Stockholders’ Equity and Stock Based Compensation — Our authorized capital stock consists of 75 million shares of common stock, par value $0.0001 per share, and 25 million shares of preferred stock, par value $0.0001 per share.

Changes in Stockholders’ Equity. Changes in stockholders’ equity for the nine months ended September 30, 2016 consisted of:



	(Dollars in thousands)
Balance at January 1, 2016	$	333,553
Net income for the nine months ended September 30, 2016	10,953
Cash dividends declared	(7,893		)
Amortization of stock based compensation	2,067
Common stock repurchase program	(6,214		)
Other	(12		)
Balance at September 30, 2016	$	332,454

General. At September 30, 2016 and December 31, 2015, there were 20,532,338 and 20,886,261 shares of common stock outstanding, respectively, and no shares of preferred stock outstanding.

2015 LTIP. On December 9, 2014, our Board of Directors adopted an LTIP (which provides for a 36 month vesting period) that included a stock component in the form of restricted stock units ("RSUs"). Under this incentive program, RSUs will be granted to eligible employees annually and each annual grant will generally vest over a three year service period. Each annual grant includes performance metrics required to be met for vesting purposes, as established by the Board of Directors. Our Board of Directors also approved that future cash dividends related to the RSUs will be set aside and paid in cash to each eligible employee when the RSUs are converted into shares of common stock. RSUs would be converted into shares of common stock on the earlier of a change in control of the Company (as defined in the 2015 LTIP) or on or after the third business day following the day that we file the Annual Report on Form 10-K with the SEC for the grant's final vesting year, but in no event later than December 31 of the year following the vesting date if the pre-established performance conditions are achieved. Any unvested RSUs awarded under the 2015 LTIP and the related cash dividends are forfeited if the participant terminates employment with the Company.

On January 2, 2015, our Board of Directors granted 254,777 RSUs with a grant date fair value of $4.4 million. On January 28, 2016 our Board of Directors issued a second grant of 227,082 RSUs with a grant date fair value of $3.8 million. An additional 7,629 RSUs were granted to eligible employees who joined the Company during the nine months ended September 30, 2016. All issuances were made to eligible employees under the 2012 Equity Incentive Award Plan (the "2012 Equity Plan") for the 2015 LTIP pursuant to a Restricted Stock Unit Agreement. Eligible employees have the opportunity to earn RSUs based upon continued employment with the Company and the achievement of performance goals established by our Board of Directors for our consolidated revenue and operating cash flows (as defined by the Company) during the period of January 1, 2015 through December 31, 2017 (“the 2015-2017 performance period”) for the 2015 grant and the period of January 1, 2016 through December 31, 2018 ("the 2016-2018 performance period") for the 2016 grant, respectively. A total of $1.7 million was included in stock based compensation expense for the nine months ended September 30, 2016 relating to grants issued under the 2015 LTIP.

The following table summarizes the activities under the 2012 Equity Plan from January 1, 2016 through September 30, 2016:



	Activity
Total equity securities available at January 1, 2016	1,483,235
Less: 2015 LTIP RSU's awarded to eligible employees, net of forfeitures	213,955
Less: Restricted shares of common stock ("restricted stock") awarded to non-executive members of the Board of Directors	17,615
Total equity securities available at September 30, 2016	1,251,665

The following table details activities with respect to RSUs issued and outstanding under the 2015 LTIP for the nine months ended September 30, 2016:



	Shares		Weighted- Average Grant Date Fair Value		Total Unrecognized Compensation Cost (Dollars in thousands)		Weighted-Average Period Over Which Cost is Expected to be Recognized (In months)
Non-vested RSUs at January 1, 2016	242,468		$	17.35
Granted	234,711		16.83
Vested	—		—
Forfeited	(20,756	)	17.05
Non-vested RSUs at September 30, 2016	456,423		$	17.10	$	4,843	21

