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Spok Holdings (NASDAQ:SPOK)
Q2 2020 Earnings Call
Jul 30, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to Spok's 2020 investor call. Today's call is being recorded. Online today, we have Vince Kelly, president and chief executive officer; and Mike Wallace, chief operating officer and chief financial officer. At this time, for opening comments, I will turn the call over to Mr.

Wallace. Please go ahead, sir.

Mike Wallace -- Chief Operating Officer and Chief Financial Officer

Good morning. Thank you for joining us for our second-quarter 2020 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 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 in which we compete contained in our 2019 Form 10-K, our second-quarter 2020 Form 10-Q, 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 comp -- statements in past or present filings and conference calls. With that, I'll turn the call over to Vince.

Vince Kelly -- President and Chief Executive Officer

Thanks, Mike, and good morning, everyone. I hope all of you, your families and friends are, and remain safe during this challenging time in the midst of this pandemic. At Spok, we continue to take this situation very seriously and have developed the protocols and procedures to be able to provide for the safety of our employees and our customers, many of whom are on the frontline, fighting this virus and saving lives. We are forever grateful for their service.

With regard to our operations, we're in the throes of 100-year pandemic that has created a huge negative impact on the finances of our healthcare customer base. Prior to COVID-19, most hospitals ran on fairly thin margins in the single digits. Most of their profitable business came from ambulatory care and elective procedures. These were more profitable activities that have been significantly curtailed, causing a very challenging financial environment for the healthcare sector.

However, we at Spok, expect this huge segment of our national economy, that at one point was nearly 18% of GDP, to ultimately recover. In the meantime, we will continue running our business profitably, enhancing, and selling our wireless and software solutions, including our new platform, Spok Go while preparing for a future that has a positive outcome as our country eventually gets the virus under control. We believe in our core values of putting the customer first, respecting what they do matters, our commitment to innovation, and accountability. Further, we believe in investing in and building for the future, and we think what we've developed with Spok Go will be a game changer in clinical communications.

So while this pandemic has put a damper on our results in the second quarter and will likely represent significant headwinds for the foreseeable future, we believe in the long-term trends in healthcare and the need for a sophisticated system of action represented by Spok Go to enhance the many systems of record that already exist out there in the form of electronic health record systems or EHRs. More on that later. Turning to our second-quarter results. Software product sales and professional services access were negatively impacted.

This represented the first full quarter of the pandemic's effects. The majority of our healthcare customer base continues to struggle with the challenges presented by COVID-19. As I've mentioned, the pandemic is taking a heavy financial and human toll on America's already stressed healthcare infrastructure. While some parts of the country have started slowly phasing out stay-at-home orders and other restrictions, hospitals and health systems remain on the frontlines of this pandemic, and in some parts of the country, we see it getting worse.

Experts have warned that the recovery pace for hospitals and health systems will be slow. However, we believe there are many reasons to be confident that Spok will emerge from this crisis and take advantage of the growth potential that exists in the markets that we serve. While undoubtedly hospitals are focusing their immediate efforts on supporting the current crisis, surveys have shown that by the end of the second quarter, hospitals were back to more than a third of their pre-COVID-19 elective volume, and by the end of the year, hospitals expect to be back to more than three-quarters of those volumes to full recovery sometime in 2021. Of course, that is subject to change and the virus will ultimately dictate the timing.

While the situation is fluid and no one is able to predict the duration and severity of this pandemic with a high degree of certainty, we intend to take advantage of that momentum. Several of our larger deals for both our legacy software and Spok Go were pushed back and delayed into the second half of the year. Some of our customers are putting their budgets and new purchases on hold while they take stock of the economic impact of the pandemic. Some have changed their short-term priorities to PPP, telemedicine, therapeutics, and others.

This continues to make it extremely difficult to forecast sales. And while we did not book any Spok Go deals in the second quarter from our robust pipeline, we did this month and we look forward to reporting on that in October when we report our third-quarter results. We think going forward, the need to improve the experience and capability of clinical communications is only going to increase and we will be well-positioned with our integrated cloud-native platform, Spok Go. In the meantime, Spok continues to operate with a relatively stable revenue base.

Nearly 86% of our revenues in the second quarter were recurring in nature, coming from either our legacy wireless business or software maintenance contracts. As I've already mentioned, Spok provides a critical function, which we believe will become even more important in this environment. Spok's clinical communications platform provides hospitals a system of action, not just a sick -- system of record, like they do with their EHRs. We deliver reliable communications and clinical information, including critical test results and care teams when it matters most for improved patient outcomes, and we now do it on a new cloud-native platform that we truly believe will be a game-changer in clinical communications for years to come.

