Spok Holdings Inc (SPOK) 2011 Q2 法說會逐字稿

Please stand by. We are about to begin.

Good morning and welcome to USA Mobility's second-quarter investor conference call. Today's call is being recorded.

On line today we have Vince Kelly, President and Chief Executive Officer; Shawn Endsley, Chief Financial Officer; and Dan Mayleben, Chief Operating Officer of the Company's software subsidiary Amcom. At this time for opening comments, I will turn the call over to Mr. Kelly. Please go ahead sir.

Good morning, thank you for joining us for our second-quarter investor update. Before we discuss our operating results, I want to remind everyone that today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to USA Mobility's future financial and business performance.

But statements may include estimates of revenue, expenses and income as well as other predictive statements or plans which are dependent upon future events or conditions. These statements represent the Company's estimates only on the date of this conference call and are not intended to give any assurance as to actual future results.

USA Mobility's actual results could differ materially from those anticipated in these forward-looking statements. Although these statements are based upon assumptions that the Company believes to be reasonable, they are subject to risks and uncertainties.

Please review the Risk Factors section relating to our operations and the business environment in which we compete contained in our 2010 Form 10-K, our second-quarter Form 10-Q and related Company documents filed with the Securities and Exchange Commission. Please note that USA Mobility assumes no obligation to update any forward-looking statements or past or present filings on the conference call.

I want to start this morning by highlighting what we believe was an outstanding second quarter and first half operating performance for USA Mobility. On a consolidated basis with a full quarter of operations in both our wireless and software businesses, the Company is now hitting on all cylinders and generating extremely positive results.

On the wireless side, we ended the quarter well ahead of our key operating goals for subscribers, total revenue, cash flow, average revenue per unit or ARPU and operating expenses. At the same time, our recently acquired software business posted record results with higher revenue, solid bookings and a growing backlog.

In addition, we were able to maintain consolidated cash flow margins at a high level, operate profitably with a low-cost operating structure and once again return capital to our stockholders in the form of dividend distributions. Shaqn will discuss our financial results in more detail in a few minutes but first I want to review some of our key accomplishments for the quarter.

Number one, wireless subscriber trends improved significantly during the quarter as our quarterly and annual unit loss rates slowed to their lowest levels in more than six years. Our quarterly unit loss rate improved to 2.7% while the annual unit loss rate was 12.2%.

These improving results can be attributed in part to the excellent performance of our wireless sales team, which increased direct gross additions 22% from the prior quarter while minimizing gross disconnects. In addition, our healthcare market segment continued to perform well recording a net churn rate of 0.5%, our best result in four years.

With our acquisition earlier this year of Amcom Software, we believe our healthcare customers now recognize us as a long-term player in this space and our churn results have benefited as a result. Number two, wireless revenue trends also improved during the quarter.

The quarterly rate of revenue loss was 0.8%, the best in the Company's history. While the annual rate of revenue erosion in the quarter improved to 11.9%, also achieving our best level in many years. I would add that we achieved these impressive results despite relatively flat paging ARPU over the past year.

Number three, we continued to reduce operating expenses in the second quarter in our wireless business. Excluding depreciation, amortization and accretion, operating expenses for wireless declined 18% over the past year, once again significantly outpacing our annual rate of revenue decline of 11.9%. Consolidated operating expense totaled $43.7 million for the second quarter with $31.7 million for wireless and $12 million for software.

Number four, our software business also posted a strong second quarter, our first full quarter of combined operations since USA Mobility acquired Amcom on March 3. Software revenue totaled $13.1 million including a fair value write-down of $2.6 million to maintenance revenue.

Absent this accounting adjustment, which does not impact cash, software revenue would have been a record $15.7 million compared to pro forma revenue of $13.1 million in the first quarter which excluded purchase accounting adjustments of $0.9 million.

In addition the software business achieved solid bookings during the quarter and had a strong backlog at June 30. Number five, the Company's improved wireless performance combined with the strong combination from software resulted in consolidated earnings before interest, taxes and depreciation and amortization of $21.4 million for the second quarter representing an EBITDA margin of 32.9%.

