exv99w1
Exhibit 99.1
USA Mobility, Inc. Investor Conference Call
July 28, 2011
10:00 a.m. Eastern Time
Operating Results for the 2nd Quarter Ended June 30, 2011
Operator: Good morning and welcome to USA Mobilitys Second
Quarter Investor Conference Call. Todays call is being recorded.
Online today we have Vince Kelly, President and Chief Executive
Officer, Shawn Endsley, Chief Financial Officer, and Dan Mayleben,
Chief Operating Officer of the Companys software subsidiary, Amcom.
At this time for opening comments I will turn the call over to Mr.
Kelly. Please go ahead, sir.
Mr. Kelly: Good Morning. Thank you for joining us for our second quarter
investor update. Before we discuss our operating results, I want to remind
everyone that todays conference call may include forward-looking statements
that are subject to risks and uncertainties relating to USA Mobilitys 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 Companys estimates only on the date of this conference call and
are not intended to give any assurance as to actual future results. USA
Mobilitys 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
2010 Form 10-K, our second quarter Form 10-Q, and related Company documents
filed with the Securities and Exchange Commission. Please note that USA
Mobility assumes no obligation to update any forward-looking statements from
past or present filings and conference calls.
I want to start this morning by highlighting what we believe was an outstanding second quarter and
first half operating performance for USA Mobility. On a consolidated basis, with a full quarter of
operations in both our Wireless and Software businesses, the Company is now hitting on all
cylinders and generating extremely positive results. On the Wireless side, we ended the quarter
well ahead of our key operating goals for subscribers, total revenue, cash flow, average revenue
per unit (or ARPU) and operating expenses. At the same time, our recently acquired Software
business posted record results, with higher revenue, solid bookings and a growing backlog. In
addition, we were able to maintain consolidated cash flow margins at a high level, operate
profitably with a low-cost operating structure, and once again return capital to our stockholders
in the form of dividend distributions.
Shawn will discuss our financial results in more detail in a few minutes, but first I want to
review some of our key accomplishments for the quarter.
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Wireless Subscriber trends improved significantly during the second
quarter as our quarterly and annual unit loss rates slowed to their
lowest levels in more than six years. Our quarterly unit loss rate
improved to 2.7 percent, while the annual loss rate was 12.2 percent.
These improving results can be attributed in part to the excellent
performance of our Wireless sales team, which increased direct gross
additions 22 percent from the prior quarter while |
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minimizing gross
disconnects. In addition, our Healthcare market segment continued to
perform well, recording a net churn rate of 0.5 percent, our best
result in four years. With our acquisition earlier this year of Amcom
Software, we believe our healthcare customers now recognize us as a
long-term player in the space and our churn results have benefited as
a result. |
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Wireless Revenue trends also improved during the quarter. The
quarterly rate of Revenue loss was 0.8 percent, the best in the
Companys history, while the annual rate of Revenue erosion in the
quarter improved to 11.9 percent, also achieving our best level in
many years. I would add that we achieved these impressive results
despite relatively flat paging ARPU over the past year. |
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We continued to reduce Operating Expenses in the second quarter in our
Wireless business. Excluding depreciation, amortization and accretion,
Operating Expenses for Wireless declined 18.0 percent over the past
year, once again significantly outpacing our annual rate of revenue
decline of 11.9 percent. Consolidated Operating Expenses totaled $43.7
million for the second quarter, with $31.7 million for Wireless and
$12.0 million for Software. |
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Our Software business also posted a strong second quarter, our first
full quarter of combined operations since USA Mobility acquired Amcom
on March 3rd. Software Revenue totaled $13.1 million,
including a fair value write down of $2.6 million to maintenance
revenue. Absent this accounting adjustment, which does not impact
cash, Software Revenue would have been a record $15.7 million,
compared to pro forma Revenue of $13.1 million in the first quarter,
