Spok Holdings Inc (SPOK) 2012 Q2 法說會逐字稿

Good morning, and welcome to USA Mobility's Second Quarter Investor Call. Today's call is being recorded. On line today we have Vince Kelly, President and Chief Executive Officer; Shawn Endsley, Chief Financial Officer; Kate Bolseth, Chief Operating Officer of the Company's software subsidiary, Amcom Software; and Sean Collins, EVP of Selling and Marketing of Amcom.

At this time for opening comments, I will turn the call over to Mr. Endsley. 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.

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

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

Please review the Risk Factors section relating to our operations and the business environment in which we compete contained in our 2011 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 from past or present filings and conference calls.

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

Thank you, Shawn, and good morning. Before we review our second quarter results, I want to comment briefly on the management realignment we announced last month, including the appointment of Kate Bolseth as Chief Operating Officer of Amcom. Previously, Kate was Amcom's Vice President of Product Strategy and Development and in that role, she's been instrumental in the Company's growth in recent years. Kate succeeds Dan Mayleben, who along with former Amcom President, Chris Heim, left Amcom in June to pursue an opportunity outside the Company. We're delighted to have Kate join our senior management team. She also joins us on our call this morning.

Sean Collins joins us as well. He was recently promoted to the Executive Vice President of Selling and Marketing at Amcom and continues to play a key role for us in that capacity as we look to grow our Software business.

Finally, Jim Boso has been promoted to President of our wireless company, USA Mobility Wireless. Formerly Executive Vice President of Sales and Marketing at USA Mobility, Jim has made significant contributions to the success of our business over the years.

We were very pleased to be able to fill these key positions from within the Company, a testament to the managerial talent and bench strength in both our key businesses. I would also note that we are currently working with Spencer Stuart in conducting a search for a new President of Amcom to replace Chris Heim, who remains a Director of USA Mobility. We hope to fill that key position in the next several months. In the meantime, I personally have relocated to Minneapolis to help oversee our software operations and conduct recruiting activities from Amcom's headquarters office.

Turning to our quarterly results, let me begin by highlighting what we believe was another outstanding quarter for USA Mobility. On a consolidated basis, we reported solid performance largely consistent with our previously announced financial guidance for 2012. On the Wireless side, we ended the quarter ahead of our key operating goals for subscribers, total revenue and operating cash flow, average revenue per unit or ARPU, and operating expenses. In addition, our Wireless sales force exceeded the Company's plan for subscribers, including gross additions and net churn.

At the same time, our Software business increased quarter-over-quarter revenue and bookings, our backlog rose to a new high and we expanded our pipeline of prospective accounts. We also acquired a Critical Test Results Management solution and launched several new software products for the healthcare market. Overall, we were able to maintain strong consolidated cash flow margins, operating profitably while reducing expenses and once gain return capital to our stockholders in the form of dividend distributions.

Shawn will discuss our financial results in more detail in a few minutes, but first I want to review some of the key accomplishments we achieved during the quarter. Number one, Wireless subscriber trends showed significant improvement in the second quarter as the rates of paging unit losses reached their best levels in nearly eight years. These record results were due to an outstanding performance by our wireless sales team, which increased direct gross placements from the prior quarter, while disconnects continued to decline. We were very pleased to see these positive trends in our Wireless business, especially within our top-performing healthcare segment with a net loss rate improve to a record low 0.2%.

Number two, Wireless revenue trends also continued to improve during the quarter with a quarterly rate of revenue erosion recording its second best level since the second quarter of 2008. The improved rate of Wireless revenue erosion continues to benefit from relatively stable paging ARPU and a slower pace of subscriber churn. Going forward, we expect Wireless subscriber and revenue trends will remain a challenge as technology alternatives continue to evolve. However, we are greatly encouraged by our second quarter results.

Number three, after a slower-than-expected first quarter, our Software business bounced back with a solid performance in the second quarter. Revenues and bookings increased in the prior quarter and our backlog reached an all-time high at mid-year. Additionally, Amcom's pipeline of sales leads grew substantially in recent months, a tribute to the hard work of our dedicated combined sales force along with an increasingly diversified customer base, expanding range of product offerings, and ongoing application development initiatives. Also, Amcom acquired a Critical Test Results Management solution from IMCO Technologies in May that helps hospitals improve patient care and safety by expediting the delivery of critical test results to caregivers.

Number four, we continued to make substantial progress in reducing operating expenses in the second quarter, with most of the cost reduction coming from our Wireless operations, consistent with our long-term business plan. Looking ahead, we expect operating expenses in our Wireless business will continue to decline. However, we expect a certain portion of those cost savings will be offset by additional investment in our Software business as we continue to increase our development and sales expenditures to reposition our overall Company for long-term growth.

Number five, our strong performance in Wireless combined with a solid contribution from Software enabled us to maintain strong cash flow margins for the quarter. While we are pleased to report continued high margins in our Wireless business, I would remind you, once again, that it may be difficult for us to sustain Wireless margins at current levels as our ability to reduce Wireless operating expenses as we get smaller becomes more challenging over time.

Number six, finally, we again generated significant free cash flow during the quarter to return capital to stockholders in the form of cash dividends. We paid a regularly quarterly dividend of $0.25 per share in June 22. Including the June dividend, we have now returned a total of $451.6 million to our stockholders over the past eight years in the form of cash dividends and stock repurchases. I'll comment further on our capital allocation strategy, including our revised dividend rate in a few minutes.

