Spok Holdings Inc (SPOK) 2005 Q3 法說會逐字稿

Good morning and welcome to this USA Mobility third-quarter investor's update conference call. Today's call is being recorded. Online today we have Vince Kelly, President and CEO; Peter Barnett, COO; Tom Schilling, CFO and Treasurer; and Scott Tollefsen, General Counsel and Secretary. I would now like to turn the call over to Mr. Kelly. Please go ahead, sir.

Good morning, thank you for joining us for this Company update. Before I begin our general counsel, Scott Tollefsen, will make a brief statement.

Good morning. 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 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 assurances 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 which the Company believes to be reasonable based upon available information, they are subject to risks and uncertainties.

For a description of these risks and uncertainties please review the risk factor section relating to our operations and the business environment in which we compete which is contained in our third-quarter Form 10-Q and our 2004 Form 10-K, both of which are on file 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.

Thank you, Scott. As we approach the one your anniversary of the merger between Arch and Metrocall on November 16th, I'm pleased to report that we have met or exceeded virtually all of our first-year integration goals. Over the past year we have realized significant merger synergies and cost-savings, completely retired our bank debt, reorganized senior management, maintained our commitment to high-quality customer service, negotiated beneficial long-term agreements with some of our larger vendors, began exploring alternative sources of revenue, and most recently launched a major initiative to upgrade our sales and marketing organization with the goal of enhancing our overall sales function.

Last quarter we stated our Board of Directors has determined that it is in the best interest of our shareholders to declare a special onetime dividend near the end of the year. Our Chief Financial Officer, Tom Schilling, will review the details on this later. However, the headline is that we will pay $1.50 per share before year-end. We think this is a solid way to cap off a year of integration progress and sequential quarterly improvements.

We greatly appreciate the support and patience of our shareholders. As we stated in our press release yesterday, the Board will regularly evaluate our options for returning capital to shareholders based on the Company's operating performance and future capital investment requirements.

Turning to our accomplishments during and through the third quarter. Subscriber trends continued to improve with net unit losses and their related decline rates over the past four quarters as follows -- 4Q of '04 388,000 or 6.1%; 1Q of '05 347,000 or 5.8%, 2Q of '05 271,000 or 4.8%; and 3Q of '05 232,000 or 4.3%. Similarly the pace of quarter-over-quarter revenue decline continued to decelerate to 3.5% in Q3 from 4.9% in Q2 and 7.9% in Q1.

We completed repayment of our bank debt on August 19th and became debt free. We reduced companywide headcount to 1731 employees at September 30th, a 17% reduction from 2079 at June 30th, and a 39% reduction from 2844 a year ago when we merged. We made substantial progress on our network and systems rationalization including the decommissioning of an additional 516 two-way transmitters and 266 one-way transmitters for the quarter bringing the total reduction of transmitters to more than 2208 since the merger was completed.

We signed a master lease agreement with Global Signal which will result in substantial site lease cost savings in the coming years. We closed 51 additional office and storage locations in Q3 resulting in monthly savings of over $140,000. We successfully responded in the aftermath of hurricanes Katrina, Rita and Wilma. Indeed, our paging networks, technology and front-line response teams performed so well compared to other wireless services that we received wide praise and recognition from numerous first responder customers including FEMA and local public safety organizations.

As a result we are now leveraging that successful performance to position the Company as an invaluable resource for government agencies that require highly reliable communication systems during critical or emergency situations. And finally, we continued to refine our management and operating structure during the quarter, placing a greater focus on sales and marketing as part of our long-term strategic plan.

I will comment further on the strategic plan and other ongoing company initiatives in a few minutes. But first I'd like to ask Tom Schilling, our Chief Financial Officer, to review the Company's third-quarter financial performance.

Good morning. I'll briefly review the financial performance for the third quarter and provide some detail on the special dividend announced in our news release. As a result of the lower rate of subscriber erosion and increased product sales in the third quarter total revenue was 152 million, a decrease of $5.6 million or 3.5% from the $157.5 million we posted in the second quarter. The 3.5% revenue decline represents a substantial improvement from the 4.9% decline in the second quarter and the 7.9% decline on a pro forma basis for the first quarter.

Total revenue includes service, rental and maintenance revenue of $145 million and product sales of $6.9 million. Service rental and maintenance revenue declined $6.5 million or 4.3% from the second quarter. This decrease was driven by a 4.3% decrease in units in-service and total revenue per unit was essentially flat for the quarter. Product sales increased 14.6% during the quarter driven by increased paging equipment and IRM system sales.

As I mentioned, the rate of net unit loss continued to improve in the third quarter compared to the second quarter marking consecutive quarterly improvements since our merger was completed a year ago. As of September 30th the Company had 5,116,000 units in-service consisting of 4,342,000 direct units and 774,000 indirect units. Net units lost for the quarter was 232,000 which again was a loss of 4.3%. This compares to a net loss of 272,000 units or 4.8% in the second quarter and 347,000 units or 5.8% in the first quarter. On a pro forma basis net unit loss was 390,000 or 5.8% in the third quarter of 2004.

As those of you that follow us closely are aware, at the end of the second quarter we completed the billing conversion of our Metrocall customer base. In the process of the billing conversion nearly every customer experiences some impact on their invoices whether it was a change in presentation, a change in the application of certain sales and use taxes, or changes in certain rate components to improve pricing consistency between our legacy Arch and Metrocall customers.

We were extremely pleased with the results of our conversion and the relatively small impact it had on our third-quarter results. While the third-quarter results have had little negative impact from the conversion aside from an increase in customer service calls and an increase in our accounts receivable aging which I will discuss as part of general and administrative expenses, we continue to work through questions from those customers affected and we may see some additional impact from the conversion in our fourth-quarter results.

In addition to the billing conversion during the third quarter, we were affected by hurricanes Dennis, Katrina and Rita all of which hit the Gulf Coast region during the quarter. While each of these storms impacted our network initially and Dennis required a two to three day evacuation of our Pensacola customer service center, Katrina certainly had the most lasting impact on our customer base particularly those in an around New Orleans who have lost their businesses or their jobs. The area directly affected by Katrina represents approximately 3% of our revenue; however, to date we've experienced no significant impact on revenue or units as a result of Katrina or the other storms.

We continue to monitor the customer base from the Gulf region and believe that the fourth quarter we may see some additional disconnects but, again, at this point we do not expect it to be significant. In fact, as Vince will discuss later, we're hopeful that our strong performance in the aftermath of the storms may well create revenue opportunities for us over the longer-term.