which excluded purchase accounting adjustments of $0.9 million. In
addition, the Software business achieved solid Bookings during the
quarter and had a strong Backlog at June 30th. |
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The Companys improved Wireless performance, combined with a strong
contribution from Software, resulted in consolidated Earnings Before
Interest, Taxes, Depreciation, Amortization and Accretion (or EBITDA)
of $21.4 million for the second quarter, representing an EBITDA margin
of 32.9 percent. Excluding non-recurring items, EBITDA would have been
$24.1 million, or 35.5 percent of revenue. |
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We began the second quarter with an outstanding debt balance of $51.9
million. During the second quarter we made our required amortization
payment of $3.1 million and additionally we prepaid $11.0 million of
our outstanding debt. After total payments of $14.1 million our
outstanding debt balance at June 30th was $37.8 million. In
addition we closed the quarter with a cash balance of $29.5 million. |
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We continued to meet our goal of generating sufficient free cash flow
during the quarter to return capital to stockholders consistent with
our capital allocation strategy. We paid our regular quarterly
dividend of $0.25 per share on June 24th. In addition, our Board of
Directors yesterday declared a regular quarterly dividend of $0.25 per
share to be paid September 9th. |
Overall, we are very pleased with our second quarter and first half operating performance and
believe we are in an excellent position to post solid results for the balance of 2011 as evidenced
by
our improved guidance. Despite this quarters strong operating performance, however, I would
caution investors
once again that maintaining margins at this level will continue to be a challenge for us going
forward.
At this point Ill ask Shawn Endsley, our Chief Financial Officer, to review our second quarter
financial results and provide additional comments on our recent operating performance... Shawn.
Mr. Endsley: Thanks Vince, and good morning.
Before I review our operating results, I want to let you know that we expect to file our second
quarter Form 10-Q later today. I encourage you to review the Form 10-Q for further details about
our business operations and financial performance since it contains more information than we will
be able to cover on this Call.
As Vince mentioned, we are very pleased with the Companys second quarter results, which either met
or exceeded the previously announced financial guidance for both our Wireless and Software
businesses. Improved rates of subscriber and revenue erosion reduced operating expenses and a solid
ARPU contributed to strong cash flows and high margins in our Wireless business, while our Software
business which completed its first full quarter after the acquisition on March 3rd reported
solid bookings for the quarter and had a sizable backlog at June 30th.
Wireless
Looking first at our Wireless business, we were especially pleased with the improvement in both
subscriber and revenue trends during the quarter. With respect to our customer base, we ended the
quarter with 1,779,000 paging units in service, a net decrease of 49,000 units, compared to a
decline of 61,000 units in the first quarter and 72,000 units in the second quarter of 2010. The
quarterly rate of subscriber loss improved to 2.7 percent from 3.5 percent in the year-earlier
quarter, while our annual rate of net unit loss improved to 12.2 percent from 17.2 percent a year
ago, reaching its best level in more than six years.
Gross Placements for Wireless increased to 64,000 in the second quarter from 52,000 in the first
quarter, while Disconnects totaled 113,000, equal to the prior quarter. The second quarter churn
rate was 6.2 percent, compared to 6.9 percent in the year-earlier quarter.
Healthcare continued to be our most stable market segment with the highest rate of gross placements
and lowest rate of net unit loss. The gross placement rate for Healthcare increased to 4.5 percent
in the second quarter from 3.3 percent in the prior quarter while the net unit loss rate improved
to a 4-year low of 0.5 percent. Overall, Healthcare contributed approximately 79.6 percent of total
gross placements in our direct channel during the quarter. At June 30th, Healthcare
represented 60.9 percent of our Wireless subscriber base, compared to 56.1 percent a year ago.
Total Paging ARPU was $8.74 in the second quarter, compared to $8.72 in the first quarter and $8.87
in the second quarter of 2010. Going forward, we expect Paging ARPU to trend downward as our
customer mix continues the shift to larger accounts that benefit from volume discounts.