Overall, we are pleased with our operating performance in the second quarter and believe we are well positioned to achieve further progress over the balance of the year. We met or exceeded the majority of our key operating goals, successfully completed several important product and business development initiatives in our Software business, generated significant free cash flow, and again returned capital to our stockholders. In addition, we repaid our outstanding debt early in the second quarter and once again became a debt-free company.

Despite these achievements, we know there is much more work to be done. Accordingly, going forward, we will continue to aggressively execute our business plan and pursue all appropriate opportunities to create additional value to stakeholders.

I'll comment further on our operating performance and related business activities in a few minutes. But, first, Shawn will review our second quarter financial results. Shawn?

Thanks, Vince. Before I review our quarterly results, I wanted 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 since it contains many aspects of our business operations and financial performance that we will not have time to cover on this call.

As Vince said, we are pleased with our second quarter results, which were largely in line with previously announced financial guidance for 2012. Record low subscriber churn, reduced operating expenses, and a stable ARPU contributed to strong cash flows and high margins in our Wireless business, while the Software business reported an increase in quarter-over-quarter revenue and bookings, a higher backlog at June 30 and a solid pipeline of future sales leads.

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 1,583,000 units in service, a net decrease of 34,000 units compared to a decline of 49,000 units in the second quarter of 2011. The quarterly rate of subscriber loss improved to 2.1% from 2.7% in the year earlier quarter, while our annual rate of net unit loss improved to 11% from 12.2% a year ago. Both the quarterly and annual unit loss rates reached their best levels in nearly eight years.

Gross placements for Wireless totaled 55,000 units in the second quarter, compared to 45,000 units in the first quarter and 66,000 units in the second quarter of 2011. Gross disconnects declined to 89,000 units from 115,000 units in the year earlier quarter. As a result, the disconnect rate improved to 5.5% in the second quarter from 6.2% a year earlier.

Healthcare, again, was our most stable market segment with the highest rate of gross placements and lowest rate of net unit losses. The gross placement rate for healthcare in the second quarter was 4.3%, while the net unit loss rate fell to an all-time low of 0.2%. Overall, healthcare accounted for 83.3% of gross placements and 63.8% of paging revenue in our direct channel. At June 30, healthcare represented 64.9% of our total Wireless subscriber base compared to 60.9% a year ago.

Total ARPU was $8.45 in the second quarter compared to $8.50 in the first quarter and $8.74 in the year earlier quarter. Although we expect paging ARPU will continue to decline slowly going forward, we are pleased that overall pricing levels remained relatively stable.

Revenue from Wireless totaled $42.8 million compared to $52.1 million in the year earlier quarter. The quarterly rate of revenue erosion improved to 3.3% from 4.9% in the first quarter and 0.8% in the prior year quarter. The annual rate of revenue erosion was 17.9% for the quarter versus 11.9% a year earlier.

Paging revenue, the largest component of Wireless revenue, declined 3.2% in the second quarter to $40.5 million from $41.9 million in the first quarter. The annual rate of revenue decline was 14.3% for the quarter compared to 13.9% in the first quarter. All other revenue categories, which represented 5.2% of total revenue, decreased 6.5% from the previous quarter.

Turing to our Software business, revenue for the second quarter totaled $13.2 million compared to $12.5 million in the first quarter and $13.1 million for the second quarter of 2011. Of the $13.2 million in second quarter revenue, $6.5 million was maintenance revenue and $6.7 million was operations revenue. Software and maintenance revenue in the prior year's second quarter was reduced by $2.6 million for purchase accounting adjustments. As such, excluding the purchase accounting adjustments, Software revenue for the second quarter of 2011 would have been $15.7 million.

Software bookings for the second quarter totaled $15.1 million compared to $12.4 million in the first quarter and $15.2 million in the year earlier quarter. Bookings are all purchase orders received from customers during the quarter and represent future revenue that will be realized upon installation or over the maintenance service period.

The Software backlog reached a record high of $25.4 million at June 30, an increase from $23.7 million at March 31 and $20.5 million a year earlier. The backlog consists of all previous purchase orders received from customers not yet recognized as revenue. The total backlog at June 30 consists of $10.4 million of operations bookings and of $15 million in future maintenance renewals. We expect to convert this backlog into revenue in successive future quarters.

Finally, the maintenance renewal rate for Software was 98.8% for the second quarter, once again confirming ongoing demand for Amcom's suite of software solutions, as well as the commitment of its customer base.

On a consolidated basis, total revenue for the second quarter was $56 million, compared to $56.7 million in the first quarter and $65.2 million in the year earlier quarter. Excluding purchase accounting adjustments, total consolidated revenue for the year earlier quarter would have been $67.8 million.

Second quarter operating expenses, excluding depreciation, amortization and accretion, were $37.5 million with $26 million for Wireless and $11.5 million for Software, a decline of 14.1% from $43.7 million in the second quarter of 2011.

Payroll and related expenses, which includes commissions, totaled $18.5 million for the second quarter, including $11.5 million for Wireless and $7 million for Software. Payroll and related expenses represent the largest element of operating expenses for both businesses. Payroll and related expenses for Wireless declined 12.1% from the year earlier quarter. Payroll and related expenses for Software represented 61% of its operating expenses for the quarter, which excluded depreciation, amortization and accretion expenses. I would add that we recorded a net benefit to payroll and related expenses for Software of $0.3 million for the reversal of accrued short-term incentives in connection with the departure of two former executives during the quarter.

