USA Mobility Reports Third Quarter Operating Results; Board Declares Quarterly Cash Distribution
Revenue Per Unit and Expense Trends Continue to Improve
ALEXANDRIA, Va.—(BUSINESS WIRE)—Oct. 29, 2008—USA Mobility, Inc. (Nasdaq: USMO), a leading provider of wireless messaging and communications services, today announced operating results for the third quarter ended September 30, 2008.
In addition, the Company's Board of Directors declared a regular quarterly cash distribution of $0.25 per share. The cash distribution will be paid on December 10, 2008 to stockholders of record on November 14, 2008. The Company expects the entire amount of the cash distribution to be paid as a return of capital.
Total revenue for the third quarter was $88.4 million, compared to $92.1 million in the second quarter and $105.4 million in the third quarter of 2007. Net income in the third quarter was $2.4 million, or $0.09 per fully diluted share, compared to net income of $15.5 million, or $0.56 per fully diluted share, in the year-earlier quarter. The decrease in net income primarily resulted from a $7.3 million income tax expense in the third quarter due to a reduction in the carrying value of deferred income tax assets (DTAs). Absent the incremental income tax expenses, net income for the third quarter would have been $9.7 million, or $0.35 per fully diluted share.
Third quarter results included:
— Total paging ARPU (average revenue per unit) increased to $8.69 in the third quarter, compared to $8.54 in the second quarter and $8.62 in the year-earlier quarter.
— Operating expenses (excluding depreciation, amortization, accretion and goodwill impairment) were $62.8 million in the third quarter, compared to $61.5 million in the second quarter. The increase resulted from severance and restructuring charges of $5.1 million. Absent severance and restructuring charges, operating expenses in the third quarter would have been $57.7 million, a decrease of 5.8 percent from the second quarter and 20.5 percent from the third quarter of 2007.
— EBITDA (earnings before interest, taxes, depreciation, amortization, accretion and goodwill impairment) in the third quarter totaled $25.5 million, compared to $30.6 million in the second quarter and $31.6 million in the third quarter of 2007. Excluding the $5.1 million of severance and restructuring charges, EBITDA would have been $30.6 million in the third quarter, approximately the same as the prior quarter.
— EBITDA margin (or EBITDA as a percentage of revenue) was 28.9 percent in the third quarter, compared to 33.2 percent in the second quarter and 29.9 percent in the third quarter of 2007. Absent the severance and restructuring charges, EBITDA margin in the third quarter would have been 34.6 percent.
— Units in service totaled 3,002,000 at September 30, 2008, compared to 3,176,000 at June 30, 2008. Net unit loss in the third quarter was 174,000, compared to 157,000 in the second quarter and 137,000 in the third quarter of 2007.
— The annual rate of subscriber erosion was 17.1 percent, compared to 15.5 percent in the second quarter and 15.0 percent in the year-earlier quarter. The quarterly rate of subscriber loss was 5.5 percent, compared to 4.7 percent in second quarter and 3.7 percent in the third quarter of 2007.
— The annual rate of revenue erosion was 16.2 percent, compared to 14.3 percent in the second quarter, while the quarterly rate of revenue erosion was 4.0 percent, compared to 2.8 percent in the prior quarter.
— Capital expenses were $6.2 million, compared to $3.9 million in the second quarter.
— The Company's cash balance at September 30, 2008 was $103.7 million.
"USA Mobility again made excellent progress during the third quarter," said Vincent D. Kelly, president and chief executive officer, "as we continued to successfully manage our costs, maximize cash flow, and generate solid revenue and profitability. In addition, we restructured pricing on selected products to better reflect current values, resulting in higher average revenue per unit and a strong operating margin, and continued to focus on sales opportunities in our core market segments of Healthcare, Government and Large Enterprise. At the same time," he added, "we were disappointed at the continued high level of net unit loss during the quarter as gross unit placements slowed relative to past trends. In fact, in the third quarter we lost almost 2.7 subscribers for every new subscriber we added." Kelly noted, however, that net unit loss rates among the Company's core market segments were again lower than for other customers. "Healthcare, in particular, continues to be our most stable segment," he said, "and now represents 41.5 percent of our customer base."
Kelly said the Company ended the quarter with a strong balance sheet, including cash balances exceeding $100 million. "USA Mobility is an unusual company in today's market environment, with no debt, significant cash and a high cash flow margin," he said. "As a result, our Board today declared a $0.25 quarterly cash distribution consistent with our policy to return capital to stockholders." Kelly cautioned, however, that the Board will continue to monitor the Company's capital distribution policy going forward. "Notwithstanding our strong results over the past two quarters due to ARPU enhancements and cost control, we recognize that continued levels of subscriber erosion, exacerbated by a challenging economy, will reduce our future cash flow levels and operating margins."
In response to the declining subscriber base and weakening economy, Kelly said the Company recently launched a series of internal initiatives for the balance of 2008 and throughout 2009 designed to create greater operational efficiencies throughout the organization as well as enhance existing cost reduction efforts. Included among the initiatives are plans to accelerate the Company's network rationalization program to further reduce site rent costs, restructure sales and marketing operations to better focus resources on core market segments, and consolidate various administrative functions and responsibilities. "These changes are necessary in order for us to partially offset the impact of declining revenues and to meet our long-term goals for free cash flow, customer sales and retention, quality customer service, and technically efficient networks," said Kelly, "as we continue to provide reliable and cost effective wireless communications services to our customers nationwide."