Again, we're encouraged by the revenue and subscriber results in the third quarter, but we do expect to see some increase in the fourth-quarter subscription losses compared to the third-quarter results. Fourth quarter has traditionally been a higher quarter for subscriber disconnects, that combined with some of the lagging impact from Katrina and our billing conversion lead us to expect slightly higher net subscriber loss percentage in the fourth quarter.

Total paging revenue per unit, or what we refer to as ARPU, in the third quarter was $9.04 compared to $9.02 in the second quarter, $9.01 in the first quarter, and $9.14 in the third quarter of 2004 on a pro forma basis. ARPU for direct units in the quarter was $9.81 compared to $9.89 in the second quarter, or less than a 1% decrease. Indirect ARPU was $4.81, a 5% increase in the second quarter.

The relative stability of our total ARPU is largely a result of improving mix between direct and indirect subscribers. Direct units, which have significantly higher ARPU have continued to increase as a percent of total units and now represent 85% of our total units in service compared to 76% at the beginning of 2004. We expect ARPU for direct units in service to continue to trend downward in future periods primarily due to the mix of customers rather than decreases in pricing.

First, our one-way service which has a lower ARPU is becoming a larger part of our direct subscriber base. Second, larger customers, which also generally have lower ARPU, are also becoming a larger percentage of the direct subscriber base. These two factors combined are the principal driver of the ARPU decline for our direct subscriber base.

Moving on to operating expenses, we made good progress in the quarter in improving our low-cost operating platform. In total operating expenses for the third quarter were $140.1 million, a decrease of $19.1 million from the second quarter. Service, rent and maintenance, or SRM, expense includes terminal and transmitter sight lease costs, payroll related for engineers and other technical professionals and satellite and other telecommunications expenses required to operate our one-way and two-way networks.

For the third-quarter SRM expense totaled $54.6 million compared to $56.4 million in the second quarter of 2005 and $62.7 million in the third quarter of 2004 on a pro forma basis. The third-quarter cost reductions were particularly encouraging as we began to see more expense reductions coming from non headcount-related expenses. Of the total $1.8 million reduction to SRM expense approximately 100,000 was from payroll-related expenses with the remaining 1.7 million coming from non headcount-related expenses.

The bulk of our third-quarter SRM expense reductions came from our transmitter sight lease expense and telecommunications expense which are being driven by our network rationalization efforts including the decommissioning of one of our two-way networks. Vince will discuss the progress and status of our network rationalization projects in a few minutes.

The savings in sight lease and telecommunications was partially offset by an increase in the SRM other expenses which was primarily driven by transitional costs associated with our consolidation of inventory management to our Dallas operations.

Selling and marketing expenses, which consist primarily of payroll costs associated with our sales and marketing professionals, totaled $11.3 million for the third quarter compared to $11.2 million in the second quarter and 15.7 million in the third quarter of 2004 on a pro forma basis. As we've discussed on previous calls, we right sized the salesforce in the fourth quarter of 2004 just days after closing the merger. During the second quarter of 2005 we experienced some additional churn in our sales force and began adding back sales resources in the second quarter and continued into the third quarter.

In addition, in the second quarter we redesigned our sales commission plan to be more competitive within the wireless industry and help us retain our salesforce. Those actions are the primary reason for the slight increase in the third-quarter cost.

General and administrative expenses include customer service, inventory and other support costs. In the third quarter general and administrative expenses were $44.8 million, down 6% from 47.6 million in the second quarter. The largest driver of expense reduction in the third quarter for G&A was payroll expenses which declined by $3.1 million in the quarter. We also had offsetting onetime items in the G&A for the third quarter. We booked a $1.6 million accrual in sales and use tax contingencies for legacy Arch accounts and we benefited in our outside services by $1.5 million from an insurance reimbursement for legal expenses associated with shareholder litigation settled in the fourth quarter of 2004.

Within G&A our bad debt expense increased in the quarter to $2.4 million from $1 million in the second quarter. This increase was driven by two issues. First, during the second quarter we experienced improvement in our accounts receivable aging which resulted in a lower than normal reserve requirement. Second, in the third quarter we experienced an increase in our agings which we believe is largely associated with the billing conversion and slightly associated with the disruptions in service during the multiple storms.

On an ongoing basis we would expect our bad debt cost as a percentage of revenue to be about 1.2% which is in the middle of our second- and third-quarter rate. Stock-based and other compensation declined from 688,000 in the second quarter to 76,000 in the third quarter due largely to a true-up of the Arch long-term incentive plan expense in the quarter. Severance and related termination costs includes the cost of severance from terminated employees and the cost of terminated contracts that provide us future cost reductions.

We believe this break out of expense provides our investors with improved clarity between ongoing and recurring costs and those that are more onetime in nature. In the third quarter we had $1.1 million of costs compared to 9.4 million in the second quarter. In the second quarter, as you'll recall, the $9.4 million charge covered the expected cost of the management restructuring and related headcount reductions that were announced in May.

EBITDA, which we define as operating income plus the ad-back of depreciation and amortization for the quarter was $39.2 million or 25.8% of revenue compared to $31.3 million or 19.9% of revenue in the second quarter and $42.4 million or 25.6% of revenue in the first quarter. The quarter-over-quarter EBITDA increase was largely driven by the reduction in severance and related termination costs in the third quarter versus second quarter.

Third-quarter depreciation and amortization expense was $27.3 million compared to $32.9 million in the second quarter and $38.5 million in the first quarter. Included in the third-quarter depreciation and amortization is about $200,000 in losses associated with hurricane Katrina.

In the third quarter we trued up our 2004 income tax provision to the 2004 income tax returns recently filed. As a result $6.7 million was charged to the third-quarter income tax expense. The $6.7 million charge includes an adjustment to the expected applicable tax rate from 40.2% to 38.8%, the $6.7 million charge also reduced our deferred tax asset. Our resulting net income was $355,000 or $0.01 per share, again excluding the impact for the tax rate true up our net income would have been $7.1 million or $0.26 per share.

The Company's headcount declined by 348 during the quarter to 1731 employees at September 30th. Headcount reductions occurred throughout the organization in virtually every functional area. We will continue to lower headcount over time, however at a slower rate than what we've experienced over the past four quarters.

Capital expenses, which consist primarily of device purchases, totaled $3.9 million in the third quarter compared to $2.8 million in the second quarter and $2.6 million in the first quarter. As expected capital expense increased in the third quarter as we made additional device purchases to maintain appropriate inventory balances. We continue to expect capital expense for the full year to be between $12 and $15 million.