Revenue from the Wireless business totaled $52.1 million in the second quarter, compared to $52.5
million in the first quarter and $59.1 million in the second quarter of 2010. The quarterly rate of
revenue erosion improved to 0.8 percent from 5.8 percent in the year-earlier quarter, and was the
lowest quarterly rate of revenue loss in the Companys recent history. In addition, the annual rate
of revenue erosion fell to 11.9 percent in the second quarter from 21.3 percent a year ago,
reaching its lowest level in more than six years.
Paging Revenue declined 2.7 percent in the second quarter to $47.3 million from $48.6 million in
the first quarter. Product Sales increased 19.7 percent to $2.8 million from the prior quarter due
to higher system sales, while Other Revenue declined 12.7 percent to $0.8 million. Cellular phone
sales were especially strong increasing 75.3 percent as activations nearly doubled to 4,370 from
2,191 in the first quarter. Both Product Sales and Cellular revenue reflect the timing of systems
and cellular sales by our Wireless sales force. We do not anticipate that these levels will
continue each quarter in the future.
Software
Turning to our Software business, Revenue totaled $13.1 million in the second quarter. Of that
amount, $3.2 million was Maintenance Revenue and $9.9 million was Operations Revenue. Second
quarter Software Revenue included a fair value write down to maintenance revenue of $2.6 million as
required by purchase accounting. Absent the write down, Software Revenue
would have been $15.7 million. Maintenance Revenue includes ongoing support of a software
application, while Operations Revenue includes software, professional services and equipment sales.
On a pro forma basis, Software Revenue for the first quarter would have been $13.1 million,
excluding purchase accounting adjustments of $0.9 million, an approximately 20 percent pro forma
increase.
Software Bookings for the second quarter totaled $15.2 million, an increase of 11 percent from pro
forma first quarter Bookings of $13.7 million. Bookings represent all purchase orders received from
customers during the quarter, irrespective of revenue type.
The Software Backlog which consists of all purchase orders received from customers not yet
recognized as revenue totaled $20.5 million at June 30th, compared to $18.9 million
at March 31st, an increase of 8.5 percent.
Finally, the Software segments maintenance renewal rate in the second quarter was 99.9 percent,
compared to a pro forma maintenance renewal rate of 99.5 percent in the first quarter.
Total Company
On a consolidated basis, USA Mobility reported Total Revenue for the second quarter of $65.2
million, including $52.1 million from Wireless and $13.1 million from Software. As I noted,
Software Revenue included a fair value write down to maintenance revenue of $2.6 million. Absent
the write down, Total Revenue would have been $67.8 million. Pro Forma Total Revenue for the first
quarter, reflecting Amcoms results for the full quarter and excluding purchase accounting
adjustments, would have been $65.6 million.
Total Operating Expenses (excluding depreciation, amortization and accretion) were $43.7 million
in the second quarter, including $31.7 million for Wireless and $12 million for Software. On a pro
forma basis, total Operating Expenses for the first quarter would have been $46.3 million, with
$35.6 million for Wireless (including $2.9 million in acquisition related expenses), and $10.7
million for Software.
Payroll and Related Expenses (which includes commissions) totaled $20.0 million for the second
quarter, including $13.1 million for Wireless and $6.9 million for Software. Payroll and related
expenses for Wireless decreased 14.1 percent in the second quarter from the year-earlier quarter. For Software, Payroll and Related
Expenses represented 57 percent of its total Operating Expenses for the second quarter.
Headcount at June 30th was 723 versus 740 at March 31st, with 475 from
Wireless and 248 from Software. On the Wireless side, Headcount declined 21 percent from the second
quarter of 2010. Going forward, we will continue to adjust staffing levels as necessary to meet
anticipated requirements for both the Wireless and Software businesses.
Site Rent Expense, the second largest operating expense for Wireless after Payroll and Related
Expenses, declined 13.4 percent to $6.0 million in the second quarter versus the prior quarter, and
28.0 percent from the year-earlier quarter. The decrease reflects continued progress in our ongoing
network rationalization program, which involves deconstructing sites, renegotiating site leases and
moving transmitters to less costly sites.
