Earnings Call Transcript - SPOK Q4 2022

Operator, Operator

Greetings, and welcome to the Spok Holdings, Inc. Fourth Quarter 2022 Earnings Results Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Al Galgano. Thank you, sir. Please go ahead.

Al Galgano, Host

Hello, everyone, and welcome to Spok Holdings' Fourth Quarter 2022 Earnings Call. I am joined today by Vince Kelly, Chief Executive Officer; Mike Wallace, President of Spok Inc. and Chief Operating Officer; and Calvin Rice, Chief Financial Officer. 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 2022 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.

Vince Kelly, CEO

Thank you, and good morning, everyone, and thank you for joining us this morning for our fourth quarter and full-year 2022 earnings call. Today, we will share with you an update on how our strategic business plan is progressing as well as our financial results for the quarter. I'll start by reviewing the agenda for today's call. The order will be as follows. We will begin by providing a review of our operational performance for the quarter and full year. I'll then turn the call over to Mike to review our fourth quarter and full year 2022 financial highlights as well as our pro forma results. We will then conclude our prepared remarks with our business outlook and financial guidance for 2023. And finally, we'll wrap up with some Q&A. In general, I want to reiterate how proud I am with what the Spok team has been able to accomplish in 2022 and believe that we have established a solid foundation for the future as we continue to execute. We now have a singular focus of generating cash flow and returning capital to shareholders. We did it last year, and we'll do it again this year. In terms of operating results, over the last year, we made progress in key performance areas, including wireless trends, software bookings and backlog levels as well as expense management as we successfully aligned our cost structure with our updated business plan. Going forward, we believe our extensive experience operating in our established communications solutions will create significant value for stockholders by maximizing revenue, cash flow generation and return of capital. Certainly, 2022 was a year of change. In an effort to quickly respond to marketplace dynamics as well as demand for our products and solutions, last February, we announced a new strategic business plan that set a priority on maximizing cash flow with the goal of returning capital to our shareholders. As part of that strategic pivot, we made the tough decision to discontinue the development and sale of Spok Go and eliminate all associated costs. Additionally, we expanded upon our already disciplined expense management track record to rightsize the company to focus on cash flow generation. This was accomplished by streamlining Spok's management and Board structure by approximately 50%, reducing our employee headcount by about 30%, rationalizing external costs, reducing capital expenditures and consolidating offices. These difficult steps were taken due to the challenging financial and resource environment our hospital customer base has experienced and continues to experience due to the pandemic. This was and is not a good environment for new projects as hospital resources and budgets remain tight and are focused on getting more out of their existing solutions. Spok's Wireless and Care Connect suite service lines are ideally situated for this environment. Spok has an excellent track record of driving revenue and cash flow from these business lines and enjoys significant market leadership position in narrowband personal communication services and hospital call center software. Since our strategic pivot last February, morale has been high and Spok has seen a significant improvement in virtually all areas, including sales, product development and overall execution. In 2022, Spok generated nearly $25 million of pro forma adjusted EBITDA and has returned $25 million in cumulative capital to shareholders since the implementation of the strategic business plan. And as you've seen from our guidance, we're on track to do it again this year. Despite the difficult changes that Spok implemented in 2022, we've remained 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. Spok solutions for critical communications provide a vital service for our trusted customers. These customers include 18 of the top 20 adult hospitals and all 10 children's hospitals named to the U.S. News & World Report's 2022-2023 Best Hospitals Honor Roll. In fact, over the past decade, nearly every hospital named to that honor roll has been a Spok customer. We have over 2,200 healthcare facilities as customers, representing the who's who of hospitals in the United States. We've built our solutions over many years and have long-standing viable customer relationships. We honor and respect our customer service and providing world-class healthcare, and we value our place in their communications ecosystem. This is coupled with the financial strength that over 83% of our revenue is recurring in nature. We're a company with no debt, which provides us significant flexibility. We continue to focus on investing in and enhancing our integrated Spok Care Connect software solutions and wireless products in order to continue our long-standing relationships with the nation's leading healthcare providers. In 2022, we sharply reduced our research and development spend from the previous year, and we still spent approximately $8.7 million to support the development of our Spok Care Connect platform as well as