's review of the healthcare industry. And two, having 20 of the 22 adult hospitals and seven of the 10 children's hospitals named to the 2023 U.S. News & World Report Best Hospital Honor Roll as customers. Accolades such as these do not come if you don't have a best-in-class product offering and a solid reputation with your customers.Spok has an amazing blue chip customer base. Many customers have been with us decades and continue to buy from us. In short, we continue to fire on all cylinders and are confident about the future as we start 2024. Based on our performance in 2023, we're providing our guidance estimates for revenue and adjusted EBITDA generation in 2024. This guidance reflects the team's confidence in being able to outpace our 2023 performance. At the midpoint of the guidance range, we believe we're on track to again grow consolidated revenue in 2024 on a year-over-year basis.We also anticipate that the midpoint of our adjusted EBITDA guidance will be consistent with last year with additional growth potential at the high end of the guidance range. Calvin will go into more detail regarding our expectations later in the call. Of course, like last year, we will review guidance with you on a quarterly basis and make adjustments as appropriate.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, what started about 2 years ago, Spok has returned just under $51 million or about $2.50 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 $675 million to our stockholders either through our regular quarterly dividend, special dividends or share repurchases.In the fourth quarter of 2023, this history of returning cash to our stockholders continued as we again generated impressive levels of adjusted EBITDA and returned $6.2 million to our stockholders. This represents the 76th consecutive quarterly dividend paid since becoming a public company, and we expect to pay dividends totaling approximately $26.1 million in 2024. 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 4 major tenets of our strategy. Those are, #1, continued investment in our wireless and software solutions; #2, growing our revenue base; #3, disciplined expense management; and #4, 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 stockholders.Now, I'll turn the call over to our President and Chief Operating Officer, Michael Wallace, who'll talk about our operational accomplishments and quantify some of our opportunities. Michael?
Thanks, Vince, and good afternoon. Thank you all for joining us for what we believe is another solid quarter and full year of results from Spok. We are pleased to report that we have continued to execute on our business plan, and in 2023, we generated GAAP net income of $15.7 million, or $0.77 per diluted share, which represents a sharp increase from breakeven adjusted GAAP net income in the prior year period.As you may remember, 2022 GAAP net income included a nonrecurring and noncash benefit of $21.9 million related to the release of previously established tax valuation allowance in alignment with our projections of future taxable income prior to the announced pivot and shutting down of development and deployment of the Spok Go product. Including that benefit, 2022 GAAP net income totaled $21.9 million, or $1.09 per diluted share.Importantly, we accomplished this bottom line performance while continuing to generate software operations bookings growth, which drove revenue in 2023, as well as significantly building our professional services and maintenance backlog levels to over $56 million, which will drive revenue in future periods.On a full year basis, software operations bookings totaled more than $30 million, up 22% from prior year levels. Also, total 2023 software bookings reached levels not seen for the past 4 years, and continue on a trajectory of growth following our pivot almost 2 years ago. 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 communications space as we continue to see customer satisfaction ratings increase.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 Spok. And these hospitals buy from us regularly and renew maintenance at a high level. In a couple of minutes, I will outline an exciting opportunity for Spok that we believe widens our addressable market and will provide a future growth catalyst for our products.Before I switch gears, let me take the opportunity to drill down into our software operations bookings this quarter. 2023 was certainly a year of milestones with regard to our software operations bookings. In addition to the solid year-over-year growth and total bookings of 22%, we were able to execute 67 6-figure customer contracts, an all-time high for Spok, and included the largest single customer contract ever recorded for the company.Additionally, in 2023, we executed 30 multi-year engagements with customers, an approximately 60% increase from the prior year. Hopefully, this performance gives you a good indication of the momentum that our sales team is generating in the marketplace, and the confidence we have as we work our way through 2024 with a solid sales pipeline both in terms of size and quality.Supporting our achievements in the fourth quarter of 2023 were 4 multi-year engagement contracts that we were able to close and I'd like to discuss. The first was with 1 of the Mid-Atlantic region's largest tertiary care