Excluding nonrecurring items, EBITDA would've been $24.1 million or 35.5% of revenue. Number six, we began the second quarter with an outstanding debt balance of $51.9 million.

During the second quarter we made our required amortization payment of $3.1 million and additionally we prepaid $11 million of our outstanding debt. After total payments of $14.1 million, our outstanding debt balance at June 30 was $37.8 million. In addition, we closed the quarter with a cash balance of $29.5 million.

Number seven, we continued to meet our goal of generating sufficient free cash flow during the quarter and returned capital to stockholders consistent with our capital allocation strategy. We paid our regular quarterly dividend of $0.25 per share on June 24.

In addition, our Board of Directors yesterday declared a regular quarterly dividend of $0.25 per share to be paid on September 9. Overall, we're very pleased with our second quarter and first half operating performance and believe we are in an excellent position to post solid results for the balance of 2011 as evidenced by our improved guidance.

Despite this quarter's strong operating performance however, I would caution investors once again that maintaining margins at this level will continue to be a challenge for us going forward. At this point, I'll ask Shawn Endsley our Chief Financial Officer to review our second-quarter financial results and provide additional comments on our recent operating performance. Shawn?

Thanks, Vince, and good morning. Before I review our operating results, I want to let you know that we expect to file our second-quarter Form 10-Q later today. I encourage you to review the Form 10-Q for further details about our business operations and financial performance since it contains more information than we will be able to cover on this call.

As Vince mentioned, we're very pleased with the Company's second-quarter results which either met or exceeded the previously announced financial guidance for both our wireless and software businesses. Improved rates of subscriber and revenue erosion reduced operating expenses and a solid ARPU contributed to strong cash flows and high margins in our wireless business while our software business which completed its first full quarter after the acquisition on March 3 reported solid bookings for the quarter and had a sizable backlog at June 30. Looking first at our wireless business we were especially pleased with the improvement in both subscriber and revenue trends during the quarter.

With respect to our customer base, we ended the quarter with 1,779,000 paging units in service, a net decrease of 49,000 units compared to a decline of 61,000 units in the first quarter and 72,000 units in the second quarter of 2010. The quarterly rate of subscriber loss improved to 2.7% from 3.5% in the year-earlier quarter while our annual rate of net unit loss improved to 12.2% from 17.2% a year ago, reaching its best level in more than six years.

Gross placements for wireless increased to 64,000 in the second quarter from 52,000 in the first quarter while disconnects totaled 113,000, equal to the prior quarter. The second-quarter churn rate was 6.2% compared to 6.9% in the year-earlier quarter.

Healthcare continued to be our most stable market segment with the highest rate of gross placements and lowest rate of net unit loss. The gross placement rate for healthcare increased to 4.5% in the second quarter from 3.3% in the prior quarter while the net unit loss rate improved to a four-year low of 0.5%.

Overall, healthcare contributed approximately 79.6% of total gross placements in our direct channel during the quarter. At June 30, healthcare represented 60.9% of our wireless subscriber base compared to 56.1% a year ago.

Total paging ARPU was $8.74 in the second quarter compared to $8.72 in the first quarter and $8.87 in the second quarter of 2010. Going forward, we expect paging ARPU to trend downward as our customer mix continues to shift to larger accounts that benefit from volume discounts.

Revenue for the wireless business totaled $52.1 million in the second quarter compared to $52.5 million in the first quarter and $59.1 million in the second quarter of 2010. The quarterly rate of revenue erosion improved to 0.8% from 5.8% in the year-earlier quarter and was the lowest quarterly rate of revenue loss in the Company's recent history.

In addition, the annual rate of revenue erosion fell to 11.9% in the second quarter from 21.3% a year ago reaching its lowest level in more than six years. Paging revenue declined 2.7% in the second quarter to $47.3 million from $48.6 million in the first quarter.

Product sales increased 19.7% to $2.8 million from the prior quarter due to higher system sales while other revenue declined 12.7% to $0.8 million. Cellular phone sales were especially strong, increasing 75.3% as activations nearly doubled to 4370 from 2191 in the first quarter. Both product sales and cellular revenue reflect the timing of systems and cellular sales by our wireless sales force. We do not anticipate that these levels will continue each quarter in the future.