wireless products, such as our new GenA pager. We expect to expand that investment to approximately $11.3 million this year, in line with spending levels prior to the introduction of Spok Go. This investment is important relative to our plans for stabilization and eventual growth of future software revenue, and these incremental costs are embedded in our guidance that Mike will cover later in this call. We believe these attributes, combined with our experienced, dedicated and committed employee base, are what will allow us to generate significant cash flow into the future and return capital to our shareholders. So with that said, let me take you through a few highlights for the fourth quarter of 2022. We were successful in stabilizing our business and positioning Spok for future growth. In addition to the highlights listed on the slide, other noteworthy fourth quarter performance included: a nearly 17% annual increase in year-over-year software operations bookings; next, we ended the year with a $44 million software backlog, up from the prior year and built our success in software operations bookings; third, quarterly unit erosion of our wireless pagers averaged less than 1%, resulting in a full-year unit erosion of 3.5%, down 80 basis points from the prior year; next, we were able to implement a 28% reduction in year-over-year adjusted operating expenses, primarily through phased-in actions I outlined previously with respect to our strategic pivot; and as a result, we generated $5.6 million of adjusted EBITDA. Our team was able to accomplish all of this during the quarter while returning $6.25 million of cash to our shareholders in the form of our regular quarterly dividend. And we ended the year with approximately $36 million in cash and cash equivalents with over $52 million of deferred tax assets. At the same time, we generated 17 new 6-figure customer contracts during the quarter. Let me take a few moments and highlight a couple of these. First, I'd like to highlight a multiyear agreement signed with a large health system in Oregon. This locally owned nonprofit, six-hospital health system includes a full-service children's hospital, a 24-hour mental and behavioral health services center, and more than 70 primary care specialty and urgent care clinics. With 14,000 employees and nearly 3,000 healthcare providers, the organization provides comprehensive healthcare services across the region and has the most 5-star ratings for hospitals in the area. A customer for more than 20 years, this health system signed a 5-year agreement as an example of our new multiyear contract strategy. With multiyear contracts, customers have predictable annual spending, ensured supportability, quicker access to new functionality, and a streamlined procurement process among the many other benefits. The other customer contract that I'd like to highlight for you is with a large health system in Minnesota that's received nationwide recognition across multiple areas of care. Founded in academics and with extensive deep roots in community medicine, this health system has 15 hospitals, nearly 100 primary, urgent care, specialty, and skilled nursing facilities and clinics. They have 12,000 employees and 4,500 healthcare providers. A Spok customer for over a decade, the health systems signed a multiyear agreement for premium support and professional services for their Spok solution. Even while the healthcare industry is under considerable financial pressure, the customer's leadership understood the value and role of Spok solutions play in delivering critical communication when seconds matter. Our multiyear agreement was ideal for the customer because they wanted predictable annual spend, deeper partnership with support, current software feature releases and value-added services to maximize our investment in both solutions. When we implemented our strategic pivot last year, I had said that I believe that this strategic shift will create significant value for our shareholders while allowing Spok to continue to provide critical communication services to healthcare customers. The two examples I just shared provide a good sense of the value we are creating. Certainly, our performance in the fourth quarter and for the full year demonstrates a company that has stabilized its operation and is poised to take advantage of growth opportunities in our chosen markets. Now before I turn the call over to Mike for a more detailed discussion of our financial highlights and forward-looking guidance, I want to outline some of the assumptions that drive our financial expectations for 2023. First, we anticipate moderate growth in our software operations bookings as our customers operate within their resource constraints, while we continue to focus on multiyear contracts and value-added service engagements. Next, we anticipate that we will be able to continue to minimize unit churn and maximize average revenue per unit, or ARPU, in our wireless products as we continue to benefit from the pricing actions that we took in 2022 and the deployment of our GenA pager. And lastly, we take great pride in our ability to control costs. Although we have taken out the majority of costs related to this strategic pivot, we expect to continue driving incremental savings in 2023. Finally, Mike will provide more detailed guidance information in a few moments, but we believe that these assumptions can drive our business to generate adjusted EBITDA in the range of $24 million to $26 million in 2023. With that said, I'd like to turn the call over to Mike Wallace to review our financial performance.

