Spok Holdings Inc (SPOK) 2005 Q4 法說會逐字稿

Good day and welcome to USA Mobility's fourth-quarter and year-end investor conference call. Today's call is being recorded. On line today we have Vince Kelly, President and CEO; Peter Barnett, COO; Tom Schilling, CFO and Treasurer; and Scott Tollefsen, General Counsel and Secretary.

At this time for opening comments I would 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, Scout Tollefsen, will make a brief statement.

Thank you, Vince. 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 including statements related to the Company's completion of its restatement and audit of its consolidated financial statements, new determinations and calculations, and estimates of time to complete the review and audit. 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 the Company believes to be reasonable based upon available information, they are subject to risks and uncertainties including risks and uncertainties that the review or subsequent processes or filings will not be timely completed; that any modifications or changes may not be timely or effectively implemented; that other errors or internal control deficiencies or weaknesses may be identified during preparation and audit of the consolidated financial statements; and that adjustments for other periods may be required. The Company's financial results and stock price may suffer as a result of the ongoing review and any subsequent determinations from this process or any resulting actions taken by governmental or other regulatory bodies. Please review the risk factors section relating to our operations and the business environment in which we compete contained in our third-quarter Form 10-Q and our 2004 Form 10-K, both of which are on file with the SEC for a description of these risks and uncertainties.

Please note that USA Mobility assumes no obligation to update any forward-looking statements from past or present filings and conference calls.

Thank you, Scout. First of all I wanted to take a minute to apologize to all of you who were planning to attend our recently postponed investor meeting in New York which CRT had graciously offered to host. As you may know, we had originally planned to hold our investor presentation at the Princeton Club in conjunction with this fourth quarter call but decided to postpone the meeting for reasons at that time unrelated to the delay associated with our 2005 audit process. We plan to reschedule the investor meeting in the not too distant future and will let you know as soon as circumstances allow and we have finalized our planning.

We're delighted to speak with you today regarding our recent operating results and share with you important information with respect to our business, our initiatives and our expectations for 2006. Due to the amount of material we plan to cover, we expect this to be a relatively lengthy call; however, we hope you will find this information useful. When we are finished presenting our prepared material, we will be happy to take your questions.

I also want to acknowledge the status of our pending prior period restatement as well as our 2005 10-K filings which we are in the process of completing and will file as soon as we and Price Waterhouse Coopers have finished our work. Restating past financial results is never taken lightly. The stack that we discovered past mistakes while working on the 2005 audit and are currently addressing them with the help of our auditors and experts is important and necessary.

Tom will go into more specific details on this in a couple of minutes; however, I want to emphasize that the restatements are not related to our revenue, cash, or cash flow from operating, financing, or investing activities.

Now I want to turn to our results and start with the review of what we feel was a phenomenal year. When Metrocall and Arch merged slightly over sixteen months ago, we set the following goals for our first year of operations -- successfully integrate the companies while maintaining high-quality service; achieve significant merger synergies and cost savings; generate significant sufficient cash flow to retire the $140 million in bank debt used to fund the merger and create excess cash for the benefit of our shareholders' and our customers' future. And lastly, aggressively market existing products and services while exploring new sources of revenue. I'm pleased to report that we achieved each of those goals during 2005. Metrocall and Arch were substantially integrated within one year of the merger.

Customer service levels are currently high and as measured by call statistics continue to improve. Merger synergies and cost savings have been significant. All bank debt related to the merger was repaid in August and USA Mobility became debt free. We paid a special dividend of $1.50 per share on December 21, 2005, representing a return of capital of $41 million to our shareholders.

We refocused our marketing objectives to target key vertical markets, especially those customers in mission critical businesses. And we began exploring potentially new sources of revenue including the execution of an agreement with Advanced Metering Data Systems, AMDS, in which we would share revenue derived from its narrow band PCS meter reading network. In addition to meeting our stated goals, the Company also made substantial progress during the year in various other areas.

Subscriber trends improved as our net unit losses for the year declined to $1.1 million or 18.1% compared to $1.7 million or 22.3% in 2004. This represents a 35% reduction in annual customer erosion on a pro forma basis. We included a link to a chart in our press release material that graphically illustrates this improving trend by quarter.

Year-over-year revenue trends also improved with the rate of revenue decline on a pro forma basis slowing to 21.6% in 2005 and 22.3% in the prior year. We also lowered our operating expenses excluding depreciation and amortization by over $105 million or 18.6% during the year, due in large part to merger related savings and cost efficiencies. Tom will go into more detail on each of these expense categories in a few minutes.

In addition, we reduced companywide headcount by 36% during 2005 and by 43% since the merger. The headcount reduction coupled with slowing revenue erosion has produced a significant improvement in the Company's operating efficiency, which Tom will cover in detail again in a few minutes.

Our highest priority during the year of course was the merger integration. Important steps in that process included consolidating numerous back office and administrative functions; reorganizing senior management; restructuring our sales and marketing functions; converting to a single customer service and billing platform; decommissioning the legacy Arch two-way network well ahead of our original plan; rationalizing our one-way network including the decommissioning of more than 1200 transmitters by year-end; closing more than 150 office, terminal, and storage facilities; and reorganizing our legal entities to generate substantial future administrative and tax savings.

Another key step in the integration process was the execution of our master antenna site lease agreement with Global Signal last August, which we expect will result in substantial savings in future site lease costs. Subsequent to year-end, we further improved our long-term site lease efficiency prospects by entering into a new master lease agreement with American Tower Corporation effective as of January 1, 2006 and running through 2010.

And finally in the wake of the Company's successful performance during Hurricane Katrina and other storms in the Gulf Coast region last summer during which our highly reliable and resilient networks outperformed Mobile Voice Networks, we have made a concerted effort to demonstrate the value of paging technology to numerous governmental agencies, health-related organizations, and other first responder groups that require highly reliable communication systems during critical or emergency situations.

I will comment further on our progress in 2005 and plans for 2006 in a few minutes, but first I'd like to ask our Chief Financial Officer, Tom Schilling, to review the Company's financial performance and current filing status.

Thanks, Vince, and good morning. I want to review the financial performance of the fourth quarter and the full year of 2005 and then we will provide our guidance as to where we see 2006 in terms of our revenue, operating expenses and capital expenses. However I will first make a few comments regarding our pending restatement.

As most of you are aware, we announced on Friday, March 31 that we did not file with the SEC and that we plan to do so as soon as practical. While the delay in filing is frustrating, it is also absolutely necessary in order for us to be comfortable that our restatement is accurate, complete and comprehensive. The restatement has required extensive review of prior years' work and documentation back to Arch's emergence for bankruptcy in 2002. This review is being conducted by a new accounting team at the Company and a new audit team from Price Waterhouse Coopers, our external auditor. Our integration efforts during the past year included a near wholesale change out of our finance and accounting personnel from the former Arch staff in Westborough, Massachusetts to the new USA Mobility team here in Alexandria, Virginia.

Also Price Waterhouse Coopers transferred management of our audit from its Boston office to its northern Virginia office after completion of the 2004 audit. So the people preparing and reviewing the restatement were not involved during the time periods being restated, which adds a significant amount of learning curve time in the gathering of facts and assessing whether or not an error occurred. These factors also add to the normal time it would take for the Company to prepare, support, and document the correcting entries as well as adding to the time it takes to review and audit the work. The team we've built during 2005 and the controls and the procedures we have implemented uncovered these previous errors and they are continuing to process correctly.

I am more confident today in the competency of our people and our controls than I've ever been. We will file our final restated results as soon as possible, but not before we and Price Waterhouse Coopers have completed their work.

Our press release issued yesterday contains schedules reflecting our preliminary restated results for revenues for pretax income. As I just discussed, our restatement work for our audit and our audit are not yet completed and we are currently evaluating other items that may require restatements to the preliminary results included in the press release.

At least one item currently under review is Arch's accounting for asset retirement obligations or ARO under FAS 143, which Arch adopted in 2002. FAS 143 requires that asset retirement obligations associated with the retirement of tangible long-lived assets be recognized as a liability when incurred and the amount of the liability be initially measured at fair value. We are assessing whether Arch's past ARO accounting correctly used fair value to assess the obligation and if certain costs associated with transmitter removals were recorded as current operating expenses.