facilities, another with one of the top academic medical centers in the U.S., and a recognized leader in quality patient care and research, 1 with a private not-for-profit health care organization in the Southeast, and the final with a leading academic health enterprise in the Midwest.The first health system is a long-standing Spok customer and 1 of our longest Spok Smart Suite users. This health care provider boasts more than 400 inpatient beds and over 2,500 attending physicians and nurses. This 3-year multi-year engagement was for a platform upgrade across their facilities on Spok Smart Suite, Spok e.Notify, Spok Voice Connect, Spok Mobile, and Spok Messenger solutions, as well as our solution assessment and data integrity value-added services. These additional consulting services expand and enhance the value that our customers gain from fully utilizing our solutions.Another of our standout contracts last quarter was with a hospital that is among the 20 largest and best equipped in the nation with over 1,200 beds. This multi-year engagement with Spok included an upgrade to Spok Smart Suite, a new test system, new CTI architecture, the addition of Spok Voice Connect, as well as 2 Spok value-added services, solution assessment, and data integrity.The third multi-year engagement I'd like to highlight was with a health system that has 3 acute care hospitals and a physical rehabilitation hospital for a total of 970 beds with 12,000 employees and providers. Spok executed a 3-year engagement for upgrades to Spok Smart Suite, Spok e.Notify, and Spok Messenger. We also added a test environment for all solutions and included a solution assessment value-added service for further optimization.And finally, we executed a multi-year engagement with a customer who has been with us for over a decade. This health system has over 440 inpatient beds and provides comprehensive care, education, and research to the areas it serves. Their Spok Smart Suite platform serves several critical needs throughout the hospital, including contact center operations, system-wide paging and messaging, web directories, code, and emergency procedures. This new agreement creates a path for them to upgrade their system for deeper integration and enhanced functionality.Spok consistently delivers effective communication solutions to hospitals and healthcare systems. Our fourth quarter success underscores our steadfast dedication to offering unparalleled communication solutions to our clients. We are confident that our software solutions will continue bringing positive change to the healthcare institutions nationwide.Before I hand the call off to our Chief Financial Officer, Calvin Rice, to review our financial performance in more detail, let me take a few minutes to outline what we believe is an important set of facts for our shareholders and the investing community at large to understand about Spok and how it is situated in the U.S. healthcare marketplace. Of the approximately 7,100 hospitals and healthcare facilities in the U.S. market, Spok currently works with about 26% of those locations as either software-only customers, wireless-only customers, or both.While this market penetration is impressive relative to our peers, we believe that we have developed a solution that will expand our footprint and widen our addressable market. Based on learnings from our development of the Spok Go subscription product, we are excited to announce the full rollout of the Spok Care Connect hosted solution. Hosted in Spok's data center in Plano, Texas, our hosted solution provides hospitals and healthcare systems with remote access to Spok Care Connect solutions. Currently, that product set includes Spok Healthcare Console, Spok Web-Based Directory, Spok Web-Based On-Call Scheduling, and Spok Mobile.We believe that the hosted solution creates an environment where mid-size and small hospitals can efficiently take advantage of the resources that are mostly being used by the large hospitals who have the capital and human resources to use our premise-based software solutions.As you can see from the chart on the right side of the slide, small and mid-sized hospitals comprise the vast majority, or just under 95% of the total U.S. healthcare marketplace when looking solely at hospital facilities. While Spok enjoys a 50% market share among the large hospitals, that is hospitals with more than 600 patient beds, and that drive the largest share of revenue, we are not as well penetrated into the less than 600 bed markets. In fact, within the mid-sized tier, or 200 to 599 beds, we have an approximately 30% market share. And within the small hospital tier, or less than 200 bed facilities, we have only an approximately 5% market share.As I said, we believe that the capital and human resource flexibility that this hosted solution provides to mid-sized and smaller hospitals, coupled with the minimal initial capital outlay, tremendously expands our addressable market and opens up future growth channels for Spok. We rolled this product out at the beginning of this year. And while it will take time to ramp the solution, we already have our first customer being hosted from our data center. We look forward to updating you on our progress in future quarters.With that said, I'd like to turn the call over to our Chief Financial Officer, Calvin Rice. Calvin?