Commenting on the Company's appeal of the Federal Communications Commission's Back-Up Power Order (Order), Kelly said the case is still pending. "In the meantime," he added, "we made significant progress during the third quarter to deconstruct redundant transmitters in connection with our long-term network rationalization program. While we believe the Court will ultimately vacate the Order based on the merits of our appeal, our ongoing program to eliminate transmitters is steadily reducing the potential cost of compliance should the Order eventually be upheld."
Additionally, the FCC is considering changes to its rules governing the collection of universal service fees. Such changes could significantly increase the contributions the Company is required to make to the Universal Service Fund. Currently, the FCC assesses universal service contributions based on telecommunications carriers' interstate revenues, but it is considering imposing instead a flat monthly charge of $1.00 or more per assigned telephone number. Contributing on the basis of assigned telephone numbers would cost the Company far more than the existing revenue-based methodology. The Company has presented its position to the FCC that paging carriers should be exempt from any numbers-based contribution requirement in light of important public policy and legal considerations. If the FCC adopts a numbers-based methodology and refuses to grant an exemption for paging carriers, the Company's attempt to recover the increased contribution costs from customers could significantly diminish demand for the Company's services, and our failure to recover such increased contribution costs could have a material adverse impact on the Company's financial performance.
Thomas L. Schilling, chief operating officer and chief financial officer, said the Company reported solid financial and operating results for the third quarter. "Higher revenue per unit was largely the result of our program to adjust retail prices that we initiated last June," he said, "while a continued emphasis on cost reduction contributed to our strong EBITDA and cash flow margins. Our recurring operating expenses, excluding a $5.1 million charge for severance and restructuring in the third quarter, continued to decline as a result of numerous cost control efforts," Schilling noted, "and are down 20.5 percent from the third quarter of 2007, continuing to outpace the 16.2 percent annual rate of revenue erosion."
Commenting on the reduction
of DTAs in the third quarter, Schilling explained: "Accounting
rules require us to evaluate whether or not the Company will use all
of its DTAs to offset future taxable income. As a result, based on
current trends for subscribers, operating expenses and capital expenses
- which, of course, are subject to change — we projected future
levels of taxable income that mandated a reduction in the carrying
value of our DTAs based on our effective tax rate of approximately
38 percent. Going forward, we will continue to evaluate our operating
trends and will adjust the carrying value of our DTAs, either up or
down, as circumstances warrant."
Schilling also noted that the Company was maintaining its previously announced financial guidance for 2008, with revenues for the year expected to be between $355 million to $360 million, operating expenses (excluding depreciation, amortization, accretion and goodwill impairment) expected to be between $245 million to $250 million, and capital expenses for 2008 to range from $18 million to $20 million.
USA Mobility plans to host a conference call for investors on its third quarter results at 10:00 a.m. Eastern Time on Thursday, October 30, 2008. The dial-in number for the call is 866-316-1372 (toll-free) or 913-312-1272 (toll). The pass code for the call is 4281933. A replay of the call will be available from 2:00 p.m. ET on October 30 until 11:59 p.m. on Thursday, November 13. The replay number is 888-203-1112 (toll-free) or 719-457-0820 (toll). The pass code for the replay is 4281933.
About USA Mobility
USA Mobility, Inc., headquartered in Alexandria, Virginia, is a comprehensive provider of reliable and affordable wireless communications solutions to the healthcare, government, large enterprise and emergency response sectors. As a single-source provider, USA Mobility's focus is on the business-to-business marketplace and supplying wireless connectivity solutions to a majority of the Fortune 1000 companies. The Company operates nationwide networks for both one-way paging and advanced two-way messaging services. In addition, USA Mobility offers mobile voice and data services through Sprint Nextel, including BlackBerry® smartphones and GPS location applications. The Company's product offerings include customized wireless connectivity systems for the healthcare, government and other campus environments. USA Mobility also offers M2M (machine-to-machine) telemetry solutions for numerous applications that include asset tracking, utility meter reading and other remote device monitoring applications on a national scale. For further information visit www.usamobility.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act:
Statements contained herein or in prior press releases which are not historical fact, such as statements regarding USA Mobility's expectations for future operating and financial performance, are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that may cause USA Mobility's actual results to be materially different from the future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expectations include, but are not limited to, declining demand for paging products and services, our ability to continue to reduce operating expenses and to generate cash from operations, our future capital needs, competitive pricing pressures, competition from both traditional paging services and other wireless communications services, technological improvements in hand-held devices and transmission services offered by our competitors, government regulation, reliance upon third-party providers for certain equipment and services, as well as other risks described from time to time in periodic reports and registration statements filed with the Securities and Exchange Commission. Although USA Mobility believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. USA Mobility disclaims any intent or obligation to update any forward-looking statements.
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CONTACT: USA Mobility, Inc.
Bob Lougee, 703-721-3080