With regard to liquidity, our cash balance at September 30, 2005 was $43.5 million. As you know we repaid the final 26.55 million balance on our bank debt during the quarter eliminating our long-term debt. Also as announced in our news relates, our Board declared a special dividend of $1.50 per share to be paid on December 21, 2005 for shareholders of record on December 1, 2005.

This dividend of approximately $41 million will be paid out of our expected cash on hand at the end of the year. From a tax standpoint we believe the dividend distribution will represent a return of capital for our shareholders. As such the dividend would not be taxable as dividend income but instead would be treated as non taxable reduction to the stockholder's basis in the stock of USA Mobility and thereafter as a capital gain.

While we cannot be assured of the tax status until we complete earnings and profit study, we do expect that all or substantially all of the distribution will be considered a return of capital. With that I'll turn it back over to Vince.

Thanks, Tom. I want to take a few minutes to update you on merger integration activities and comment briefly on several other strategic business initiatives that we have recently undertaken. With respect to our merger integration during the fourth-quarter third-quarter we effectively wrapped up the integration of Arch and Metrocall into a single operating company.

Regarding our two-way network rationalization, our goal, as you know, was to eliminate one of the Company's redundant two-way network platforms. As of today our two-way network rationalization program remains on schedule. In the third quarter we continued to decommission the legacy Arch two-way network which consisted of approximately 2164 transmitter sites. We moved two-way subscribers in 13 markets onto the legacy Metrocall network.

We decommissioned an additional 515 transmitter sites during the third quarter bringing the total decommissioned transmitters to 1491 since the program began in January. We expect to decommission all remaining two-way transmitters by November 21st. This means we will have completely deconstructed the legacy Arch two-way network within approximately one year of merging and with little to no customer disruption. We believe this accomplishment along with others we will discuss helps lay the foundation for a long-term low-cost operating platform.

Upon completing this phase of the program, as previously mentioned, we will continue to be responsible for lease obligations on our transmitter site until the underlying lease agreements expire over the next few years. However, we will continue to negotiate early terminations and/or other favorable economic terms with our sight landlords on some of the remaining leases. As for cost savings, the deconstruction of the two-way transmitters through September 30th, has resulted in $466,000 in monthly savings.

Upon completion of the transmitter deconstruction project in November which includes deployment of approximately 165 (ph) new transmitters to add capacity in certain markets, we anticipate sight lease savings of over 1.9 million this year. In addition, as previously disclosed, we expect net savings of 6.4 million in 2006, 13.2 million in 2007 and 16.8 million in 2008. Upon termination of all our two-way site leases, which we expect will take until 2009, annualized savings from our two-way network rationalization program are expected to exceed $21 million.

As for our one-way network rationalization, our goal is to eliminate redundant locations and excess capacity in our one-way networks. During the third quarter we removed 266 one-way transmitters as part of our rationalization plan to consolidate national and regional networks and migrate subscribers to our most robust network in each market we serve. By year-end we expect to have decommissioned approximately 1200 one-way transmitter sites of which we have decommissioned a total of 717 sites through September 30th.

Some investors have asked us how we go about the network consolidation process. Traffic loading and coverage of similar frequency networks are evaluated for opportunities to consolidate multiple frequencies onto a single transmitter network or infrastructure. Multiple frequency transmitters can handle up to eight channels of paid in traffic in a time sharing arrangement limited only by the combined traffic loading of the frequencies.

Once traffic is merged into the go to transmitter the transmitter targeted for deconstruction and the associated antenna hardware are removed from the tower or rooftop location. Lease savings can be immediately realized on those leases which have expired or are in month-to-month agreements or in future periods as the leases expire unless we specifically negotiate a buyout.

With respect to cost savings on the one-way side, as of September 30th site rent has been reduced by 340,000 per month due to current deconstructions. Prior deconstruction lease expirations and in part from the master and Tina and apart from the master antennas by lease agreement we entered antenna sight lease agreement we entered into with Global Signal in August but which took effect as of July 1st.

As previously announced, we expect to consolidate up to 50% of our transmitters onto Global Signal sites by the end of 2008, costing us approximately 12 million per year by then and resulting in a significant reduction in site lease expense. This does not imply that our total site rent in 2008 would be 24 million. Global Signal made a sound long-term business decision to partner with USA Mobility. The long-term benefits of this decision by Global Signal will include the predictability of a recurring revenues stream and partnership with USA Mobility as we explore alternative Wireless uses of our network of a Global Signal vast portfolio of tower sites.

Our 2008 site lease costs will consist of Global Signal for roughly half our page tower portfolio and a variety of other landlords whose cost per site is currently more than twice that of the implied Global Signal rate as well as the site rent paid to landlords under contractual commitments for sites we have deconstructed prior to the expiration of the lease terms.

However, we will continue to aggressively explore and negotiate additional opportunities with those other landlords for more win-win scenarios consistent with the Global Signal relationship. Going forward we expect one-way channel rationalization to continue for several more years with actual savings a function of continued negotiations with site owners. Once completed we expect this process will result in the largest long-term savings opportunity associated with our cost reduction efforts.

We have not provided total cost savings projections for our one-way channel rationalization because the plan is still dependent on a variety of factors including frequency loading, paging protocols, site rent negotiation and optimization, RF coverage requirements, staffing and timing issues. However, we hope to share more information with you on this subject as that becomes available.

With respect to the billing system conversion, as you know, we successfully completed our billing system conversion at the end of the second quarter. The conversion to a common platform has already resulted in numerous operational efficiencies throughout the organization. During Q3 we completed various cleanup projects remaining from the billing conversion including overall integration of business systems and back office functions as well as a consolidation of various other operating functions such as eliminating one of our three inventory and fulfillment centers.

As previously noted, we estimate approximately 10 million in annualized cost savings in the consolidated billing platform in 2006. However, there are many other related cost savings initiatives that have been enabled by our consolidation to a single billing platform.

With respect to our sales consolidation, during the quarter we consolidated the Company's two operating divisions consisting of six regions each into a single sales organization consisting of 11 regions. The restructuring was an appropriate step given both a declining subscriber base and our new targeted approach to sales and marketing.

Sales consolidation efforts through September 30th included the closing of 52 office locations, 28 terminal only locations and 66 storage facilities as well as a consolidation of various other redundant company sites. Over the balance of the year we will focus on consolidating additional redundant facilities and leveraging our centralized call center and engineering resources to improve efficiencies and support our field sales efforts.