Thanks, Mike, and good afternoon, everyone. I would now like to take a few minutes and provide a recap of our fourth quarter and full year 2023 financial performance, which we reported earlier today. As always, I encourage you to review our 10-K 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 2023, GAAP net income totaled $15.7 million, or $0.77 per diluted share, compared to net income of $21.9 million, or $1.09 per diluted share in 2022. As previously pointed out, 2022 net income included a noncash benefit of $21.9 million for the release of a previously established valuation allowance for our projections of future taxable income at that time. Adjusted for this noncash benefit, 2022 net income would have been roughly breakeven.In 2023, total GAAP revenue was $139 million, up from revenue of $134.5 million in 2022 for the first time in our company's history. Revenue for the year consisted of wireless revenue of $76 million, up slightly from revenue of $75.6 million in the prior year, and software revenue of $63.1 million, up 7% from the prior year, reflecting the significant increase in software operations bookings, as well as higher professional services revenue, driven primarily by improvements in resource utilization.With respect to wireless revenue, 2023 performance continues to be primarily driven by improvement in average revenue per unit, or ARPU, which saw growth of $0.37 on a year-over-year basis. Approximately 20% of this increase was driven by incremental pass-through taxes and fees, with the majority of growth stemming from additional pricing actions taken in September. While we did see an increase in unit churn during the second half, relative to what we've experienced over the previous 18 months, net unit churn continues to remain at historically low levels, as net units in service declined by roughly 6.5% from the prior year period.The uptick in churn relative to recent trends was driven by several large cancellations, which reflects disproportionately in our rate of churn. When we look at the broader base of customers outside of those larger cancellations, we actually saw improvement in churn rates from the first half into the second half of 2023. While these types of cancellations can be difficult to foresee on an individual basis, we would expect a reversion to the mean, if you will, in line with the broader trends of roughly 4% to 6% we have experienced over the last several years.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. Given a unit churn of 4 to 6%, we do not believe future incremental pricing increases in higher ARPU products, like the GenA pager, will continue to further offset revenue lost through pager unit decline.Given a unit churn of 4% to 6%, we do not believe future incremental pricing increases and higher ARPU products, like the GenA pager, will be sufficient to completely offset revenue decline realized from net unit loss. This is further reflected in our updated financial guidance, which I will walk through shortly.Turning to software revenue in 2023. License revenue of $8.7 million was up by more than 21% from 2022. Maintenance revenue totaled $37 million and was up slightly from the prior year. As we have discussed in previous quarterly calls, we expect continued progress on our product development roadmap will lead to further growth of our operations bookings in the coming years and maintenance revenue along with it.With that said, the performance of our maintenance revenue has exceeded our expectations. When we initiated the strategic pivot in early 2022, we were hopeful for a return to maintenance growth by 2025. So to see that happen in 2023, 2 years sooner than originally anticipated, is just tremendous.Professional services revenue was a strong $14.7 million for 2023 versus $12.6 million in 2022 and continued to accelerate throughout 2023. We are seeing further sustained improvement and resource utilization delivering on our internal initiatives to better align total resources with our backlog and driving a higher rate of margin and net cash flow. We hired several service professionals in the second half of 2023 to meet our current backlog needs and to support new professional services opportunities such as Spok's Value Added Service Consulting Solutions, where we partner with customers to help them maximize the power of the software products and solutions they have purchased from us or from other vendors.Full year 2023 adjusted operating expenses, which excludes depreciation, amortization, and attrition and severance and restructuring costs, totaled $112.7 million, down nearly 9% from the prior year. Increases in research and development were largely timing in nature with reductions in technology operations driven by our normal practice of cost reduction and relationship to declining paging revenues. Slight increases in selling costs, which primarily result from the higher bookings production, were more than offset by savings in G&A, which continues to