If we determine the ARO was accounted for incorrectly, then adjustments will be made -- will be recorded to our depreciation and amortization expense as well as adjustments to our service, rental, and maintenance expenses. It will not however affect revenue or cash flow from operating, investing, or financing activities.

I want to emphasize that the pending restatements currently reflected in our press release are necessary under generally accepted accounting principles because they had a material impact on our income statement. However I also want to emphasize that none of the restatement items affect the fundamentals of our business. By fundamentals I mean the restatement does not impact the Company's previously reported revenue. The restatement does not impact our previously reported cash positions. And the restatement does not impact our previously reported cash flow from operating, investing or financing activities.

Much of our restatement work revolves around our income tax provision and our deferred tax assets. While the restatement is correcting for multiple errors that in some cases offset, at this point in our process we anticipate that our deferred tax assets as of December 31, 2005 will be reduced by about 5% from previously reported amounts.

The impact on the restatements presented in our press release schedules on EBITDA was a decrease of $1.3 million in 2003, a decrease of $1.6 million for 2004, and an increase of $2.4 million for the first nine months of 2005. I would like to describe some of the more significant items impacting the changes on EBITDA.

Sales and use taxes that were not correctly set up in the legacy Arch billing system resulted in the Company recording expenses in our previously reported second quarter and third quarter of 2005 that covered a period from 2002 to 2005. These errors were discovered during our billing system conversion and we noted these in our previously reported operating results. We determined that it would be more appropriate to reflect these expenses in the period the Company truly incurred the liability. This reduced 2005 general and administrative expense by $2.2 million and increased general and administrative expense in 2003 and 2004 by $1.3 million and $700,000 respectively.

We had an $856,000 liability for severance costs related to the former Arch executives that we determined should more appropriately be recorded in the fourth quarter of 2004 rather than the payout period notwithstanding our ability to reduce these payouts by offsetting earned compensation should the terminated Arch executives become reemployed. We have recorded in the first quarter of 2005 a change in our minority interest in GTES Inc. of $156,000. This more appropriately should have been recorded in the fourth quarter of 2004.

We also made a correction to our depreciation and amortization in the fourth quarter of 2004 and in the first, second, and third quarters of 2005. The Company made a decision in the fourth quarter of 2004 to decommission the legacy Arch two-way paging system. We completed this decommissioning in the fourth quarter of 2005. During our year-end review we discovered that the decommissioning of the two-way system had not been correctly entered into the Company's fixed asset system during the fourth quarter of 2004.

In addition, we discovered an error that existed in a manual entry made in the fourth quarter of 2004. The net results of these errors was a decrease in our fourth quarter 2004 depreciation expense of $1.4 million, an increase of $3.8 million, $6.1 million, and $6 million in the first, second, and third quarters of 2005 respectively.

Before I review the fourth quarter and full year 2005 results, I want to remind everyone that our reported financial results for 2004 include only 46 days of Metrocall operations as the merger between Arch and Metrocall closed on November 16, 2004. Therefore my discussion will include comparisons between 2004 and 2005 on a pro forma basis. The pro forma results for 2004 assume the merger between Arch and Metrocall occurred on January 1, 2004.

In our news release issued yesterday, we included our reported results and pro forma results on a quarterly basis for 2004 and 2005. These preliminary results contained in the news release include the effects of the restatement items we have completed as of today.

We provided financial guidance in our second-quarter 2005 conference call. We stated at the time we expected revenue for 2005 to be between $605 million and $615 million. Actual revenue was $618.6 million, slightly better than our guidance. We said that operating expenses excluding depreciation and amortization would be between $465 million and $475 million. Our reported expenses were $462.7 million, again slightly better than our range.

Finally we projected capital expenses in the range of $12 million to $15 million and we reported $13.7 million in the middle of the range. Obviously given the results compared to the guidance, we are very pleased with what we considered a very successful first year of operations.

I will start with subscriber base, where we continue to see improvements in our rate of erosion. As of December 31, 2005, the Company had 4,886,000 units in service consisting of 4,182,000 direct units and 704,000 indirect units. Net unit loss during the fourth quarter totaled 230,000, a sequential decline of 4.5% which is consistent with the sequential decline in the third quarter when we lost 232,000 units or 4.3%.

We experienced measurable improvement in subscriber loss in the second half of 2005. We included a link to a graph in our press release that depicts this improving trend. In the fourth quarter of 2004 on pro forma basis we lost 388,000 subscribers. Our fourth quarter of 2005 loss of 230,000 is an improvement of 158,000 units or 40%. More importantly, the rate of erosion improved 26% from 6.1% in the fourth quarter of 2004 to 4.5% in the fourth quarter of 2005.

Additionally during 2005, we experienced consistent improvement each quarter in the rate of unit decline on a year-over-year and pro forma basis. In first quarter 2005, we experienced an annual rate of decline in units of 21.7%. That improved to 20.7% in the second quarter, 19.5% in the third quarter, and 18.1% in the fourth quarter. For the first quarter we expect year-over-year trend to show improvement; however, on a sequential basis we expect an increase in the rate of net unit loss in the first quarter compared to fourth quarter as first quarter has traditionally been the highest quarter of net unit loss.

Total revenue for the fourth quarter was $143.4 million, a decrease of $8.6 million or 5.7% from the $152 million reported in the third quarter. As suggested in our third-quarter earnings call, the rate of revenue decline in the fourth quarter increased due in part to the lagging impact of our midyear billing conversion.

The fourth-quarter revenue decline, 20.3% compared to the year ago quarter on pro forma basis. We are encouraged by the improvement we experienced in the last half of 2005 and the year-over-year rate of revenue erosion. Our year-over-year rate of revenue erosion was 22.7% in the first quarter of 2005, 22.4% in the second quarter, then 20.6% in the third quarter, and finally 20.3% in fourth quarter of 2005.

Total fourth-quarter revenue includes service, rental, and maintenance revenue of $137 million and product sales of $6.4 million. Service, rental, and maintenance revenue declined $8 million or 5.5% from the third quarter. The decrease was driven by a 4.5% decline in the units and service and 1.5% decline in the average revenue per unit.

For full year 2005, reported revenue was $618.6 million, compared to $490.2 million in reported revenue for 2004. The increase in reported revenue is entirely attributable to the inclusion of a full year of Metrocall revenue in 2005. On a pro forma basis our 2005 revenue declined 21.6% compared to the $788.7 million in 2004.

Total paging revenue per unit or ARPU in the fourth quarter was $8.90, compared to $9.04 in the third quarter, $9.02 in the second quarter and $9.01 in the first quarter. ARPU for direct units in the quarter was $9.57, compared to $9.81 in the third quarter or a 2.4% decrease. This was due in part to increased service in billings credits reserves associated with our billing system conversion completed at the end of the second quarter.

Indirect ARPU increased to $5.06 in the fourth quarter, a 5.2% increase from the $4.81 in the third quarter. This was driven in part by the rationalization of pricing to our paging reseller customers. With the various mergers we have completed over the years, we had certain inconsistency in our pricing for these customers. During the fourth quarter we implemented a program to create more standardization in our pricing programs, which contributed to an increase in our indirect ARPU.

As previously noted, we expect ARPU for direct units and service to continue to trend down. The primary driver of the decline will be the mix of our customer base rather than pricing reductions. This mix shift is largely the result of both our lower ARPU one-way service and lower ARPU large customers becoming an increasingly higher percentage of our direct customer base.

Now I will turn to operating expenses where we continue to make excellent progress. For this discussion I will divide our operating expenses into two categories. One, the operating expenses excluding depreciation and amortization, and then I'll speak to the depreciation and amortization separately.

For full year 2005, operating expenses excluding depreciation and amortization was $462.7 million compared to $568.3 million in 2004 on a pro forma basis. This represents a $105.6 million or 18.6% decrease. Service rental and maintenance expenses or SRM expenses include terminal transmitter site leases costs, payroll related costs for engineers and other technical professionals, the telecommunications, satellite, and other expenses required to operate our one- and two-way networks. In the fourth quarter, SRM expenses were $50.6 million, down 7% from the $54.5 million reported in the third quarter. For the full year, SRM expense decreased $39.5 million or 15% from the $257.7 million in the fourth quarter -- or in 2004 on a pro forma basis to $218.2 million in 2005.

