Spok Holdings, Inc - Quarter Report: 2013 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-32358

USA MOBILITY, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

16-1694797

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


6850 Versar Center, Suite 420
Springfield, Virginia		22151-4148
(Address of principal executive offices)		(Zip Code)

(800) 611-8488

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

21,646,075 shares of the registrant’s common stock ($0.0001 par value per share) were outstanding as of July 26, 2013.

USA MOBILITY, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX


			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012		2
		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and 2012 (Unaudited)		3
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012 (Unaudited)		4
		Unaudited Notes to Condensed Consolidated Financial Statements		5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Statements of Income		18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43
	Item 4.	Controls and Procedures		43
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings		44
	Item 1A	Risk Factors		44
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		45
	Item 5.	Other Information		45
	Item 6.	Exhibits		46
Signatures

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

USA MOBILITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2013		December 31, 2012
	(In thousands)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	72,029	$	61,046
Accounts receivable, net		17,935		21,580
Prepaid expenses and other		6,714		5,836
Inventory		2,641		3,257
Escrow receivables		—		275
Deferred income tax assets, net		4,581		3,915

Total current assets		103,900		95,909
Property and equipment, net		21,150		20,809
Goodwill		133,031		133,031
Other intangible assets, net		27,836		30,333
Deferred income tax assets, net		31,838		41,239
Other assets		1,169		1,306

TOTAL ASSETS	$	318,924	$	322,627

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	10,530	$	12,659
Accrued compensation and benefits		12,368		17,806
Consideration payable		—		275
Deferred revenue		26,047		29,986

Total current liabilities		48,945		60,726
Deferred revenue		544		693
Other long-term liabilities		9,515		9,789

TOTAL LIABILITIES		59,004		71,208

Commitments and contingencies
Stockholders’ equity:
Preferred stock		—		—
Common stock		2		2
Additional paid-in capital		125,500		125,212
Retained earnings		134,418		126,205

TOTAL STOCKHOLDERS’ EQUITY		259,920		251,419

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	318,924	$	322,627

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

USA MOBILITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited and in thousands except share and per share amounts)
Revenues:
Service, rental and maintenance, net of service credits	$	36,370	$	41,114	$	73,777	$	83,592
Software revenue and other		15,898		14,847		31,621		29,104

Total revenues		52,268		55,961		105,398		112,696


Operating expenses:
Cost of revenue		5,485		5,216		10,668		10,032
Service, rental and maintenance		12,822		13,892		25,854		28,195
Selling and marketing		6,347		5,919		12,563		11,572
General and administrative		11,885		12,494		25,037		25,663
Severance and restructuring		2		24		2		46
Depreciation, amortization and accretion		3,822		4,606		7,629		9,121

Total operating expenses		40,363		42,151		81,753		84,629

Operating income		11,905		13,810		23,645		28,067
Interest expense, net		(64)		(66)		(128)		(254)
Other (expense) income, net		(75)		436		6		374

Income before income tax expense		11,766		14,180		23,523		28,187
Income tax expense		(4,938)		(5,733)		(9,770)		(11,279)

Net income	$	6,828	$	8,447	$	13,753	$	16,908

Basic net income per common share	$	0.32	$	0.38	$	0.63	$	0.76

Diluted net income per common share	$	0.31	$	0.37	$	0.63	$	0.75

Basic weighted average common shares outstanding		21,644,281		22,130,397		21,666,096		22,118,470

Diluted weighted average common shares outstanding		21,827,149		22,613,517		21,921,742		22,601,603

Cash dividends declared per common share	$	0.125	$	0.25	$	0.25	$	0.50

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

USA MOBILITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Six Months Ended June 30,
	2013		2012
	(Unaudited and in thousands)
Cash flows from operating activities:
Net income	$	13,753	$	16,908
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		7,629		9,121
Amortization of deferred financing costs		129		129
Deferred income tax expense		8,849		10,728
Amortization of stock based compensation		1,254		442
Provision for doubtful accounts, service credits and other		833		780
Adjustment of non-cash transaction taxes		(251)		(243)
Loss/(Gain) on disposals of property and equipment		167		(146)
Changes in assets and liabilities:
Accounts receivable		2,812		(876)
Prepaid expenses and other assets		(367)		161
Accounts payable and accrued liabilities		(7,578)		(3,160)
Deferred revenue		(4,088)		(85)