Turning to our software business, revenue totaled $13.1 million in the second quarter. Of that amount, $3.2 million was maintenance revenue and $9.9 million was operations revenue.

Second-quarter software revenue included a fair value write-down to maintenance revenue of $2.6 million as required by purchase accounting. Absent the write-down, software revenue would have been $15.7 million.

Maintenance revenue includes ongoing support of a software application while operation revenue includes software, professional services and equipment sales. On a pro forma basis, software revenue for the first quarter would have been $13.1 million excluding purchase accounting adjustments of $0.9 million, an approximate 20% pro forma increase.

Software bookings for the second quarter totaled $15.2 million, an increase of 11% from pro forma first-quarter bookings of $13.7 million. Bookings represent all purchase orders received from customers during the quarter irrespective of revenue type.

The software backlog which consists of all purchase orders received from customers not yet recognized as revenue totaled $20.5 million at June 30 compared to $18.9 million at March 31, an increase of 8.5%.

Finally, the software segment's maintenance renewal rate in the second quarter was 99.9% compared to a pro forma maintenance renewal rate of 99.5% in the first quarter. On a consolidated basis, USA Mobility reported total revenue for the second quarter of $65.2 million including $52.1 million from wireless and $13.1 million from software.

As I noted, software revenue included a fair value write-down to maintenance revenue of $2.6 million. Absent the write-down total revenue would have been $67.8 million.

Pro forma total revenue for the first quarter reflecting Amcom's results for the full quarter and excluding purchase accounting adjustments would have been $65.6 million. Total operating expenses excluding depreciation, amortization and accretion were $43.7 million in the second quarter including $31.7 million for wireless and $12 million for software.

On a pro forma basis, total operating expenses for the first quarter would have been $46.3 million with $35.6 million for wireless including $2.9 million in acquisition related expenses and $10.7 million for software. Payroll and related expenses which includes commissions totaled $20 million for the second quarter including $13.1 million for wireless and $6.9 million for software.

Payroll and related expenses for wireless decreased 14.1% in the second quarter from the year-earlier quarter. For software, payroll and related expenses represented 57% of its total operating expenses for the second quarter.

Headcount at June 30 was 723 versus 740 at March 31 with 475 from wireless and 248 from software. On the wireless side headcount declined 21% from the second quarter of 2010. Going forward, we will continue to adjust staffing levels as necessary to meet anticipated requirements for both the wireless and software businesses.

(inaudible) expense, the second-largest operating expense for wireless after payroll and related expenses declined 13.4% to $6 million in the second quarter versus the prior quarter and 28% from the year-earlier quarter. The decrease reflects continued progress in our ongoing network rationalization program which involves deconstructing sites, renegotiating site leases and moving transmitters to less costly sites.

At June 30 we operated 5253 active transmitters compared to 5594 at March 31. The number of transmitters at customer provided sites -- that is those with no associated rent expense -- was 2404 for the quarter, down slightly from 2411 at March 31.

Also, we reduced the number of our paid active transmitters to 2849 at June 30 from 3183 at March 31. Beyond payroll and related and site rent expenses, all other recurring expenses excluding depreciation, amortization and accretion for wireless in the second quarter totaled $12.6 million compared to $15.1 million in the second quarter of 2010, a reduction of 16.5%.

Consolidated EBITDA for the second quarter was $21.4 million or 32.9% of revenue including $20.4 million from wireless and $1.0 million from software. Excluding the fair value write-down of software and maintenance revenue of $2.6 million, second-quarter EBITDA would have been $24.1 million with an adjusted EBITDA margin of 35.5%.

Consolidated EBITDA for the first quarter on a pro forma basis reflecting Amcom results for the full quarter and excluding purchase accounting adjustments and one-time acquisition related expenses was $21.7 million or 33.0% of revenue. Second-quarter EBITDA from wireless was $20.4 million compared to $17.0 million in the prior quarter and represented 39.2% of revenue. A schedule reconciling operating income to EBITDA has been included in our earnings release.