We achieved reductions across all expense elements within SRM with tower lease expense and telecommunications and payroll contributing nearly half the annual savings.

Selling and marketing expenses were $10.3 million for the fourth quarter, down from $11.3 million in the third quarter and down from $14.4 million in the year ago quarter on a pro forma basis. In the third quarter, we consolidated our sales force under a single executive vice president of sales and eliminated an entire layer of management. Also during much of the fourth quarter, we were lower-than-expected on sales headcount, which contributed to this decrease.

For the full year 2005, selling and marketing expense was $43.1 million in 2005, compared to $65.8 million in 2004 on a pro forma basis. This is a $22.7 million reduction or 34%. As a percent of revenues, selling and marketing expenses also declined from 8.3% in 2004 to 7% in 2005. As you will recall, we rationalized our sales force very quickly after the closing of the merger in November 2004, thus we realized a full year of savings from our integration.

General and administrative expenses, which include customer service, inventory, and other support costs, were $39.3 million for the fourth quarter, down from $43.3 million in the third quarter. About two-thirds of the $4 million reduction in G&A in the quarter was driven by reductions in payroll expense.

G&A expenses were $177.4 million for the full year 2005 and mark a $38.9 million or 18% reduction from the $216.3 million in 2004 on a pro forma basis. Over 80% of the reduction in G&A was from payroll related costs; however, we also saw solid reductions in office rents, administrative, telecommunications, and repair and maintenance expense.

Overall within SRM, selling and marketing and G&A expenses, approximately 60% of our annual cost reductions came from payroll expenses. We reduced our full-time equivalent headcount from 2,830 at the close of the merger to 1,617 at December 31, 2005. This is a reduction of over 1200 positions or 43%.

We included in our news release a link to a chart that presents the annualized revenue per employee on a pro forma basis each quarter from the fourth quarter of 2003 to the fourth quarter of 2005. Prior to the merger this important measure of operating efficiency had stalled and in fact was declining in the four quarters leading up to the merger of Arch and Metrocall. In the fourth quarter of 2003, the pro forma annualized revenue per employee was $254,000 and declined to $244,000 in the third quarter of 2004, the last quarter before the merger.

Postmerger we have improved this revenue per headcount every quarter and by 40% through year end. As of the fourth quarter of 2005, we are now at $343,000 of annualized revenue per headcount, unlocking efficiency for our shareholders. This significant rate of improvement clearly represents compelling rationale for the merger of Arch and Metrocall, as it is highly unlikely that either company on a stand-alone basis could have achieved this level of efficiency.

As we move forward in 2006 and beyond, our cost savings will come more and more from infrastructure expense such as transmitter site leases and telecommunications expense. Our network rationalization efforts and our new long-term contracts we've negotiated with our largest tower landlords help pave the way for significant savings in these areas in the future. Vince will discuss these initiatives and results further in a few minutes.

Our severance and related termination costs include severance costs associated with the reduction of workforce and other contract terminations for real estate leases, service contracts, power leases that provide a future benefit. In 2005 we reported $16.6 million for these activities and in the fourth quarter we recorded $714,000.

We expect that the largest expenses are behind us, however we will continue to be opportunistic and aggressive in pursuing economic buyouts of contractual commitments that we no longer need.

Stock based and other compensation was $179,000 in the fourth quarter and $2.8 million for the full year. This includes amortization of restricted stock awards issued under the Company's long-term incentive plan. EBITDA, which we define as operating income plus the add back of depreciation and amortization expense and for which we have included a reconciliation in our news release, was $40.6 million or 28.3% of revenue in the fourth quarter, compared to $40.9 million or 26.9% of revenue in the third quarter.

Depreciation and amortization expense for 2005 was $153.4 million versus $153.3 million for 2004 on a pro forma basis. The decommissioning of the former Arch two-way network added approximately $20 million in incremental depreciation over 2004. Without the two-way decommissioning increase, depreciation would have decreased approximately $17 million compared to 2004. The increased depreciation expense related to the decommissioning of the Arch two-way network offset much of our EBITDA and resulted in operating income of $2.5 million for the full year of 2005. Between operating income and pretax income we recorded interest expense of $1.3 million related to bank debt which we paid off during the third quarter; $1.3 million in loss on extinguishment of long-term debt related to the early retirement of the bank debt; and other nonoperating expense of $1 million related to a loss of $1.3 million on asset disposals offset by $300,000 in income from subsidiaries. Our pretax loss was $1.2 million.

Capital expenses, which consist primarily of device purchases, totaled $4.2 million during the fourth quarter compared to $4.1 million in the third quarter. Capital expenses for the full year totaled $13.7 million.

The Company paid a special dividend of $1.50 per share on December 21, 2005 to shareholders of record on December 1, 2005. The dividend of approximately $41 million, which was paid from cash on hand, was distributed as a return of capital for tax purposes. As such, the dividend is not taxable as dividend income, but rather as a nontaxable reduction to a shareholders' basis in USA Mobility common stock and thereafter as a capital gain. After paying the dividend, we ended the year with $37.5 million in cash. Also we expect our cash balance at the end of the first quarter to be approximately $73 million.

Finally with respect to our financial expectations for 2006, we are providing the following financial guidance with the usual caveat that our projections are based on current trends and those trends are always subject to change. Accordingly we expect revenue for 2006 to range between $480 million and $500 million. Our operating expenses excluding depreciation and amortization we expect to be between $370 million and $380 million. Finally we expect capital expense to range between $15 million and $20 million.

With that, I'll turn it back over to Vince.

Thank you, Tom. Before we take your questions I want to spend a few minutes updating you on several other Company and industry activities including number one, our network rationalization update. Number two, subscriber trends. Number three, sales and service focus. Number four, key advantages of paging. Number five, growth strategies. Number six, goals for 2006. And number seven, future dividend distributions.

With respect to network rationalization, first as I noted earlier, our merger integration was substantially completed during the fourth quarter. However, as you know our network rationalization process will continue in the years to come as we work to create added efficiencies and eliminate unnecessary costs. During the fourth quarter we completed the deconstruction of the legacy Arch two-way network. During 2005 this project resulted in the decommissioning of over 2,100 transmitters and building approximately 200 new transmitters while moving all legacy Arch two-way subscribers onto the Metrocall legacy network.

Moreover, we accomplished this with minimal disruption to customer service. While this phase of the project is now completed, we will continue to be responsible for lease obligations on our transmitter sites until the underlying lease agreements expire. However as mentioned previously, we have continued to negotiate early terminations and/or other favorable economic terms with our site landlords on some of the remaining leases to maximize cost savings.

As for our one-way network rationalization, we have continued to eliminate redundant locations and excess capacity. During the fourth quarter, we removed nearly 300 one-way transmitters as part of our rationalization plan to consolidate national and regional networks, bringing to over 1200 the total number of one-way transmitters decommissioned during 2005. In addition we have added about 150 new one-way sites as part of the rationalization plan.

During 2006, we expect to remove more than 1200 additional transmitters and move another 800 sites from individual leases to sites covered under our new cost-effective master lease agreement. As in 2005, there will also be sites that we actually add and bill during 2006 to either specific customer requirements and/or new coverage offerings. However, the net reduction each year that we shall experience will be significant in terms of our long-term operating cost structure.

We expect to consolidate close to 50% of our paid transmitters onto Global Signal sites by the end of 2008, making them by far our largest landlord at an annualized cost of approximately $12 million per year. This will result in a significant reduction in our site lease expense as the Global Signal rates are by far the most attractive site lease terms we have. We anticipate our 2008 site lease costs will include Global Signal for about half of our paid tower portfolio, American Tower for nearly 30% of our paid tower portfolio, and a variety of other landlords whose cost per site is now substantially higher than our master lease agreement rates with Global Signal and American Tower. However as we move forward, we will continue to aggressively explore and negotiate additional opportunities with our other landlords for more favorable rates and terms.

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. We will be engineering each of our systems to place sites on the buildings of our largest customers, giving each of us a win-win situation.