At June 30th, we operated 5,253 active transmitters, compared to 5,594 at March
31st. The number of transmitters at customer-provided sites that is, those with no
associated rent expense was 2,404 for the quarter, down slightly from 2,411 at March
31st. Also, we reduced the number of our paid active transmitters to 2,849 at June
30th from 3,183 at March 31st.
Beyond Payroll and Related and Site Rent Expenses, all other recurring expenses (excluding
depreciation, amortization and accretion) for Wireless in the second quarter totaled $12.6 million,
compared to $15.1 million in the second quarter of 2010, a reduction of 16.5 percent.
Consolidated EBITDA for the second quarter was $21.4 million, or 32.9 percent of revenue, including
$20.4 million from Wireless and $1.0 million from Software. Excluding the fair value write down of
Software maintenance revenue of $2.6 million second quarter EBITDA would have been $24.1 million
with an adjusted EBITDA margin of 35.5 percent. Consolidated EBITDA for the first quarter on a pro
forma basis, reflecting Amcom results for the full quarter and excluding purchase accounting
adjustments and one-time acquisition related expenses, was $21.7 million, or 33.0 percent of
revenue. Second quarter EBITDA from Wireless was $20.4 million, compared to $17.0 million in the
prior quarter, and represented 39.2 percent of revenue. A schedule reconciling Operating Income to
EBITDA has been included in our earnings release.
Capital Expenses in the second quarter were $1.9 million, with virtually all of it from the
Wireless business, compared to $1.5 million in the first quarter. Capital expenses were primarily
for the purchase of paging devices.
Net Income for the second quarter was $18.6 million, or $0.82 per fully diluted share, compared to
$13.1 million, or $0.58 per fully diluted share, for the year-earlier quarter. Excluding purchase
accounting adjustments, however, pro forma Net Income for the second quarter would have been $20.6
million or $0.91 per fully diluted share.
Net Income in the quarter benefited from improved performance with a $5.2 million reduction in our
deferred income tax asset valuation allowance that significantly reduced income tax expense. This
reduction reflects our ongoing assessment of future taxable income from our Wireless and Software
operations. Favorable revenue and subscriber trends for 2011 resulted in an improved outlook for
taxable income for Wireless and increased the expected usage of the available deferred income tax
assets. Net Income in the quarter also benefited from the receipt of $7.5 million from the sale of
certain narrow band PCS licenses. This non-recurring income was recorded in Other Income.
Turning to the balance sheet: During the second quarter we paid down $14.1 million of the debt
incurred in connection with our purchase of Amcom. As we previously reported, the purchase was
financed through $111.4 million in net cash and $51.9 million in debt, which consisted of $24.1
million in new debt and $27.8 million in assumed Amcom debt. After the debt repayment, we ended the
quarter with a debt balance of $37.8 million and a cash balance of $29.5 million. The outstanding
debt bears interest at 5.25 percent. Looking ahead, we expect to continue to aggressively pay down
the debt while continuing to pay quarterly cash dividends to stockholders.
With respect to our financial expectations for full-year 2011, we are revising previously provided
guidance upwards for our Wireless business. As noted in yesterdays press release, we have provided
two guidance schedules: one that assumes the Amcom acquisition occurred on January 1, 2011; and a
second that includes Amcoms results only from the acquisition date of March 3rd. Also,
we have broken out separate 2011 guidance for both our Wireless and Software operations.
Accordingly, we now expect consolidated total revenues for 2011 to range from $235 million to $248
million (versus previous guidance of $224 million to $240 million), with Wireless between $193
million and $200 million (versus $182 million and $192 million) and Software between $42 million
and $48 million; consolidated operating expenses (excluding depreciation, amortization and
accretion) to range from $162 million to $174 million (versus earlier guidance of $167 million to
$176 million), with Wireless between $127 million and $134 million (versus $132 million and $136
million) and Software between $35 million and $40 million; and consolidated capital expenses to
range from $6.5 million to $9 million (versus previous guidance of $6 million to $9 million), with
Wireless between $6 million and $8 million (versus $5 million and $7 million) and Software between
$0.5 million to $1 million (versus $1 million and $2 million). Finally, I would remind you once
again that our projections are based on current trends and that those trends are always subject to
change.