Company-wide head count at June 30 was 686 full-time equivalent employees, including 411 for Wireless and 275 to Software compared to 723 a year earlier, with 475 from Wireless and 248 from Software. Going forward, we will continue to adjust staffing levels as necessary to meet anticipated requirements for both our Wireless and Software businesses.

Site rent expense, our second largest element of operating expenses, declined 7.7% to $4.4 million in the second quarter versus the prior quarter and 25.8% from the year earlier quarter. At June 30, we operated 4,795 active transmitters compared to 4,945 at March 31, 2012.

We reduced the number of our paid active transmitters to 2,419 at June 30 from 2,554 at March 31, while the number of transmitters located at customer provided sites, that is those with no associated rent expense, was 2,376 and represented 49.6% of our active transmitters at the end of the quarter.

Beyond payroll and related expenses and site rent expenses, all other recurring expenses, excluding depreciation, amortization and accretion, for Wireless in the second quarter totaled $10.1 million compared to $12.6 million in the second quarter of 2011, a reduction of 20.2%, while all other recurring expenses for Software in the second quarter of 2012 totaled $4.9 million, which included a net benefit of $0.4 million for the reversal of forfeited long-term incentives for the two former executives.

Depreciation, amortization and accretion expense was $4.6 million in the second quarter with $2.9 million for Wireless and $1.7 million for Software, compared to $4.5 million in the first quarter with $2.8 million for Wireless and $1.7 million for Software. Consolidated EBITDA for the second quarter was $18.4 million or 32.9% of revenue compared to $21.5 million or 32.9% of revenue in the year earlier quarter.

Excluding purchase accounting adjustments, EBITDA in the year earlier quarter was $24.1 million or 35.6% of revenue. Second quarter EBITDA included $16.8 million from Wireless or a margin of 39.2% and $1.6 million from Software. A scheduled reconciling operating income to EBITDA has been included in our earnings release.

Capital expenses in the second quarter were $2.9 million, with virtually all of it from the Wireless business, compared to $1.9 million in the year earlier quarter. Capital expenses were primarily for the purchase of paging devices.

Net income for the second quarter was $8.4 million or $0.37 per fully diluted share, compared to $18.6 million or $0.82 per fully diluted share in the second quarter of 2011. Adjusted net income for the year earlier quarter would have been $10 million or $0.44 per fully diluted share after excluding a one-time receipt of $7.5 million from the sale of certain narrowband TCS licenses, the decrease of $4.9 million in income tax expense related to the reduction of the deferred income tax valuation allowance and the adjustment for the purchase accounting write-down to maintenance revenue of $2.6 million.

Turning to the balance sheet, we ended the quarter with a cash balance of $41 million. Also, on April 6, 2012, we repaid the remaining debt balance of $3.25 million related to the Amcom acquisition and once again became a debt-free company. I would add that our credit facility remains in place and provides us with $40 million in borrowing capacity to address opportunities for creating long-term stockholder value.

Finally, with regard to financial expectations for 2012, we are revising our prior guidance for consolidated results for the full year to better reflect the revenue contribution of our two businesses, as well as our increasing concerns about a slowing economy and its potential impact on decision-making in our Software business. Accordingly, we now expect total revenue to range from $215 million to $227 million; operating expenses, excluding depreciation, amortization and accretion, to range from $154 million to $162 million; and capital expenses to range from $7.1 million to $9.5 million.

We have also revised our revenue guidance mix between Wireless and Software based on our outlook for each business. As such, we now expect Wireless revenue to range from $162 million to $170 million, an increase from the prior guidance of $156 million to $166 million, and Software revenue to range from $53 million to $57 million, a reduction from the previous guidance of $58 million to $66 million.

We have also adjusted the operating expense guidance for Wireless to a range of $106 million to $110 million, a reduction from the original range of $108 million to $112 million. Our Software operating expenses have been adjusted slightly to a range of $48 million to $52 million.

Finally, we have slightly adjusted the capital expense for our Software business to a range of $0.1 million to $0.5 million from the previous range of the $0.5 million to $1 million.

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

Thank you, Shawn. Before we take your questions, I want to comment briefly on a few other items that may be of interest. First, I will provide a quick update on some of our recent sales and marketing activities; second, I will review our current capital allocation strategy; and third, I'll briefly comment on our overall business outlook.

With respect to sales and marketing activities, both our Wireless and Software businesses continue to aggressively pursue new business during the quarter. On the Wireless side, we continue to sell wireless messaging solutions to our target market segments of healthcare, government and large enterprise. These core segments represented approximately 91% of our direct subscriber base at June 30 compared to 90% a year ago. They also accounted for approximately 87% of our direct paging revenue in the second quarter compared to 84% in the year earlier quarter.

During the quarter, our Wireless team turned in a very strong performance, exceeding expectations for subscribers, gross additions, retention and revenue. Of particular note, total net unit loss for the quarter was 2.1%, the lowest in the Company's recent history with healthcare again contributing the highest number of gross placements and fewest disconnects.

Paging's longstanding value proposition, low cost, reliability and survivability compared to other wireless technologies continued to create significant demand for our wireless products among healthcare providers. For the quarter, 37 hospitals each had 200 or more units for their incoming residents, fellows and medical students.

