Good morning, and welcome to USA Mobility's First Quarter Investor Call. Today's call is being recorded. Online today, we have Vince Kelly, President and Chief Executive Officer; Shawn Endsley, Chief Financial Officer; Chris Heim, President of the company's Software Subsidiary, Amcom; and Dan Mayleben, Chief Operating Officer of Amcom. At this time, for opening comments, I will turn the call over to Mr. Kelly. Please go ahead.

Good morning. Thank you for joining us for our First 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 first quarter Form 10-Q, which expect to file later today, 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. I want to begin this morning by highlighting what we believe was another quarter of substantial achievement and steady progress for USA Mobility. On a consolidated basis, we reported solid performance combining both of our major lines of business. On the wireless side, we again ended the quarter ahead of our key operating goals for total revenue, operating cash flow, average revenue per unit, or ARPU, and operating expenses. In addition, our wireless sales force continued to meet or exceed the company's plan for subscribers, including gross additions and net churn. At the same time, our software…

Thanks, Vince, and good morning. Before I review our operating and financial results, as Vince mentioned, we expect to file our first quarter Form 10-Q later today. Given the various adjustments that resulted from our acquisition of Amcom in the first quarter of 2011, I encourage you to review the Form 10-Q for all year-over-year data comparisons, as well as all other aspects of our business operations and financial performance. As Vince noted, we are pleased with our first quarter financial results, which were in line with previously announced financial guidance for both our wireless and software businesses. Lower 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, despite lower than expected bookings, reported a higher backlog 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 1,617,000 units in service, a net decrease of 51,000 units compared to a decline of 60,000 units in the first quarter of 2011. The quarterly rate of subscriber loss improved to 3% from 3.2% in the year-earlier quarter. While our annual rate of net unit loss improved to 11.5% from 12.9% a year ago, reaching its best level in more than 7 years. Gross placements for wireless totaled 45,000 units in the first quarter, compared to 51,000 units in the first quarter of 2011. While gross disconnects declined to 96,000 units from 112,000 units in the year-earlier quarter. As a result, the disconnect rate improved to 5.8% in the first quarter from 6% in the year-earlier quarter. Healthcare continued to be our most stable market segment,…

comment briefly on a few other items that may be of interest. First, I will provide a quick update on some of our sales and marketing activities in the first quarter. Second, I will comment on business development activity in our software subsidiary. Third, I'll briefly review our current capital allocation strategy. And finally, I'll comment on our upcoming annual meeting of stockholders and plans to host an informal meeting for financial analysts immediately following our stockholders meeting. With respect to sales and marketing activities, both our wireless and software businesses continued to aggressively pursue new business opportunities during the first quarter. On the wireless side, we continued 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 March 31, compared to 89% a year ago. They also accounted for approximately 86% of our direct paging revenue in the first quarter, compared to 84% in the year-earlier quarter. During the quarter, our wireless team continued to focus on its 4 primary goals: Develop new account relationships, expand business within existing accounts, retain our most valuable customers especially within healthcare, and generate sales opportunities for our software sales team. As a result of these efforts, our wireless sales group met or exceeded expectations for subscribers, gross additions, retention and revenue for the quarter, with our healthcare segment once again contributing the highest number of gross placements and fewest number of disconnects. We believe continued strong demand for wireless products among healthcare subscribers can be attributed in part to our acquisition of Amcom Software due to its extensive presence and positive reputation throughout the healthcare industry. Our wireless team also made significant progress in developing new accounts, as well as expanding business within existing…

[Operator Instructions] And we'll take our first question from Brent Morrison from Strome Group.

Looking at the software business. When you guys acquired it, about a little over a year ago, it looked a little bit more profitable that it is now, I think about $11 million in EBITDA. And I think the last couple quarters, it's been flat or EBITDA breakeven, or maybe $1.5 million. Have you guys made additional investments since you acquired Amcom?

Absolutely. We have expanded both the research and development spend and we're also in the process of expanding the sales and marketing spend. Amcom was running at a higher margin than it's running at now. When it was a stand-alone company, it had bank covenants, it had a number of things to do which we think were holding it back from being able to create higher top line growth over the long term, specifically in the areas of the applications and new products that we'd like to roll out in terms of the timing of that rollout schedule. So yes, for 2012, we had increased the spend. But I'm talking about in total, maybe an extra $1 million for the year in research and development, and probably depending on when we get some more traction and some of these sales hires, maybe another $1 million this year in selling and marketing, which could grow to maybe at most another $2 million in next year's budget from the historical kind of forecast that we had for the business. So yes, we have increased the spend and that's why you're seeing that.