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Mr. Kelly: |
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With that, Ill turn it back over to Vince.
Thanks, Shawn. |
Before we take your questions, I wanted to briefly address a few items that may be of interest to
investors:
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First, Ill provide a quick update on some of our sales and marketing
activities in the second quarter; |
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Second, I will comment on the competitive environment for our Software business; |
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And, third, I will briefly review our current capital allocation strategy. |
With respect to Sales and Marketing activities in our Wireless business during the second
quarter, we continued to focus on providing wireless messaging solutions to our target market
segments of Healthcare, Government and Large Enterprise. These core segments represented
approximately 90 percent of our direct subscriber base at June 30th, compared to 88
percent a year ago. They also accounted for approximately 84 percent of our direct paging revenue
in the second quarter, compared to 82 percent in the year-earlier quarter.
During the quarter, our Wireless team remained focused on its three primary goals of generating new
business, expanding business in existing accounts, and retention of our most valuable customers. In
addition, a fourth goal was creating cross-selling opportunities with our Software sales team,
which Ill discuss in a moment. For the quarter and year-to-date, our Wireless sales team exceeded
expectations for subscribers, gross additions, retention and revenue within each of our key market
segments. Additionally, we exceeded our second quarter plan for cellular phone placements and
cellular revenue. This effort was aided by a significant sale of tablets in the home Healthcare
segment along with large-scale deployments of aircards and smartphones in the Government segment.
Healthcare continued to be our best-performing market segment during the quarter, contributing 76
percent of all gross pager placements and 59 percent of total direct paging revenue, while net
churn among Healthcare customers continued to be the lowest among all subscriber segments.
In addition, our Wireless business continued to expand its presence in the hospital market
during the second quarter, adding three hospital accounts. Moreover, we recorded a significant sale
to an existing hospital, which included sizable investments in critical messaging software, two-way
in-house paging infrastructure and additional wireless devices. Most importantly, with one of the
new hospital sales, we recorded a nice cross-selling win between our Wireless and Software
businesses.
Looking at sales and marketing activities in our Software business during the quarter, our software
sales team continued to sell software solutions primarily to the hospital market. Demand for
solutions was strongest for call center management, critical smartphone messaging and clinical
middleware, which is an application that interfaces with various clinical devices in hospitals.
Such devices raise alerts in the hospital room and middleware then routes them to the right
caregiver on the right mobile device at the right time.
Our Software sales and marketing team also continued to focus on its key markets during the
quarter, which resulted in a growing sales pipeline. Additions to the pipeline included
opportunities to sell to new customers as well as add-on modules to existing customers. Various
marketing initiatives contributed to that growth, including virtual trade shows, Webinar series,
e-mail campaigns and ongoing co-prospecting with members of Amcoms
growing alliance community. The Software sales and marketing team also continued to build awareness
of its solutions by providing compelling success stories to customers, prospects and the news
media.
Cross-selling initiatives are and will remain a strategic focus for both our Wireless and
Software sales teams. Given that the typical sales cycle for a Software lead is 6-to-18 months, and
a Wireless lead is 3-to-12 months, we are very pleased that we could close our first paging
cross-sell win in June with an existing Amcom hospital customer in Massachusetts. The customer had
been experiencing services issues with its previous paging provider and found that USA Mobilitys
Wireless-Software combination was its best solution. Going forward, we look for other new and
existing customers to reach a similar conclusion.