In addition, our Wireless sales team added three new hospital accounts during the second quarter. Also, our Wireless business launched a new product, AMC Select, in May in collaboration with Amcom. AMC Select is a hosted version of the Amcom Mobile Connect smartphone and tablet messaging solution. The hosted solution enables critical messages sent to USA Mobility Wireless pager numbers to be received on smartphones instead of pagers. The AMC Select application offers hospitals an easy method of moving to smartphone communications for physicians and other staff members who wish to use a single device for encrypted, critical messages.

Since the launch, several hospitals have begun using the product in initial trials and we've already received a lot of positive feedback on the messaging solution. AMC Select uses industry standard best practices to safeguard sensitive electronic protected health information in accordance with guidelines from HIPAA and the HITECH Act. It also helps clinicians achieve closed-loop communications with automated message delivery receipts and free-form text response capabilities. The date and time of all communications are logged in an audit trail. All of this is accomplished without changing the way messages are sent or changing pager numbers, providing a fast and easy method of incorporating smartphones.

Smartphone users simply download an application to connect to AMC Select, which is hosted, maintained, and billed by USA Mobility Wireless. Once registered, users have a secure method of communicating on a consult request and many other types of important patient care situations.

We believe continued strong demand for our Wireless products among healthcare subscribers can be attributed in part to Amcom's extensive presence and positive reputation throughout the healthcare industry. For the Software business, our sales and marketing team also had a very productive quarter, once again generating most of our bookings in North America.

We were especially pleased to sign up a major East Coast teaching hospital, which represented our largest new customer so far this year. This customer also selected a broad suite of our software solutions, an increasing trend customers choosing Amcom due to the breadth of our critical communications offerings.

We also completed the sale of a large system to a hospital in Ohio, which was a result of continuing collaborative efforts between our Wireless and Software teams. In fact, for this particular USA Mobility hospital customer, we are now implementing an Amcom solution that will enable nurses to get alerts on their mobile devices when patients need help and press their nurse call buttons. Although most of our new business came from healthcare during the quarter, we also booked our largest hospitality order for the year with a well-recognized hotel looking to improve its overall communications with Amcom's highly efficient software.

Amcom's sales and marketing team is also excited about our recent acquisition in May of the Critical Test Results Management solution from IMCO Technologies. Since the acquisition, we've renamed the software Amcom Critical Test Results Management and have seen immediate demand for our customers. In addition, our sales and marketing professionals have done a great job of understanding the solution's extensive functionality, as well as conveying that information to our many healthcare customers via informative webinars and numerous face-to-face meetings.

Amcom's sales and marketing team also held its Annual Sales and Marketing Conference in May, a three-day event where we gathered the teams to conduct intensive product training and planning. I personally attended this event and I must say I was very impressed with the caliber of professionals we have on staff, along with the knowledge and enthusiasm they demonstrated for developing, marketing and signing a host of new solutions for our customers.

Finally, as I noted earlier, we are continuing to invest more resources in our software sales and marketing programs. During the second quarter, for example, both the sales and marketing teams added key personnel. The marketing side also increased its investment in lead generation activities and continued to fuel our pipeline by executing on a number of initiatives, including traditional trade shows, virtual trade shows, webinar series and email campaigns.

With regard to our capital allocation strategy, I would note once again that our Board of Directors and management remain committed to our long-stated goal of creating stockholder value. That said, it's important to point out that our ability to create and sustain that stockholder value is clearly dependent on how we deploy our capital resources. For the last couple of quarters, we have indicated we were looking closely at our capital allocation strategy and we're evaluating alternatives.

We made a strategic investment in the Software business in March 2011 with the purchase of Amcom. We believe this acquisition represented a unique opportunity for USA Mobility to leverage our position as the premier messaging provider to the healthcare industry by adding the premier portfolio of critical healthcare communications software solutions.

In addition, as we have said in the past, the acquisition was very complementary to our existing position in the healthcare segment and does, we believe, add meaningful value to our Wireless business. While this transition to a more software-oriented business model has gotten off to a good start over the past 17 months, we are still in the early stages of that evolutionary process and we will need to expand the depth and breadth of our software capabilities in order to fully complete that transition in the years to come.

Toward that end, we expect to allocate a significant portion of our retained capital to pursue software acquisitions and related growth opportunities in the software space going forward. While the specific add-on investments have yet to be determined, we believe it's essential to retain and reallocate some level of capital for those purposes. This should enable us to both support and grow our Software business and further utilize our significant deferred tax assets. Part of that reallocation process was our recent decision to reduce the current annual dividend to $0.50 per share from $1 per share. This decision was made for the principal purpose of retaining sufficient capital for acquisitions in our Software business and creating other opportunities for long-term growth.

Notwithstanding our excellent current results, we recognize that ongoing Wireless subscriber losses will continue to put pressure on future operating margins and cash flows. As a result, we believe the revised dividend rate will preserve capital for long-term growth opportunities. We believe the revised annual dividend rate better reflects our projected cash flows over the next several years, strengthens the Company's financial position while maintaining a significant yield on our common stock and, most importantly, allows us to retain strategic capital as we continue to reposition the Company for the future.

In addition to the revised dividend rate, the Board of Directors also approved renewal of the Company's stock repurchase plan, which was adopted in 2008 and suspended in March 2011 at a time of the Amcom acquisition. Onto the renewed plan, the repurchase authority was reset to $25 million as of August 1 and the plan was extended through December 31, 2013. Since the buyback program began four years ago, we have repurchased 5.6 million shares of our common stock at an average price of $9.31 per share.