Net cash provided by operating activities		23,142		33,759

Cash flows from investing activities:
Purchase of property and equipment		(5,268)		(4,439)
Proceeds from disposals of property and equipment		9		318
Acquisitions, net of cash acquired		—		(3,000)

Net cash used in investing activities		(5,259)		(7,121)

Cash flows from financing activities:
Repayment of debt		—		(28,250)
Cash dividends to stockholders		(6,900)		(11,075)

Net cash used in financing activities		(6,900)		(39,325)

Net increase/(decrease) in cash and cash equivalents		10,983		(12,687)
Cash and cash equivalents, beginning of period		61,046		53,655

Cash and cash equivalents, end of period	$	72,029	$	40,968

Supplemental disclosure:
Interest paid	$	6	$	283

Income taxes paid	$	831	$	936

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Business — USA Mobility, Inc. and subsidiaries (“USA Mobility” or the “Company”), through its indirect wholly-owned subsidiary, USA Mobility Wireless, Inc. (“wireless operations”) is a leading provider of wireless messaging, mobile voice and data and unified communications solutions in the United States. We provide one-way and two-way messaging services. One-way messaging consists of numeric and alphanumeric messaging services. Numeric messaging services enable subscribers to receive messages that are composed entirely of numbers, such as a phone number, while alphanumeric messages may include numbers and letters which enable subscribers to receive text messages. Two-way messaging services enable subscribers to send and receive messages to and from other wireless messaging devices, including pagers, personal digital assistants and personal computers. We also offer voice mail, personalized greeting, message storage and retrieval and equipment loss and/or maintenance protection to both one-way and two-way messaging subscribers. These services are commonly referred to as wireless messaging and information services.

In addition, the Company, through its indirect wholly-owned subsidiary, Amcom Software, Inc. (“Amcom” or “software operations”), provides mission critical unified communications solutions for contact centers, emergency management, mobile event notification and Smartphone messaging. The combined product offering is capable of addressing a customer’s mission critical communication needs. Amcom delivers software solutions, which enable seamless, critical communications. Amcom’s unified communications suite (includes solutions for contact centers, emergency management, mobile event notification, and messaging) connects people across a changing complement of communication devices.

(2) Preparation of Interim Financial Statements — Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Amounts shown on the condensed consolidated statements of income within the operating expense categories of cost of products sold; service, rental and maintenance; selling and marketing; and general and administrative are recorded exclusive of severance and restructuring costs, depreciation, amortization and accretion. These items are shown separately on the condensed consolidated statements of income within operating expenses. Foreign currency translation adjustments were deemed immaterial and consequently no statements of comprehensive income are presented.

The financial information included herein, other than the condensed consolidated balance sheet as of December 31, 2012, is unaudited. The condensed consolidated balance sheet at December 31, 2012 has been derived from, but does not include all the disclosures contained in the audited consolidated financial statements for the year ended December 31, 2012. In management’s opinion, our unaudited condensed consolidated statements include all adjustments and accruals that are necessary for a fair presentation of the results of all interim periods reported herein.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in USA Mobility’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Annual Report”). The condensed consolidated statements of income for the interim periods presented are not necessarily indicative of the results that may be expected for a full year.

The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly owned direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of these condensed consolidated financial statements requires management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions.

(3) Risks and Other Important Factors — See “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q (“Quarterly Report”) and the 2012 Annual Report, which describes key risks associated with our operations and industry.

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(4) Recent and New Accounting Pronouncements — Accounting pronouncements issued or effective during the six months ended June 30, 2013 were not applicable to us and are not anticipated to have an effect on our financial position or statement of income.

(5) Prepaid Expenses and Other — Prepaid expenses and other consisted of the following for the periods stated:


	June 30, 2013		December 31, 2012
	(Dollars in thousands)
Other receivables	$	819	$	864
Tax receivables		158		429
Deposits		57		64
Prepaid insurance		398		551
Prepaid rent		181		297
Prepaid repairs and maintenance		762		698
Prepaid taxes		855		508
Prepaid commissions		2,495		1,510
Prepaid inventory		383		278
Prepaid expenses		577		605
Prepaid royalty		29		32

Total prepaid expenses and other	$	6,714	$	5,836

Prepaid commissions increased by $1.0 million during the six months ended June 30, 2013 due to a change in our commissions plan for the software operations which allows for advanced commission payments.