As previously noted, our Wireless and Software sales teams are actively engaged in numerous
cross-selling opportunities. The first two initiatives began shortly after the acquisition in March
while the third began earlier this month. The first is an organic leads initiative in which sales
managers and reps register leads for one another that are developed from existing account and new
business sales interactions. The second is a targeted account initiative which targets existing
Wireless and Software accounts where one of the two businesses has no current presence. The third
initiative involves USA Mobilitys Key Account Managers who will generate potential leads via
interaction with their hospitals account contacts. These leads will be qualified and developed by
Amcom Business Solutions Advisers and telemarketers and then turned over to a Software rep once
qualified. All cross-selling leads and targeted account opportunities are updated and tracked
weekly on calls between Wireless and Software sales management.
Turning to the competitive landscape for our Software business, I wanted to give you a
brief perspective on it today. I would also note that Dan Mayleben, chief operating officer of
Amcom, is on the Call with us this morning. Should you have any additional questions on this
subject or any other questions about Amcoms operations Dan can respond to them during our
Q&A.
As we noted at the time of the acquisition, Amcoms software solutions hold a very strong position
in the mission-critical unified communications space. Given the scope and effectiveness of our
software systems, as well as our established presence in numerous mission-critical market segments
such as Healthcare, we believe Amcom can continue to enjoy a very strong market position in the space for
some time to come.
Some factors supporting this contention include:
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The number of connections incorporated into a typical Amcom software
system is sizable. Unlike those of most competitors, Amcoms systems
feature integration with many different phone systems, including
communication endpoints like pagers, tablets, wi-fi phones and
smartphones. They also integrate and interface with customer-driven
endpoints, such as medical devices and clinical systems within a
hospital. To build and maintain these integrations makes entry into
this market quite difficult and time consuming. Additionally, a large
company might find it challenging to enter a market like this because
they would need to develop interfaces with competitors hardware. |
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Amcom enjoys strong customer satisfaction levels and the cost of
switching is high. Amcom has consistently achieved maintenance renewal
rates in the high 90-percent range. In fact, as noted earlier, it was
99.9 percent in the second quarter, which clearly reflects a high
degree of satisfaction across the customer base. |
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Amcom continues to pursue innovation, investing in new and improved solutions. |
We believe that Amcom is the only systems integrator that provides offerings across the entire
range of the unified communications suite. Instead, our competitors occupy niches offering
individual modular components within the overall unified communications space.
Now I want to turn to our current capital allocation strategy. I would note once again that
our Board and management remain committed to our long-stated goal of returning capital to
stockholders as evidence by our announcement last night regarding our third quarter dividend
declaration.
As you know, we began paying special cash distributions in 2005 and have paid quarterly cash
distributions as well as special cash distributions from time to time since 2006. In
addition, we initiated a share buy back program in 2008. Over that time we have paid out $377.7
million in distributions and dividends, or $14.65 per share, to our stockholders and
repurchased 5.6 million shares at an average price of $9.31 per share. In total, we have
distributed almost $430 million in capital to our stockholders.
As for our capital allocation plans going forward, our Board of Directors will continue to review
all options. As we noted on our first quarter earnings call, we expect to continue to pay a
quarterly recurring dividend subject to customary review by the Board and our projections for
future operating cash flow. In addition, in order to accelerate the repayment of debt related to
the Amcom acquisition, we have suspended our share repurchase program. The Board will review the
status of the program before year-end and we will update you on it when and if we make any changes.
Future decisions regarding capital allocation, including dividends, share repurchases, and debt
pre-payments, will be weighed against other opportunities for creating long-term stockholder value,
including additional acquisitions or other strategic investments that might provide enhanced
revenue and cash flow stability, or allow further use of our sizable deferred income tax assets. As
I noted previously, we view none of these options as being mutually exclusive.
Additionally, we remain committed to maintaining Amcoms leadership position in its specific market
niche. To this end, we are constantly reviewing the right balance between internal growth and
smaller add-on acquisitions that could offer us synergies and profitable growth. While we do not
have any specific targets teed up at the moment, we are constantly reviewing opportunities in this
space and would act in the right circumstances and with the right financing arrangements.