With regard to future decisions regarding capital allocation, our Board and management will continue to asses all options and make decisions based on cash flow projections, as well as our need for strategic capital to pursue long-term growth. Those decisions will also be weighed against all other opportunities for creating long-term stockholder value, including additional acquisitions or other strategic investments that might provide enhanced revenue and cash flow stability will allow further use of our sizable deferred income tax assets. In the meantime, we will continue to manage our balance sheet prudently by maintaining ample liquidity to support our working capital requirements.

Turning to our business outlook, we are very pleased with our second quarter results and look for continued progress in both our Wireless and Software businesses in the second half of the year. Indeed, our Wireless business performed beyond our expectations over the first six months in 2012 and as a result, we revised our full-year financial guidance upwards, as Shawn noted.

At the same time, our Software business gained momentum in the second quarter after a slow first quarter and we're hopeful that momentum will be sustained over the balance of the year and beyond. Still, recognizing the unevenness with deal flow activity in the software industry, as we've explained on previous investor calls, we decided to lower our 2012 guidance for Software revenue to account for potential fluctuation in second half bookings.

Our decision to revise Software guidance was also made in part due to an abundance of caution about a slowing economy. I would add, however, that we remain very optimistic about the long-term potential for our Software business and are pleased with the overall progress we've made to date.

In short, we continue to believe USA Mobility has a bright future. Over the past eight years, our Company has faced substantial adversity from technological displacement to a weak economy. Throughout it all, however, we've kept our focus to overcome each of those challenges and year-after-year achieved our stated business goals.

Looking ahead, we expect nothing less. While the demand for paging continues to decline in favor of Wireless alternatives, the value of paging for critical messaging remains high and should allow us to continue to generate solid cash flow for the foreseeable future.

At the same time, our Software business enjoys an enviable position in the growing mission-critical communication space at a time when sources of data and ways to communicate are exploding. With our recent focus on application development, Amcom has improved its range of software solutions, organizational capacity and know-how to meet the needs of our growing customer base.

In sum, the combined strength of USA Mobility Wireless and Amcom Software complement each other exceptionally well and we expect to leverage those strengths for the foreseeable future. As usual, we will continue to keep you updated on our progress and other corporate events through press releases and future investor calls.

At this point, I'll ask the operator to open the line up for your questions. We ask that you limit your initial questions to one and a follow-up. After that we'll take additional questions as time allows. Operator?

Thank you. (Operator Instructions) Jim Altschul, Aviation Advisory Service.

Good morning, gentlemen.

Good morning.

And I apologize if you covered this in the previous calls, because I have missed some of our calls in the past year, but the gain you recorded in the year ago quarter for selling, what is it excess spectrum bandwidth, is that likely to be a one-time thing or is there any possibility that in the future you can sell some additional spectrum, but well I'm trying to get a handle on, is there some potential untapped value in the collection of spectrum that you have?

Jim, right now we don't have any negotiations going on to sell spectrum. There is potential, of course, always in the future that we might be able to sell some additional spectrum, but I would not base that into any valuation mile, that would more be a nice thing to have happened, but it's not in the cards at this time.

But do you have some spectrum -- I guess in order to sell spectrum, you need to have some spectrum that you're not using. Do you have any additional -- any spectrum that could be sold if the right opportunity presented itself that you're not currently using?

Not right now. In the future, who knows what could happen two, three, four, five years from now, but right now we're using all our spectrum.

How did this opportunity come up? Did you have some unused spectrum or what kind of buyer was this who bought it?

We had -- as you can imagine, we consolidated most of what was the paging industry in the early 2000s, and one of the transactions that we did was to combine two large independent paging companies that both had independent two-way paging networks. So we actually sold two-way spectrum after we had completed the integration of those acquisitions such that we had transitions of subscribers onto one two-way network and we didn't need multiple two-way networks if you're following me. So that provided an opportunity to sell off some unused two-way spectrum. As I said right now, we're using our spectrum, but who knows what might happen in the future.

Thank you very much.

Mark Phelan, M22 Capital.

Hi. In previous calls you guys have mentioned that for the software market, the target market, you forecasted a $750 million market. Is there any chance you can kind of just go through your calculus and then how you got to that number?

All we did was basically look at the overall universe of healthcare companies out there and then take a average penetration rate against that. I don't have that workup with me right now, but it was a fairly straightforward exercise and I would say nothing has changed significantly in that outlook. The only thing that we're seeing unfortunately is just that overall volume of business is just slowing.

We're not losing deals, they just keep getting pushed out. People are cautious. They're hesitant to pull the trigger and obviously it affects our Company, it affects our topline, it affects our outlook, it affects quite frankly the commissions that our salespeople make. So we still think it's a very robust market and the demographics look fantastic going forward. But the whole economy right now has a different feel than it did a year ago when we were doing these projections. We felt we were kind of in a 3% to 4% maybe growing economy and right now it's kind of a hold on and let's wait for the next shoe to drop economy and that affects CIOs' purchasing decisions.

Got it, okay. And then just in terms of I guess your top three or four software products, have they increased in demand over the last 6 months to 12 months, or do you forecast that or do you see those kind of declining?

Okay. Sean Collins, our EVP of Sales and Marketing, is going to take that one.

Go ahead, Sean.