Capital expenses in the second quarter were $1.9 million with virtually all of it from the wireless business compared to $1.5 million in the first quarter. Capital expenses were primarily for the purchase of paging devices.

Net income for the second quarter was $18.6 million or $0.82 per fully diluted share compared to $13.1 million or $0.58 per fully diluted share for the year-earlier quarter. Excluding purchase accounting adjustments however, pro forma net income for the second quarter would have been $20.6 million or $0.91 per fully diluted share.

Net income in the quarter benefited from improved performance with a $5.2 million reduction in our deferred income tax asset valuation allowance that significantly reduced income tax expense. This reduction reflects our ongoing assessment of future taxable income from our wireless and software operations.

Favorable revenue and subscriber trends for 2011 resulted in an improved outlook for taxable income for wireless and increased the expected usage of the available deferred income tax assets. Net income in the quarter also benefited from the receipt of $7.5 million from the sale of certain narrowband PCS licenses. This nonrecurring income was recorded in other income.

Turning to the balance sheet, during the second quarter we paid down $14.1 million of the debt incurred in connection with our purchase of Amcom. As we previously reported, the purchase was financed through $111.4 million in net cash and $51.9 million in debt which consisted of $24.1 million in new debt and $27.8 million in debt assumed from Amcom.

After the debt repayment, we ended the quarter with a debt balance of $37.8 million and a cash balance of $29.5 million. The outstanding debt bears interest at 5.25%.

Looking ahead we expect to continue to aggressively pay down the debt while continuing to pay quarterly cash dividends to stockholders. With respect to our financial expectations for full year 2011, we are revising previously provided guidance upwards for our wireless business.

As noted in yesterday's press release, we have provided two guidance schedules. One that assumes the Amcom acquisition occurred on January 1, 2011 and a second that includes Amcom's results only from the acquisition date of March 3.

Also, we've broken out separate 2011 guidance for both our wireless and software operations. Accordingly, we now expect consolidated total revenues for 2011 to range from $235 million to $248 million versus previous guidance of $224 million to $240 million with wireless between $193 million and $200 million versus $182 million and $192 million and software between $42 million and $48 million.

Consolidated operating expenses excluding depreciation, amortization and accretion to range from $162 million to $174 million versus earlier guidance of $167 million to $176 million with wireless between $127 million and $134 million versus $132 million and $136 million and software between $35 million and $40 million. And consolidated capital expenses to range from $6.5 million to $9 million versus previous guidance of $6 million to $9 million with wireless between $6 million and $8 million versus earlier guidance of $5 million and $7 million and software between $0.5 million to $1 million versus $1 million and $2 million. Finally I would remind you once again that our projections are based on current trends and that those trends are always subject to change. With that, I will turn it back over to Vince.

Thank you, Shawn. Before we take your questions, I wanted to briefly address a few items that may be of interest to investors.

First I'll provide a quick update on some of our sales and marketing activities in the second quarter. Second, I will comment on the competitive environment for our software business. Third, I will briefly review our current capital allocation strategy.

With respect to sales and marketing activities in our wireless business during the second quarter, we continued to focus on providing wireless messaging solutions to our target market segments of healthcare, government and large enterprise. These core segments represented approximately 90% of our direct subscriber base at June 30 compared to 88% a year ago.

They also accounted for approximately 84% of our direct paging revenue in the second quarter compared to 82% in the year earlier quarter. During the quarter our wireless team remained focused on its three primary goals of generating new business, expanding business in existing accounts and retention of our most valuable customers.

In addition, a fourth goal was created -- improve cross-selling opportunities with our software sales team which I will discuss in a moment. For the quarter and year to date, our wireless sales teams exceeded expectations for subscribers, gross additions, retention and revenue within each of our key market segments.

Additionally, we exceeded our second-quarter plan for cellular phone placements and cellular revenue. This effort was aided by a significant sale of tablets in the home healthcare segment along with large-scale deployments of air cards and smartphones in the government segment.