Secondly, placing sites on facilities covered under the master lease agreement, and then our last choice would be an individual site lease. As I mentioned earlier, subsequent to year-end and during this quarter, American Tower and USA Mobility entered into a new comprehensive long-term master lease agreement which was retroactive to the beginning of 2006. The new master lease agreement consolidates an expired agreement from the fourth quarter of 2005 and two other agreements which were scheduled to expire in 2008. These proactive negotiations consolidating the existing contracts with the long-term relationship were in the best interest of both parties. Together both Global Signal and American Tower will form the nucleus of our transmitter site location network and will be supplemented only where necessary due to coverage requirements or the availability of free sites.

However at this point in the process and in the spirit of providing our investors with more information as we progress, I wanted to provide you more clarity on what we see in terms of our site lease costs load going forward. Please keep in mind that this information is the result of an intense thought process and channel rationalization project that gets updated on a quarterly basis. While we believe these goals are achievable, I want to point out that it is a complicated process and unforeseen issues could arise that could delay or cause us to change these assumptions to levels that are less beneficial than we currently foresee.

Site rent is directly related to the number of transmitters that the company is using. At year-end 2005, we have one two-way network with approximately 2300 transmitters and our largest one-way network is approximately 4100 transmitters which we believe is twice as large as any of our competitors' networks. Additionally we have many other one-way networks adding up to approximately 9100 additional transmitters and these are the transmitters and networks where we are focusing our rationalization efforts.

Our 2005 site rent was approximately 125 million with 15,521 active transmitters at year end. Our goal for 2010 is to spend approximately $38 million and in 2010 with 7995 active transmitters. This represents a five-year plan that reduces annual site rent by nearly 87 million, or 70%, and nearly cuts in half the number of active transmitters. Our current plan calls for reducing the number of transmitters from 15,521 in '05 to 14,245 in '06, 11,645 in '07, 8,950 in '08 and 8450 in '09 and again in 2010 we should end the year with around 7995 transmitters. On an annual basis, site rent would be reduced by 16% from 125 million in '05 to 105 million in '06. 2007 would be reduced another 24% down to 80 million. 2008 would be reduced another 31% down to $55 million. 2000 would be reduced 24% down to 42 million. 2010 would see a reduction of 10% down to $38 million.

While there may be many other expenses that make up our cost structure in the future, I think you can see the impact of our efforts here going forward. We expect to drive the site rent down significantly over the coming years while still providing the nation's largest, most comprehensive paging network.

With respect to subscriber trends, as I noted earlier, year-over-year subscriber trends continue to improve in 2005 as net unit losses and customer churn rates decline. We ended the year with approximately 4.9 million units of service compared to 6 million in '04 and 7.7 million in '03 on a pro forma basis, reflecting the slowing rate of subscriber erosion. Despite the subscriber declines, we remain the industry leader with a total market share of approximately 60% followed by Verizon with approximately 13%, SkyTel at 8%, American Messaging at 6% and Teletouch at 2%.

While net unit deactivations are expected to continue for both USA Mobility in the paging sector, there is reason for optimism in the profile of our core paging users. Over the past year it has become increasingly clear to us that the paging industry has consolidated around a core group of enterprise customers who are low-cost, reliable and effective communications are critical. As a result, we have shifted the focus of our sales and service efforts around these core groups of business users. Specifically we have targeted those users who stand to benefit the most from the three principal advantages of paging. Number one, substantially lower costs; number two, significantly higher reliability in terms of signal strength; number three, superior network coverage. Toward that end we continue to redirect our sales and marketing activities in the fourth quarter in order to maximize revenue opportunities and decrease gross disconnects among those core user groups.

At the same time we continue to devote the majority of our time and resources on our direct customers who now represent 86% of our total subscriber base.

Although we lost 160,000 direct units during the fourth quarter, up from 154,000 in the third quarter, we expect improving trend rates on a year-over-year basis among our direct customers for 2006. Part of that improvement we believe will come from a continuing trend toward a higher percentage of our scrubbers with a larger number of units per account since historically such customers have had lower disconnects rates.

With respect to sales and service focus, as of December 31 our sales and marketing staff consisted of approximately 450 professionals all of whom sell the Company's products and services on a nationwide basis. Although the size of our sales force is smaller than it was a year ago, its mission today is far more focused than it was then with salespeople today concentrating primarily on our core groups of business users. I firmly believe USA Mobility has one of the best and most professional wireless business sales forces in the mobile industry. Our sales team is one of our greatest assets.

As we've said in previous calls, our core group of business users consists primarily of lower churn accounts and the generally represent among the largest accounts in our targeted list of top ten vertical markets. As a reminder, the top ten industries represented in our direct customer base as a percentage of monthly recurring revenue are as follows. Number one, health services; number two, government; number three, education; number four financial institutions; number five, computers and technology; number 6, aerospace and defense; number 7, retail; number eight, telco; number nine, petrochemical; number 10, automotive. Together these groups account for approximately 60% of our monthly recurring revenue.

I would also note that this core group of customers include eight of the ten largest Fortune 500 companies. Overall we do business with more than 80% of the Fortune 1000. Besides placing our sales emphasis on these ten core groups, our sales force today is also now targeting key user segments within those core customer groups. For example in the healthcare market, which represented 24.7% of our subscriber base at year-end 2005, our sales team not only contacts doctors, nurses, and hospital administrators, but they visit with IT personnel, suppliers, operations staff, code teams, on-call professionals, and many others with responsibilities for healthcare support functions.

Similarly in the government services sector, which represented 13.4% of our subscriber base at year-end 2005, our sales reps routinely contact mission critical personnel involved in all aspects of Homeland Security, law-enforcement, public safety, maintenance support, IT and technology oversight, field operations, and various other emergency responders. In addition, in the general business marketplace we are building stronger relationships with a host of other user segments including security personnel, hospitality workers, factory reps, field service staffs, transportation managers, and many others.

To date we have a very positive response to these segment focused outreach efforts within our core customer groups. Let me give you three quick representative examples from the many successes we have experienced in 2005 and continue to experience.

First, one of our Florida sales reps approached the county sheriff's department in February after learning it was having problems with a local digital paging system for a wireless communications with deputies. The department wanted a more reliable solution for their wide area coverage needs, especially where cellphone coverage was neglected. The net result was the department purchased 235 pagers with statewide coverage to replace their existing system.

Second, a large chemical manufacturer in San Jose wanted a more reliable and cost-effective messaging solution to communicate with its manufacturing plants and offices nationwide. Our local salesperson had spent months developing a strong relationship with key company contacts, regularly pointing out the strengths of USA Mobility's mission critical messaging capabilities. As a result, the Company signed a contract earlier this month for 902 [A] units and has already deployed 200 of them to its emergency response, ready alerts, and on-call teams for nationwide guaranteed messaging.

Third and perhaps less interesting was a major St. Louis health care provider that had given up its pagers for cellphones a few years ago and made a decision last November to come back to paging. Upon learning about the company's problems with cellphone reception due to limited geographic coverage and in building penetration and its need for a more reliable method of communication particularly for disaster response situations, our salesperson reacquainted the company with the many benefits of paging. As a result the company canceled all their cellphones and purchased 50 alphanumeric pagers.

Again these examples represent the many customer wins we experience week in and week out through our targeted marketing program. While our company and industry are still experiencing net subscriber attrition to be sure, we are greatly encouraged by the reception we have had so far from what we describe as our core paging user. In addition to our industry segmentation strategy, we have expanded our marketing focus in various other ways to improve customer communication, develop customer lifecycle management programs, enhance brand identity, and develop new products and applications that enable us to be a single source for multiple wireless solutions ranging from wireless messaging, wireless phones, wireless e-mail, and other vertical wireless applications for the enterprise.

A recent example of this would be the strategic alliance recently formed with a national procurement services company that contracts with hotel properties across the country. This Company institutes agreements with suppliers of goods and services for hotels and establishes volume pricing agreements that all their properties can benefit from. USA Mobility is the only paging carrier that is an approved vendor. As such we have exclusive rights to sell pagers into over 5000 of their properties on a nationwide basis.

We implemented vertical market-based sales campaigns that focused on prospecting for new business. These integrated campaigns included external contact lists loaded into our internal sales activity database so that performance and success of our sales force could be measured. Additionally as some of you know, we have made a major effort over the past six months to make government agencies, Congress, and other public officials, all of whom have been charged in one way or another with showing up their contingency plans in the wake of the terrorist attacks of 9/11 and natural disasters like Hurricane Katrina, fully aware of the safety and security advantages of paging technology.