I'm happy to report that cloud-native platform Spok Go just received its SOC 2 Type 2 certification. In the second quarter, we continued to see strong improvement in wireless trends and focused expense management, resulting in healthy levels of net income and earnings before interest, taxes, depreciation, and amortization, or EBITDA. We've returned a little over $5 million of capital to our stockholders through the first half of the year in the form of our regular quarterly dividend. We intend to continue paying this dividend for the foreseeable future.

Our ability to continue paying this dividend is not at risk. We are a company with no debt, adequate cash on hand, and positive cash flow. While operating the company profitably and returning capital to our shareholders quarterly, we will continue to further enhance our product offerings through our continued development in our Spok Care, Care Connect, and Spok Go communications platforms. Despite the current challenging environment, our goal is to run the business in a cash flow positive mode for the balance of the year.

We also continue our firm commitment to the development and enhancement of the Spok Go platform. Spok is pioneering a new era of clinical communication and patient care coordination, which goes well beyond today's myriad of point solutions for secure messaging and clinical workflow. The Spok Go platform is purpose-built in cloud and enterprise grade, specifically for healthcare. And here's why we believe it matters.

First, we believe Spok Go provides hospitals and health systems address the security, agility, breadth, and depth of services, including enterprise management capabilities for anything from single hospitals to large multisite health systems: a cloud-native platform that intelligently routes messages alerts and information to the right person at the right time to enable easier and more timely care collaboration; an interoperable gateway that securely innovates with on-premise systems such as EHRs, clinical information systems, nurse call, and patient care devices; and easy applications that provide real-time access for information regardless of location or device for more flexibility and efficiency. Next, the Spok Go platform is assisting to drive action by connecting clinical teams with people and information they need when and where it matters most, helping to increase the time clinicians could spend with their patients to improve outcomes. It's built around a centralized call directory that manages clinical and nonclinical roles, contact preferences, and on-call schedules, and through our enterprise directory, it serves as a single source of truth for enterprise clinical communication. We engage clinicians to help shape the features of the consumer-grade user experience, while ensuring we deliver on the security and capability requirement unique to healthcare.

Finally, our cloud-native platform is powered by the industry-leading Amazon Web Services. This unique architecture alleviates the burden placed on IT teams by on-premise systems, meets and exceeds security and compliance requirements, including HIPAA to keep patient information safe, ensures high availability and resiliency, protects from loss of connectivity, power, and service-specific failures, scales as the need of health systems change, and delivers continuous updates and faster access to technology enhancements and new features. I'm very proud of our team and their accomplishment. When we commenced this journey about five years ago, our goal was to create a beautiful software that would delight our customers.

We believe we have accomplished that goal. It's unfortunate that the timing when we brought this new platform to market coincides with a 100-year pandemic that is putting large financial pressures on our target customer base, but we still believe we have a winner that will be a long-term success and improve the way clinicians communicate for many years to come. Now before I turn the call over to Mike to provide additional details on our financial performance, I want to briefly review some key results for the second quarter. First, on a GAAP basis, in the second quarter, we generated $3.8 million of net income or $0.20 per diluted share, up from a net loss of $670,000 or $0.03 per lo -- loss per diluted share in the second quarter -- in the year-earlier quarter.

Also EBITDA totaled $5.2 million in the second quarter more than 15 times, an increase from the second quarter of 2019. Second, wireless subscriber and revenue trends continue to exceed our expectation. Spok posted solid results for wireless products and services in the second quarter. Gross pager placements of approximately 35,000 units were sharply up from the prior quarter.

As a result, net pager losses declined to approximately 11,000 units in the second quarter. We were pleased to see the continuation of these more stable trends, especially in our top-performing healthcare segment, which comprises nearly 84% of our paging subscriber base. Next, I'd like to address software revenue. While software maintenance levels remain at healthy levels, current situations had the most profound impact on software operations revenue.

On a GAAP basis, software revenue of $14.7 million was down from the prior-year quarter. However, our related software backlog at June 30th was $48.4 million, up nearly 22% from the prior year. The challenge we have had and continue to have is lack of access to install our backlog of prior bookings due to the hospital's inability to accommodate our professional services teams on location. We continue to do as much prep work remotely as possible so that when things do open back up, we can move in quickly to get these products installed and generating revenue.

And we're starting to see some reopening on a regional basis, which is where our services group will focus its attention in the third quarter. Also, as I mentioned, before the current healthcare crisis, it's also a financial crisis for many of our customers. Thus, bookings have been challenged. We were on plan in the first two months of this year.