The trend has certainly moved towards more of the mobility applications that Vince kind of outlined in his summary. So we've seen a dramatic uptick for those conversations, as well as deals getting done, but it's more than just an app on those tablets and phones, there's the whole security element, et cetera that plays in a CIO or CFO's role, but we're looking at these types of applications. So that's where the trend is and our core products such as the traditional call center space continue to be stable for us, but the growth is outside of that.

Got it. The call center, it's at least staying stable. You're not seeing it getting cannibalized by the mobile stuff.

We are not seeing it, no.

Okay, thank you.

The mobile stuff is really an extension. If you think about it, people want to take all that wonderful information that we can provide internal and kind of go that last mile and put it on iPhones, Androids, BlackBerrys, tablets, et cetera and there is a lot of people looking at that space right now. Quite frankly, we've got a fantastic product in Amcom Mobile Connect. We continue to add functionality to that and with our new product, Amcom Care Connect, which we'll also be able to link up with Amcom Mobile Connect.

So we've got a lot of stuff going on in that space and we've got a lot of trials out there and a lot of interest from the hospitals, but again these are transactions that take typically 12 months for a decision to happen. They go into a normal capital budget cycle. So while it looks great from a long-term perspective, we've been a little bit disappointed over the shorter term and we are very focused right now on making sure that we have the right market offerings in this mobile space going forward, so that we can meet our future expectations.

I got it. And then last question, you guys significantly lowered your new revenue guidance for Software. Is there a specific customer or a specific product that I guess characterizes that decline or was it -- it's hard to pinpoint on any one thing, just general?

You know what, you can't really pinpoint any one thing. (inaudible) temporarily while we're recruiting for a President for this and I've been meeting with the team and I have wanted to look at the business from the ground up, what are we doing sales rep by sales rep, what's out there, what are we likely to get and I've wanted to realistically forecast that against the backdrop of what I see as -- and what we all see and hear from our customers as a slowing and a more cautious economy.

And I want to instill kind of the culture that we've had on the Wireless side with respect to setting expectations that we set expectations that we meet and then we eventually beat and then we come back and do it again next time. So part of that is on me. And it's a learning process for me and for the crew here, but we don't want to be in a position where we're not achieving what we tell you guys we're going to achieve. So there's never any guarantee in the future. You're always going to do what you say you do, but in general that has been our culture and that's what I'd like to see continue.

Okay. Thanks very much.

Thank you.

Brent Morrison, Wells Fargo.

Hi, guys. On a couple of calls in the past you mentioned that some of the hang-up for Amcom was hospitals inundated with the electronic medical records installation or implementation. Can you comment on that? Is that part of the cause in part of the slowness or is it just the adversity to signing a big contract?

Sean, do you want to take that?

Yes, absolutely. That continues in the marketplace today. So I believe the tail on that runs through 2015. On top of the increasing economy the segment within healthcare is that the overall budget and bucket that they're dealing with, as well as the actual spend of that budget where personnel on those sites too, fully implement roll-outs of applications. So we're -- we've got to about 2015 is where (inaudible) does play a role into the impact of overall projects.

It's also not a blanket statement across the whole base such that if you think it's kind of the giant budge moving through the snake as it digests, it's not that for the whole sector, it's that on a customer-by-customer basis. The larger hospitals would tend to be further along than some of the medium-sized hospitals. So everyone is kind of at a different point on the curve with respect to the EMR implementation, but it does impact us and it is not the only thing that's causing this slowdown from our prior view, but it is one of the things.

Okay. Can you comment on the hotel win in the quarter, that's relatively new with few guys announcing anything outside of healthcare? What are they using it [other than that] hospitals don't or is there anything that's specific that us investors should know?

Yes. Sean is going to take that. This is Sean and Kate's first time with public shareholders. So, Sean, we're just not going to give the name of that account, but he's going to take that. We also have another nice one in the pipeline that we hope to get any day now, but why don't you talk about that?

Yes, absolutely. So part of the economy out west on this property, the cranes are moving back out there and this was actually consolidation of -- the strategy was a consolidation of several properties into one [figure]. So they took the first bite of that. They'll be implementing this, putting in a new data center, all of our software so to speak in the cloud that don't manage. And then the idea is to bring on more property, so this is in that casino gaming hoteling space.

Okay. And then lastly, you guys cut the dividend to preserve capital for probably acquisitions. With debt being so cheap these days and the reoccurring cash flow of the Wireless business, why did you choose to pay off the debt so rapidly as opposed to using the free cash flow to make acquisitions and use some leverage on the balance sheet?

Couple of things there. I mean I think we've been pretty clear for the last several quarters that we were looking at this whole area very closely in terms of our capital allocation strategy. But the debt, we basically -- we were losing money carrying debt on this Company. There's no sense in paying interest to the bank if you don't need it.

In terms of acquisitions, and preserving capital for acquisitions, that's absolutely the stated game plan. However, I want to be careful at the price we pay. We've been looking at a lot of companies. I will tell you, there is nothing specifically of scale that's in the crosshairs right now, that -- such that you guys might see an announcement from us in the next 30 days.

Valuations are a little bit of a challenge. There is a ton of money out there on the private equity side. The good news there is those guys tend to be cautious and a lot of these guys are trying to get strategics to come in seeking a higher valuation that they can't get on the private equity side and I don't want to fall for that. And so we're going cautiously, but we're going to build our capital and when we make a decision like this, we tend to look at a multi-year period. We have to -- we're running a business here, so we can't look necessarily quarter-to-quarter, we have to look over a period of multiple years.