As part of this paging awareness campaign, members of management and our senior sales team have provided white papers, sales material, and other various documentation and background data to these groups describing the unique capabilities of paging services. We have also participated in meetings and made presentations to key groups. In early March due to the efforts of our general counsel, Scott Tollefsen, I made a presentation in Jackson, Mississippi to the FCC's independent panel reviewing the impact of Hurricane Katrina on communications networks.

As you know, paging networks performed exceptionally well during last summer's hurricane and storms in New Orleans and the Gulf region. In fact in the aftermath of Katrina, paging services were fully restored faster than Wireline, cellular, or broadband services. Within 48 hours of the storm passing through, our paging service was largely up and running while most other providers took much longer to recover.

In connection with our external communications efforts, we also teamed up with other paging carriers earlier this year to help get our message out by joining the American Association of Paging Carriers. We plan to work with our industry association to fully promote and enhance the fundamental values and technological advantages of paging. We believe there are many important public issues today where paging needs to be represented and doing so as part of a coordinated industry effort to greatly benefit all industry participants.

Another key step in the process of addressing our marketing goals more aggressively was the appointment of Mark Garzone in January as EVP of Marketing. Mark has an extensive background in marketing and sales support in the wireless services industry, most recently as Vice President of Marketing at Nextel where he developed and implemented innovative strategies that contributed to subscriber loyalty and growth. Mark has already begun to provide strong leadership for our new marketing mission. Mark and his team are focused on building a brand identity that more closely reflects our mission statement drawing on the strength of being the industry leader in paging and the completion of the new Sprint/Nextel and Cingular authorized agent agreements, we have positioned ourselves as a leading provider of wireless communications products and services.

With this in mind, we look to the growing trend of corporations to consolidate wireless purchasing needs under one provider. We then selected a new brand identity that will resonate with current and prospective customers that positions USA Mobility as more than just a paging company but rather a provider of wireless communications solutions. With an experienced sales stream serving over 105,000 corporations and over 80% of the Fortune 1000, USA Mobility is uniquely qualified to be your one source for wireless.

With respect to the key advantages of paging, as we perceive the goal of publicly repositioning USA Mobility as the nation's high priority communications business, I wanted to take a few minutes to explain why we believe paging technology is the best solution for many emergency response organizations. In a nutshell, the unique architecture of one-way paging technology provides significant advantage over other wireless providers due to broad geographic coverage, strong in building penetration, built-in network redundancy, always on operations, long battery life, 24 by 7 network monitoring, and one too many group messaging capabilities.

In addition two-way messaging also offers store and forward technology and confirmed message delivery. Simply stated, narrow band wireless messaging has a fundamentally different architecture than cellular based technologies. These differences result in proven reliability for emergency communications in three distinct ways. Number one, network survivability; number two, service area and reliability; and number three, interoperability.

With respect to survivability, our networks have greater survivability for four basic reasons. One, messages are simulcast from multiple towers to a customers' receiver versus a single tower for cellular. Number two, our transmitters are high off the ground, often 300 feet compared to 90 feet for cellular towers. Number three, we broadcast at an effective radiated power of 3500 watts, compared to 100 watts for cellular. And number four, we have connectivity to towers via satellite versus cellular which provides connectivity via wireline telephone service unlimited distance microwave who are greatly at risk should the local landline networks go down.

As a result of these differences, our network has much greater redundancy in the event of outages and greater flexibility in restoring service quickly afterwards.

With respect to service area and reliability, our network allows emergency personnel a high degree of reliability over a wide geographic area. Our one-way network now covers approximately 91% of the United States population and our two-way network approximately 81%. With respect to interoperability, unlike cellular, narrow band wireless messaging offers several national frequencies that provide a common communications backbone across agencies and jurisdictions. What is more, the interconnection is made through a variety of standard communications protocols.

Now I want to turn to an update on our growth strategies in the AMDS alliance. As we move forward into 2006, we will continue to review opportunities to generate additional revenues from our existing network infrastructure as well as review potential opportunities outside the company that may support our overall cash flow focused objectives. Indeed, developing alternative revenue sources is an important part of our goal to create long-term value for our shareholders.

One potential source of future revenue, as we have noted previously, is telemetry, a machine to machine wireless communications. We believe our narrow band PCS systems offer a better balance between the cost of device, monthly fees, and coverage as compared to other competing nationwide technologies and we will continue to look for comparable applications on that basis. One step in that direction was the alliance we announced last June with Advanced Metering Data Systems, AMDS, in which we sold them a narrow band PCS license. Over time we look to share a portion of the revenue they expect to derive through a use of their narrow band PCS network once it is built out and is actively providing meter reading services to their customers.

Since last June, we have provided technical support to AMDS to help them build out their meter reading network infrastructure. Upon completion, they expect to market their services to numerous utilities throughout North America. AMDS has build out trial systems for various power companies in the Southeast in the third quarter of '05 and tens of thousands of meters have been installed during the fourth quarter of '05 for proof of concept. Their functionality and performance appears to be acceptable. The systems have withstood several storms and Hurricanes and have continued to perform reliably. AMDS is on track this year to meet their own internal forecasts and we look forward to working with them as they develop this business potential.

Additionally our partnership with AMDS also allows us to access a protocol other than ReFLEX that is compatible with narrow band PCS spectrum. AMDS's protocol allows telemetry applications more flexibility than previously available on ReFLEX. The availability of USA Mobility's narrow band PCS channels and the future of choice of protocols will allow us to offer potential telemetry partners more options in designing applications around narrow band PCS.

I know a number of you have asked from time to time about our interest in acquiring other paging assets. As I have responded previously, our primary focus over the past year has been merger integration and working to stabilize our own customer base. As I have said before, management and the Board would continue to have an open mind with respect to any economically accretive investment opportunity; however, we take our stewardship of your investment seriously. In any analysis of the paging target we would do our own model and determine what we felt the value of that target is and we would not overbid. Part of creating and maintaining value is knowing when to walk away from a deal that gets too rich.

USA Mobility has by far the largest paging network footprint in the United States. Our long-term cost structure and contractual relationships with the tower companies, telecom providers, and satellite companies allow us to enjoy network efficiencies that would be very difficult for a smaller provider to duplicate. In fact, because of this we are already enjoying revenues from many other paging companies that utilize our facilities and pay us for network access.

Whether we expend capital for an acquisition now or simply execute a strategic agreement later, we are likely to be the network provider of choice to the majority of subscribers in the nation for many years to come.

With respect to our goals for 2006, in addition to the financial goals and forecasts Tom has already provided, over the balance of the year our principal objectives will include continuing to implement our one-way network rationalization plan and gain additional savings despite vendor negotiations; continue to improve and refine our sales and marketing initiatives especially those surrounding our core group of business users; continue to explore economically responsible subscriber acquisition opportunities; continue to run the business consistent with our long-term strategic plan vision statement as follows. "USA Mobility will operate a selling and marketing company focused on serving the wireless communications needs of our customers with a variety of communications solutions while executing an efficient, profitable, and free cash flow based business strategy. We believe the paging and narrow band PCS messaging will continue to be a viable alternative for customers who want reliable wireless communications 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 create value wirelessly with wireless communications products and solutions as the marketplace continues to develop."

While we readily acknowledge that the pursuit of these goals poses various risks and challenges, we believe these goals are both achievable and in the best interests of our investors. I can also assure you that both management and our dedicated employees are already earnestly pursuing it.

With respect to future dividend distributions, I want to comment briefly on this. As we said in the past, the Board is committed to reviewing this question from time to time and returning capital to shareholders. Our next regularly scheduled Board meeting is in early May and we will address this issue at that time. Going forward we will regularly evaluate our options for returning capital to shareholders based on the Company's operating performance and future capital investment requirements.

With that, I will ask the operator to open up the line for your questions. In the interest of time, we would 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) [Stuart Kwan], [Vander Capital].

Vince, can you just give us an idea of some of the other new revenue opportunities that you're pursuing?