Okay. Because we're talking about $10 million, right? In additional costs since you've acquired it?

I don't think so.

No -- yes, maybe about $5 million. Sorry, let me scratch that. So I see you guys have hired about 15 people at Amcom year-to-date?

Yes. Dan, did you want to take that?

Yes, that's correct.

Okay. And I was curious, is that sprinkled across R&D, sales and marketing? Or is that heavy in one side, and then you're going to additionally add to sales and marketing going forward? Is that what you're kind of giving us, too?

Yes, this is Chris. Most of those hires have been in R&D initially, as we came out with some of these new products. The next phase will be heavier in the sales and marketing side.

Okay. And then just my last question would be regarding this new acquisition at Amcom, now it looked like it's a pretty small bolt-on-type acquisition. What are the -- when you guys did your analysis on -- before making the acquisition, what do you think you can -- is that a cross-selling? Or is that, that's going to get people off the fence and sign contracts to add this functionality? What's the thesis there?

Chris, you want to take that?

Yes. I think there's a number of factors that drove us to make this particular acquisition. As we had talked to our sales team and our customers, they're both asking for this type of solution. And I think it also jives very well with our mobile strategy and reinforces that. So this is -- becomes another clinical feed into our Amcom mobile connect product which is a closed-loop Smartphone messaging application. And then finally, this is a hot area for investment. The joint commission has identified Critical Test Results as the #2 patient-safety goal for the last year, and prior years as well. So a number of factors kind of came together to force this Critical Test Results really to the top of the list.

We'll take our next question from Jim Altschul with Aviation Advisory Service.

First of all, when I became a stockholder a few years ago, all of the distributions qualified as return of capital, and I believe it was integrated to your earnings and profits position, and now a substantial portion of the distributions are deemed to be ordinary dividend. Why the change and what do you anticipate the breakdown or the order treatment will be for this year and next? Or is that something you're not able to forecast at this time?

Yes, this is Shawn Endsley. Basically, the determination as to whether or not a distribution is return of capital earning or a regular dividend distribution is based upon the earnings and profits calculation. This year, we anticipate that all of the dividend will be a taxable dividend, and we perceive that to be the case going forward. We don't anticipate that we will have any return of capital either in 2012 or 2013.

Now, why the change?

Basically, based upon the IRS determinations with respect to how you calculate earnings and profits, we have basically positive earnings and profits for 2012, and we expect that in 2013. It's different than the calculation for purposes of taxable income, for use on your income tax return.

Okay. And if I may slip in another question on a completely different subject. If I remember correctly, your second #2 market after healthcare was government, particularly, First Responders, and you haven't talked about that [Audio Gap] that segment of your business for the wireless?

The trends are not nearly as good as they are in healthcare. We're just seeing a lot of state and local governments continuing to reduce headcount and that's impacting us in terms of our business on the wireless side in that segment in particular, but it also impacts us on the software side too, so it certainly has slowed down. We've put a schedule out that goes with our press release, and if you kind of look at -- in the back of those schedules, there's one that talks about supplemental information by market segment. And you can kind of see how the gross disconnect rate has trended by segment. And you can see healthcare, government, large enterprise. But I mean, it's not getting any better in government. Let's put it that way. And I don't know when to expect, quite frankly, that trend to change. I don't think it gets a ton worse, but I don't see a lot of growth in government jobs anytime soon.

We'll take our next question from Mark Phelan [ph] with M22 Capital.

Wonder if you could kind of breakdown in more granularity, your software sales that are not maintenance. So like if you could kind of give me -- you guys quote often the $130,000 average ticket price for new sales, then you also kind of quote in the past, like a $60,000 add-on sale average ticket price. If you can kind of break that down into, I guess, the number of products of your suite that you sell within each [Audio Gap] so some sort of granularity so I can kind of estimate what your actual market is going forward? I'd appreciate it.

Okay, we don't disclose a lot of that information the way you're asking for it in our regular filings, but [Audio Gap] idea of what those typical sales look like and how they break down.

