USA Mobility Reports First Quarter Operating Results, Board Declares Quarterly Cash Distribution
USA Mobility, Inc. (Nasdaq: USMO), a leading provider of wireless messaging and communications services, today announced operating results for the first quarter ended March 31, 2008.
Total revenue for the first quarter was $94.8 million, compared to $100.2 in the fourth quarter of 2007 and $111.5 million in the year-earlier quarter. EBITDA (earnings before interest, taxes, depreciation, amortization, accretion and goodwill impairment) in the first quarter totaled $29.9 million, compared to $24.5 million in the fourth quarter of 2007 and $35.1 million in the first quarter of 2007. First quarter net loss was $177.8 million, or $6.48 per fully diluted share, compared to net income of $13.0 million, or $0.47 per fully diluted share, in the first quarter of 2007. The loss resulted from a goodwill impairment for which the Company incurred a $188.2 million non-cash expense to write-off its entire goodwill balance. Absent the goodwill write-down, net income in the first quarter would have been $10.4 million, or $0.38 per fully diluted share.
First quarter results included: EBITDA margin (or EBITDA as a percentage of revenue) increased to 31.6 percent in the first quarter, compared to 24.5 percent in the fourth quarter of 2007. This represents the highest EBITDA margin since the Company was formed in late 2004 by the merger of Arch Wireless, Inc. and subsidiaries and Metrocall Holdings, Inc. and subsidiaries.
The annual rate of subscriber erosion improved to 14.8 percent from 15.1 percent in the fourth quarter of 2007 and 15.6 percent in the year-earlier quarter. The quarterly rate of subscriber loss improved to 4.4 percent in the first quarter, historically the quarter with the highest net churn, compared to 4.7 percent in the first quarter of 2007.
Net unit loss was 152,000 in the first quarter, compared to 193,000 in the first quarter of 2007. Units in service totaled 3,333,000 at March 31, 2008, compared to 3,485,000 at December 31, 2007.
The annual rate of revenue erosion improved to 15.0 percent from 17.3 percent in the first quarter of 2007.
Operating expenses, excluding depreciation, amortization, accretion and goodwill impairment, totaled $64.8 million in the first quarter, a reduction of $10.8 million, or 14.3 percent, from $75.7 million in the fourth quarter of 2007. Quarterly operating expenses declined 15.2 percent from the first quarter 2007, and, in both dollars and as a percentage of revenue, are at their lowest level in nearly four years.
Total paging ARPU (average revenue per unit) decreased to $8.49 in the first quarter from $8.62 in the fourth quarter of 2007 and $8.65 in the year-earlier quarter.
Capital expenses were $4.0 million, compared to $5.2 million in the fourth quarter of 2007.
The Company’s cash balance at March 31, 2008 was $69.0 million.
“USA Mobility reported another solid operating performance in the first quarter,” said Vincent D. Kelly, president and chief executive officer, “meeting or exceeding a majority of the performance objectives contained in our business plan and consistent with the financial guidance we provided earlier this year. Our rate of annual subscriber and revenue erosion showed further improvement during the quarter as we continued to concentrate our sales and marketing efforts on our core market segments of Healthcare, Government and Large Enterprise. In addition, despite ongoing business risks, we continued to generate substantial free cash flow while successfully managing the business profitably with a low-cost operating structure.” Kelly added, “During the quarter we gained sales traction on several new products we launched last year for Healthcare accounts, including ReadyCall, our wide-area network coaster pager that hospitals and doctors use to eliminate congestion in waiting rooms, and our Private Medical Messaging Network, a dedicated paging and communications system that manages messaging traffic within a single hospital or multiple hospital campus network. In addition, we are very enthused about the initial response we have received to our new product PageSync, which allows our paging customers to receive their pages on a BlackBerry® or SMS handset. We believe this product solves a critical need by giving our customers a solution that unifies paging with voice and e-mail in data-centric handsets, like BlackBerrys, providing the unique benefits of both solutions on one device. While our sales force is just beginning to acquaint customers with the benefits of this innovative product, the feedback they have received to date has been very positive.” Kelly said the Company again returned capital to stockholders in the first quarter consistent with its stated goal, paying a regular quarterly cash distribution of $0.65 per share, or an aggregate amount of approximately $17.8 million, on March 13, 2008. In addition, the Board of Directors on May 2, 2008 declared a regular quarterly cash distribution of $0.25 per share, payable on June 19, 2008 to stockholders of record on May 19, 2008. The Company expects the cash distribution, a total of approximately $6.8 million, to be paid as a return of capital. “As previously discussed,” Kelly stated, “the Board of Directors and management set the revised cash distribution rate at a level that is sustainable on a longer term basis over the next several years. The decision to re-set the rate was made to strengthen our financial position while maintaining a respectable yield on our stock, and was not the result of a sudden weakening in our near-term outlook. In fact, our first quarter cash flow performance and record EBITDA margin of 31.6 percent reflect our ability to generate significant cash flow notwithstanding the many challenges we face. Our commitment to return the cash we generate to our stockholders has not changed. Since the merger, which formed USA Mobility, Inc. in late 2004, and prior to today’s announcement, we have already returned $9.40 per share, representing $255.6 million, to our stockholders. Our current cash balance is approximately $2.50 per share and we expect to generate significant cash over the remainder of this year. We are currently awaiting the result of our challenge to the Federal Communications Commission (FCC) on the Back-Up Power Order appeal and we anticipate resolution by the end of the summer, at which point we may be in a position to return additional cash above the level of our recurring quarterly distributions to our stockholders either in the form of a stock repurchase program, special distributions as we have done in the past or a combination of both.” Thomas L. Schilling, chief operating officer and chief financial officer, said the Company’s expenses declined significantly during the first quarter as a result of ongoing cost control initiatives. “Operating expenses (excluding depreciation, amortization, accretion and goodwill impairment) decreased 15.2 percent from the year-earlier quarter,” he said, “outpacing the year-over-year decline in revenue of 15.0 percent. In addition,” Schilling noted, “operating expense as a percentage of revenue was 68.4 percent in the first quarter, the lowest level in almost four years.” Schilling added, “The combination of lower expenses and improving revenue trends contributed to an increase in first quarter EBITDA and EBITDA margin compared to the prior quarter. While we are pleased and encouraged by these financial trends, we are maintaining our previous financial guidance for 2008 of revenues between $345 million to $355 million, operating expenses – excluding depreciation, amortization, accretion and goodwill impairment – between $250 million to $255 million, and capital expenses between $18 million to $20 million.” Commenting on the Company’s decision to write-off goodwill, Schilling said, “The significant change in our market capitalization at March 31, 2008, compared to December 31, 2007, necessitated a goodwill impairment analysis to be performed earlier than our normal annual test. Based on the lower market value and the accounting rules related to goodwill, we recorded a $188.2 million non-cash expense in the first quarter to write-off our entire goodwill balance. This expense has no impact on our underlying operations or cash flows.” USA Mobility plans to host a conference call for investors on its first quarter results at 10:00 a.m. Eastern Time on Wednesday, May 7, 2008. The dial-in number for the call is 877-419-6603 (toll-free) or 719-325-4903 (toll). The pass code for the call is 4055284. A replay of the call will be available from 4:00 p.m. ET on May 7 until 11:59 p.m. on Wednesday, May 21. The replay number is 888-203-1112 (toll-free) or 719-457-0820 (toll). The pass code for the replay is 4055284.
USA Mobility’s Annual Meeting of Stockholders will be held at 10:00 a.m. Eastern Time on Wednesday, May 14, 2008 in Alexandria, VA.