Healthcare continued to be our best performing market segment during the quarter, contributing 76% of all gross pager replacements and 59% of total direct paging revenue while net churn among healthcare customers continued to be the lowest among all subscriber segments. In addition, our wireless business continued to expand its presence in the hospital market during the second quarter adding three hospital counts.

Moreover, we recorded a significant sale to an existing hospital which included sizable investments in critical messaging software, two-way in-house paging infrastructure and additional wireless devices. Most importantly with one of the new hospital sales, we recorded a nice cross-selling win between our wireless and software businesses.

Looking at sales and marketing activities in our software business during the quarter, our software sales team continued to sell software solutions primarily to the hospital market. Demand for solutions was strongest for call center management, critical smartphone messaging and clinical middleware which is an application that interfaces with various clinical devices in hospitals. Such devices raise alerts in the hospital room and middleware then routes them to the right caregiver on the right mobile device at the right time.

Our software sales and marketing team also continued to focus on its key markets during the quarter which resulted in a growing sales pipeline. Additions to the pipeline included opportunities to sell new customers as well as add on modules to existing customers.

Various marketing initiatives contributed to that growth including virtual trade shows, webinar series, e-mail campaigns and ongoing co-prospecting with members of Amcom's growing [alliance] community. The software sales and marketing team also continued to build awareness of its solutions by providing compelling success stories to customers, prospects and the news media.

Cross-selling initiatives are and will remain a strategic focus for both our wireless and software sales teams. Given that the typical sales cycle for a software lead is six to 18 months and a wireless lead is three to 12 months, we're very pleased that we can close our first paging cross-sell win in June with an existing Amcom hospital customer in Massachusetts.

The customer had been experiencing service issues with its previous paging provider and found that a USA Mobility wireless software combination was its best solution. Going forward, we look for other new and existing customers to reach a similar conclusion.

As previously noted, our wireless and software sales teams are actively engaged in numerous cross-selling opportunities. First initiatives began shortly after the acquisition in March while the third began earlier this month.

The first is an organic leads initiative in which sales managers and reps register leads for one another that are developed from existing accounts and new business sales interactions. The second is a targeted account initiative which targets existing wireless software accounts where one of the two businesses has no current presence.

The third initiative involves USA Mobility's key account managers who will generate potential leads by interaction with their hospital account contacts. These leads will be qualified and developed by Amcom business solutions advisors and telemarketers and then turned over to a software rep once qualified. All cross-selling leads and targeted account opportunities are updated and tracked weekly on calls between wireless and software sales managers.

Turning to the competitive landscape for our software business, I wanted to give you a brief perspective on it today. I would also note that Dan Mayleben, Chief Operating Officer of Amcom is on the call with us this morning. Should you have any additional questions on this subject or any other questions about Amcom's operations, Dan can respond to them during our Q&A.

As we noted at the time of the acquisition, Amcom's software solutions hold a very strong position in the mission-critical unified communications space. Given the scope and effectiveness of our software systems as well as our established presence in numerous mission-critical market segments such as healthcare, we believe Amcom can continue to enjoy a very strong market position in this space for some time to come.

And factors supporting this contention include number one, the number of connections incorporated into a typical Amcom software system is sizable. Unlike those of most competitors, Amcom's systems featured integration with many different phone systems including communications endpoints like pagers, tablets, WiFi phones and smartphones.

They also integrate and interface with customer driven endpoints such as medical devices and clinical systems within a hospital. To build and maintain these integrations makes entry into this market quite difficult and time-consuming. Additionally, a large company might find it challenging to enter a market like this because they would need to develop interfaces with competitors' hardware.

Number two, Amcom enjoys strong customer satisfaction levels and the cost of switching is high. Amcom has consistently achieved maintenance renewal rates in the high 90% range. In fact as noted earlier, it was 99.9% in the second quarter which clearly reflects the high degree of satisfaction across the customer base.

Number three, Amcom continues to pursue innovation, investing in new and improved solutions. We believe that Amcom is the only systems integrator that provides offerings across the entire range of the unified communications suite. Instead our competitors occupy niches offering individual modular components within the overall unified communications space.