When March hit, things really slowed down and the entire second quarter was tough. Many deals got put on hold and pushed out. We expect most of these to revert back, but again, much will be dependent on the pace of the virus. Our sales teams will continue to be laser-focused on generating activity through the remainder of the year and booking additional sales of our Spok Go platform to go with the large success we booked last week.

We are also pleased to announce that all 20 adult hospitals and all 10 children's hospitals named at U.S. News & World Report's 2020 and 2021 Best Hospitals Honor Roll use Spok use clinical communication solutions to facilitate care collaboration and support exceptional patient care. For eight consecutive years, Spok has partnered with all of the adult best hospitals. Finally, Spok continues to demonstrate disciplined expense management.

Mike will review the specifics for the quarter in a few minutes. However, let me point out that we continue to make the necessary investments in our product and development and our sales and marketing infrastructure to support the evolution and sale of our new platform. That being said, we posted second-quarter adjusted operating expenses down nearly 13% on a year-over-year basis. I'm proud of what our team has been able to accomplish in this area in such a short time in order to align our expense base with the drop-off in demand we've seen since March.

It is a result of all our team members across the board, sacrificing the long-term benefit of Spok, and all our constituents. However, we did a lot more than just cut costs in the second quarter. I'm excited to share some of our new business during Q2. We added six new customers to the Spok family, including two wireless and four software.

I'd like to highlight a couple of the six-figure second-quarter deals for you. First is one of the largest not-for-profit integrated health systems in the United States. This Northern and Central Illinois and Eastern Wisconsin health systems comprised of 26 acute care hospitals, an integrated children's hospital, psychiatric hospital, primary and specialty physician services, outpatient centers, physician office buildings, pharmacy, rehabilitation, and home health and hospice care. The health system is comprised of more than 30,000 employees, nearly 7,000 staff beds and has 8,500 affiliated physicians.

This premier Spok customer with multiple solutions, including operator console, enterprise rep directory, on-call scheduling, and code paging has been a Spok software partner for more than 10 years. Our team positions Spok as a true enterprise partner by aligning this health systems infrastructure consolidation, application standardization, and scalability to support the growing hospital network. As a result, we were able to upgrade the health system to Care Connect 1.9 and migrate multiple disparate systems into one consolidated enterprise system that is highly available and redundant throughout 14 Midwest hospitals. The next deal I'd like to highlight to you is a health system that has more than 12 million health plan members, 200,000 employees, nearly 23,000 physicians, 60,000 nurses, 39 hospitals, 690 medical facilities with combined $2.5 billion in net income or nearly $80 billion in operating revenues.

They operate in eight states on the largest managed care organization in the United States. This premium Spok customer has multiple solutions, including operator console, enterprise web directory, messenger, and code paging. They've been a software partner of ours for more than 16 years. Spok solutions are currently present in 39 of their hospitals across the Western United States and two call centers in the Mid-Atlantic region.

Our teams worked to consolidate their SQL servers by installing three to four site databases, with unique database names on a single SQL server. Ultimately, this will reduce the customer's SQL spend by 75%. The result was an enterprise-grade upgrade to the Spok console. These are just a couple of examples of the activity level in the second quarter.

I'm very proud of what our sales team has been able to accomplish against the strong headwinds created by the COVID-19 pandemic. I'll make some additional comments on our business outlook shortly, but first, Mike Wallace, our chief operating officer and chief financial officer, will review the financial highlights for the quarter. Go ahead, Mike.

Mike Wallace -- Chief Operating Officer and Chief Financial Officer

Thanks, Vince. I will provide a more detail -- uh more detail on our financial performance in the second quarter, but I would again encourage you to review our second-quarter 2020 Form 10-Q, 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, in the second quarter and in response to the uncertainties of the COVID-19 pandemic, Spok was successful in taking immediate steps to position our operations into a free cash flow posture through several cost-saving initiatives. Coupled with continue with -- continued strong wireless revenue trends, we were able to generate net income of $3.8 million or $0.20 per diluted share, a sharp reversal from the $4.5 million loss in the prior quarter and $670,000 loss in the prior year.

We were also able to generate $5.2 million of EBITDA or $1.6 million when adjusted for capitalized software development costs, which was up from last year's EBITDA loss of $2 million or a $3.7 million loss when adjusted for capitalized software development costs, and EBITDA of $343,000 in the prior-year quarter where we did not have such capitalization. However, as Vince detailed, our operations continued to be significantly impacted by the effects of COVID-19 and the toll that it is taking on the North American healthcare infrastructure. The most severe impact was to our new software product sales and software bookings totaled $15.4 million. Additionally, the pandemic also negatively impacted our ability to deliver professional services to our hospital customers due to the various access issues caused by COVID-19.