(6) Inventory — Inventory of $2.6 million and $3.3 million at June 30, 2013 and December 31, 2012, respectively, consisted of third party hardware and software held for resale. We use the first in, first out cost method.

(7) Depreciation, Amortization and Accretion — The total depreciation, amortization and accretion expenses related primarily to property and equipment, amortizable intangible assets, and asset retirement obligations for the three months ended June 30, 2013 and 2012 were $2.4 million and $2.9 million, respectively, and for the six months ended June 30, 2013 and 2012 were $4.8 million and $5.7 million, respectively, for wireless operations; and $1.4 million and $1.7 million for the three months ended June 30, 2013 and 2012, respectively, and $2.8 million and $3.4 million for the six months ended June 30, 2013 and 2012, respectively, for software operations. The consolidated balances consisted of the following for the periods stated:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(Dollars in thousands)
Depreciation	$	2,405	$	2,813	$	4,827	$	5,598
Amortization		1,252		1,607		2,497		3,153
Accretion		165		186		305		370

Total depreciation, amortization and accretion	$	3,822	$	4,606	$	7,629	$	9,121

(8) Goodwill and Amortizable Intangible Assets — Goodwill at June 30, 2013 and December 31, 2012 was $133.0 million, which is all attributed to our software operations. Goodwill is not amortized but is evaluated for impairment at least annually, or when events or circumstances suggest a potential impairment has occurred. We have selected the fourth quarter to perform this annual impairment test. GAAP requires the comparison of the fair

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

value of the reporting unit to the carrying amount to determine if there is potential impairment. For this determination, all of our goodwill has been assigned to our software segment, which is also deemed to be the reporting unit. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying value. If the reporting unit’s fair value is less than the carrying amount of the reporting unit, we perform the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. The amount, by which the implied fair value is less than the carrying value of the goodwill, if any, is recognized as an impairment loss. The fair value of the reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. There were no indicators of impairment for the six months ended June 30, 2013.

Amortizable intangible asset for wireless operations consists of a non-compete agreement with a former executive which is being amortized over a three year period. Amortizable intangible assets for software operations include customer related intangibles, technology based intangibles, contract based intangibles and marketing intangibles and resulted from our acquisition of Amcom in 2011 and IMCO Technologies Corporation (“IMCO”) in 2012. Such intangibles are being amortized over periods ranging from two to fifteen years.

The gross carrying amount of amortizable intangible assets was $41.9 million at June 30, 2013 and the accumulated amortization was $14.1 million. The net consolidated balance of amortizable intangible assets consisted of the following:


		June 30, 2013
	Useful Life (In Years)	Gross Carrying Amount		Accumulated Amortization		Net Balance
		(Dollars in thousands)
Customer relationships	10	$	25,002	$	(5,834)	$	19,168
Acquired technology	2 - 4		8,452		(4,928)		3,524
Non-compete agreements	3 - 5		2,800		(2,471)		329
Trademarks	15		5,702		(887)		4,815

Total amortizable intangible assets		$	41,956	$	(14,120)	$	27,836

Estimated amortization of intangible assets for future periods was as follows:


	(Dollars in thousands)
For the remaining six months ending December 31, 2013	$	2,469
For the year ending December 31:
2014		4,866
2015		3,588
2016		3,013
2017		2,880
Thereafter		11,020

Total amortizable intangible assets	$	27,836

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(9) Other Assets — Other assets were as follows for the periods stated:


	June 30, 2013		December 31, 2012
	(Dollars in thousands)
Deferred financing costs	$	585	$	714
Deposits		309		318
Prepaid royalty		140		140
Other assets		135		134

Total other assets	$	1,169	$	1,306

(10) Accounts Payable and Accrued Liabilities — Accounts payable and accrued liabilities were as follows for the periods stated:


	June 30, 2013		December 31, 2012
	(Dollars in thousands)
Accounts payable	$	1,665	$	2,205
Accrued network costs		1,575		1,388
Accrued taxes		4,149		4,171
Asset retirement obligations		528		379
Accrued outside services		973		869
Accrued accounting and legal		443		653
Accrued recognition awards		151		294
Accrued other		699		852
Deferred rent		77		88
Escheat liability		25		78
Lease incentive		132		87
Dividends payable for LTIP and to Board of Directors		6		1,484
Royalty payable		107		111

Total accounts payable and accrued liabilities	$	10,530	$	12,659

Accrued taxes are based on our estimate of outstanding state and local taxes. This balance may be adjusted in the future as we settle with various taxing jurisdictions. The issuance of common stock for vested restricted stock units (“RSUs”) awarded under the 2009 Long-term Incentive Plan (“LTIP”) was made on April 19, 2013 and the accumulated dividends earned on the RSUs of $1.5 million as of December 31, 2012 included above in “Dividends payable for LTIP and to Board of Directors” were paid on April 26, 2013.