With respect to our subsidiary restructuring, effective September 30th we restructured the ownership arrangements among our wholly-owned subsidiaries in order to simplify our corporate structure and to achieve certain tax and administrative savings. Restructuring eliminates the need to file separate tax returns for each operating subsidiary and is projected to result in state income tax savings of approximately 3.6 million over the next six years.

We also estimate that the number of state and local transaction tax returns that we are required to file will be reduced by an amount in excess of 11,000 over the next four years with a corresponding reduction in the number of man hours that would have been spent preparing such returns.

At the time of our merger a year ago our integration team had a mission statement as follows. USA Mobility will form a team comprised of Metrocall and Arch managers and employees committed to executing a plan designed to provide for the rapid integration of each company's culture, policies and systems in order to form a wireless communications operating company focused on creating value through execution of an operating strategy emphasizing free cash flow generation by retaining revenue and customers, sales of new products and services and achieving cost and operational efficiencies.

To summarize our integration progress to date, we have been true to our mission. From an operational standpoint we've completed almost all of what we set out to do in integrating the two companies, the billing system conversion is completed and our operational support teams are well into the post conversion process. In addition, our channel rationalization process is on track and our engineering team continues to analyze and refine our long-term plan.

Moreover we have reduced headcount including management by approximately 39%, executed an extremely favorable long-term agreement with our largest site lease landlord and have made additional progress on our networking cost structure with our large telecom vendors. I am happy to report that the merger integration of Metrocall and Arch into USA Mobility is substantially complete.

With respect to subscriber trends, as I noted earlier, we're also very pleased with the continued reduction in our rate of subscriber disconnects in the third quarter. The positive trend in Q3 reflected continued slowdown in our rate of subscriber losses and was the lowest rate of decline experienced by this Company or its predecessors in many years. In addition to the improvement of net subscriber losses, the 4.3% Q3 compared to 4.8% in Q2 and 5.8% in Q1, monthly subscriber churn improved to 2.55% in Q3 compared to 3.22% in Q2 and 3.57% Q1. Although there's no guarantee that these trends will be sustained in future quarters, we are very encouraged by these result.

Notwithstanding these positive trends, we still expect net unit deactivations will continue for the foreseeable future. It's important to note however that even incremental improvements in the rate of net losses, such as we've experienced in recent quarters, have produced a positive impact on our recurring revenue. With that in mind we continued to make progress during the third quarter to improve our sales efficiency and minimize gross disconnects especially among our direct customer base, that is those subscribers who have regular contact with members of our direct sales force.

As of September 30th our sales and marketing staff consisted of 479 professionals who sell the Company's products and services on a nationwide basis. Our direct customers also represent many of our larger accounts which historically have had lower disconnect rates. On the direct side we lost 154,000 units during the third quarter for a net deactivation percentage of 3.4%, an improvement from losses of 174,000 and a net deactivation percentage of 3.7% in the second quarter.

Our customer acquisition and retention initiatives -- I want to briefly comment on those. While the paging industry continues to lose subscribers to competitors who provide higher cost mobile telephony and wireless PDA products that offer enhanced functionality, we continue to explore ways to mitigate the outflow. One of those ways has been to concentrate our sales and service efforts around our core group of business users.

More specifically, we've targeted those users who stand to benefit the most from pagings three principal advantages -- substantially lower cost, significantly higher reliability in terms of single strength, superior network coverage. This core group, which represents the lowest churning accounts in our customer base, includes many of the largest accounts in our top two vertical market segments.

In addition, thanks in part to our recent billing system conversion we'll now the better able to analyze and data mine our customer base including by industry segmentation, customer size and monthly recurring revenue. For example, recent research indicates that the top ten industry segments of our direct customer base as a percentage of monthly recurring revenue are as follows -- health services; government, which includes, federal, state, municipal; education; financial institutions; computers and technology; aerospace and defense; retail; telco; petrochemical and automotive.

Together these groups account for approximately 60% of our MRR. They also experienced lower churn and net disconnect rates in recent quarters compared to other business segments. Beyond efforts to data mine our customer base we conducted in-depth market surveys with our top 150 core customers this past spring and summer. As noted on our last investor call, these surveys were designed to provide feedback on the makeup, satisfaction levels and future intentions of these accounts. They also allowed us to collect critical input from these customers on our sales and service performance as well as our future paging needs.

It was gratifying for us to receive high marks from these customers on our current performance. In a nutshell customers surveyed said paging continues to offer them multiple advantages despite the evolution of other wireless technologies. Not surprisingly, they identified those advantages as cost, reliability of network and as a vehicle for critical communications.

With respect to our long-term strategic plan, as most of you know, we've not commented publicly on USA Mobility's specific long-term goals and strategic direction since the merger. Rather we've focused instead on the nuts and bolts of the merger integration and getting our organizational and financial house in order. In recent months, however, senior management in conjunction with our Board of Directors has been working on a long-term strategic plan to address the fundamental challenges of the paging industry and to develop a set of defined strategic goals for the Company over the next few years. I wanted to share with you today the plans underlying strategic focus and several initial steps we have taken to move toward those goals.

Management created a mission statement with respect to the goals of the plan. It reads, "USA Mobility's long-term strategic plan is to return capital to shareholders through dividends, stock repurchases and/or selective accretive acquisitions, divestitures and strategic partnerships in order to maximize intermediate to long-term cash generation potential through the execution of a free cash flow based operating strategy supported by three primary tenets -- retention of existing customers and revenue; sales of new products and services; cost efficiency."

The first step in meeting those goals is abundantly clear, improve top-line trends at the same time we aggressively rationalize networks, cut costs and consolidate service -- customer service. In short, in order for us to continue to show improved results in our subscriber and revenue results we'll need to maintain and/or improve gross additions and related sales productivity while reducing churn. Toward that end we conducted a review and engaged a marketing focused consulting firm to advise us on our selling and marketing strategy and implementation.

As a result, after extensive research, analysis, consulting advice and internal review me have formulated a plan designed to significantly strengthen our sales and marketing team. We're moving forward as we speak to put this new model in place. Among key changes the new structure divides sales and marketing into two separate but parallel functions with each headed by an Executive Vice President.

Jim Boso, President of the central division, was promoted to Executive Vice President of sales. We are currently conducting a search for an Executive Vice President of marketing and hope to fill that position soon. These two positions, along with our Chief Operating Officer, Chief Financial Officer, general counsel and I, will constitute the primary executive leadership for the Company.