The last time we reduced our dividend was way back in early 2008 and then we held that dividend of $1 a year for a very long time. My view is we can hold this dividend of $0.50 a year for a very long time, build capital and when the right acquisition comes along to help build this Company and at the right price, we'll be in a position to execute. So there's no point right now in keeping a lot of debt on the books and paying interest to the bank. We can't earn that much with the cash, and so it's just a simple math exercise.

Okay. And then lastly, you talked about not wanting to overpay and I agree with you 100%. Looking back at Amcom and what we've seen over the last, I don't know, 18 months now, little less, it seems like you did overpay. So what changed? I know the economy has slowed a lot and people are apprehensive about taking on more expenses, but the multiple that you paid on this thing is very high.

Well, I could appreciate. I can appreciate --

Whether it's a cross-selling kind of potential to synergies that just we haven't seen yet that we could see in the next couple of years, but I'd hope that we don't see those multiples paid again?

Look, I appreciate and I respect your view and I thank you for your feedback. I don't necessarily agree with you 100% because I think one of the [intangibles] that's very difficult to quantify is the extremely positive impact that we have felt on the Wireless side since we've done that acquisition. When we go and we renegotiate with these large hospital contracts on multi-year contracts, and we talk to those CIOs, it is not a strategy to get in front of one of those CIOs and say, we're just going to run a paging company and we're running a liquidating trust and who knows if it will be around in three or four or five years.

They would not like to hear that and I don't think it's a coincidence that since we've done the Amcom acquisition and since Amcom is so incredibly respected as is evidenced by its 99% software maintenance renewal rate, since we've done that acquisition, the actual paging results and the erosion in our paging topline have improved significantly.

So I hear you and I very much appreciate the feedback and what you say, but I also think there's some other things that we have to factor in, but going forward I agree, we want to be cautious and I think I articulated that we are being cautious in terms of what we pay, but that's kind of my view on your remark.

No, that's a great point about the Amcom acquisition reducing the churn of wireless. Is there maybe other statistics that you can help us digest that? I know you've said it in the past how some percent of the cancelations became Amcom clients. Is there anything maybe in the future that you can articulate that will help us understand that?

I think that right now, it's very hard to quantify because it's more of a qualitative assessment and a conversational assessment. I think going forward as we continue to make inroads on mobility, look I don't want to sit here for a second and tell you that paging is going to be around forever. Ironically, when the economy really starts to get nervous as it is right now, I think we'd all agree that we're in a nervous economy, paging also benefits from that.

But at some point the cost of smartphones, the cost of just new technology will get driven down. These guys will continue to battle themselves -- each other in the market for subscribers. It will get driven down. And it will cause more churn and I'm talking over a five-year period, I'm not talking over a five-quarter period, but it will cause higher future churn at some point out there into distance.

And if we have Amcom Mobile Connect and AMC Select and other mobile applications kind of our number one area we're targeting for development and acquisition is mobile clinical applications. So if we continue to do a good job there, we can migrate subscribers as we've begun to start doing onto Amcom/smartphone type platforms and off of paging and we'll capture that revenue base, as well as capture the revenue base from some of our competitors. So that's kind of where I think you would see the numbers that you're looking for, but I don't have it for you right now.

Sure. Thanks.

Rich Murphy, Cross River.

Yes. How are you doing guys? Not to beat a dead horse on the multiples. You're looking at future acquisitions, but you will have about $60 million in cash and it looks like it ended this year plus the $40 million in debt. What size acquisition is out there that you guys would look to make or is it going to be little niche acquisitions?

We're going to do both. We've been looking at smaller niche acquisitions that would allow us to accelerate, in many cases, functionality within our development ongoing efforts, but we would also look at larger acquisitions if we thought there was one that would make sense for us long term and again I think what I'm telling you guys this morning is we're going to be cautious on that too with respect to valuation.

So I would say there's not one particular type of acquisition that makes sense. We did IMCO, the Critical Test Results Management acquisition, which really focuses on a clinical application for radiology, so that can be used in other types of clinical applications. And that was really a technology buy, because it would have taken us a long time to build that thing, multiple years and we didn't have the in-house clinical expertise, i.e., somebody that's an expert on how radiology works inside of a hospital and with referring physicians and with the radiologists themselves, et cetera. So that was kind of a buy of a technology as opposed to, hey, a buy of a business with a lot of revenue and cash flow to get scale, and I would say we are open to doing both in the future.

And what is the plan as far as getting a multiple for your stock as you transition from this liquidating trust to a more growth software company. Is that a five-year plan, is that something you think you can do through a few acquisitions and in your mindset, what is the strategy?

I think it's both. I think we have to execute on acquisitions smartly. I think we have to develop good software. We have to prove to everybody that we can grow that Software business over time and then as that percentage of our consolidated business on the software side grows, then I think you'll start seeing the multiple. Because you're right, the multiple we trade at it is extremely low right now, and that's simply a factor of 75% of our business right now is still the paging or the Wireless business, only about a quarter of our business is the Software business and that really needs to flip-flop over time. We don't give long-term projections.

We typically give at the beginning of the year an outlook for the current year that doesn't include acquisitions. But it's something -- your question is something I am very focused on, our Board and advisors are very focused on. We understand it very clearly and we think there is long-term upside potential in our stock if we execute our business plan well.

And finally, last thing just on the buyback. Give us some granularity on that, is it something you're going to -- is it a program or I mean today, for example, stock's under book value again. So is there a metric you're looking as to when you're going to buy back stock?