Over the next few minutes, I will review key areas which drove our second-quarter financial performance. They include: first, a review of certain factors impacting second-quarter revenue. Second, selected items which influenced second-quarter expenses. And lastly, a brief review of the balance sheet.

As usual, if you have specific questions about these items or any of our quarterly financial results, I will be happy to address them during the Q&A portion of this morning's call. With respect to revenue for the second quarter of 2020, total GAAP revenue was $35.7 million, compared to $39.5 million in the second quarter of 2019. Through the first quar -- through the first six months of 2020, GAAP revenue totaled $73 million, compared to revenue of $81.3 million in the first half of 2019. With respect to wireless revenue, first half performance was driven by low-level -- low-level pager unit churn on both a sequential and year-over-year basis.

As a result, wireless revenue for the first half of 2020 remained solid, declining only 5% from the prior-year period, a 150-basis point improvement from last year's first half performance. These continued strong trends in our wireless business are being driven by the combination of solid gross additions, continued minimization of churn with existing customers, and maintaining stable unit pricing. For software revenue, total second-quarter performance of $14.7 million reflected a nearly 16% decrease from the second quarter of 2019, with year-to-date software revenue down similarly from prior year levels. This performance was driven primarily by a nearly 30% year-over-year decline in software operations revenue as the pandemic continues to be most impactful to this revenue category.

While we are certainly not satisfied with this performance, we are encouraged that the decline was primarily due to timing delays, and several of those projects remain in the pipeline for the second half of the year, both from a bookings and professional services standpoint. Regarding software maintenance revenue, which is a critical source of our recurring revenue stream, second-quarter and year-to-date 2020 revenue was $9.5 million and $19.2 million, respectively, versus $10 million and $20.2 million in the corresponding year in that [Inaudible]. The decrease in maintenance revenue was driven by a number of factors including: first, timing differences between periods, which resulted in approximately $500,000 to $600,000 greater revenue in the first half of 2019, as compared to the first half of 2020. These timing differences are primarily one-time items that relate to specific renewal contracts that do not have auto-renewal terms and for which we must negotiate at the end of each term.

Also impacting the higher levels of 2019 maintenance revenue were foreign exchange differences in certain of our global customers. As regards to the first impact, we are generally precluded from recognizing revenue on these contracts until new terms have been agreed upon, even though we typically will continue to provide maintenance service for these customers while negotiations are ongoing. The timing of these negotiations can vary significantly from one year to the next. Not only were these types of renewals more significant in the first half of 2019, but there were also a number of contracts that have historically been renewed during the second quarter, which moved into the second half of 2020 as we continue to negotiate with these customers.

Second, over the past several quarters, we have seen a decrease in the amount of license bookings in the mix of our legacy software solutions, which drives new and incremental maintenance revenue. This decrease is the result of our deliberate push to upgrade legacy customers to version 1.9 so that they are prepared to make a transition to Spok Go. These upgrades are heavy on professional services with little to no license value. Additionally, our overall bookings have been impacted over the last four to five months as a result of COVID-19.

While we believe the decline in sales related to COVID-19 is primarily timing, meaning we do not believe we have loss sales, rather contracts delayed by COVID-19 will be closed in a future period. Many hospitals have furloughed employees in clinical, administrative, and technology positions in order to ensure sustained cash flow during these unknown times. As a result, our bookings may continue to be impacted until our customers can bring their operating levels back to at beyond just critical needs and emergency services. And third, our ability to increase annual maintenance charges to customers has continued to decline, given our legacy software solutions are toward the end of their normal lifestyles -- life cycles, with the majority of our new development efforts directed toward Spok Go.

These increases have traditionally offset much of our normal revenue churn. As we continue to focus the majority of our development efforts on Spok Go, we anticipate a purposeful, continued decline in our ability to sell new licenses for the Care Connect suite of products. While we have not seen a meaningful change in our normal customer churn, our ability to replace this churn with new revenues will not likely replicate what we have accomplished historically. Our intent is to replace this churn with the sale of Spok Go, as well as, transition existing on-premise customers to our cloud-based solution over the next several years.