Now I'd like to turn to our current capital allocation strategy. I would note once again that our Board of Directors and management remain committed to our long-stated goal of returning capital to stockholders as evidenced by our announcement last night regarding our third-quarter dividend declaration. As you know, we began paying special cash distributions in 2005 and were paying quarterly cash distributions as well as special cash distributions from time to time since 2006.

In addition, we initiated a share buyback program in 2008. Over that time, we've paid out $377.7 million in distributions and dividends or $14.65 per share to our stockholders and repurchased 5.6 million shares at an average price of $9.31 per share.

In total we have distributed almost $430 million in capital to our stockholders. As for our capital allocation plans going forward, our Board of Directors will continue to review all options.

As we noted on our first-quarter earnings call, we expect to continue to pay a quarterly recurring dividend subject to customary review by the Board and our projections for future operating cash flow. In addition, in order to accelerate the repayment of debt related to the Amcom acquisition, we have suspended our share repurchase program. The Board will review the status of the program before year-end and we will update you on it when and if we make any changes.

Future decisions regarding capital allocation including dividends, share repurchases and debt repayments will be weighed against other opportunities for creating long-term stockholder value including additional acquisitions or other strategic investments that might provide enhanced revenue and cash flow stability or allow further use of our sizable deferred income tax assets. As I noted previously, we view none of these options as being mutually exclusive.

Additionally, we remain committed to maintaining Amcom's leadership position in its specific market niche. To this end, we are constantly reviewing the right balance between internal growth and smaller add-on acquisitions that could offer us synergies and profitable growth. While we do not have any specific targets teed up at the moment, we are constantly reviewing opportunities in this space and would act in the right circumstances with the right financing arrangements.

In summary, we're very pleased with our second-quarter and first-half operating results. We're also pleased with our new software business and existing wireless business and are working together synergistically laying the groundwork for an enhanced future together.

At the same time, however, while the Company performed well and accomplished a great deal so far in 2011, I can assure you we are anything but Pollyanna-ish about the challenges that still lie ahead. We fully realize our wireless operations will continue to face competitive pressures but we understand our software business cannot maintain its growth trajectory without strong leadership, innovation and the continued dedication of a talented and resourceful base of employees.

Toward that end, you can rest assured that we will remain vigilant in our pursuit of the right resources and strategy to further enhance value for all stakeholders. At this point, I would like to ask the operator to open the line up for your questions. We would ask you to limit your initial questions to one and a follow-up, and after that we will take additional questions as time allows. Operator?

(Operator Instructions) Chi Chow, Credit Suisse.

Congratulations on the good quarter.

Thank you.

Starting with Amcom, could you give us a little more color regarding the bookings were up, the backlog was up sequentially -- can you give us a little more color regarding how that growth was on a year on year basis? Then also with regards to the bookings, the composition of that?

Well Dan Mayleben will talk about that and he can give you some statistics on the year on year. I don't know how much detail we're going to go into in terms of the bookings because a lot of that is competitive information.

Suffice it to say the Company is doing very well. It's doing better than we expected it to do.

We are more than encouraged and pleasantly surprised by that. We've still a challenging environment and we have a lot of work to do to continue to grow this business going forward. We think we are up to that challenge. We have got a good plan and a good team and we'll keep moving forward. Dan?

Yes, good question. So the question if I understand it is if we look at year on year growth in bookings comparing second quarter of this year to second quarter of last year -- so you know we're looking at growth and again this is on a comparable basis in the low 20%.

Great. What about backlog, Dan?

Backlog as Shawn has stated is up sequentially and with the growth in bookings you know on a year on year basis, you'd also see that type of increase year on year.

Okay, great.

(Operator Instructions) Chi Chow, Credit Suisse.

So the sale of the narrowband PCS licenses, is that -- are there other other potential assets like this that you might have that you'll be able to monetize?

There are other potential assets that we have. Right now they're all in use. So we don't have any plans in the immediate future. So if you're thinking are you going to see any more deals like that the balance of this year or early next year, I would say no.