Yes, Stuart, we are obviously focused on the paging opportunities with respect to the industry verticals we talked about and specifically within those industry verticals; we have stratified them to look at certain accounts that have higher penetration than other accounts. So you might look at automotive and you might say, gee, you have eight of the top 10 in the automotive section, however, one of them you are significantly more penetrated in than you are in the others. What did you do special for that customer that caused that to happen? What can you learn from that? How can you further penetrate those others even though they are currently existing customers, we would like to expend the amount of business we do with them?

That's one of the things that Mark Garzone, our New Vice President of Marketing, has been charged with. It's one of things that he is very focused on. The other thing that we're focused on right now is a lot of these purchasing agents want a wireless sales professional relationship that can solve all their problems for them and educate them with respect to what is going on out there as wireless continues to develop. We are getting our salespeople up to speed with the Sprint Nextel arrangement and with a new Cingular arrangement. We are selling BlackBerrys. We're selling phones. We're selling paging. We have some Wi-Fi capability. Our Systems Applications division is selling specific vertical applications be it at the hospitals or campus type environments. So we're continuing to expand on that capability because it matches up nicely with the core competency that we already have in our paging group.

In addition to that, Peter Barnett, our Chief Operating Officer, and again as well as Mark Garzone, our Executive Vice President of Marketing, are looking at telemetry based or machine based type applications, whether it be for asset tracking, which is a very hot topic right now with a lot of organizations, whether it be for meter reading similar to what we've done with AMDS and Sensus, or whether it be to other types of communication where people want to be able to get information that really serves itself and suits itself well to a narrow band focus, which is what we have which is higher reliability, big footprint, low-cost, but also limited bandwidth. Those are the primary areas where we're focusing right now in terms of additional revenue opportunities.

And how much of your gross placements are either BlackBerry or cellphone service?

We're selling about roughly 3000 or 2500 units a month on average right now is our production of cellphones and BlackBerrys.

And is that typically bundled with paging or is anyone -- are you able to sell that without the paging?

We sell that without the paging. It is bundled from a customer approach. They may be trying to serve many wireless needs of a customer, so it is bundled in that standpoint from a solution. But we are acting as an agent for the cellphone company, so that is sold as a separate product and is billed separately from our paging services.

But they are into existing paging customers?

Into existing paging customers. As a matter-of-fact, one of the things we've done very well at lately is some of the very large accounts that are household names in America have been insisting that the USA Mobility sales representative be the representative that sells them all their wireless needs. So we have had situations where we sell Sprint phones into a customer that also has a lot of pagers and the reason we think we do that is because our salespeople maintain that critical relationship. That's why I mentioned that our sales force I thought was one of our greatest assets. They are very professional.

I think there's a lot of companies out there that would like to have them. We've got our own retention issues with them, but we do not bundle for instance on an invoice to that customer the cellular phone cost. That does get billed directly from the cellular phone company. We get paid a commission for doing that and so far we have been very successful at it.

And are you targeting non-paging customers as well?

That's much more rare. What happened, Stuart, is that the cellular phone companies, most of them other than Nextel, focused retail. They really kind of -- I don't want to say abandon -- but they weren't real focused on the business type customers. USA Mobility was just the opposite. That's why we did so well with Nextel products because we really focused on the business customers and not retail. I think a lot of these companies are kind of rethinking that right now as they start hitting a saturation point in cellular phones that are going out the door thinking how can we better penetrate businesses? We need applications, etc. That is right in our sweet spot and that is where we really focus. We don't really focus and our salespeople aren't really going out trying to sell one or two phones to individual consumers.

Right. And the economics to you in terms of a monthly recurring revenue as a reseller?

Most of these are not monthly recurring revenue economics. There is one that is. Most of them are commissions. They pay us a flat amount up front. That commission amount varies based on the type of device that is sold. The highest commissions are from selling BlackBerrys. I don't want to disclose that for competitive reasons. Lower commissions would be selling the lower end or older model phones that the carriers are just trying to get off the shelf or out of their inventory. The commissions also vary based on the specific incentives that the cellular phone companies are running. Each quarter they tend to have certain initiatives from a sales and marketing perspective and they share those with us and we can make more money by pursuing that initiative along with them.

Okay. My other question was relating to the 2006 guidance. In 2005 it looked like you were roughly at 29% EBITDA margins pro forma. It looks like for the 2006 numbers, it is closer to 22 to 24%.

Obviously it is going to depend on which -- we have given a range on both categories. It depends on where you determine your range to do that. But we would see compression a little bit on EBITDA as it's -- we still are an industry that is -- in our fourth quarter we had 20.3% annualized revenue reduction year-over-year from the fourth quarter of 2004. So we still -- the biggest drive of the EBITDA compression is that we don't expect to be able to get costs out on a dollar per dollar basis with the revenue decline.

Okay, thank you.

Philip Broenniman, Cadence Investment Partners.

To follow up a little bit on Stuart's question previously with regards to the guidance you provided on revenue and expenses, if you look back to the second quarter of '05, when you previously gave guidance in the same fashion you ended up basically above the revenue number, the high end of the revenue number, and below the low end of the expense range. Could we expect a similar conservative approach to these numbers?

Let me comment a little bit. I would say I'm not going to tell you that you should expect us to have the same result as we had verses our guidance that we gave in the second quarter. But certainly we use the same people who are coming up with those estimates. We're approaching it in a similar fashion as we did when we gave our second quarter, but that certainly doesn't mean we expect to be over the revenue and under the expenses.

We are certainly going to try.

Of that I certainly hope. That is my only question. Thank you.

Lance Vitanza, Concordia.

Guidance, the OpEx estimates there, is there any stock based comp or restructuring severance that is included in that number?

Yes, the only thing that excludes is depreciation and amortization.

Could you kind of help quantify that? Because when I think about EBITDA I'm adding back the stock based comp and the severance and so forth.

You know, right now I would say on the restructuring side we expect that to be down year-over-year. I would expect that to be in a range of $5 million to $7 million for 2006 probably as we go through and find contracts and have continued some severance expense etc. Stock based comp actually see it around a similar range of about $3 million next year.

Around $3 million, okay. Just a follow up on the revenue guidance. If I'm looking at this right -- and I'm kind of new to the story here -- it looks like revenues were down year-over-year pro forma like 22% and it looks like you are guiding for them to be pretty close to that for '06. How does that jibe with the improving customer retention that you are citing here?

Well as we enter the year, as I said, as we are entering the year of 2006 we just in fourth quarter experienced an annualized revenue reduction of about 20.3%. If you take the higher end of the range for example in terms of what you're looking at, I think we would be at about a 19% reduction year-over-year. So that obviously assumes if you're entering the year at a roughly 20% year-over-year rate and you average about 19% for the full year, obviously that would still include improving trends on a quarterly basis throughout the year.

I guess I just would've thought that the revenue number would be better based on the trends in the business. I think you alluded to some changes in the mix earlier in the call. Could you elaborate on that a little bit?

We do see obviously our mix has been one of a mix from two-way to one-way. It has been a mix of also the other thing that drives our mix makeup is that larger customers who have lower ARPU tend to be a larger percentage of our mix each quarter, each month because they have a lower churn rate. They also are turning out less, their ARPU, which is typically lower if you have 1000 units or 10,000 units you are usually paying a lower rate obviously and as we migrate towards that kind of a customer, we see our revenue per unit decline over time.

Thanks.

Matt Teplitz, Quaker Capital Management.

Just want to clarify the expectations for this year regarding cash taxes. I'm assuming they are de minimus if at all.

Yes.

In terms of uses a free cash flow, obviously you returned capital in the fourth quarter. You have no debt at this point. I believe in the past given your concerns about NOLs and changing your stockholder base that has made you reluctant buy back stock. Is that still the case?

Again I think I mentioned when I was going through the prepared remarks, Matt, we're going to join that issue and the issue of what we do with our cash in our May Board meeting and we have not done so yet. And when we do and the Board has made a decision on what we're going to do going forward, we will make sure we get to you guys and let you know right away.

Okay, but just quickly going through the numbers I guess a lot of us here think you are probably lowballing and I hope we're right. It looks like you're talking about a ballpark $100 million free cash flow number for '06 and working for EBITDA less CapEx -- that about right I guess?

If you took the math that would be implied from the guidance that was in the press release or that Tom gave, yes, that would be about right.