Given these dynamics, one should expect relatively flat to down annual maintenance revenue as we move forward, and especially so, as we begin the process of transitioning existing customers to the subscription model. Turning to operating expenses. We continue to main our -- maintain our focus on creating efficiencies in our expense base and implementing cost reduction initiatives to offset the impact of the pandemic on our revenue streams. For the second quarter of 2020, we recorded adjusted operating expenses, which excludes depreciation, amortization, and accretion, and includes capitalized software development costs of $34.1 million, down nearly 13% from $39.2 million in the year-earlier quarter, with reductions in all expense categories.

Also benefiting operating expenses for the second quarter of 2020, Spok received approximately $800,000 in CARES Act credits, as well as, approximately $2 million in cost savings from the previously discussed employee furloughs. We currently expect the furloughs and other -- and our other cost initiatives to continue through the third quarter. We will evaluate our trends at the end of the third quarter and make a decision on further furloughs and other cost-saving measures at that time. Our capital expenses in the second quarter were approximately $846,000.

Through the first six months of 2020, capital expenses totaled $1.9 million and are down nearly one-third from the first half of 2019, again, as we determine ways to preserve cash. Capital expenses are incurred primarily for the purchase of pagers, network infrastructure to support our wireless customers, as well as, the necessary infrastructure to support our software business. We do not expect any significant changes to the level of our capital expense requirements for the balance of 2020. Turning to the balance sheet and other financial items in the second quarter of 2020 and through the first six months of the year, Spok generated approximately $5.2 million and $3.3 million, respectively, of EBITDA.

This, along with cash on hand, was used to fund the first half quarter -- the first half quarterly dividends of $5 million and capital expenses of $1.9 million. We ended the quarter with a cash balance of $70.9 million, down approximately $6.4 million from December 31st, 2019. Finally, with respect to our financial guidance for 2020, Spok has been focused on continuing to understand the impact of the pandemic on our business, particularly, given the impact of COVID-19 on the rollout of our Spok Go software business, as well as, our legacy business, which is currently driving our software revenue during this pivot. Like many of our peer public companies, we believe that it is most prudent to continue to suspend our practice of providing annual guidance for revenues and expenses at this time.

We look forward to returning to our normal guidance format after the crisis is over. With that, I'll turn the call back over to Vince for some closing comments before we open the call up for your questions. Vince?

Vince Kelly -- President and Chief Executive Officer

Really great job. Thanks, Mike. OK. Before we open the call up for questions, I'd like to comment briefly on a couple of items.

First, I want to update you on our current capital allocation strategy. And then second, I want to review our key goals and business outlook in the balance of the year. With respect to our current capital allocation strategy, our overall goal is to achieve sustainable, profitable business growth while maximizing long-term stockholder value. Toward that end, the allocation of capital can be the primary area of focus.

Our multifaceted capital allocation strategy still includes dividends and share repurchases as appropriate, as well as, key strategic investments that augment our product, development, operating platform, sales, and infrastructure. Our strategy also includes the potential for acquisitions that are more strategic in nature and that are accretive to earnings. However, as I've mentioned in prior quarters, our main focus is on the development and enhancement of Spok Go versus acquiring additional functionality right now. We believe the cost of acquisitions and the integration of disparate functionality is much less efficient, and ultimately, limiting than the internal build approach we are taking at Spok.

We're confident in the transition and believe that financial flexibility over the long term is important to the success of our strategy. That is why we adjusted our cost structure and intend to continue paying our quarterly dividend while investing in our future. Focused -- laser-focused on selling and enhancing the next-generation of our software platform. As I've said, we believe that our cloud-based and fully integrated communications platform will be a game changer in our chosen markets.

We will continue to evaluate our capital allocation strategy and communicate our plans to you each quarter when we report earnings. Finally, with regard to our key goals and business outlook, we believe our efforts in the first half of the year have positioned us to be successful as the market eventually recovers from this pandemic. We will remain nimble in being able to react to changing market conditions and being able to quickly align our operations with the demand levels that we're seeing. We've have [Inaudible] Spok and our predecessor companies going back to 2004, we've generated over $992 million of free cash flow, and returned the majority of that to our stockholders.

I'm personally most comfortable generating cash and returning that cash to our shareholders. However, in years prior to our acquisition of Amcom and our entry into the software business, we generated significant cash and returned it rapidly to our shareholders. While we're doing this, the value of our stock dropped significantly. This is something because we were distributing the value of our company to our shareholders at a rapid rate, but not doing anything to invest and create future value.

We believe it is the job of a public company to create long-term future value for all its stakeholders. We also believe that our investments in developing the Spok Go and building a world-class team will pay off in the long run, and we will be positioned to both grow our equity value while making profits and positively changing the world through enhanced clinical communications. I'd like to thank our shareholders for their patience and support. I'd also like to thank them for their participation in our annual meeting earlier this week.