I'll follow up with a question on the wireless side. Really pleased to -- and I can tell you are too -- that the subscriber and revenue loss rates are at near all-time lows. Can you give us a little more color on whether this is kind of a sustainable level or were there some one-time events that caused the loss rates to be so low this past quarter?

That's a great question and it's a question quite frankly we've been looking at quite a bit because we kind of felt like we worked extremely hard last year and didn't get the same results. What were we doing differently this year than we did last year?

And the answer is not really anything. We think if anything, the core customer base that really is represented by her healthcare segment is really pretty sticky right now given the state of the economy and given what the alternatives are.

Not every CIO out there is going to go trade out his pagers for a smartphone. And we've done some surveys, we did one last October and we recently updated it. I think we talked it when you were with us at our annual meeting about the results of our survey last fall and the survey that we just recently completed indicates that from a healthcare perspective, these CIOs do not intend to get rid of their pagers any quicker than they did last fall.

If anything it's slowed down a little bit and I really think that this has to do with the cost differentiation that paging has versus alternatives. So we're in a good place right now. You ask can that be sustained.

I sure hope so is the answer. We don't know. It's certainly -- the second quarter was phenomenal by any stretch in terms of the stability of that particular healthcare customer segment.

And if that continues, obviously it has huge implications going forward. As I said in my prepared comments, we don't want to be Pollyanna-ish about our channel. We certainly don't. We're certainly not going to off one quarter of phenomenal results like that forecast that going forward.

But it's something that we're going to keep a close eye on and I think I mentioned in my earlier comments, I think part of the publicity that we got from doing the Amcom deal -- and Amcom is very well-known in the healthcare community and the people that make communications decisions -- I think that might've settled a lot of people down as well in terms of USA Mobility's long-term commitment to this space relative to what you're seeing out there with other providers. So, I hope it's a new trend and I hope it stays that way forever. We're not going to build a business plan around it, but if it does, it obviously means much more future cash flow for our shareholders.

Okay so, Vince, your revised guidance for the wireless business does not reflect an assumption of the continuation of these low loss rates.

No, what it basically does is it adjusts for the positive variance that we got because of these low loss rates and it conservatively smooths out the rest of the year. We didn't just say gee, we're going to go to almost no turn whatsoever for the rest of the year in the healthcare segment or otherwise the guidance would've been significantly higher.

Okay, great. And then -- should I hop off to see if -- or should I -- I will just keep asking questions.

Regarding the Amcom business, really good results. What would it take to get you guys to see sort of upside in the business? Was just kind of curious as to what your expectations are and you raised expectations for the wireless business. Wanted to get some color on what your expectations are on the software business.

Obviously we saw upside in the Amcom business and that's the reason we purchased it. We did not change our forecast for the Amcom business in terms of our guidance because we really only have one quarter under our belts on a combined basis with these folks.

And I think what is going to happen -- we talked about a 12 to 18 month lead time for their sales. So for us to really get a lot of traction with cross-selling opportunities, it's going to go outside the range of the timeframe represented by this guidance.

So I think we're going to stick with the guidance where it is now for the balance of the year with respect to software in terms of revenue and operating expenses. And we're going to work hard with our partners at Amcom to make for a really good 2012 and we will be providing that guidance to you guys very early in 2012 when we release our fourth-quarter earnings.

Great, and then my last question is with regards to capital allocation. Can you give us a little more flavor as to how you're thinking about potential paying down debt? That seems to be your second priority after maintaining the regular dividend, paying down debt versus potentially paying out special dividend this year.

Right now we're looking at first and foremost continuing the recurring dividend which we anticipate doing going forward. We're looking at paying down debt because we're paying 5.25% interest on it and we really don't need the deduction.

And then after that, we're looking at maybe some small fold-in acquisitions. We don't have anything teed up right now and we're not right now putting special dividends at the top of our list.

That's something that we will (inaudible) the share repurchases. Other things in our capital allocation strategy going forward but I think we need a few more quarters under our belt before we go down that path.

Thank you. Congratulations again.

That was it for the last question. So I'm going to wrap up. Thanks, everyone, for joining us today. We look forward to speaking with you after we release our third-quarter results. So have a great day.