In summary, we are very pleased with our second quarter and first half operating results. We are
also pleased that our new Software business and existing Wireless business are working together
synergistically, laying the groundwork for an enhanced future together. At the same time, however,
while the Company performed well and accomplished a great deal so far in 2011, I can assure you
that we are anything but Pollyannaish about the challenges that still lie ahead. We fully realize
our Wireless operations will continue to face competitive pressures, and we understand our Software
business cannot maintain its growth trajectory without strong leadership, innovation and the
continued dedication of a talented and resourceful base of employees. Toward that end, you can rest
assured that we will remain vigilant in our pursuit of the right resources and strategy to further enhance value for all our
stakeholders.
At this point I will ask the operator to open up the line for your questions. We would ask you to
limit your initial questions to one and a follow-up. After that, we will take additional questions
as time allows. Operator?
Operator: Thank you. The question and answer session will be conducted
electronically. If you would like to ask a question, please do so by pressing
the star key followed by the digit 1 on your touch-tone telephone. If youre
using a speakerphone, please make sure your mute function is turned off to
allow your signal to reach our equipment. Once again, please press star 1 at
this time if you have a question. And well pause for just a moment to assemble
our roster. And once again thats star 1.
Well take our first question from Keye Chow with Credit Suisse.
Keye Chow: Yes, hi guys. Congratulations on a good quarter.
Vince Kelly: Thank you.
Keye Chow: Just starting with Amcom, could you give us a little more color
regarding, you know, the bookings were up, the backlog was up sequentially,
could you give us a little more color regarding how that growth was on a year
on year basis, and then also with regards to the bookings, the composition of
that?
Vince Kelly: Well Dan Mayleben will talk about that and he can give you some
statistics on the year on year. I dont know how much detail were going to go
into in terms of the bookings because a lot of that is competitive information.
Suffice it to say the company is doing very well.
Its doing better than we expected it to do. Were more than encouraged and pleasantly
surprised by that. Were a still in a challenging environment and we have a lot of work to do
to continue to grow this business going forward. We think were up to that challenge.
Weve got a good plan and a good team and well keep moving forward. Dan?
Dan Mayleben: Yes, good question. So and the question if I understand it is,
if we look at year on year growth in bookings comparing second quarter of this
year to the second quarter of last year? So, you know, were looking at growth
and again this is, you know, on a comparable basis, in the low 20%.
Keye Chow: Okay. Great. What about backlog Dan?
Dan Mayleben: You know, backlog as Shawn has stated, is up sequentially. And
with the growth in bookings, you know, on a year on year basis youd also see
that type of increase year on year.
Keye Chow: Okay, great.
Operator: And once again, ladies and gentlemen, if you have a question please
press star 1. And well pause for another brief moment.
And well go back to Keye Chow with Credit Suisse.
Keye Chow: All right. Hey, so the sale of the narrow band PCS licenses is that
are there other potential assets like this that you might have that youll
be a little be able to monetize?
Vince Kelly: There are other potential assets that we have. Right now theyre
all in use so we dont have any plans in the immediate future. So if youre
thinking are you going to see anymore sales like that the balance of this year
or early next year I would say no.
Keye Chow: Okay. And Ill follow up with a question on the wireless side. Im
really pleased to and I can tell you are too that the subscriber and revenue
loss rates are at, you know, near all-time lows. Can you give us a little more
color on whether this is kind of a sustainable level or where there are some
one-time events that cause the loss rates to be so low this past quarter?
Vince Kelly: You know, thats a great question and its a question quite
frankly weve been looking at quite a bit because we kind of felt like we
worked extremely hard last year and didnt get the same results. And what were
we doing differently this year than we did last year?
And the answer is, you know, not really anything. We think if anything the core customer base
that really is represented by our healthcare
segment is really pretty sticky right now given the state of the economy and given what the
alternatives are.
Not every CIO out there is going to go trade out his pagers for a Smartphone. And weve done
some surveys we did one last October and we recently updated it. I think we talked when
you were with us at our annual meeting about the results of our survey last fall.