In addition to these organizational changes we're also in the process of implementing several other new sales initiatives including refocus our sales efforts, as I noted a moment ago, on ten key vertical markets. This will allow us to better prioritize all of our marketing and sales and product development efforts. Pursue new product development through the new revamped marketing function. While product development has not been a high priority in paging in recent years, we believe opportunities exist and we intend to actively pursue them.

We've positioned the Company as the nation's high priority communications business, underscoring the reliability of paging networks in emergency situations by adverse weather conditions. We emphasize the importance of product branding including cobranding, rebranding, repackaging and new communications aimed at high potential market segments. Create a stronger sales culture by providing timely information and strategic focus to our regional vice presidents, sales managers and direct sales force on productivity, rankings and status on achieving specific revenue, generating business plans and related incentives.

Upgrade marketing support capabilities, especially for our 10 key market segments with dedicated and targeted marketing and sales resources including training, recruiting, sales targeting and further incentive programs. In conjunction with our strategy to reposition USA Mobility as the nation's high priority communications business we are now in the process of identifying, pursuing and creating new sales opportunities based on our performance during hurricanes Rita, Katrina, Wilma and other current emergency and (indiscernible) prevention programs being undertaken by federal and local governments.

Our efforts are directed towards both near-term sales of paging services and equipment as well as longer-term growth opportunities that would be delivered by new applications of our network and frequencies. To achieve these results we formulated a strategy for managing our relations with the federal government and have begun working with regulators and legislators to set policies that affect the marketability of our services.

We are seeking increased sales to government departments for their own communications requirements. We are also working to ensure that paging is included in proposed legislation and FCC rules which could expand the functionality of our services. As examples, we recently carried our message into Washington in connection with both the FCC's rule-making regarding expansion of the emergency alert broadcasting system to include other wireless telecom devices and the drafting of a Senate bill to establish a national all hazards warning alert and response network.

We believe there are numerous opportunities for us to generate additional revenues from our existing networks. Moreover, we believe the revenue side of our business is essential to the creation of long-term value for USA Mobility. From 2003 to 2004 on a pro forma basis USA Mobility lost approximately 23% of its revenue base and, notwithstanding the improvements we have seen in our quarterly trends, we expect to lose approximately 22% this year.

Going forward however, we will be making a major effort to minimize that pace of decline. As such, mitigating the outflow of current MRR coupled with the enhancement of future revenue will be the principal revenue drivers of our long-term strategic plans.

I want to give you a quick update on the details of our telemetry and AMDS initiatives. One potential source of future revenue for us is telemetry, our machine-to-machine wireless communications. Over the last year several telemetry applications have been introduced on our narrowband PCS systems that appear to be gaining traction. Our MPCS systems offer a better balance between the cost of the device, monthly fees and coverage as compared to other competing nationwide technologies.

With the goal of growing telemetry applications over narrowband PCS systems, we formed an alliance in June with Advanced Metering Data Systems, AMDS. As a first step we completed the sale of a narrowband PCS license to AMDS in October; the license will create the opportunity for AMDS to provide meter reading services over a broader geographic area than that in which it currently operates. Our partnership with AMDS allows USA Mobility access to a protocol other than ReFLEX that is compatible with narrowband PCS spectrum.

AMDS' protocol allows telemetry applications more flexibility than previously available in ReFLEX. The availability of USA Mobility's narrowband PCS channel and the future choice of protocol will offer companies more options in designing telemetry applications around narrowband PCS.

In coming months with technical support from us AMDS intends to built out its meter reading network infrastructure to marketed services to numerous utilities throughout North America. USA Mobility will leverage its existing two-way network back call to allow AMDS an easy and quick deployment. To the extent that AMDS derives revenue from the use of its narrowband PCS license, which is not expected until sometime in 2006, USA Mobility would share a portion of that revenue.

In addition, we would receive fee income for the buildout and maintenance work. As previously noted, we view our alliance with AMDS as an opportunity to gauge potential for generating incremental revenues from telemetry applications. Recently Alabama Power approved a 50,000 meter expansion of the AMDS network. We will keep you posted as the AMDS relationship continues to evolve and telemetry grows over narrowband PCS system.

In summary USA Mobility continues to make progress. We became net debt free on August 19th; we restructured and streamlined our operating divisions and sales staff; we made major progress in network rationalization and site vendor negotiation; decline in our subscriber and revenue basis have improved each quarter since the merger; we have developed a cash flow oriented long-term strategic plan and are moving forward to quickly implement it; we have announced our intention to distribute $1.50 per share in the form of a special onetime dividend approximately one year after completing the merger of our Arch and Metrocall.

Over the balance of the year our principal objectives will include complete the two-way network deconstruction; continue our one-way network rationalization of site vendor negotiations; continue to improve our sales and marketing initiatives; retain an executive vice president of marketing; and operate consistent with our long-term strategic plan mission statement and our strategic vision statement.

We believe these goals are both achievable and in the best interest of our investors. Although we readily acknowledge that the pursuit of our business goals poses various risks and uncertainties, our Company's strategic vision remains simple and straightforward. USA Mobility will be a selling and marketing company focused on serving the wireless communications needs of our customers with a variety of communications solutions while operating an efficient, profitable and free cash flow based business strategy.

We believe paging and narrowband PCS messaging will continue to be a viable alternative for customers who want reliable communications devices with superior coverage characteristics at a fraction of the cost of broadband. We further believe that our customer relationships and distribution capabilities will allow us to take advantage of new communications products and solutions as the wireless marketplace continues to develop.

Finally, as I mentioned on our Q2 earnings call, we plan to hold an investor meeting in New York at some point during the first quarter of 2006. We've not set a specific date as yet, but most likely the meeting will be scheduled for early March to coincide with the release of our Q4 and year-end results. Once we firm up details we'll let you know the date, time and location of the meeting.

With that I will ask the operator to open the line up for your questions. In the interest of time we'd like to ask you to limit your initial questions to one and a single follow-up. After that the operator will circle back for additional questions as time allows.

(OPERATOR INSTRUCTIONS). Jason Stankowski (ph), Clayton Capital.

Congratulations on getting a lot done this year. Just curious why you would not commit to a dividend going forward, the idea of a onetime dividend is nice in returning capital. But why would you not, given the cash flow projections here for '06, at least institute a dividend so that you can put yourself on some capital restraints and let people know that there's a base dividend that is available from the Company?

I understand your question and it's a good one and we've talked about this quite extensively with our Board of Directors. And we came up with a mission statement for our long-term strategic plan that talks about dividend or potential stock repurchases or selective accretive acquisitions or divestitures and other strategic partnership. So instead of just simply saying it's going to be purely a dividend strategy going forward, we want to leave the option open to evaluate all of those opportunities in the context of our operating performance as we move forward in time.