2016 ESPP. On July 25, 2016 our stockholders approved the registration with the SEC of 250,000 shares of common stock, to be issued from time to time in connection with purchases under the Spok Holdings, Inc. 2016 Employee Stock Purchase Plan ("2016 ESPP"). Shares were first offered for purchase under the 2016 ESPP during the third quarter of 2016. Under the 2016 ESPP, eligible participants can voluntarily elect to have contributions withheld from their pay for the duration of an offering period, subject to the 2016 ESPP limits. At the end of an offering period, contributions will be used to purchase the Company's common stock at a discount to the market price based on the first or last day of the offering period, whichever is lower. Participants are required to hold common stock for a minimum period of two years from the grant date. Participants will begin earning dividends on shares after the purchase date. Each offering period will generally last for no longer than six months. Once an offering period begins, participants cannot adjust their withholding amount. If a participant chooses to withdraw, any previously withheld funds will be returned to the participant, with no stock purchased, and that participant will be eligible to participate in the 2016 ESPP at the next offering period. If the participant terminates employment with the Company during the offering period, all contributions will be returned to the employee and no stock will be purchased at a discounted rate.

We use the Black-Scholes model to calculate the fair value of the options to purchase common stock, under the 2016 ESPP, at the grant date due to the look back feature included in the 2016 ESPP. The look back feature allows for the purchase of common stock at a discount based on the price at the time of grant or purchase date, whichever is lower. The Black-Scholes model requires the use of estimates for the expected term, the expected volatility of the underlying common stock over the expected term, the risk-free interest rate and the expected dividend payment. The fair value of the discount is the difference between the fair value of the underlying stock price at grant date and the discounted purchase price at grant date. The fair value of the look back feature is estimated to be a call option at the discounted rate combined with a put option on one minus the discounted rate where the discounted rate is equal to the discount being offered to participants under the 2016 ESPP. The fair value of the options to purchase common stock under the 2016 ESPP is the combination of the fair value of the discount and the fair value of the look back feature.

We base the risk-free rate for the expected term on the U.S. Treasury Rate as of the grant date. The expected term is equal to the required holding period of two years. The volatility for our common stock was estimated based on the standard deviation of monthly variances in stock price using a rolling three year history of the Company's stock price. Because the expected term includes a period for which a participant earns (the two year holding period less the offering period) and does not earn dividends (the offering period) our fair value is equal to the sum of the Black-Scholes model amount, run for the non-dividend yielding period, plus the Black Scholes model amount, run for the dividend yielding period (for which the total period is equal to the expected term). We use the discrete dividend yield method due to our consistent and routine history of paying dividends. The following assumptions were used for each respective period for employee stock-based compensation related to the 2016 ESPP:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016			2015	2016			2015
Expected term (in years)	2.00			—	2.00			—
Volatility	7.89		%	—	7.89		%	—
Risk-free interest rate	0.34% - 0.78%			—	0.34% - 0.78%			—
Dividend payment	$	0.125		—	$	0.125		$	—

For the nine months ended September 30, 2016 the initial offering period was still open and employees had not yet purchased any common stock. The following table summarizes the activities under the ESPP from January 1, 2016 through September 30, 2016:



	Activity
Total ESPP equity securities available at January 1, 2016	—
Plus: Registration of 2016 ESPP	250,000
Less: 2016 ESPP common stock purchased by eligible employees, net	—
Total 2016 ESPP securities available at September 30, 2016	250,000

Amounts withheld from participants will be classified as a liability on the balance sheet until funds are used to purchase shares. This liability amount is immaterial to the overall financial statements.

Stock Based Compensation. We record all stock-based awards, which consist of RSUs, restricted stock and the option to purchase common stock under the ESPP, at fair value as of the grant date. Stock based compensation expense is recognized based on a straight-line amortization basis over the respective service period. Forfeitures and withdrawals are accounted for on an as incurred basis. The following table reflects the items for stock based compensation expense on the condensed consolidated statements of income for the periods stated:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Operating Expense Category	2016		2015		2016		2015
	(Dollars in thousands)
Cost of revenue (LTIP)	$	57	$	33	$	164	$	101
Service, rental and maintenance (LTIP)	61		29		177		86
Selling and marketing (LTIP)	75		16		198		118
General and administrative (LTIP)	391		223		1,198		914
General and administrative (ESPP)	9		—		9		—
General and administrative (Board of Directors Restricted Stock)	107		93		321		278
Total stock based compensation expense	$	700	$	394	$	2,067	$	1,497

The increase in stock based compensation expense during the nine months ended September 30, 2016, compared to the same period in 2015, was due primarily to the January 2016 RSU grant under the 2015 LTIP. Each grant is amortized over the corresponding three year service period beginning in the year of issuance.

