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USA Mobility (USMO)

Q2 2013 Earnings Call

August 02, 2013 10:00 am ET

Executives

Shawn E. Endsley - Chief Financial Officer

Vincent D. Kelly - Chief Executive Officer, President and Director

Presentation

Operator

Good day, and welcome to USA Mobility's Second Quarter Investor Call. Today's call is being recorded. On line today, we have Vince Kelly, President and Chief Executive Officer; Shawn Endsley, Chief Financial Officer; and MyLe Chang, Controller of USA Mobility. Also, from the company's software subsidiary, Amcom Software, we have Colin Balmforth, President; and Lynn Danko, Chief Financial Officer. At this time, for opening comments, I will turn the call over to Mr. Endsley. Please go ahead, sir.

Shawn E. Endsley

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 today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to USA Mobility'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.

USA Mobility'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 operation and the business environment in which we compete contained in our 2012 Form 10-K, our second quarter Form 10-Q, which we expect to file later today, 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.

With that, I'll turn the call over to Vince.

Vincent D. Kelly

Thanks, Sean, and good morning. We're pleased to speak with you today regarding our second quarter operating results, and what we believe was another outstanding quarter and first half of the year for both our wireless and software businesses. On the wireless side, we ended the quarter ahead of our key operating goals for total revenue, operating cash flow, average revenue per unit or ARPU, and operating expenses. Our wireless sales force also exceeded the plan for subscribers, including gross additions, and the annual rate of revenue erosion improved to its lowest level in the company's history. In addition, our software business achieves excellent results of increased revenue and bookings, a near record high backlog and a growing pipeline of prospective accounts. At the same time, we were able to maintain strong consolidated cash flow margins, reduced expenses, and once again, returned capital to our stockholders.

Sean will discuss our financial results in more detail in a few minutes, but first I want to review a few key highlights of the quarter. Number one, subscriber and revenue trends in our wireless business continued to show improvement in the second quarter, with the rates of paging unit and the revenue erosion either at or near historically low levels. The annual rate of subscriber erosion was 8.7%, down from 11% a year earlier, while our annual rate of revenue erosion improved to a record level of 11.7%.

We believe these positive results were due to another strong performance by our wireless sales force and increasing recognition among customers that paging continues to be the most reliable and cost-effective form of wireless communications and our continued investment in our software solutions and service capability. In fact, our top-performing Healthcare segment not only showed continued stability for the quarter but actually posted a net gain in units and service.

Number 2, our Software business also posted excellent results in the quarter, as revenue and bookings increased from both the prior year and year-earlier quarters while the backlog totaled just under $40 million at June 30. In addition, Amcom's pipeline of sales prospects continue to grow. A credit to the outstanding work of our software sales and marketing team. We also continued to expand the scope of our international sales efforts during the quarter, building our pipeline in such key markets as Canada, the Middle East and the Asia-Pacific region. We also broadened our sales reach within the domestic market segments of healthcare, public safety and government services.

Number 3, we continue to reduce consolidated operating expenses, mostly in our wireless operations, consistent with our long-term business plan. The current operating expense for wireless, excluding depreciation and amortization and accretion, declined 10% from the year-earlier quarter. Going forward, we expect operating expenses in our wireless business will continue to decline, offset in part by incremental investment in our software business as we continue to transition to a more software-based business model. We have integrated many overhead functions between our wireless and software segments and will continue to look for synergistic opportunities as we plan for the future. Many of our customers or patrons of both of our operating segments and are increasingly looking to us as a single-source provider of unified communications solutions.

Number 4, excellent performances from both our wireless and software businesses allowed us to maintain strong operating margins in the second quarter. Consolidated EBITDA increased to $15.7 million from $15.5 million in the first quarter, and represented a consolidated margin of 30.1% versus 29.3%. Second quarter EBITDA for wireless totaled $13.3 million from a margin of 38% versus 36.9% for the previous quarter.

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