Mike Wallace, CFO

Thanks, Vince, and good morning, everyone. I would now like to take a few minutes and provide a recap of our fourth-quarter and full-year 2022 financial performance, which we reported yesterday. 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. But before I do, I would like to briefly outline for you our updated definition of adjusted EBITDA as contained in our financial statements and the associated adjusted EBITDA reconciliation table included in our earnings release. We believe that this treatment will give you greater clarity into the performance of the ongoing operations of our company as well as be more reflective of best practices of our software peers. Under the old method, adjusted EBITDA started with net income and then subtracted capital expenses and added back stock-based compensation and any noncash charges for asset impairment. Under the new method, the calculation again starts with net income and then adds back the stock-based compensation, any noncash asset impairment, and any severance or restructuring charges. The difference between the two methods being: previously subtracting capital expenses, which were $3.8 million for 2022, and now adding back severance and restructuring charges. Again, we believe this will give you greater visibility into our operational performance as it takes out much of the noise that was created from the strategic pivot in 2022. And, of course, impacts from severance and restructuring costs will be significantly less impactful in 2023. As such, the results being reported today in this deck and in our earnings press release reflect this new definition for all periods presented unless otherwise noted. Turning to our income statement. In the fourth quarter of 2022, GAAP net income totaled $24.2 million, or $1.21 per diluted share, compared to a net loss of $16.7 million, or $0.86 per diluted share in 2021. Fourth-quarter net income included a $21.9 million noncash gain related to the release of the previously established valuation allowance for unused research and development tax credits. During the fourth quarter, we assessed our valuation allowance and determined that it would be more likely than not that certain of our deferred tax assets related to federal and state net operating losses and other tax credits would be realizable based on several factors. The uncertainty surrounding COVID and Spok Go were both significant detractors to our ability to reasonably rely on projections of future taxable income over the last several years. With these uncertainties largely removed, projections of future taxable income were a primary consideration in our conclusion, largely resulting from our restructuring efforts and elimination of costs related to the development of Spok Go in 2022. Additionally, our historical experience of profit generation prior to the introduction of Spok Go, in conjunction with our deep knowledge of the existing wireless and software service lines, provides us with greater confidence in these projections. As a result, we have reduced the valuation allowance by $21.9 million, which was previously established in the fourth quarter of 2020. The remaining $2.3 million valuation allowance relates to certain state net operating losses, state tax credits, and foreign tax credits that we do not currently expect to realize based on these projections. For a more detailed explanation, please see our discussion in the 10-K. For the fourth quarter of 2022, total GAAP revenue was $33.3 million compared to revenue of $34.5 million in 2021. Revenue for the quarter consisted of wireless revenue of $19 million, which was down $0.2 million or less than 1% from the prior year, and software revenue of $14.3 million, down 7.2% from last year, largely in line with our expectations. With respect to wireless revenue, fourth-quarter 2022 performance was driven by a continued decline in pager unit churn on a year-over-year basis, as the net pager decline during the full year 2022 was 3.5%, with units in service declining by only 30,000. The fourth-quarter monthly paging revenue component of wireless, which represents 97% of overall wireless revenue, declined by only 3% on a year-over-year basis. And while wireless revenue did decline in the fourth quarter and full year, that decline was less than we expected, and the rate of erosion continues to slow. The remainder of wireless revenue relates to product sales, primarily through lost pager fees, which are one-time in nature and are far less impactful to the ongoing value of this business. For the full year, wireless revenue declined by 4.1% compared to the prior year and, again, in the range of our expectations, with the monthly paging revenue component of wireless declining only 3.3% on a year-over-year basis. Turning to the fourth-quarter software revenue, beginning with maintenance revenue, which is the largest component of our software revenue, was essentially flat to the prior year quarter, totaling $9.3 million. As we have discussed in previous quarterly calls and as we continue through this pivot, with the focus being brought back to our Spok Care Connect software products, our expectation is for maintenance revenue to be flat to down slightly on a year-over-year basis, given gross churn and uplift levels remaining consistent with prior quarters. However, as we continue to make progress on our product roadmap with Spok Care Connect, we expect bookings will continue to grow in the coming years and maintenance revenue along with it. Given the nature of maintenance revenue, higher