So on a typical -- to break down the $130,000 to $135,000, that deal would look like about $70,000 of software, about $40,000 of professional services, about $10,000 in hardware or equipment and then about $15,000 and $14,000 in ongoing maintenance and support.

Okay. And then can you -- when you make a new sale, the suite of products you have, does that include -- on average what does that include? And obviously, I would assume that doesn't include -- I mean, I think you guys have 6 to 8 products, maybe more. Does that include 3 or 4 of them or on average, what does that entail? If you could just give me some anecdotal, kind of [indiscernible].

Yes, our initial sale probably consists of about 3 modules and then we try to add additional modules back every year.

Okay. And then when you make those additional module sales, so that's not maintenance, that's sort of accounted for as new sales? Is that right?

Yes, that is accounted for as additional software sales. That is not included in maintenance.

Okay. And then given your specific target industry, is there one product that really dominates versus your other suite of products, per se, healthcare versus -- or for healthcare or say, for hospitality? Can you kind of give us some trends as to where -- what I'm looking for is just kind of uptake on your individual products and what your customers are saying and what are some things you can give me to have confidence that you're going to have growth in the future?

Vince, you want us to take that?

Yes, go ahead.

We're seeing a great growth in middleware which is the ability to connect inputs in -- from clinical systems to wireless devices. We're also seeing great growth in the mobile products which is a relatively new product for us. So Smartphone messaging and -- which is really kind of morphing into a Smartphone communications platform, and we've got some new developments coming up on that as well. We also have the 2 new products which we're very optimistic about, and also this new acquisition. So we think there's plenty of growth drivers. We're also seeing some nice growth in the Middle East as well, and expect to close some large deals there this year.

Got it. One last question, if you don't mind. Can you kind of tell me, when you approach a customer, what's your primary value proposition to them in terms of what your product can add? Is it, it makes things more efficient or cuts costs? In your website, you have a bunch of examples where you cut call center costs for hospitals. Can you kind of give me some, again, maybe some anecdotal evidence, or some granularity on that?

Yes, I think -- we really instruct our salesmen to discover the needs of our customers and then try to address those needs. But there's really kind of a 2-phase approach. Number one is increased efficiency, which can result in cost but it also can result in caregiver efficiency. And then the second is enhanced patient safety or enhanced patient satisfaction. So if you look at communication, it's absolutely critical to effective patient safety and to patient satisfaction. So a lot of our solutions do a great deal to enhance both those measures.

Got it. And then last question, in terms of the healthcare market, it's a hot market. Have you guys seen increased demand, or I should say increased interest in your products? Or do you feel like there's some fiscal restraints given the overall economy, that's maybe holding you back from getting the sales that you guys thought you'd get when you initially started with the United States Mobility?

Let me start with this one, because one of the things that we're still seeing and there's still some residual, and I'm not sure how much longer this goes on and you might talk about this, too, Chris. But there's a big push for these hospitals to get more efficient, get rid of their paper records and get this electronic medical records project done. And all these kind of software buys are CapEx buys, and they go into annual budget cycles. And a lot of these hospitals are still struggling with that project, quite frankly, and they're still working on doing that. And that's sucking up a lot of the resources that would otherwise be available for some of our middleware and some of our other products and services. It's not across the board, some hospitals are way down the path and they're wrapping the project up. Others are still struggling with it. So we've found that going on a little bit. And I think there's some general uncertainty out there because when we review our pipelines and we get with our sales managers and we look at our sales reps, and we see what they have in the hopper, and we had some great deals in the first quarter that we thought we're going to close in the first quarter, and those deals haven't gone away, they're just -- the customer seemed to be moving slower. And I don't know if it's just the EMR issue, or if it's just the overall economy, but they're moving slower with their CapEx budgets than we thought they would. However, they're still planning and they're still going forward. It's just a question of the speed with which they're doing that. Chris, is there anything you want add to that?

I think that's perfectly said.

Do you guys notice -- your software kind of overextends into other product areas. I mean, is there any chance that maybe a competitor that you hadn't seen before, maybe a better one, is encroaching on your market? Or you just think that it's kind of more of the reasons you just stated?