As we reported, each of the 10 nominees to the company's board of directors was elected to one-year terms. Spok does not have a classified board and our directors stand for reelection every year. This is one of the reasons our governance score is so high. Additionally, Spok Holdings, Inc.

stockholders voted to approve the following items proposed by the board of directors: the appointment of Grant Thornton LLP, as the company's independent auditor, in an advisory vote, the compensation of Spok's named executive officers as described in the 2020 proxy statement, and the company's 2020 equity incentive award plan. Lastly, the shareholder proposal regarding board of director independence and refreshment was defeated. Final voting results will be filed with the SEC. OK.

So at this point, I'll ask the operator to open the call for your questions. [Operator instructions] Operator?

Questions & Answers:


Operator

[Operator instructions] We'll take our first question from Brad Gold with Capital AU Consulting.

Unknown speaker

Good morning, Vince. Thanks for taking the questions. I guess I have two questions, if that's legal here. They're usually not that many.

I guess, my first question has to do with the visibility of your software business. As I understand from your verbiage and your earnings, as well as, what you said today, you seem to be blaming most of your poor performance on the pandemic. But if you look at Vocera, they had a great quarter with the pandemic. And if I go back to your previous earnings reports in the third quarter of last year, you said you were going to give us guidance in February when we release earnings.

We expect not only revenue growth but pretty significant operations booking growth as well both from legacy solutions and new Care Connect. And then in the fourth quarter, you told us that, thank you for your support and patience. This is in response to a shareholder's question. I get your frustration.

We're behind in delivering the platform. We didn't deliver when we thought we would, on and on and on. So I guess my question is, it seems as though the problem was pre-pandemic and why should shareholders feel any confidence in you being able to perform moving forward? It woudn't.

Vince Kelly -- President and Chief Executive Officer

OK, great. Thank you for both of your questions. I also look up to our -- look forward to our follow-up call that we have. I think it's on Monday that you scheduled with us.

But let me dive into the problem --

Unknown speaker

Before you answer, that was my first question because I had a question on valuation. Thank you.

Vince Kelly -- President and Chief Executive Officer

All right. Let me answer this question and then you can ask that question, how's that?

Unknown speaker

Perfect.

Vince Kelly -- President and Chief Executive Officer

OK. First of all, with respect to Vocera's performance in the second quarter, I'm happy for Vocera and I'm happy for their shareholders. I'm glad that they had a good quarter. One of the things that's happening as a result of this pandemic has been a huge impact.

Hospitals have had to, on a very quick basis and on a short-term basis, changed their priorities. And one of the things that's top of list for their priorities right now is PPE, Personal Protective Equipment. And Vocera's badge, as you know, is a hands-free device. You don't have to touch the badge.

And so, they've had some great results in the first half of this year with respect to selling those badges. I mean, those -- I look at those badges like I look at our pagers, they're great. They're certainly not the future of technology in terms of driving long-term value. We're shortly in the middle of a pandemic when they can be treated as PPE.

That's fantastic. You notice our paging result getting better, not growing like Vocera's devices are growing, but it's great. But we also noticed in the second quarter, Vocera's software revenue way down, down like 20.6% on -- from the second quarter a year ago. And that's no different really than what we're seeing.

We're seeing our software revenue down, as well as, a result of the pandemic. We had a number of very large deals ready to roll, ready to book, push on us. So we have a lot of customers come to us, they give their various reasons, but they all point back to the pandemic. So if you don't think the pandemic is real and you don't think it's impacting an industry that was up to 18% of our GDP but largely operated on average of 2% to 4% margin, and their most profitable business or ambulatory or outpatient business and their elective procedures have been put on hold as a result of pandemic, that suggests to me, you don't understand the industry in which we operate.

Because the fact of the matter is, it has been significantly impacted. We have the CIO of Ad -- Advocate Aurora on our board of directors. She has given us indications of what are happening inside that organization. We have the former CIO of Harris Health System, the third-largest health system in the nation, as our CIO today and he still got contacts inside that organization.

They're hurting. We've looked at multiple surveys and industry pieces about what's going on in their hospitals, they're hurting. So we aren't thinking that we're using the pandemic as an excuse. We're sharing with you the reality of the impact this is causing, not just on Spok but on our customers.

Now having said all that, we did book a very large Spok Go sale, our first big platform sale, we're delighted about that. We have more in the pipeline. Our pipeline has continued to grow. We have warmed right up to the altar and they literally came back to us -- a household name, huge healthcare network, literally came back to us and said, we have to put this on hold.