license sales will work through revenue on a lagging basis. So we look first to stabilizing that revenue decline, and then beginning to grow it. Professional services revenue was $3.1 million versus $3.8 million in the fourth quarter of 2021. As we have stated in our earnings calls over the past several quarters related to our financial guidance, we had expected a lower level of services revenue resulting from the planned reduction in personnel of approximately 35% to better align with our current backlog and to drive a higher rate of net cash flow in alignment with the strategic shift in our business plan. And we believe the actions required for this alignment are complete at this time. As we have stated in several earnings calls, it is important to remember that services have not historically driven meaningful cash flow on a stand-alone basis, but has been viewed as an opportunity to expand our licensed footprint through customer engagement as well as to fulfill upgrade obligations under maintenance contracts, which is critical to maintaining our existing customers. Lastly, license and hardware revenue was $1.9 million compared with $2.2 million in the same period of the prior year. For the full year, total GAAP revenue was $134.5 million compared to revenue of $142.2 million in 2021. Wireless revenue on a year-to-date basis was $75.6 million compared to $78.8 million, reflecting net paging revenue churn in line with the trends seen in the fourth quarter, and in 2022, software revenue of $58.9 million compared to $63.4 million in the prior period. This was driven by maintenance revenue being down 2.8% on an annual basis, professional services down 27%, due to the intentional reduction in professional services resources to better align with backlog just discussed, and which was offset by higher license revenue of 22%, driven by the strong software operations bookings during the year. Turning to fourth-quarter adjusted operating expenses, which excludes depreciation, amortization, and accretion of $0.9 million and severance and restructuring costs of $0.9 million, totaled $28.5 million in the fourth quarter compared to $39.5 million in 2021 or 28% lower. And for the full year, adjusted operating expenses were approximately $123.4 million compared to $154.3 million in 2021 or 20% lower as we carried most of the costs and personnel related to Spok Go through April of 2022. As Vince mentioned earlier, the streamlining of employee and management headcount reduction is now complete, with substantially all of the remaining liability expected to be paid in the first quarter of 2023. Finally, adjusted EBITDA, the definition of which I discussed earlier and as defined in our earnings release tables and represents EBITDA before stock-based compensation expense, impairment of intangible assets, effects of capitalized software development costs and severance and restructuring costs for the fourth quarter, was a positive $5.6 million compared with a negative $3.8 million in the same quarter of 2021 and reflects the progress made to date with our strategic pivot. For the full year, our adjusted EBITDA was a positive $15 million compared to a negative $4.9 million in 2021. Now turning to our pro forma adjusted EBITDA. Pro forma adjusted EBITDA results exclude one-time costs related to the strategic pivot as well as costs related to operations under our prior strategy that will not be incurred going forward. Had those strategic changes been in effect as of January 1, 2022, our adjusted EBITDA would have been $9.5 million higher for the year. This includes costs related to terminated employees of approximately $7.5 million and non-payroll Spok Go and other costs of approximately $2 million. Inclusive of these adjustments, our 2022 adjusted EBITDA would have been $24.5 million. Finally, I'd like to take a few minutes to outline our financial guidance for 2023. In general, this guidance was constructed with a base assumption of cautious optimism based on our performance in 2022 with our strategic pivot and the precepts that Vince reviewed earlier. As a reminder, the figures I'm going to discuss today are included in our guidance table in the earnings release. In 2023, we expect total revenue to be in the range of $129 million to $136.5 million, of which we expect wireless revenue to range between $71.5 million to $74.5 million as we continue to expect a slower year-over-year revenue erosion rate based on certain pricing actions we have taken and continued adoption of our GenA pager. Software revenue is expected to range from $57.5 million to $62 million, with the midpoint implying total software revenue representing a small increase from 2022 software revenue. As we have discussed previously, our refocus on our Spok Care Connect software business, after discontinuing Spok Go, will involve the progress we have made in 2022, coupled with our research and development effort in 2023, which costs are included in our guidance to stabilize software revenue and position it for growth in future years. The efforts Vince summarized previously, along with continuing to tightly manage expenses, result in our adjusted EBITDA guidance of $24 million to $26 million for 2023. On a final note, though we are not providing specific guidance for CapEx due to timing and other issues, we would expect the CapEx levels to be in line with prior years. Total capital expenditures for the full year 2022 were $3.8 million, down from $4.4 million in the prior year. With that said, I will now turn the call back over to Vince.