see year-over-year benefit from our cost-saving initiatives.As I mentioned in our last quarterly earnings call, company-wide salary increases went into effect in late fourth quarter of 2023. As a result, we expect our expenses will be approximately $1 million higher in 2024 on a comparable basis. Additionally, as discussed in our last quarterly earnings call, we expect the higher additional sales resources in 2024 and anticipate 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 growth we have achieved over the last 2 years.Lastly, as Vince pointed out earlier in the call, adjusted EBITDA was a record $30.3 million in 2023, up more than 100% from $15 million in 2022, reflecting the progress made to date with our strategic pivot.Moving on to guidance for 2024, we have provided estimates for revenue and adjusted EBITDA. The provided ranges reflect our confidence in carrying the momentum from 2023 into this year. As a reminder, the figures I'm going to discuss today are included in our guidance table in the earnings release. In 2024, we expect total revenue to range from $136 million to $144 million. More importantly, this represents the second consecutive year that we expect to grow consolidated revenue from the prior year based on the midpoint of our guidance, with a nearly 4% annual growth rate at the high end of our guidance.Included in the 2024 guidance, we expect wireless revenue to range between $72 million to $75 million, reflecting low single-digit attrition at the midpoint of the range. We expect recent trends to continue and stabilize during the year. Software revenue is expected to range from $64 million to $69 million in 2024, with the midpoint implying total software revenue growth of more than 5% and nearly 10% annual growth at the high end of the guidance range.Lastly, our adjusted EBITDA guidance for 2024 is $27.5 million to $32.5 million, improving on our strong performance in 2023 at the midpoint of the guidance range when considering the additional costs we expect to incur in 2024, resulting from the aforementioned salary increases, with opportunity for high single-digit growth at the high end of the guidance range.With that said, I will now turn the call back over to Vince.
Thank you, Calvin. Before we open the call up to your questions, let me say again how proud I am of our entire Spok team and the results we posted for 2023. It is their efforts and dedication which provides confidence for our outlook and guidance for another strong year in 2024. We are focused on the opportunity in front of us and clinical communications.From a business configuration and strategy perspective, we believe we are strongly positioned to grow our franchise while returning capital to our shareholders. We have a long-term organic growth engine in Spok Care Connect. We maintain a source of strong recurring revenue in our wireless service line. We run the largest paging offering in the world integrated with our software operations. We have enhanced our paging platform and user devices to serve our core healthcare customer base. We believe, with these 2 assets going for us, our best financial results are ahead of us and Spok's future is bright.I would like to take this opportunity to thank our stockholders for their continued support. I want to assure you that our primary focus remains on generating cash and increasing stockholder value. We are committed to our current dividend and capital allocation policy.I would also like to tell everybody about a couple of events that Spok's management team will be participating in over the next few weeks. First, on Monday, February 26 is coming Monday, we will participate in the Opening Bell Ceremony for NASDAQ at their market site in Times Square. Next, on March 13, Spok will be presenting at Sidoti's virtual small cap conference and hosting a series of one-on-one meetings with investors.I believe Spok is finally receiving recognition as a top performing company among its peers and will continue to look for opportunities to tell our story to the investment community and focus on investor marketing activities that we know the ultimate attraction will come as a result of our consistent and successful business execution. I believe today we've provided you an appreciation for some of the great things that are happening at Spok and the market opportunities that lay ahead of us. While we've shared our initial guidance with you for 2024, as we did in 2023, we will work to exceed those expectations and we'll update you each quarter.As I mentioned earlier in the call, we've started the year off strong and we look very much forward to speaking with you again in 2 months when we report our first quarter results in late April.That concludes our prepared remarks. So at this point, I'll ask the operator to open the call up for your questions. We'd ask you to limit your initial questions to 1 in a follow-up and after that we'll take more questions depending on how much time we have. Operator?