Our CEO said to freeze all new projects until we do the budgeting for next year. I mean, this pandemic is a real issue on our results. So glad for Vocera. Happy for them.

I think that badge is a great solution for what's going on in the world today. I think that cloud-native platform that we've created, that we've named Spok Go is the great long-term solution for clinical communications in the United States, and we're going to continue to support it and we're going to continue to sell it. We're going to make you a lot of money with it if you remain a shareholder.

Unknown speaker

And that's a perfect -- that's a perfect segue to valuation. I guess, last quarter, you wrote that the company was worth $10 exclusive of software. Basically, the stock is trading now at $9.60 and according to my numbers -- you know, your numbers, you've spent $218 million on the software business. I would say it's closer to $300 million.

Anyway, between $11 and $15 a share and we're getting no value. So I guess, my two questions are, can you explain why we get no value for the greatest thing that's coming? And number two, if you had to grade yourself since the purchase of Amcom, how would you grade yourself on the effectiveness of what you've done there?

Vince Kelly -- President and Chief Executive Officer

Well, first of all, I don't agree with the numbers you threw out there, so I'll have to see if you could send me backup or something because both of us are sitting here shaking our heads, saying we never -- don't agree with that.

Unknown speaker

Well, basically you delayed the [Inaudible] share.

Vince Kelly -- President and Chief Executive Officer

Hey, Brad, we're not going to get credit for Spok Go until shareholders can see a lot of sales of Spok Go. And when they start seeing a lot of sales of Spok Go, I believe the stock is going to go up. And I believe it's going to be a great long-term solution for our customers, a great long-term solution for our employees, and it's going to improve clinical communications and the quality of life of these caregivers. And that's what we're working for.

We want to make you guys money, but we also have a passion about what we do and we're going to be successful doing it. You don't have to believe that, but obviously, you have vision because you've held on to your stock, so you probably feel it's coming. Otherwise, you would sell, right? So thank you for that support and thank you for that endorsement.

Unknown speaker

Oh, it's actually -- what I think is that a number of your shareholders over the last six months: B. Riley, Palogic, [Inaudible] an activist who joined your board, another investor forced a new board member on. I think people are getting a little impatient because it's been five years. So I think that you've been running this company for 15 or 16 years, it's time for some change.

And I think, a lot of people are investing because they think in different hands this asset would perform better. So I appreciate you taking my questions, but I think that that is an attitude that a lot of people share and it's one that you should think about. So thank you for taking the questions.

Vince Kelly -- President and Chief Executive Officer

Thanks. Hey, thanks, Brad. I appreciate it. I do think about it.

I do value your feedback. You and a very small minority of our shareholders are welcome to voice your concerns and voice your opinions all you want. You guys did yesterday or you guys did Tuesday at the shareholder meeting. But you're a very small percentage and all our shareholders, the overwhelming super majority of our shareholders supported this board and supported our strategy going forward.

And again, my goal is for them to be successful and my goal is for you to be successful. I have run this company for a very long time, as you point out. I have generated almost $1 billion of free cash flow and given the majority of that back to our shareholders. When we were developing Spok, we ran into a flat period in terms of our software sales and cash flow and that caused our stock to be flat for a very long time.

I get that. But before we bought Amcom, our stock was dropping precipitously because we had no future. Now we have a future. Now we have a platform.

Now we're generating money, we're operating profitably, returning capital to shareholders, and we have a future platform that we believe is that much better and far more superior than what our competitors have, and we think that's going to yield very positive results. Thank you. Let's go to the next question.

Operator

[Operator instructions] We'll take our next question from Ryan Vardeman with Palogic.

Ryan Vardeman -- Palogic Value Management LP

Hey, guys. Thanks for taking my question. Congrats on the Spok Go win. Can you give us a little bit more color as it relates to the profile of that customer, kind of the scale and scope of that engagement, and how you're pricing it, which might then give us a little bit more visibility on to kind of the opportunity that's there for other customers? Thanks.

Vince Kelly -- President and Chief Executive Officer

No. We're going to do that, like I said, in my opening comments, Ryan, when we report third-quarter results in late October.

Ryan Vardeman -- Palogic Value Management LP

OK. Do you have any more color that you'd like to or could provide as it relates to the total opportunity set for the company in general, or how you're intending to price Spok Go more generally and more broadly?