Vince Kelly, CEO

Thank you, Mike. Before we take questions, I want to address some analyst inquiries we received before today’s call. The first question concerned our sales full-time equivalent levels, which are down compared to previous years. Do we believe we have enough resources to meet our sales goals? Yes, our pipeline is expanding each month. Many of the deals we are pursuing are multiyear agreements that include additional licensing, value-added service engagements, and future upgrades. Our sales team coverage is solid, and they are currently more efficient than before. Most of the reduction in sales personnel was from Spok Go, with minimal impact from our Care Connect suite solutions. We are in the process of hiring for inside sales roles, adding a new channel director and two regional sales directors. We plan to keep adding talent as needed to meet our sales objectives, and we are optimistic about our resource levels. The second question related to customer sales engagement. During COVID, it was challenging to secure face-to-face meetings. What is the situation now? This is a great question. We are still experiencing a hybrid approach to meetings, with some being in-person, others outside hospitals, and some remaining remote. The situation is improving, but challenges persist. We are pushing to have more onsite meetings and are strategically increasing our travel. It is crucial to understand that our business, both on the software and wireless sides, relies heavily on direct interactions between our sales team and customers rather than solely responding to RFPs. Therefore, having more in-person meetings is vital. While we have adapted to virtual meetings as best we can since the pandemic, it remains important for us to increase our in-person interactions. The third question was about whether sales cycles are lengthening due to rising interest rates and other macroeconomic factors. We are not experiencing delays with existing customer upgrade sales cycles, and we are seeing a slight reduction in the duration of our multiyear deals. However, new project initiatives at hospitals are progressing slowly due to financial and personnel constraints. Hospitals are focusing on getting more value from their existing systems and networks, where we excel as industry leaders in contact center solutions and narrowband wireless messaging, enabling us to show them how to utilize our solutions effectively. The fourth question asked for the percentage of our software base that underwent communication upgrades, such as PBX, in 2022 and expectations for 2023. We do not monitor PBX upgrades specifically because our sales are not made conditional on that. For clients with CTI integration, the need to upgrade their Spok solutions may arise from a PBX upgrade. CTI integration is one of our strengths and a key driver for additional sales opportunities. Recently, the prevalence of cybersecurity breaches has increased the need for updated operating systems and databases, significantly impacting upgrade frequency. Historically, our average upgrade cycles have ranged from two to four years, depending on various factors. The fifth question highlighted the upsell opportunities within our existing customer base, specifically targeting customers using only one or two products. What is our strategy to capitalize on this potential? We have a clear understanding of what our customers do and do not have in terms of our solutions. Our multiyear deal strategy enables us to incorporate additional licensing opportunities and services into customer quotes. We are also focusing on value-added services through solution assessments, which help outline the most beneficial solutions for their workflows. Our technology strategy emphasizes full integration with our platform, providing a significant competitive edge. The sixth question inquired about our efforts to sell software to smaller hospitals. We are currently hiring two inside sales representatives to promote our subscription offering in the small hospital segment, specifically our hosted solution. We already have one customer operational and aim to have everything running by early April. We expect to be fully staffed by March 15 and will begin selling immediately, though none of this is factored into our current forecasts or guidance. We plan to gradually ramp up in the second half of the year and will keep you updated. The seventh question was about the tracking of our next-generation pager release. In 2022, we delivered 8,300 GenA units and expect to deliver over 20,000 units in 2023. We are achieving a significant average revenue per user advantage from these devices and are focused on maintaining that balance while rolling them out. They have received positive feedback. The eighth question addressed retention levels in 2022. How do those compare to previous years, particularly given the drop in full-time equivalents and our new strategic plan? Currently, morale within the company is at its highest in years. Employees are appreciative of our business plan, and we are meeting our targets while many competitors are struggling. We are debt-free and profitable, contributing to improved morale, which is reflected in our numbers. In 2019 and 2020, our regrettable turnover rate—defined as employees who leave voluntarily—was approximately 11.5%. In 2021, it rose to about 19.5% but fell to around 9% in 2022. Now, we are at a run rate of less than 1%. We will monitor the situation as the year continues, but we are in a strong position. The ninth question was about untapped synergies between our businesses and whether we can grow the 20% of hospitals using both services. We have a robust sales incentive plan combining our wireless and software teams to maximize success. In 2022, we generated around $2.5 million in software sales collaboration deals, and we anticipate doing even more in 2023. We have also added numerous wireless accounts not previously associated with Spok. Our goal is to increase the percentage of hospitals utilizing both services, and our team is motivated and incentivized to achieve this. The tenth question asked whether there is a threshold for bookings that would necessitate reducing the dividend in the future. We are committed to maintaining an annual dividend of $1.25 for 2023. We believe we will generate enough cash to sustain this dividend level for the foreseeable future. However, this is ultimately a decision for the Board, which reviews this matter quarterly. We declared the dividend as announced in the press release last night, and all looks good so far. The final pre-submitted question addressed our efforts to explore opportunities for communications consoles outside the healthcare sector. Is this a priority for this year, or is it a long-term goal? In short, it is a longer-term opportunity. We see potential in other market segments, but our focus this year is not on those areas. Currently, around 10% of our total revenues come from hospitality and government. Significant development spending in those sectors would be required to achieve substantial growth, so that remains a future focus. In conclusion, our priority is to generate adjusted EBITDA within the guidance range we provided and return capital to our shareholders. Now, I will ask the operator to open the line for any additional questions.