Well, I think it's more of the reasons I just stated. One of the things where we actually benefit, and I don't -- I guess we haven't talked about this in a while, but Amcom Software solutions work very well with a lot of other software products and services. So if you're a very big hospital and you've got 17 different systems in your hospital, and you want to add one or 2 pieces of middleware to have increased functionality and make those other systems communicate better, you can come to Amcom. Amcom acts like Switzerland, and we can solve your problem. You can't necessarily go to McKesson or go to some of these other big companies and do that, because they want to sell, if you can imagine, or GE, they want to sell their whole solutions and they're not willing to open up as much as we are and be the Switzerland to connect the spare products and services. So I don't see that as much of the issue as I do what we were talking about just a couple of minutes ago. I mean, Chris?

Totally agree with you, Vince.

[Operator Instructions] [Audio Gap] Suisse.

I wanted to focus my questions on the Ancom business, too. I mean, we've owned this business for 4.5 quarters now, and when I look at the results, year-on-year, the pro forma revenue sort of apples-to-apples, is down. And more, I guess, more disturbingly, the product revenue is not growing, and it actually has been declining since the second quarter of last year. And what's -- I mean, can you kind of decide big deals getting pushed out or other issues? What's going on in terms of these -- the close rates; are there issues in the sales force in terms of turnover or need for different skill sets? I'm just really kind of curious as to when you guys look at these numbers that you're showing to us, this is a business that we kind of expected would grow product revenue, year-on-year, and it's going the other direction. Our maintenance is doing great. So I just really wanted to kind of maybe have a frank discussion about that.

Yes, well first of all, Kee [ph], let me just say right up front and make it very clear to everybody, we [Audio Gap] results to be better and we still expect the results to improve. Now, this is a business that has a 99.6%, at least in the first quarter, that was the renewal rate on our maintenance. So it means that the applications are very sticky. There's nothing wrong with the applications. The customers love them, once they get them in there. I've met with some of the customers. We have an annual conference, which I would encourage you to come to this year and see some of the applications and solutions yourself, and meet with some of these people and these customers. We're going to do it then in Orlando in November. But it's a great company. It's great software. I think one of the things that's happened is the conversation we had a couple minutes ago about the cycle being pushed out, we're disappointed in that. I also think, frankly, we have under-invested in our sales force. It's a conservative company. It's been a conservative management team. It was running kind of a different mentality than just a pure growth mentality. It was generating very good cash flow margins. And I'd rather have less cash flow margins and better growth, but we're clearly in a transition time. I've clearly been spending most of my time on this particular issue over the last couple quarters. And I can tell you right now, that's our focus. And we're going to fix it, and the company's going to do better. It's that simple. Chris, do you want to add anything to that?

No, I think that's well said. We do have a tough comparison in that we booked a very large order Q1 last year. If you remove that, as Shawn said, from our Q1 bookings, our bookings were up 18% year-over-year, in terms of product bookings and that shipped in Q2 of last year. So we are very optimistic about the business. We just need better results.

And I want to also say, Kee [ph], I mean, I don't want to make excuses, and we're not making excuses. We are not satisfied with our performance in this segment, and we're going to do better. That's our plan, and we're going to focus on that and make it happen.

Okay. I would just like -- so as you explained very well that the purchasing environment has gotten more difficult over the last few quarters. And based on what you guys have said in terms of the pipeline, the bookings have been okay. The pipeline, you said, has continued to grow and has benefited from the cross-selling. So it seems to me like just being an outsider looking in, that there's some issue with close rates, and that there is -- and I'm just kind of curious as to whether there's issues going on in the sales force? Has there been turnover? Has there been issues that you can share with us as to why, besides the customer sort of slowness to close deals, why deals are not closing?

I don't think there's a whole lot we can add to what we already said. There's not been a lot of turnover in the sales force. We're going to be adding to sales. And folks that don't sell, they're not going to be making any money, so they may end up leaving just because they're not making any money. We'll bring better ones in, if that's the case. I don't anticipate that because I think really, a lot of these things have been pushed out. And I've had what you don't have, which is the good fortune to be able to put eyeballs on these prospective leads and look at these contracts that almost closed in the first quarter and then got pushed out. But you know what, we're not satisfied with the results. We'll continue to focus on it until they get better.

And we have no further questions. So I'd like to turn the conference back over to Vince Kelly for any additional or closing remarks.

Okay. Look, everyone, thank you very much. We look forward to seeing you and talking to some of you at our upcoming annual shareholders meeting and talking to you again next quarter when we talk about our second quarter results. Everyone, have a fantastic day and we'll talk to you again soon.

Again, this does conclude today's conference. We thank you all for your participation.