Cash Dividends to Stockholders. The following table details our cash dividend payments made in 2016. Cash dividends paid as disclosed in the condensed consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015 include previously declared cash dividends on shares of vested restricted stock issued to our non-executive directors and dividends related to vested RSUs issued to eligible employees. Cash dividends on RSUs and restricted stock have been accrued and are paid when the applicable vesting conditions are met. Accrued cash dividends on forfeited restricted stock and RSUs are also forfeited.



Declaration Date	Record Date	Payment Date	Per Share Amount		Total Payment⁽¹⁾
					(Dollars in thousands)
February 24	March 18	March 30	$	0.125	$	2,580
April 27	May 23	June 24	0.125		2,570
July 27	August 16	September 9	0.125		2,568
	Total		$	0.375	$	7,718

(1) The total payment reflects the cash dividends paid in relation to common stock and vested restricted stock.

Future Cash Dividends to Stockholders. On October 26, 2016, our Board of Directors declared a regular quarterly cash dividend of $0.125 per share of common stock with a record date of November 18, 2016, and a payment date of December 9, 2016. This cash dividend of approximately $2.6 million will be paid from available cash on hand.

Common Stock Repurchase Program. In October 2015, the Board of Directors extended the common stock repurchase program through December 31, 2016. In extending the common stock repurchase plan the Board of Directors reset the purchase authority to $10.0 million with the repurchase authority to begin the earlier of January 4, 2016 or the completion of the existing common stock repurchase program. The following table presents information with respect to purchases made by the Company during the nine months ended September 30, 2016:



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of the Publicly Announced Plans or Programs⁽¹⁾	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs⁽¹⁾
					(Dollars in thousands)
Beginning Balance					$	10,000
January 1 through January 31, 2016	152,198	$	16.53	152,198	7,484
February 1 through February 29, 2016	101,736	17.24		101,736	5,730
March 1 through March 31, 2016	37,927	16.44		37,927	5,107
April 1 through April 30, 2016	31,468	16.40		31,468	4,591
May 1 through May 31, 2016	34,323	16.37		34,323	4,029
June 1 through June 30, 2016	—	—		—	4,029
July 1 through July 31, 2016	—	—		—	4,029
August 1 through August 31, 2016	3,800	16.44		3,800	3,967
September 1 through September 30, 2016	10,084	16.46		10,084	3,801
Total	371,536	$	16.68	371,536

(1) In October 2015, the Board of Directors extended the common stock repurchase program through December 31, 2016, and reset the repurchase authority to $10.0 million as of January 4, 2016.

Additional Paid-in Capital. For the nine months ended September 30, 2016, additional paid-in capital decreased by $4.1 million to $106.3 million at September 30, 2016 from $110.4 million at December 31, 2015. The decrease in the nine months ended September 30, 2016 was due primarily to the repurchase of shares of common stock under the current stock repurchase program offset by the issuance of additional grants under the 2015 LTIP.

Net Income per Common Share. Basic net income per common share is computed on the basis of the weighted average common shares outstanding. Diluted net income per common share is computed on the basis of the weighted average common shares outstanding plus the effect of all potentially dilutive common shares including outstanding restricted stock and RSUs, which are treated as contingently issuable shares, using the “treasury stock” method. The Company has determined, based on the provisions of the 2015 LTIP, that unvested RSUs do not currently meet, nor have they met since issuance, the criteria to be considered dilutive. Therefore we have excluded them from the calculation of both diluted net income per common share as well as the diluted weighted average shares of common stock and common stock equivalents for the three and nine months ending September 30, 2016 and removed them from the comparative three and nine months ending September 30, 2015. This correction is immaterial to our financial statements and corresponding disclosures. The components of basic and diluted net income per common share were as follows for the periods stated:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
	(Dollars in thousands, except share and per share amounts)
Net income	$	4,058	$	4,220	$	10,953	$	11,515
Weighted average shares of common stock outstanding	20,517,419		21,301,311		20,581,586		21,623,612
Dilutive effect of restricted stock, RSUs and the ESPP	14,926		14,374		14,464		15,361
Weighted average shares of common stock and common stock equivalents	20,532,345		21,315,685		20,596,050		21,638,973
Net income per common share
Basic	$	0.20	$	0.20	$	0.53	$	0.53
Diluted	$	0.20	$	0.20	$	0.53	$	0.53