Operator, Operator

Our first question is from Eric Martinuzzi of Lake Street Capital Markets.

Eric Martinuzzi, Analyst

Congratulations on a strong finish to 2022. A lot was accomplished in a relatively short period of time. My question is about the 2023 financial outlook. On the wireless revenue side, we had a balance in 2022 between unit churn and ARPU. I'm curious about the expectations for 2023, considering the revenue guidance for wireless.

Mike Wallace, CFO

Yes, our thought process is that we'll continue to see unit churn pretty much consistently with what we've seen in '22. We have, as you've probably noticed, actually seen an uptick from an ARPU perspective. And that's a function of some of the pricing actions that we took, the GenA pagers that Vince talked about in his remarks, all of that is having a solid impact, if you will, from an ARPU perspective. So those are kind of the underlying drivers, if you will, that's driving that range that we have there for '23 in wireless revenue.

Eric Martinuzzi, Analyst

And then just a Q4 question. The license revenue of $1.27 million, I only call it out just because it was down 15%, and that's the first negative comp we've seen in that revenue category since Q3 of 2021. What's going on there? And what's the expectation?

Mike Wallace, CFO

There isn't much happening in that area. It's primarily a result of the mix at the end of the day. In any given quarter, there can be fluctuations related to the mix from a licensing standpoint. It’s challenging for that to remain stable and grow in a consistent manner as we move through different quarters. However, as we anticipate an overall increase in bookings, we expect that over the course of a year, license bookings and, consequently, license revenue will certainly rise. This should align with the growth in overall bookings.

Eric Martinuzzi, Analyst

I noticed that 2022 was a good comparison year. Congratulations on the 17 six-figure deals in Q4 and 66 for the entire year. You mentioned that your pipeline is growing as we concluded the year. Do you have a number for us? Can you provide a percentage or raw numbers regarding large deals compared to last year?

Vince Kelly, CEO

Look, we don't provide guidance in terms of what our total pipeline growth is. We did start from a pretty low base last year because our focus, prior to the pivot in February of '22, was on Spok Go. So we really started growing that pipeline with our Care Connect suite solutions in, say, mid-2022. But it's been growing pretty nicely since then, and we did a lot of big deals in the last year, and we expect to do a lot more than this year.

Eric Martinuzzi, Analyst

And my last question has to do with the cash. Obviously, you returned $25 million to shareholders in 2022, and that's the plan, again, in 2023. How much of that is coming from operations? Or maybe another way to ask it is, given this midpoint adjusted EBITDA of $25 million and let's call it $4 million of CapEx, is the assumption here that we'll generate about $21 million of the return to shareholders from operations and dip into the balance sheet for the remaining $4 million?

Vince Kelly, CEO

You're spot on. It doesn't look like we have any other questions in the queue. Operator, are there?

Operator, Operator

No, we have no further questions, sir. So I will hand the floor back to you.

Vince Kelly, CEO

We are going to conclude now. I want to thank everyone for being with us today. We appreciate your support and interest in Spok. We look forward to updating you next quarter. On a final note, we believe it is important to give our customers and investors a chance to see our business and engage with our broader management team. We hold regular customer meetings, and for our investors, we're planning an Investor Day on Thursday, May 4, 2023, in Dallas. We may arrange another session in the fall up north. The program will include management presentations, and I, along with Mike, Calvin, our Head of Sales Jon Wax, and our CIO Tim Tindle, will be presenting. There will also be a Q&A session. For those who cannot attend in person, the event will be webcast. More details will be shared over the next quarter. If you have any questions about it, please reach out to Al Galgano in Investor Relations, and he will assist you. Thank you all for joining us this morning, and have a great day. We look forward to speaking with you next quarter when we report our first-quarter earnings. Take care.

Operator, Operator

Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.