(11) Asset Retirement Obligations — We recognize liabilities and corresponding assets for future obligations associated with the retirement of assets. We have paging equipment assets, principally transmitters, which are located on leased locations. The underlying leases generally require the removal of equipment at the end of the lease term; therefore, a future obligation exists.

At January 1, 2013, we had recognized cumulative asset retirement costs of $1.7 million. During the six months ended June 30, 2013, we recorded an increase of $0.1 million in asset retirement costs for a total of $1.8 million at June 30, 2013. The asset retirement cost additions during the six months ended June 30, 2013 increased paging equipment assets and are being depreciated over the related estimated lives of 54 to 57 months. The asset retirement costs and the corresponding liabilities that have been recorded to date generally relate to either current plans to consolidate networks or to the removal of assets at an estimated future terminal date.

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of the changes in the asset retirement obligation liabilities were:


	Short-Term Portion		Long-Term Portion		Total
	(Dollars in thousands)
Balance at January 1, 2013	$	379	$	7,557	$	7,936
Accretion		(56)		338		282	⁽¹⁾
Additions		—		75		75
Reclassifications		417		(417)		—
Amounts paid		(212)		—		(212)

Balance at June 30, 2013	$	528	$	7,553	$	8,081

⁽¹⁾	Difference in accretion is due to accretion on the IMCO royalty payable.

The balances above were included with accounts payable and accrued liabilities and other long-term liabilities, respectively, at June 30, 2013.

(12) Deferred Revenue — Deferred revenue on a consolidated basis at June 30, 2013 was $26.0 million for the current portion and $0.5 million for the non-current portion. Deferred revenue at June 30, 2013 primarily consisted of unearned maintenance, software license and professional services revenue and customer deposits for installation services related to our software operations. Unearned maintenance revenue represented a contractual liability to provide maintenance support over a defined period of time for which payment has generally been received. Unearned software license and professional services revenue represented a contractual liability to provide professional services more substantive than post contract support. At June 30, 2013, we had received $4.1 million in customer deposits for future installation services. We will recognize revenue when the service or software is delivered and all other revenue recognition criteria have been satisfied.

(13) Long-Term Debt — On November 8, 2011, we executed the First Amendment to our Amended and Restated Credit Agreement (“Amended Credit Agreement”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”). The Amended Credit Agreement increased the amount of the revolving credit facility to $40.0 million. The maturity date for the revolving credit facility is September 3, 2015. We may make a London Interbank Offered Rate (“LIBOR”) election for any amount of our debt for a period of one, two or three months at a time; however, we may not have more than five individual LIBOR loans in effect at any given time. We may only exercise the LIBOR rate election for an amount of at least $1.0 million.

Borrowings under this facility are secured by a lien on substantially all of our existing assets, interests in assets and proceeds owned or acquired by us. We had no outstanding borrowings under this revolving credit facility as of June 30, 2013.

We are exposed to changes in interest rates should we have borrowings under the revolving credit facility. The floating interest rate debt exposes us to interest rate risk, with the primary interest rate exposure resulting from changes in LIBOR.

We are subject to certain financial covenants on a quarterly basis under the terms of the Amended Credit Agreement. These financial covenants consist of a leverage ratio and a fixed charge coverage ratio. We were in compliance with all of the required financial covenants as of June 30, 2013.

We have also established control agreements with the financial institutions that maintain our cash and investment accounts. These agreements permit Wells Fargo to exercise control over our cash and investment accounts should we default under provisions of the Amended Credit Agreement. We are not in default under the Amended Credit Agreement and do not anticipate that Wells Fargo would need to exercise its rights under these control agreements during the term of the Amended Credit Agreement.

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(14) Other Long-Term Liabilities — Other long-term liabilities consisted of the following for the periods stated:


	June 30, 2013		December 31, 2012
	(Dollars in thousands)
Asset retirement obligations	$	7,553	$	7,557
Dividends payable — 2011 LTIP		307		186
Escheat liability		651		926
Capital lease payable		31		53
Lease incentive		261		332
Deferred rent		300		341
Royalty payable		412		394

Total other long-term liabilities	$	9,515	$	9,789

(15) Stockholders’ Equity — Our authorized capital stock consists of 75 million shares of common stock, par value $0.0001 per share, and 25 million shares of preferred stock, par value $0.0001 per share.