Vince Kelly -- President and Chief Executive Officer

Yeah. We have a pipeline that we review on a regular basis and it continues to grow. I'm not going to give the specifics of that pipeline in terms of how many deals, what the average deal size, or what the total is, but it has grown consist -- considerably in this quarter. And we expect that'll continue to grow and that we'll continue to book sales out of that pipeline.

Also, I think the potential that we have to sell Spok Go is only going to increase as a result of this pandemic, number one, because hospitals are going to realize how important timely clinical communication is. One of the things that our platform does and it does it very, very well, is it delivers critical test results when and where it matters most. And as you can imagine, with COVID-19, you know, and with all the delays in people getting results, the quicker you can get information into the hands of people, the more effective you can be fighting as pandemic. So we think sales is only going to increase.

That functionality that we've built into the platform will be a big selling point. And then, we think when we deliver R3 at the end of the year -- by the end of the year, that pipeline opportunity will expand yet again because that's the release where we actually have then the full functionality with respect to our own contact center integration. And so, we'll have a lot more customers in our existing customer base that we can go to. We have 2,200 customers at our hospitals right now and that's a huge opportunity set for us to go back to.

The other nice thing about Spok Go in terms of future opportunity, Ryan, as you know, most of our customers, historically, if you run it against the definitive database and look at our customers, the overwhelming majority have been large customers over the years. They've been 600-beds-plus hospitals. And the reason for that is because when we sold premise-based software, it requires aisle servers, as Mike mentioned earlier, it requires a lot of professional services and those people that are expensive per hour. And so, that has been limiting in terms of how broadly we can distribute and sell our products because the medium-size hospitals and some of the smaller hospitals just didn't have the budgets to be able to do that.

Now with Spok Go, it's a cloud SaaS -- a SaaS-based model, it's something that they pay for over time, and so, this is an opportunity for us to also sell into the medium and smaller-sized customers in the future. So this one's going to be a winner. And yeah, it's going to take time. And yeah, it's unfortunate when -- when the timing of when this pandemic hit, right, we delivered this thing to the market.

But I believe in it, Ryan, and you and I know we had our differences on a lot of things, but I truly sincerely hope you, Brad, all of our shareholders are successful as a result of this because I'm telling you, I believe in it.

Ryan Vardeman -- Palogic Value Management LP

Yeah. I think kind of [Inaudible] the opportunity and giving us scale and scope at some point, as well as, kind of how you're planning on billing folks at some point, kind of just providing a business model, if you will. I think, could be very instructive in helping educate us as it relates to the opportunity. Anyway, thank you for taking the question and thank you for the cost controls.

Have a -- have a good one.

Vince Kelly -- President and Chief Executive Officer

Yeah. No, I appreciate it, Ryan. And I will just say this about what you were just saying a second ago. We intend, over time, to have more disclosure around our SaaS solutions.

As of June 30th, we didn't have Spok Go booked and generating revenue. That happened -- the large one happened actually in July. As we go forward, we'll start talking about it. We're generally looking at these bookings with a total contract value over a three-year period.

It's a SaaS-based model so it's 36 months. You can figure out how then the revenue would flow in and then that layers and we build it over time. But we are talking -- Mike and his team have worked with Parthenon to look at how you the SaaS business transformation or what metrics and KPIs, etc. are appropriate for it.

We've talked to a couple of our shareholders who have given us resources for it and our accounting and finance team have taken that. We've done a lot of research on it and we're working with our auditors on that right now. And we are talking to -- Mike's got another CFO in the industry that's working on something very, very similar to what we're going through, talking to them about it. Because not only is it a new metric for us in terms of how we report and how we'll give guidance, but we have to -- it's very easy when we go sell our new customer and how to look at it.

But when we go to an existing customer and we start selling Spok Go to them and they're also paying us maintenance and doing upgrades, there's a whole another level of sophistication you have to go through there and how you go through that transition. We're in the throes of that right now. And today, as I sit here, you know, on the 30th of July, it would not be appropriate for us to provide a lot of detail around that. But I get the fact that you want it, and Mike and his team, trust me, are all over it.

Mike's been through this before. He knows what he's doing and we'll get there. Thank you. OK.

I don't see any other questions in the queue. I appreciate the two callers that did ask questions. You know, I really want to thank you all for joining us this morning and those who joined us earlier this week. And we look forward to speaking with you again that's when we release our third-quarter results in October.

Look, everyone, have a great day today. Stay safe and stay healthy. Thank you.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Mike Wallace -- Chief Operating Officer and Chief Financial Officer

Vince Kelly -- President and Chief Executive Officer

Unknown speaker

Ryan Vardeman -- Palogic Value Management LP

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