Okay. Good luck and nice job.

[Matthew Sheffler], [Investment Strategies Funds].

Would you please characterize the kind of attrition that you have had or the loss in your customer base? Is it any different now than it was, say, a year ago in terms of the kinds of customers that you're losing or perhaps maybe some sense of the applications that you're losing?

Maybe just as a sort of follow-up at the same time if you could also talk about is there a price in here for your service that really will shield you at some point? Is this a kind of an economic issue here or is there just kind of a continuing utility issue of what you're getting from the other services? Thank you.

A couple things. In terms of just how the trends have been in 2005 with respect to what we saw in 2004, I would say we saw the trends marginally improving and that is reflected in the results that we posted. When you look at our customer base and you look at really the top five industry segments the way we stratify our customer base vertically I read off the top ten a little while ago, the top five industry segments are about almost not quite 60% of our total units and service. But they have got a net churn which is much lower than the total base, but that characteristic has been consistent with what we have seen in past years. They tend to be larger accounts and they tend to churn the lowest.

The specific vertical that churns the lowest by far is the health services vertical. But that vertical went out the year with about the same rate of churn that we went into the year, much lower than the rest of our base and the rest of our verticals but at about the same rate of churn.

Now with respect to the price being a shield, I have kind of felt that way all along for certain customers and we are seeing that as some customers that are budgetarally constrained come back to us and turn their phones in and take pagers back. But the majority of the migration since 1999, when this industry had over 40 million subscribers, to the end of 2005 when we had just over a 8 million subscribers, has been away from paging and into mobile telephony, where the customers pay significantly more for that service than they do for paging but they perceive because it has voice communications and other types of features just that that differential there is worth it. I don't know where that ends.

We all talk about the core base does it do things over time. Does the churn just kind of stop once you get down to a certain level? Does it solidify going forward? We don't know that yet. We certainly would hope would happen. All we can do is report on what we have seen and we have kind of seen more of the same with some marginal improvements.

Good. And just as follow-up to the first question or the previous questioner if I might, just about the share repurchase, can you just review with us how you look at -- how management -- I understand that even the Board is going to make a decision -- but how management considers the tax shield here and at what price you would look at the equity and say that you would be indifferent to whether you would be repurchasing stock because of the low price the equity is trading at?

I don't want to go there right now. I have specifically discussed this with our Board and with our advisors and this something we want to take up as a Board in May. Like I said before, we will get back to you. I will tell you that we are committed to returning capital to our shareholders. We have been consistent on that.

Yes, thanks.

[Andrew Sole], (indiscernible)

Good afternoon. The paging organization that you joined, I was wondering could you guys talk a little bit about the status of your lobbying efforts at federal and state level?

Yes, this is Scott Tollefsen. I can talk about that a little bit. We are trying to make sure that our Company in conjunction with AAPC, our industry, is an active participant in two categories of government related activities. One, all policy related activities that would affect the marketability and utility and value of our service and of our Company stock. Let me give you a couple of examples of that. The Federal Communications Commission from time to time will pursue what is called for an agency a rule-making in which it announces to the country that it is considering implementing certain policies. The input of interested parties is solicited in writing and also through discussions and then the FCC ultimately will make its decisions, taking into account the nature and quality of the input from those who would be affected.

We are trying to be involved in all of those proceedings that relate to our business. One example is the FCC's plan to revise the emergency alert system, which most of us have known throughout our lives in the form of the emergency broadcast networks on TV and radio. That is being expanded to other forms of distribution in addition to the sort of traditional ground-based TV and radio broadcasting. Satellite delivered resources and other wireless communications networks are going to be brought into this system. We want to make sure that the policymakers are aware of the value that comes from our paging services, which after all do use sort of a broadcast technology. And we want to make sure that we can offer to our customers all the benefits of being integrated into this kind of an alert system. That is just one example.

I will say briefly our other lobbying related initiatives relate to talking to those on the legislative side of Washington to make sure that we are aware of their goals and objectives and that we can do our best to match the solutions that paging offers to help them achieve the important objectives that they are trying to accomplish.

I will throw in an example. I mentioned in our prepared materials that we went down to Jackson, Mississippi. Chairman Martin was hosting for the FCC a panel looking at what happened with respect to communications during Hurricane Katrina and how things broke down. We were fortunate enough to sit in on the panel before it was our turn to talk and listen to some of the law-enforcement agencies and some of the medical emergency responders tell us effectively a disaster of how communications broke down when they were trying to save lives and help people to the point where at one point the police agencies made a local CLEC in New Orleans to evacuate their building, which took them off the air. Well obviously most mobile phone transmitters are hooked into the communications network via landline. When the landline goes down or when a telco has its big part of its CO below the water table and you have a flood like you got was Katrina, those landlines are down so the mobile phones don't work.

I explained to them with a little bit of vigor that paging systems and transmitters are controlled by satellites. Provided that we have power, the transmitter is going to work. A pager typically works off a AA battery. I told them if they wanted emergency backup system, take a plastic zip lock baggy, a couple of AA batteries, and stick it in the pocket of all their police. Everyone in the room was shaking their heads yes, they understood that. They asked us well, do our people not understand that right now? We said no, some of them understand it. We do business with the state of Louisiana. We do business with the state of Mississippi. We do business with the city of New Orleans.

However we don't do the amount of business that I think we should be doing and I'm not just saying that from a bias position as a CEO of a Company that derives the majority of its revenues through paging. It just makes no sense to me that with all the money that we spend in giving people credit cards during these emergency things to buy whatever it is they spend their money on that we can't spend a little bit of money as a national initiative to further outfit our government employees and first responders with paging devices. I continue to be an optimist in this area. I continue to believe that we will continue to pursue this, continue to push it every way we can. But it just struck me as ironic that here we are getting ready to go into another hurricane season and we're still talking about what we could've done better from the last hurricane season. It is going to take a long time to come up with any other solution that will work better than paging.

Paging is here today. It works now. It works great in emergencies. It works better than any other form of wireless communications. I continue to believe that people are going to wake up and see that and that can bode well for us in the long-term. I am frustrated we haven't made more progress in this area. We spend a lot of effort and resources on it. We've presented to the Department of Homeland Security. We've had white papers as I said out there. We put together technical presentations and overviews explaining exactly how the network works and why something broadcasting from 300 feet in the air at 3500 watts miles away can work in area that got wiped out when something broadcasting from 90 feet in the air at 100 watts that goes off the air has a one-to-one relationship with that mobile phone is not going to work. We just have not had I think the traction that we all think is there and potentially that we can have once folks wake up.

Scott had done a ton of work in this area with us on the legislative front and with the lobbying. We will continue to pursue it.

Thank you by the way for your answers. I just had one follow-up on that. Do you feel or do you believe that the difficult -- I'll just use the word difficult -- difficulty in penetrating or convincing the FCC is due to a misunderstanding about the technology, or do you feel it is because of the lobbying efforts from some of your competitors and that they are trying to sort of maybe distort the picture out there?

I think is the perception issue. I think that paging is perceived by a lot of people both in the private sector and in the public sector as an old technology that has kind of served its usefulness and I think they forget that sometimes simplicity has great benefits in times of emergency when you're talking about saving people's lives. You could put two-way pagers in low income housing or you could put one-way pagers with text capability on emergency responders and get critical information to them when their cellphone battery is dead and they are in a swamp and the local mobile phone transmitter is not working.

I don't think it's practical that you're going to outfit each one of them with a satellite telephone. I'm not even sure that the capabilities in terms of volume of satellite telephone would allow you to do that on a huge massive scale basis. It might be a solution for some smaller applications. I think paging is here today. It works. I think that what we have run into is a perception issue and it is hopefully something that over time people will either be mandated in emergency response to carry this as a backup form of communication or they will have one or two more of these terrible natural disasters and then they will wake up and they will smell the coffee and they will realize we got to have a pager on us as a backup.

You know when we -- and I don't want to take the whole call on this, but when we have state police in these Gulf Coast states that are carrying pagers, those pagers are not their primary form of communication. They have radios and they have other forms of communication, but they have learned that having that backup can be critical and that is what we are hopeful that even though it is an older technology there is not a lot of R&D going into it right now, it works when you need it to work and when other things won't work. I could talk a long time about this. I'm going to cut myself off, but this is something that we're going to continue to pursue.