Changes in Stockholders’ Equity. Changes in stockholders’ equity for the six months ended June 30, 2013 consisted of:


	(Dollars in thousands)
Balance at January 1, 2013	$	251,419
Net income for the six months ended June 30, 2013		13,753
Cash dividends declared		(5,545)
Amortization of stock based compensation		1,254
Issued, purchased, retired common stock, and other		(961)

Balance at June 30, 2013	$	259,920

General. At June 30, 2013 and December 31, 2012, there were 21,644,658 and 21,701,353 shares of common stock outstanding, respectively, and no shares of preferred stock outstanding.

At June 30, 2013 and 2012, we had no stock options outstanding.

The following table summarizes the activities under the 2012 Equity Plan from inception through June 30, 2013:


	Activity
Total equity securities available at May 16, 2012		2,194,986
Add: 2011 LTIP RSUs forfeited by eligible employees		104,075
Less: 2011 LTIP RSUs awarded to eligible employees
Wireless operations		(253,739)
Software operations		(146,867)
Less: Restricted stock awarded to non-executive members of the Board of Directors		(19,409)
Less: Short-Term Incentive Plan (“STIP”) common stock awarded to an eligible employee		(41,702)

Total equity securities available at June 30, 2013		1,837,344

2009 LTIP. On December 31, 2012, the cash and equity awards under the 2009 LTIP vested when the pre-established performance goals were achieved. After the filing of the 2012 Annual Report, the Company converted 258,730 RSUs into shares of common stock under the 2004 Equity Plan on April 19, 2013 and paid $1.5 million in accumulated cash dividends earned on the RSUs to the eligible employees on April 26, 2013. The

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cash awards totaling $3.0 million under the 2009 LTIP were also paid to the eligible employees on April 26, 2013. These amounts were reflected in accounts payable and accrued liabilities and accrued compensation and benefits, respectively, as of December 31, 2012.

2011 LTIP. During the first quarter of 2013, our Board of Directors awarded 20,676 RSUs to eligible employees in the software operations, partially offset by 2,781 RSUs forfeited by a former employee in the software operations. During the second quarter of 2013, our Board of Directors awarded 3,518 RSUs to an eligible employee in the software operations. The Board of Directors granted these RSUs under the 2012 Equity Plan pursuant to a Restricted Stock Agreement. At June 30, 2013, 254,379 RSUs were outstanding for the software operations.

On January 22, 2013 (the grant date) and effective for January 1, 2013, our Board of Directors awarded 253,739 RSUs to eligible employees in the wireless operations under the 2011 LTIP. The Board of Directors granted these RSUs under the 2012 Equity Plan pursuant to a Restricted Stock Agreement.

The following table details activities with respect to outstanding RSUs under the 2011 LTIP for the three months ended June 30, 2013:


	Shares		Weighted- Average Grant Date Fair Value		Total Unrecognized Compensation Cost (net of estimated forfeitures) (In thousands)		Weighted-Average Period Over Which Cost is Expected to be Recognized (In months)
Non-vested RSUs at April 1, 2013		504,600	$	11.21
Granted		3,518		13.70
Vested		—		—
Forfeited		—		—

Non-vested RSUs at June 30, 2013		508,118	$	11.23	$	3,437		18

Board of Directors Equity Compensation. On August 1, 2007, for periods of service beginning on July 1, 2007, our Board of Directors approved that, in lieu of RSUs, each non-executive director will be granted in arrears on the first business day following the quarter of service, restricted stock under the 2004 Equity Plan or the 2012 Equity Plan for their service on the Board of Directors and committees thereof. The restricted stock will be granted quarterly based upon the closing price per share of our common stock at the end of each quarter, such that each non-executive director will receive $40,000 per year of restricted stock ($50,000 for the Chair of the Audit Committee). The restricted stock will vest on the earlier of a change in control of the Company (as defined in the 2004 Equity Plan for restricted stock granted before May 16, 2012 or the 2012 Equity Plan for grants on or after May 16, 2012) or one year from the date of grant, provided, in each case, that the non-executive director maintains continuous service on the Board of Directors. Future cash dividends related to the restricted stock will be set aside and paid in cash to each non-executive director on the date the restricted stock vests. In addition to the quarterly restricted stock grants, the non-executive directors will be entitled to cash compensation of $40,000 per year ($50,000 for the Chair of the Audit Committee), also payable quarterly. These sums are payable, at the election of the non-executive director, in the form of cash, shares of common stock, or any combination thereof.