[Operator Instructions] There are no questions at this time. I would like to turn the call back over to management for closing comments. Actually, we do have 1 now, and that is from Max Michaelis with Lake Street Capital Markets.
2 questions from me. Nice guide, solid quarter. First one here is on software revenue for 2024. The high end of the guidance, I think I see is 10%. Maybe kind of go through the software revenue. What gets us to that 10% kind of the puts and takes there?
Calvin, do you want to take that?
Yes. I mean, it's going to be a similar mix to what you saw in 2023. And in the last several years, I wouldn't expect a significant change in mix. A big portion of that is going to continue and remain maintenance with those churn levels being critical. From an operational bookings perspective, it's going to be quite a bit of professional services, and that's all going to be glued together with the license component that continues to funnel in.
And I will add to that in that we have changed our software commissions plans this year to focus on new business and to focus on license, i.e. they make more for selling license to new business. As you know, license hits revenue much quicker than professional services, and it's got a higher margin associated with it. So we're doing things in the business in terms of the drivers that will incent behavior that will yield to more profitable sales in the future.Our top 7 software sales reps this past year in 2023 sold a combined $23.3 million worth of software. That compares to about $12.1 million in 2022 for the top 7 sales reps. So, we're getting more out of each rep, and then what we're getting out of each rep is getting more profitable as we go forward. We're continuing to deliver more product upgrades and enhancements to our solutions and adding functionality, including [ Bacon AI ] into our capability with our voice products this year. And that's also going to help the sales people's job in terms of selling higher margin solutions.So, I think these are nice good conservative estimates we've given you. We're happy with these estimates. And we're going to work hard to beat them and do even better than that.
No, that's great. And then, my second one is going to be, if we think about software bookings, and you mentioned there was a push out in Q4 into Q1, I was wondering if you could quantify the amount that was actually pushed out. And then if we think about bookings for the year, I know you had mentioned you had expected bookings to be above that number of 30.1 for the year. You said you expected it to be well above that 30.1 for the year. Can we see double-digit growth out of software bookings again?
Yes. I expect we're going to see double-digit growth out of software bookings again. January was an enormous month. It's the biggest January we ever had in software bookings. You just don't know when that stuff's going to come in. We actually do a lot of work on our pipeline to try to quantify when the pipe is going to come in and when it's going to get delivered. But something can get on someone's desk and just not get signed, and then you're in a situation where you thought you had the deal and you didn't get the deal. We've been working on a formula with our pipeline.Our pipeline is up to about $116 million right now. We added almost $100 million to it in the last year. We want to add up to $150 million this year. And we take that pipeline and we qualify it. The deals that have been closed essentially just waiting to launch. We count all those in our estimate and our projection. We have what we call deals that we qualify in the 90% category and those are committed deals where we got all the paperwork in, but it's sitting on someone's desk. And historically, you think you'd get all those, but you generally only get about 60% of those in that given period. So, we wait that by 60%.We take the deals that we consider 75% deals, and those are where we've been chosen as a vendor of choice so that the bake-off has been done. We've won the bake-off. Paperwork is in process. We're exchanging red lines. We're doing contractual things. That's 75% category. We only take about 35% of that. And then we have a category that's 10% to 50% that's in various stages of early completion. We generally only get about 10% of that. We add it all up, and we do our best to try to zero in on exactly where we're going to come from a forecast perspective.And in the fourth quarter, it just happened that some of that calculation was wrong and it slipped into January. And we'll continue building this algorithm. We'll continue building this model and this pipeline analysis and try to get better at forecasting that in the future. But, yes, we expect to have a good year this year. And we expect to do a lot better than we did last year. And we're already seeing that in the early returns.
Our next question is from David Wright with Henry Investment Trust.
To follow up there on Eric's questions and your comments about the sales force, can you talk a little bit about Core Connect hosted, how that's going to ramp over the course of the year? And also, it's really interesting when you talk about the sales force, the incentives, are you selling hosted by region, same sales force, dedicated sales force, anything you can say?