Okay. Thank you very much for your answers and thank you for all your hard work.

Steve Zogas of Okumus Capital.

I missed the response to the earlier question about the restructuring. The guidance of $370 million to $380 million of OpEx, does that include restructuring expense?

Yes, that includes any restructuring. The only thing it excludes, Steve, is our depreciation and amortization.

Okay, and you said roughly 5 to $7 million was the 2006 estimate?

Yes, I would not expect for what we see right now, I don't expect it to exceed that.

Okay. Do you think restructuring expense will just be part of your ongoing OpEx for the coming years?

Yes, I think it is. It is certainly an expense that we will have from time to time and that is why we've broken it out separately within operating expense just to keep it out of the more recurring item of expenses for SRM and G&A. But yes, we're going to -- as we find long-term leases that we can economically buy our way out of, obviously if we have efficiencies, we can gain in workforce reductions, we will have severance expenses. We expect those to be down significantly year-over-year, but the biggest thing will be finding economic terminations of long-term commitments.

The biggest thing that drove it in the past, we went from 2800 employees when we merged to 1600, so we went down 1200 employees. We are obviously not going to do that again. We also bought out a lot of long-term leases. Going forward we will continue to look at the lease opportunity when we can come up with an economically responsible buyout. But it would not be of the magnitude that we've already done and now 50% of our site rent going forward is going to be with Global Signal and 30% is going to be with American Tower, that only leaves you the additional 20% and albeit they are by far the highest cost per site, some of those leases will just expire over their own accord and we won't need to buy them out.

Okay. Just as a follow-up to that, of the roughly $16.5 million of severance and restructuring in 2005, was that mostly a cash expense?

Yes, it was. It was -- it is not always a cash expense related to the quarter that it was recorded because of differences between GAAP and when the cash actually hits, but for the calendar year of 2005, it matched cash fairly well.

So should we make the implication -- should we draw the conclusion that you'll have a roughly $10 million benefit in '06 versus '05 on a cash flow basis because you'll have $5 million to $7 million?

Yes, exactly.

And then if I could just sneak one more in, in terms of product sales in 2006 and beyond, how should we be thinking about that? In terms of the revenue?

In terms of the revenue for cellphone sales --?

Yes. I mean you guys disclosed about 34 million of pro forma revenue for '04 and about 26 for '05. I just wondered how you guys think about or how we should be thinking about that going forward?

We're not going to specifically break out the different components of revenue, but I would expect the mix of our revenue to be roughly the same.

Okay, thank you.

[Peter David], [New Line Capital].

My question has to do with either healthcare services segment in your customer base. It sounds like this is one of the larger customer bases and one of the most valuable because of the low churn and predictability. In one of your earlier filings you have mentioned that a potential competitive threat can come from phone companies installing micro cells and wireless networks in hospitals. Do you still see that as a tendency and how do you plan to respond to that competitive threat?

This is Peter Barnett. Even though they can put in microcells into hospitals and stuff like that the major difference between cellphones and paging today is the group core technology of pagers. From a single message we can do one to many, as many pages as the hospital wants to use from a group call [Prospectus]. Today cellphones can do broadcast SMS but not specifically to a customer and I believe that we will have that advantage for quite some time. Even with microcell technology in hospitals, those cells still do not hit every nook and cranny in a hospital. We put antennas and transmitters on top of the building because we could coax throughout the building. We access surgical rooms and RF shielded areas better than any other competing technology today.

Okay, thank you for this. I have one more quick question which is actually a follow-up to something that was mentioned in response to an earlier question. It has to do with the government clients and specifically police departments. You mentioned that those who are currently customers of the Company are carrying a separate paging device in addition to everything else. My question is, is it possible to incorporate a paging functionality in a different device, an already existing device, whether that is a cellphone or not is (multiple speakers) but basically have the opportunity in an instance of an emergency to switch into your network and to a paging functionality in this way not have someone carrying an additional device with them?

You are 100% right on target. We spent time last year working on that with Samsung, who is a big manufacturer of mobile phones. They were willing to do it, however, the mobile phone carriers pushed back on it. They basically -- their response was basically -- well, we already can do SMS, short text messaging with our phones. Why would we want a pager in it? As if it would be them admitting that we can do something they can't do.

So here we have the biggest network in the United States, our one-way network covering 91% of the population, our two-way network covering 81% of the population. Here we have a device that will work oftentimes when mobile phone networks go down and it can save people's lives. Here we have one of the largest manufacturers of cellular telephones in the world willing to do it and we have yet been able to convince the large mobile phone carriers to want to go down that path. Unfortunately they would be the ones that would need to make the purchase commitment and so that is where we really struggle

No having said that, we have not given up on it. We are cognizant of [CTIA] is going on. We have got our Executive Vice President of Marketing focused on this specific issue as we speak and we will continue pursuing that. It may be somewhere between the comments that we were making earlier about our efforts with the FCC and between these terrible natural disasters and the cycle of hurricanes we seem to have got ourselves into will have over time some perception change there and be able to do something that I think would benefit these carriers as well.

I think if I was a big carrier I would want this as one of my product offerings because it would help to differentiate what I'm selling versus what everybody else is selling. So I just wouldn't have the same flavor service as someone else can be competing just on cost. So we are hopeful. We have been frustrated but we will continue to push on this.

Thank you.

[John Kim], [Alpine].

I had a quick question on the assumptions for the revenue guidance. I assume you have projected a modest ARPU decline for top line. I was wondering at what point you start thinking about pricing strategy or marketing strategy to either send that ARPU or increase it sometime?

John, I think we mentioned during the call we have done some increases with respect to standardizing our indirect customer base and that did have a net effect of increasing ARPU there. It is a little bit more difficult when you talk about the direct customer base, because these customers that are components of the Fortune 1000 tend to have contractual arrangements with you that will go for multiple years and those contractual relationships stipulate what the discounted pricing is and their pricing is typically discounted based on volume. Even though they churn at a lower rate, they have a lower ARPU. What tends to be churning off right now is the higher ARPU, smaller units per account business, and that is what is causing the ARPU assumptions to slightly go down.

We will continue to look at this very closely as we go forward in 2006. I hear you loud and clear. I understand where you are going and what you're thinking. It is not particularly easy as it might seem when you first look at it and you start digging into the specific accounts and the specific relationships. This is something that we will continue to be focused on. We would hate to try to do anything that would increase ARPU if it ended up resulting in a higher loss of units and we lost the principle or the corpus of the revenue as opposed to just gaining the incremental increase.

So we will be very tuned to this in 2006 and as we said earlier, this is our guidance right now based on what we see and what we know and the trends that we experienced in 2005. We will update you guys as we move forward when and if things change.

Great, thanks. One follow-up on the cash balance you gave for Q1 '06 of $73 million I believe. That equates to about a $35.5 million delta from year end. Is that correct?

Yes.

And I assume pretty much all of that came from operations and I could assume I guess $4 million to $5 million in CapEx. But other than that am I missing something else in terms of cash usage?

It was a pretty normal quarter. It was essentially our cash from operations that increased the balance.

Right, so if I extrapolate an EBITDA number, it seems fairly flat from Q4 unless I am mistaken. Is that fair to say?

Yes, it is. Relatively speaking, the cash if you back out the dividend that we paid in the fourth quarter it would be a fairly similar number of cash generation in the second quarter from the fourth quarter. Obviously cash flow is one of those things that is a lot of timing issues that come up and if you look back over the course of 2005, you see somebody brought the question earlier about the cash expense associated with severance costs. Those hit -- when those hit in certain quarters you see timing differences that move the cash around, but from a fourth-quarter to first-quarter standpoint it was relatively consistent.

Again, you expect minimal cash taxes for the year?

Yes.

Okay, thank you.

That was our last question. I want to thank everybody for participating in this call. I apologize about the length of it, longer than normal, but we had a lot of information we wanted to get across to you guys. We are going to go back to finishing our 10-K and our restatements and working on our initiatives for 2006 and we look forward to getting with you in the not too distant future and updating you again on the business. Thank you very much.

Thank you. This concludes today's conference. We thank you for your patience and have a wonderful day.