On July 23, 2013, for the periods of service beginning on July 1, 2013, our Board of Directors approved a change in the non-executive directors’ compensation plan. The non-executive directors will receive restricted stock quarterly based upon the closing price per share of our common stock at the end of each quarter, such that each non-executive director will receive $60,000 per year of restricted stock ($70,000 for the Chair of the Audit Committee). The restricted stock will vest on the earlier of a change in control of the Company (as defined in the

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2012 Equity Plan) or one year from the date of grant, provided, in each case, that the non-executive director maintains continuous service on the Board of Directors. Future cash dividends related to the restricted stock will be set aside and paid in cash to each non-executive director on the date the restricted stock vests. The non-executive directors are required to hold shares of common stock and/or restricted stock equal to three times their annual cash compensation ($135,000 for each non-executive director and $165,000 for the Chair of the Audit Committee) as measured on June 30^th of each year. Should the value of the non-executive director’s holdings fall below the established minimum, the non-executive director will be deemed in compliance provided that the non-executive director retain shares equal to the total number of restricted stock granted during the preceding three years. All non-executive directors will have a three year grace period to reach this ownership threshold. In addition to the quarterly restricted stock grants, the non-executive directors will be entitled to cash compensation of $45,000 per year ($55,000 for the Chair of the Audit Committee), also payable quarterly. These sums are payable, at the election of the non-executive director, in the form of cash, shares of common stock, or any combination thereof.

The following table details information on the restricted stock awarded to or vested by the non-executive directors in 2012 and 2013:


Service for the three months ended	Grant Date	Price Per Share⁽¹⁾		Restricted Stock Awarded		Restricted Stock Vested		Vesting Date	Restricted Stock Awarded and Outstanding		Cash Dividends Paid⁽²⁾
December 31, 2011	January 3, 2012	$	13.87		3,785		(3,785)	January 2, 2013		—	$	2,839
March 31, 2012	April 2, 2012		13.93		3,769		(3,769)	April 1, 2013		—		2,356
June 30, 2012	July 2, 2012		12.86		4,084		(4,084)	July 1, 2013		—		2,042
September 30, 2012	October 1, 2012		11.87		5,263		—			5,263		—
December 31, 2012	January 2, 2013		11.68		5,350		—			5,350		—
March 31, 2013	April 1, 2013		13.27		4,712		—			4,712		—
June 30, 2013	July 1, 2013		13.57		4,606		—			4,606		—

Total					31,569		(11,638)			19,931	$	7,237

⁽¹⁾	The quarterly restricted stock awarded is based on the price per share of our common stock on the last trading day prior to the quarterly award date.

⁽²⁾	Amount excludes interest earned and paid upon vesting of shares of restricted stock.

The following table reflects the stock based compensation expense for the awards under the Equity Plans:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Equity Awards	2013		2012		2013		2012
			(Dollars in thousands)
2009 LTIP		$—		$226		$—		$414
2011 LTIP - Wireless Operations		338		—		676		—
2011 LTIP - Software Operations		230		(273)		458		(77)
Board of Directors Compensation		60		52		120		105

Total stock based compensation		$628		$5		$1,254		$442

The 2009 LTIP vested on December 31, 2012, as such, no stock based compensation was incurred in 2013. The 2011 LTIP was awarded to the eligible employees in the wireless operations effective for January 1, 2013, which resulted in an increase in stock based compensation expense in 2013. The net benefits reflected in the three and six months ended June 30, 2012 for the 2011 LTIP for the software operations resulted from forfeitures under the 2011 LTIP associated with the departure of two former executives in our software operations.

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table details information on the cash dividends declared in 2013 relating to the restricted stock awarded to our non-executive directors:


Declaration Date	Record Date	Payment Date	Per Share Amount		Total Amount
March 4	March 15	March 29	$	0.125	$	2,308
May 9	May 20	June 25		0.125		2,426

			$	0.25	$	4,734

Board of Directors Common Stock. No directors have elected common stock in lieu of cash payments for their services during the six month ended June 30, 2013.