It's as simple as just wanting to keep the options open and maintain that flexibility. I think you can get great comfort that one of our largest shareholders is actually a Board member here. So from the perspective of the shareholders I think that your interest would be well represented. And you have to understand that our goal is to make you guys money and that's what focus is and that's why we worked so hard this year and that's why the first opportunity we got to really delever and give some money back to you we've taken that opportunity.

And I guess the second question I would have is will there come a time or do you foresee a time when leverage -- I guess if the business decline plateaus, when leverage does make sense for the Company, I mean replacing -- buying stock back at these levels or paying a dividend versus paying down debt may not be the optimal structure?

I don't want to say no to anything. We want to keep our options open and maintain that flexibility. We want to make money for our shareholders and there's a lot of ways to do that and we'll work very hard to do that. And we will continue to explore all alternatives in the future.

All right. Thanks, guys.

(OPERATOR INSTRUCTIONS). Chuck (ph) Witmer, Eagle Capital Partners.

Sorry, it's Meryl Witmer. I had trouble picking up from the hands-free. I look at the expense savings expected from the two-way lease expirations and I just wonder what flexibility you have to possibly form a joint venture with someone who might want to do something like a Wi-Fi or use those tower sites to try and get some other type of business going since the lease expense is of some cost. Do you have flexibility with that or are the leases structured with the tower company such that it can only be used for paging?

The answer is yes and yes.

I don't remember my question, so --.

Yes. A, we have a lot of flexibility to work with the tower companies. In fact, one of the drivers for cutting this long-term deal with Global Signal was not just the existing business that USA Mobility ha, but was that we could work together in the future on some of these opportunities and we're actually currently having discussions on a regular basis now evaluating some of these opportunities. Now, having said that, the tower companies are also in business to make money as well and to the extent that we brought in other technology and partnered with a Global Signal or any of these other large tower companies, they're going to have to get paid for that and that's going to have to be worked into the situation. It's not simply going to ride on our site rent for free.

But that doesn't mean that you can't use that leverage of our capability in order to do that. One of the things, Meryl, that we do very well is we have a very large national engineering presence and relationship with all the tower companies. So we are able to, from these standpoint of AMDS as an example, to build a network for somebody and maintain it almost anywhere which is something that benefits tower companies, it benefits somebody deploying a new technology and it benefits us ultimately benefiting our shareholders.

So I think that we're very excited actually about our relationship with these large tower landlords and quite frankly with all of our landlords. They run good businesses and we try to treat them decently and they've treated us decently in return and recognize some of the challenges that we've had in our industry and I believe we're making progress in all of those areas and I believe there will be more in it for them in the long-term if they work with us and explore alternative uses of their towers as we bring some opportunities to them that they may not otherwise be exploring on their own.

I guess I heard -- I guess this will be my follow-up -- that SkyTel is doing something in the Wi-Fi area and it just occurred to me why not us too. Is that a potential use in those tower sites and what else could be potential?

Here's an example, as far as -- I haven't heard SkyTel is doing anything in the Wi-Fi so I'll just say that. As far as the potential, AMDS is a perfect example of it. They had a protocol which is the communications protocol that they developed themselves which, for the application they want to use, which is interrogating machines, machine-to-machine or meter reading, is more efficient than the ReFLEX protocol and that's an example. There are other examples that could be out there. It seems to me that what we may do in the future is work with the tower companies and with AMDS using their protocol but to leverage that into other applications.

I just think that there's opportunity there. We can't right now for you, Meryl, quantify that. I wouldn't want to give you a business forecast with dollars in it, but it's something that we're very focused on. It's something that, quite frankly, our Chief Operating Officer spends a lot of his time on and when we get that executive vice president of marketing in here we want them to spend time on it.

We've talked to a lot of companies whether they're satellite companies or security companies or -- you name it, you can go through a whole list that there's potential applications here that you could use a narrowband network in order to make their costs lower and their footprint broader. So I think there's opportunity. I think it would benefit all of us. And I think even from a perspective of timing some of these things I would think would be doable here over the next 24 months in terms of getting something up and going.

Okay, thank you.

Steve Nogus (ph), Okumus Capital.

Good morning. My first question is regarding working capital. Can you give us a framework for how we should think about working capital going forward perhaps specifically in terms of Accounts Receivable?

Are you looking at the direction of where you see Accounts Receivable is what your question is?

Yes, just sort of over an annual period how we should think about your working capital over that period?

I think we will generate working capital over the next year. We expect that our Accounts Receivable right now, as I mentioned, we have a little bit -- I would say our Accounts Receivable relative to where we would normally be is a little higher right now. We saw our agings increase a little bit through the billing conversion and through the Katrina, but we would expect that to continue to be reduced over the course of the next 12 months along with what we would expect our revenue attrition to be -- in line with our revenue attrition.

Okay. So within the quarter do you consider any part of that to be temporary uses of cash as opposed to core ongoing uses?

In the receivables I do think we saw a little bit of a what I'd call onetime slowing in our AR. Again associated with the billing conversion and associated with Katrina and other storms in the Gulf region.

Okay. And then my second question is regarding stock buyback as one of your options. Are you guys precluded in anyway from doing a stock buyback because of how close you are to a technical change of control?

We are not precluded per se but we certainly have to be careful and mindful of it as a look at it. Obviously a very large stock buyback could trigger a change of control under the IRS code 382 and we're very mindful of that. I think that's why the easiest way to return some of the value back was in the form of a dividend which is one of the reasons we opted for that here at the end of the year.

Right. So is that the reason why when Vince was given his capital allocation priorities dividend was listed before share repurchase?

To a certain extent. It is an area that has to be considered when you look at what your alternatives are to return capital back to the shareholder.

Great, thanks.

Ronnie Capel (ph), Wolf Point Capital.

Good morning. Congratulations on a good quarter. A couple quick questions for you. First, is there a targeted amount of cash that you'd like to have on the balance sheet? I think previously you'd given some guidance as to what you thought would be a normal amount to hold on the balance sheet, just wondering if you could update that. And then also what your expectations are for CapEx going forward?

First, as regards to cash, pretty consistent with what we've talked about before. We continue as we work through -- as Vince said, we have a lot of our integration behind us. However, as we move forward through I'd say the next six months, our goal will still be between $20 and $25 million of cash on hand.