And the survey that we just recently completed indicates that, you know, from a healthcare
perspective these CIOs do not intend to get rid of their pagers any quicker than they did last
fall. If anything, its slowed down a little bit.
And I really think that just has to do with the cost differentiation that paging has versus
alternatives. So, you know, were in a good place right now. You asked can that be sustained. I
sure hope so is the answer. We dont know.
It certainly the second quarter is phenomenal by any stretch in terms of the stability of
that particular healthcare customer segment. And if that continues obviously it has, you know,
huge implications going forward. I said in my prepared comments, we dont want to be
Pollyannaish about our challenges...
Keye Chow: Right.
Vince Kelly: ...and we certainly dont. Were certainly not going to, you know,
off of one quarter of phenomenal results like that, forecast that, you know,
going forward. But its something that were going to keep a close eye on.
And I think, you know, I mentioned in my earlier comments, I think part of the publicity that
we got from doing the Amcom deal and Amcom is very well known in the healthcare community, in
the people that make communications decisions, I think that might have settled a lot of people
down as well in terms of USA Mobilitys long term commitment to this space.
You know, relative to what youre seeing out there with other providers. So, you know, I hope
its a new trend and I hope that it stays that way forever. Were not going to, you know, build
a business plan around it
but if it does it obviously means, you know, much more future cash
flow for our shareholders.
Keye Chow: Okay. So Vince, so your revised guidance for the wireless business
does not reflect an assumption of the continuation of these low loss rates?
Vince Kelly: No. What it basically does is it adjusts for the positive variance
that we got because of these low loss rates and it conservatively smoothes out
the rest of the year.
We didnt just say gee, were going to go to almost no churn whatsoever for the rest of the
year in the healthcare segment or otherwise the guidance would have been significantly higher.
Keye Chow: Okay, great. And then should I hop off and to see if or
should I Ill just keep asking questions. Regarding the Amcom business, you
know, really good results. What would it take to get you guys to see sort of
upside in the business?
I was just kind of curious as to like what your expectations are and the raised expectations
for the wireless business. I wanted to get some color on what your expectations are on the
software business.
Vince Kelly: Well obviously we saw upside in the Amcom business and thats the
reason we purchased it. We did not change our forecast for the Amcom business
in terms of our guidance because we really only had one quarter under our belts
on the combined basis with these folks.
And I think whats going to happen we talked about a 12 to 18 month lead-time for their
sales. So for us to really get a lot of traction with cross selling opportunities its going to
go outside the range of, you know, the timeframe represented by this guidance.
So I think, you know, were going to stick with the guidance, where it is now for the balance
of the year with respect to software in terms of revenue and operating expenses. And were
going to work hard with our partners in Amcom to make for a really good 2012 and well be
providing that guidance to you guys very early in 2012 when we release our fourth quarter
earnings.
Keye Chow: Great. And then my last question is with regard to capital
allocation. Can you give us a little more flavor as to how youre thinking
about potential paying down debt?
That seems to be your second priority after maintaining the regular dividend paying down
debt versus potentially paying out special dividends this year.
Vince Kelly: Yes. Right now were looking at first and foremost, continuing the
recurring dividend which we anticipate doing going forward. Were looking at
paying down debt because, you know, were paying 5-1/4% interest on it and, you
know, we really dont need the deduction.
And then after that were looking at maybe some small fold in acquisitions. We dont have
anything teed up right now. And were not right now putting special dividends at the top of
our list. Thats something that we can do instead of share repurchases.
Other things in our capital allocation strategy going forward. But I think we need a few more
quarters under our belt before we go down that path.
Keye Chow: Okay. Thank you. Congratulations again.
Vince Kelly: And that was it for the last question so Im going to wrap up.
Thanks everyone for joining us today. We look forward to speaking with you
after we release our third quarter results so have a great day.
Operator: And that will conclude todays conference. Thank you for your participation.