Cash Dividends to Stockholders. The following table details our cash dividend payments made in 2013. Cash dividends paid as disclosed in the statements of cash flows for the six months ended June 30, 2013 and 2012 included previously declared cash dividends on shares of vested restricted stock issued to our non-executive directors and vested RSUs issued to eligible employees under the 2009 LTIP. Cash dividends on the RSUs and restricted stock have been accrued and are paid when the applicable vesting conditions are met. Accrued cash dividends on forfeited restricted stock and RSUs are also forfeited.


Declaration Date	Record Date	Payment Date	Per Share Amount		Total Payment⁽¹⁾
					(Dollars in thousands)
March 4	March 15	March 29	$	0.125	$	2,682
		April 26			$	1,513	⁽²⁾
May 9	May 20	June 25		0.125	$	2,705

Total			$	0.25	$	6,900

⁽¹⁾	The total payment reflects the cash dividends paid in relation to common stock, vested restricted stock and vested RSUs.

⁽²⁾	The payment reflects the accumulated cash dividends earned on vested RSUs associated with the 2009 LTIP.

Future Cash Dividends to Stockholders. On August 1, 2013, our Board of Directors declared a regular quarterly cash dividend of $0.125 per share of common stock, with a record date of August 19, 2013, and a payment date of September 10, 2013. This cash dividend of approximately $2.7 million will be paid from available cash on hand.

Common Stock Repurchase Program. On July 31, 2008, our Board of Directors approved a program to repurchase up to $50.0 million of our common stock in the open market during the twelve-month period commencing on or about August 5, 2008. This program has been extended at various times, most recently through December 31, 2013 with a repurchase authority of $25.0 million. We made no common stock repurchases during the six months ended June 30, 2013. There is approximately $17.0 million of common stock repurchase authority remaining under the program as of June 30, 2013.

Repurchased shares of our common stock were accounted for as a reduction to common stock and additional paid-in-capital in the period in which the repurchase occurred. All repurchased shares of common stock are returned to the status of authorized, but unissued, shares of the Company.

Additional Paid-in Capital. For the six months ended June 30, 2013, additional paid-in capital increased by $0.3 million to $125.5 million at June 30, 2013 from $125.2 million at December 31, 2012. The increase in the six months ended June 30, 2013 was due primarily to amortization of stock based compensation and a net settlement of common stock awards under the 2012 STIP and the 2009 LTIP.

Net Income per Common Share. Basic net income per common share is computed on the basis of the weighted average common shares outstanding. Diluted net income per common share is computed on the basis of

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the weighted average common shares outstanding plus the effect of all potentially dilutive common shares including outstanding restricted stock and RSUs, which are treated as contingently issuable shares, using the “treasury stock” method. During the second quarter of 2013, we acquired a total of 108,459 shares of common stock by net settling vested awards under the 2012 STIP and the 2009 LTIP. These shares of common stock acquired were retired and excluded from our reported outstanding share balance as of June 30, 2013. The components of basic and diluted net income per common share were as follows for the periods stated:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(Dollars in thousands, except share and per share amounts)
Net income	$	6,828	$	8,447	$	13,753	$	16,908

Weighted average shares of common stock outstanding		21,644,281		22,130,397		21,666,096		22,118,470
Dilutive effect of restricted stock and RSUs		182,868		483,120		255,646		483,133

Weighted average shares of common stock and common stock equivalents		21,827,149		22,613,517		21,921,742		22,601,603

Net income per common share
Basic	$	0.32	$	0.38	$	0.63	$	0.76

Diluted	$	0.31	$	0.37	$	0.63	$	0.75

(16) Stock Based Compensation — Compensation expense associated with RSUs and restricted stock was recognized based on the fair value of the instruments, over the instruments’ vesting period. Stock based compensation expense was $0.4 million and $0.3 million for the three months ended June 30, 2013 and 2012, respectively, and $0.8 million and $0.5 million for the six months ended June 30, 2013 and 2012, respectively, for wireless operations. Stock based compensation expense for the software operations was $0.2 million and a net benefit of $0.3 million for the three months ended June 30, 2013 and 2012, respectively, and a net expense of $0.5 million and a net benefit of $0.1 million for the six months ended June 30, 2013 and 2012, respectively. The following table reflects the statements of income line items for stock based compensation expense for the periods stated:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Operating Expense Category	2013		2012		2013		2012
	(Dollars in thousands)
Service, rental and maintenance	$	10	$	6	$	20	$	12
Selling and marketing		17		18		34		34
General and administrative		601		(19)		1,200		396

Total stock based compensation	$	628	$	5	$	1,254	$	442

(17) Research and Product Development — Development costs incurred in the research and development of new software products and enhancements to existing software products for external use are expensed as incurred until technological feasibility has been established. Costs incurred after technological feasibility is established and before the product is ready for general release would be capitalized. Costs eligible for capitalization were not material to the consolidated condensed financial statements and were expensed as incurred to service, rental and maintenance expense.