The second part of your cash on CapEx, basically what we've stated in my talking points a little bit ago, we still expect to be between $12 and $15 million for the year. Into 2006 we just are not prepared to give any further guidance beyond what we're already talked about on capital expense for 2005. So we'll probably be sharing that with a little bit more insight in our investor call in first quarter.

And this AMDS business sounds like it has great potential for you going forward. And I know you're not estimating how much potential at this point -- maybe you don't have an idea or you don't want to share that. But how big of a market do you think that is in general going forward? Is this something that's a small niche business or can that be something that really is a sizable industry so to speak?

Ronnie, what's going to happen with the AMDS situation is it's going to become a function of how much the utility companies pick it up. There's probably over 100 million meters out there in the United States today and what will have to happen is that the way we would get paid from AMDS is as they would grow their subscriber base with their meters we would get a royalty from that. As we would deploy the network for them, i.e. build it out, we would get paid for deploying the network and then we would get paid for maintaining the network.

So the reason we can't really give you guys a forecast or any guidance on that is it's completely a function of how many meters they sell. Now, having said that, when we did our due diligence on them we spent a lot of time and we talked to public utilities, we talked to the meter manufacture and we talked to consultants that advise the industry in terms of where it needs to go there is a big issue in the United States today with utilities from a cost perspective of reading the meters and getting the data. There's a bigger issue with respect to energy efficiency and load balancing specifically during high utilization rates.

Let's just say in California in the summer between 2:00 in the afternoon and 6:00 in the evening a utility might want to charge more for using electricity during that time because they want to dissuade you from running your washing machine and dryer while people are running their air conditioners. The legislators are starting to put pressure on utilities to do this. Traditional meters, as you know, they just didn't have any way to do this. They can't send a guy out there and throw the switch, Irv. What they've got to do is they basically have to have a technology that allows them to do this.

And one of the things that attracted us to AMDS, particularly after talking to the consultant that advises the industry and writes the white paper for that industry on efficiency was that that mousetrap that these guys have created at AMDS allows them to do that very efficiently. So to the extent the utilities really get serious about that, we think that this is the right mousetrap. Whether that happens, Ronnie, utilities tend to move in periods of time that are longer than perhaps our concept of time. But we'll see.

Do you think it's a cost effective technology right now. We talked about 50,000 meters in Alabama?

We think that it is the most cost-effective technology out there and it can be used for electric, gas and water.

Great, thanks. Continue the good work.

Matt Schoeffler (ph), ISS (ph).

Can you describe what your expectations are from the Sprint relationship? And also if you could -- maybe just a general review of trends in single paging versus two-way and what's been driving the market in that way just a kind of general review?

Sure. The Sprint relationship like the Nextel relationship and the AT&T Wireless relationship was for reselling of mobile telephone so that we have relationships with accounts and we have relationships with very large accounts. We still have a large majority of the Fortune 1000 as our customer base, hospitals, government. We will go into large accounts with our sales people and we can offer them a wireless portfolio of products and services. We can offer them mobile telephony, we can offer them Blackberrys, we can offer them two-way paging, we can offer them one-way paging.

Each one of those technologies have different attributes, they have different cost associated with them, they have different functionality in terms of the inbilling penetration capabilities and the geographic footprint. But what you'll find often is that a large account will take a blend of products and services and our concern would be if we weren't offering all products and services we'd have two problems. A, some competing wireless technology would be in there with that relationship and we don't want that because we believe customer relationships are what improves churn.

And B, I think we would struggle with respect to the quality of our sales force because by selling all wireless technologies we attract, in our opinion, a better quality salesperson than if way just had somebody focused strictly on one technology. And so it's as simple as that; there is not a whole lot of other analysis behind it.

With respect to the different trends we're seeing on the paging side of the business, I think we talked a little bit and put some schedules in our press release with respect to the pager results. But in general what you're seeing is a slowing down in the rate of the erosion on the one-way side of the business because the customer base is being more and more made up of large accounts that have lower churn characteristics than it was in prior periods when you had smaller accounts in there.

So the percentage of our overall one-way customer base that have large accounts, that's growing over time. And since those specific accounts have lower churn characteristics, we say they're more sticky in the business, you're just getting better results.

Why do they continue to lack paging? Why do they continue to use our products and services? It's the fact that when a hurricane comes through an area and knocks a bunch of transmitters down, paging or signaling at an average 3500 watt CRP from towers that have antennas 300 to 400 feet off the ground, whereas mobile telephony is signaling from 90 to 100 feet off the ground, 90 watts is a big difference. Generally what's going to happen is a mobile phone network has a relationship between your phone and one tower and when that tower goes off you're gone.

A paging customer has a relationship between any transmitter that can see him because we simulcast and so when you have situations like terribly tragic situations like we've had this past year in New Orleans and other places, oftentimes you'll find that pagers are working where other technology is not working and I think people are starting to realize that when you have a device that runs off a AA battery it really doesn't matter that power is out and your cell phone battery went dead because you couldn't recharge it.

The thing that works, the thing that can save lives, the thing that can get critical communications to other people, the thing that does it better than any other wireless technology out there right now today is paging. And so that's why we continue to see I think in my opinion, the trends in paging improving in terms of the customer base because people are beginning to recognize a device that works better than any other device.

And if for nothing else, for no other reason, we believe if you're the federal government, if you're a state government, if you're a mayor of a city, to have paging is a rounding error in your budget compared to some of these things these guys are trying to take on in terms of the immensity and complexity of the communications solutions that they're looking at. If they wanted to be efficient, and many of them do, they would look at paging first. It's here today, it works better than anything else and then they could work on the most complicated eloquent super duper fancy communications systems that cost the taxpayers God knows how much money. But we think paging is the best technology and that's why we're having the most stability.

Two-way paging, it's different from the perspective of it costs more. So the big gap that you have between mobile telephony and one-way paging isn't so pronounced with respect to two-way paging because our average revenue on the two-way side is over $20 a month and so some people will look at that and say if I'm going to spend $20 a month do I want to go to the next level? They can go to the next level, they're still going to spend a lot more, and they're going to lose a lot of the benefits that I just articulated with respect to paging when there's a big problem.

We still think it's a very good business. We're cognizant that the subscriber base does continue to shrink. We think we have specific sectors where there's opportunity for growth within the customer base. And one of the reasons that we have restructured our selling function and that we're bringing in an EVP of marketing is to actually target some of their specific vertical sectors, put our efforts and initiatives into that, hopefully come up with better results for you guys in the future.