Yes. So here's great questions. I'll kind of go in reverse order. It's a dedicated sales force that we brought on just to focus on hosted, okay? We had 1 up and running last year. We sold 1 in January. We've got the paperwork for 3 others we're working on right now. So it's starting. But understand in that customer size stratification that Michael was walking through a little while ago, we're targeting the hosted at the very small hospitals.Some of these locations have 100 beds or less. And so, it's not a big ticket item. It might be $50,000 kind of ticket. It's not over multiple years. It's not a $5 million ticket, like we got in the second quarter last year. And so, they're smaller. They're going to build. It's recurring revenue. So it's wonderful from a subscription standpoint. But that's kind of a new offering for the company. And it's really to allow these smaller customers that historically have not been able to afford a very expensive PBX and a very expensive premise-based solution that has multiple file servers and requires professional services to install. Is the hosted solution as robust as some of our very mature standalone solutions that are premise-based? No, but it's certainly functional for a smaller institution. And we're already starting to see it start to take off.
Is it incrementally kind of a significantly higher margin piece of business?
Yes, this is Mike. I think, over time it will be. I mean, once we have some sort of critical mass, it should be something that's a fairly easy installation. The other thing that is interesting about this model is, it's different from the revenue recognition related to our on-premise business. So, it's a subscription model at the end of the day. So there is a subscription revenue stream that will come from this.And as I said in my remarks, you saw that we have very, very little penetration in that small market, the under 200 beds. So this really gives us an opportunity that we had never had before to attack them. So this is going to take a little bit of time to roll out, but it's something that we think has legs ultimately.
[Operator Instructions] Our next question is from George Melas with MKH Management.
Great job in 2023. My question was basically exactly the same as the previous caller. So, I'll try to elaborate a little bit. And maybe how many sales people do you have that are dedicated to hosted? And do you also go through channels or is it all going to be direct? And how do you handle the fairly high cost of sale given this -- on a percentage basis, given that it's a pretty small ticket item?
Well, first of all, we've got 4 sales reps essentially working on this and we're offering this out of our Plano data center. So we already had a data center in Plano, Texas for the wireless service line for many years. They had put a few file servers in there, but not a very high cost operation in order to run this hosted solution. And we're marketing directly to customers.We know who the customers are that we want to target because we have that definitive database that has all 7,100 hospitals in the United States. And we have our sales force CRM. We know exactly what we have in terms of customers out of that database. And so, it's pretty easy to target directly. And these folks are out there. They've done a number of presentations already. We've got a bunch of more in the pipeline. George, this is a new offering. It's nascent. We don't have much in the way of our forecast for this right now. But it's something I think that bodes well for the future, and it's an exciting opportunity for us.
Great. And the main thing that you lead with is the console, is the directory?
Yes. The main thing we lead with is the console. We went out and did a marketing survey and we talked to -- we had to pay the third party to do this for us. And we talked to the large hospitals. We talked to small hospitals about brand awareness and other things. And it was really interesting because when we got to the smaller hospitals and we asked them, how likely are you to consider each of the following brands next time you're looking for a clinical communications solution, Spok got the top score, okay?And this isn't us conducting the survey. This is a third party. We beat Vault. We beat Perfect Serve. We beat Vocera. We beat Tiger Connect. We beat symplr, which was formerly Halo Health. And we beat Epic Chat. So, we got top score. So there's opportunity here for us. We have to go out there and earn it. And I don't want to make promises on things until we, it's not our style to make promises on things until we have a track record and we see it. We like to report numbers that are ahead of what we've guided to. But we're all optimistic that this is going to be a good avenue for us in the future.
Great. That sounds good.
We have reached the end of our question-and-answer session. I will now turn the conference back over to management for closing comments.
Look, we really appreciate everybody's support. We appreciate you dialing in for our call today. We look forward to ringing the Opening Bell Monday morning. We hope you can tune in for that. And I think we really, really look forward to talking to you in about 2 months when we report our first quarter results.So, everyone, thank you. Have a nice evening, and a great day tomorrow.
Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.