Yes, there actually is. We don't disclose our actual grid, a 10b-18 plan, but I would point out that it doesn't go into effect until tomorrow.

Okay.

Unfortunately, it's not in effect right now. Now, I think I said when we were talking earlier, historically we bought back about $50 million worth of stock at an average price of just over $9 a share.

Yes.

The majority of that stock we bought back was in 2008. So we've probably -- you could say $9 a share, but we stopped paying $4 a share of dividends on it, you can see that we've been very opportunistic in buying stock back. It's something that we talk about a lot. My personal view is that most companies screw up share repurchases and they way overpay, you get two years beyond the share repurchase and they way overpay. We've been one of those companies that has actually done it pretty smartly and I don't think we want to change our approach there. So I think we look to be opportunistic, but unfortunately today we can't do a whole lot about it.

Okay. Well, thanks guys. Good quarter.

Thank you.

Thank you.

(Operator Instructions) Keye Chow, Credit Suisse.

Yes. Hi, guys. Congratulations on getting the Amcom business going in the right direction again. And yes, congratulations to Kate and Sean also, and Jim. I guess I just wanted to get a little more color on the turnover at Amcom. Is it just Chris and also has this kind of led to other important departures in the business, particularly in the sales organization? Can you just kind of give us kind of a broader color on -- if it's been more than Chris and then also I guess would love to kind of hear about any sort of potential organizational changes at Amcom?

Okay. Just real quick, Chris Heim, who was the President of Amcom Software, and Dan Mayleben, who was the Chief Operating of Amcom Software both left at the same time and they left together and they left voluntarily.

Okay.

I don't want to speak for them, but they were presented an opportunity outside the Company. I'm aware of it. I didn't ask them could I disclose it. So I'm not going to disclose it. But they left on very friendly basis. Chris was on the Board of Directors. He remains on the Board of Directors. I know Chris. I talk to him on a regular basis. He has been extremely helpful in this transition. We have lost nobody else voluntarily. They have a no-solicit/no-hire that's in effect. So they can't poach employees in their new opportunity.

And also I would tell you that Chris has told me and he's told our Board of Directors he wouldn't do that anyway. So no one else is left. Those two guys went for an opportunity. They are both, if you kind of look at their background and their history, entrepreneurs. They want to take a shot. It's something whether it's internal guarantee they'll be successful. It's a little bit different of a mindset in an approach than someone that works inside of a public company wants to make X amount of money each year going forward and maybe earn a little more if they do a good job. It's a whole different kind of way of looking at business and opportunity.

And I've said to them both, God bless you. I wish you the best of luck. We got a business to run and Kate, Sean and the rest of the team are looking forward to the future. And we haven't changed a thing we're doing. With respect to our approach to the business other than maybe tightening some things up in a few places around here, I think I also mentioned that we engaged Spencer Stuart.

We're doing an executive search right now for the position of President of Amcom Software, so that I can move back home and be with my wife and daughter again one day. And we hope to get that done before the end of the year. I mean it's not going to happen tomorrow in terms of an announcement, but I would hope that we would have that done before the end of the year. So I would say, I'm very bullish on Amcom Software. Nothing has changed as a result of those two guys leaving and again, we all wish Chris and Dan luck in their future endeavors.

Okay. And then just in terms of the business conditions for Amcom, one hand I'd focus on the backlog improving and also the operational revenue improving this past quarter, but then on the other hand you are reducing guidance. So on net, has the business conditions, are they about the same as they were 90 days ago or have they improved a little bit or are they continuing to deteriorate?

I would say that the pipeline, the prospects are just as good, if not better than they have been. We had a couple of deals quite frankly particularly on the international side that we really thought we were going to get in the second quarter and they didn't get cancelled, they got pushed off. And then we have some deals on the international side that just plain old got cancelled due to budgetary issues going on particularly in Europe, Australia and some other places that we really had been counting on.

I would say that from a pipeline perspective, the consolidated pipeline, is that big or bigger than it was 90 days ago, but I would say the general business environment like I was saying early in some of my comments, the volume of business or the ability of CIOs to pull the trigger or the desire to test slow. There's just no question about it, people are cautious. I mean we put in the one big teaching hospital finally last quarter and they delayed, delayed, delayed, delayed and then the only thing that really got them pull the trigger is they wanted an implementation date by a date certain and we said look, you delay much longer, we're not going to be able to have this installed and up and working by your deadline, so then they finally pulled the trigger.

So there's just a lot of that going on. People are just cautious. It's a crazy year. It's an election year. Everybody is just kind of waiting to see what happens and whoever gets selected, I don't care, but I will be delighted, because I will be delighted when we put 2012 behind us and everybody can just start moving forward again without kind of worrying about what taxes are going to be, what the overall economy is going to be, what the Fed is going to do. I mean, if things have just slowed down right now, people are kind of holding their breath. So I would say the business environment has deteriorated unfortunately, but the prospects for the Company have not, it's just slowed.

Okay, thank you. Yes, thank you also, Vince, for moving to Minneapolis.

Okay, it's summertime, right? Not (inaudible).

Okay, thanks.

Okay. Thank you. Okay, that seems to be it for our questions. I want to thank everyone for joining us today. We look forward to speaking with you again after we release our third quarter results in 90 days. Everyone have a great day and thank you very much.

That does conclude today's conference. We thank you for your participation.