Good. And if I could ask just one last question on the change of control. What gets triggered with the share repurchase and also want events would also be triggered for a private buyer as well in terms of loss of an NOL or something like that?

Essentially the biggest impact to the change of control is you have a severe limitation on your NOLs. We have deferred tax assets on our balance sheet of roughly $250 million that will keep us from paying taxes for the next 10 or 15 years -- or actually more like 15 to 18 years. In a change of control what happens is the IRS puts on a limit on how fast you can use those and it essentially is about -- approximately it varies with interest rates essentially, but it's about a 5%, roughly that ballpark, of the total market cap of the Company becomes the limitation on what you can use. So you get a severe limitation which would cause this private entity then to have more cash tax liability going forward.

And at what price is it neutral? How low could the equity get here before it's really almost going to be --?

We're not going to step into that today.

Thank you.

Meryl Witmer, Eagle Capital Partners.

Regarding the two-way pager, I'm wondering if it's as robust as the one-way in the disaster scenarios like New Orleans hurricane.

I'm going to let Peter Barnett, our Chief Operating Officer, take that.

From an outbound perspective it is a simulcast system just like a one-way pager. From a return perspective there are receivers at each transmitter location, but typically a pager sends out a single and it's heard somewhere between three and five transmitter sites. So you can still lose two or three transmitters in a given geographic area and it will still be seen and heard by transmitters outside of the area that was affected by whatever was affecting it. So it still is a simulcast inbound and a limited simulcast outbound protocol.

Okay. And I'm wondering if you're seeing any municipalities wanting to upgrade to the two-way system since that was obviously one of the big issues in New Orleans or the federal government? And if you get a lot of orders, can't you bring the price down?

How about I'll answer the first part of the question? When the storms have hit I would say every time there's been an emergency, a storm, a large fire, we have increased sales of two-way pagers by the local government and/or emergency responders in that area. And most of that stuff does stick even after everything that we've put out during New Orleans, the extra pagers, they really haven't come back. They're staying out there with those users. You do get an increased subscriber base even though it's a small number of customers in a certain geographic area.

But the New Orleans ones, were they two-way pagers that went out?

We actually put both out. Today in New Orleans cellular service is mostly back up and land line service is not back up in a large part of the city and people are going to alternative technology.

One thing -- you only get so much time on these call, but one thing, during the whole Katrina thing our executive vice president of sales, Jim Boso, was in constant contact with the state of Louisiana. We were providing them pagers, we were providing them any type of support we need. We had stationed engineers with mobile transmitters right outside of the storm's path so we could get them downtown quickly once the thing passed. We did quite a bit for the state of Louisiana and it's those kinds of things that I think the governors and mayors and anybody in any type of leadership position of responsibility needs to really take a good look at.

And I think one of the things that we need to do because let's face it, there has been a connotation with paging, it's an old technology, it's not cool, look at all these other things coming down --. One of the things we need to do, and we will do with this new marketing position and with our focus, is we also need to reposition paging and maybe we don't call it paging, maybe it's a national strategic alerting device. Maybe there are a zillion different things we can call it that we've been kicking around.

Maybe we need for -- federal or state governments need to make it a special color and have special capabilities. It does do group calls, so by department they could send messages and be more efficient than any other wireless technology. These are all things that we're looking at and evaluating that to us make sense. Granted we have some bias on the issue. With respect to would we lower price, I think what you meant was would our cost lower if we were selling more? And absolutely, our cost would lower if we were selling more and hopefully all of us, our shareholders and everyone would benefit from that.

Well, actually that wasn't what I meant. It's just if -- I don't know what they pay for the one-ways, if they pay $7, the step up to 20 is high but the step up to 15 is less on a per person basis.

That would be a function if our cost for the devices would come down. Volume drives discounts regardless of supplier or consumer. Absolutely, we agree with you.

Great, I guess I'll get back in the queue. Thank you.

Jason Stankowski, Clayton Capital.

On the dividend I had a question regarding the taxability. Do you guys have negative EMP? Will this be 100% taxable or return of capital?

As we've mentioned, we believe right now that it will probably be all or substantially all a return of capital, but we do have to complete an EMP study to be conclusive on that. We expect that to be completed before we send out the 1099s in the early part of 2006.

You would hope so I guess. Are your projections -- just out of curiosity if we were so fortunate enough to have the dividend be a good way to give us back some of the 100 million or plus you should generate next year, do you have any projections for whether we would again have negative EMP going forward? What are your thoughts on that?

I wouldn't want to project on that right now until probably early March if we give some expectation of 2006 we can probably address that question at that time.

And also, you mentioned the NOL being 200 -- or actually the deferred tax asset I guess of 200 plus million? Does that imply an NOL of roughly 600-ish?

Gross tax attributes, yes, it would be grossed up at essentially our effective rate of about 38.8%

Okay. And given that, are there a lot of assets remaining to be depreciated from a tax perspective? Just trying to jive the 18 years with the cash flow versus taxable income projections going forward.

Let me make sure I understand your question right. In our deferred tax assets, essentially it's a combination of NOLs as well as depreciable base -- the tax basis of our depreciable assets that would continue to shield us from income taxes.

It was just a flat NOL, I was trying to figure out why it would take 18 years to drill through it. I just wondered if there was a lot of additional assets to be depreciated here going forward during that piece of time from a tax perspective.

We do have a tax basis of assets that are continuing to be depreciated with our filing position. And then we also have what you would think of as traditional NOLs.

Great, thanks so much.

Steve Nogus, Okumus Capital.

Just one quick follow-up. In terms of the number of employees, it dropped pretty significantly in the third quarter, and I think on your second-quarter call you had sort of guided directionally that at the end of the year you'd have about 1700 employees. Is that still the target or are you ahead of plan?

Yes and yes. I mean, we are ahead of plan right now and it will still be below 1700 by the end of the year.

Okay. And one of you guys had given OpEx guidance for the year on the second-quarter call. I think the range you gave was about 465 to 475 million. Did that number include your severance expense?

Yes, I believe it does, everything except depreciation and amortization.

Okay, great. Thank you.

I'll turn the conference back over to the speakers for any additional or closing remarks.

Today's call was recorded and so the details for the replay of the call are included in our press release. We want to thank all of you for joining us today. We really look forward to speaking with you at our investor conference that we're going to have in the first quarter. Thanks so much for your support and your patients while we got these two companies integrated. Now we're working on making them an efficient company and we're looking at opportunities. Thank you very much and we'll talk to you soon. Have a great day.

That does conclude today's conference. We thank you for your participation. You may now disconnect.