(18) Advertising Costs — Advertising costs are charged to operations when incurred because they occur in the same period as the benefit is derived. These costs are included in selling and marketing expenses. We do not

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

incur any direct response advertising costs. Advertising expenses were $0.2 million for the three months ended June 30, 2013 and 2012, and $0.4 million and $0.3 million for the six months ended June 30, 2013 and 2012, respectively, for software operations. Wireless operations did not incur any significant advertising costs over these same periods.

(19) Income Taxes — We file a consolidated U.S. Federal income tax return and income tax returns in state, local and foreign jurisdictions (Canada and Australia) as required.

We are required to evaluate the recoverability of our deferred income tax assets. The assessment is required to determine whether based on all available evidence, it is more likely than not (i.e., greater than a 50% probability) whether all or some portion of the deferred income tax assets will be realized in the future.

At June 30, 2013, we had total deferred income tax assets of $155.1 million and a valuation allowance of $118.7 million resulting in an estimated recoverable amount of deferred income tax assets of $36.4 million. This reflected a change from the December 31, 2012 balance of deferred income tax assets of $163.9 million and a valuation allowance of $118.7 million resulting in an estimated recoverable amount of $45.2 million. The change reflects the expected usage of the deferred income tax assets based on estimated 2013 taxable income.

At both June 30, 2013 and December 31, 2012, the balance of the valuation allowance was $118.7 million, respectively, which did not include any valuation allowance for foreign operations.

We consider both positive and negative evidence when evaluating the recoverability of our deferred income tax assets. During the fourth quarter of each year, we prepare a multi-year forecast of taxable income for our wireless and software operations. The wireless operations have experienced a continuing decline in revenues and taxable income as subscribers switch to other communication solutions. The software operations have been impacted by the economic uncertainty of the past several years which has impacted customer purchase and implementation decisions. The wireless and software forecasts of taxable income are not sufficient to result in the full realization of our deferred income tax assets.

The anticipated effective income tax rate is expected to continue to differ from the Federal statutory rate of 35% primarily due to the effect of state income taxes, the effect of changes to the deferred income tax asset valuation allowance, permanent differences between book and taxable income and certain discrete items.

As of January 1, 2013, we had approximately $391.6 million of Federal net operating losses (“NOLs”) available to offset future taxable income. The estimated 2012 NOL to be utilized is approximately $38.2 million, which is net of the Internal Revenue Code Section 382 (“IRC Section 382”) limitation. The IRC Section 382 limited NOLs as of January 1, 2013 totaled $56.5 million which may be used at a rate of $6.1 million per year.

(20) Related Party Transactions — A member of our Board of Directors also served as a director for an entity that leases transmission tower sites to the Company. For the three months ended June 30, 2013 and 2012, we incurred $1.0 million, and for the six months ended June 30, 2013 and 2012, we incurred $2.0 million and $2.4 million, respectively, in site rent expenses that were included in service, rental and maintenance expenses.

Beginning in April 2012, a relative of our CEO is employed as Chief Operating Officer at Teleperformance USA, Inc. (“TPUSA”), a third party provider of customer service support for our wireless operations. We incurred $0.5 million and $0.6 million for the three months ended June 30, 2013 and 2012, respectively, and $1.0 million and $1.3 million for the six months ended June 30, 2013 and 2012, respectively, in outside services expenses for wireless operations that were included in general and administrative expenses. Our expenses represent less than 1% of the consolidated revenue for TPUSA for the periods listed. We have used the services of TPUSA since March 10, 2003, prior to the relative of the CEO becoming an employee of TPUSA in April 2012.

(21) Commitments and Contingencies — We are involved, from time to time, in lawsuits arising in the normal course of business. We believe these pending lawsuits will not have a material adverse impact on our financial results or operations.

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On June 25, 2012, Mr. and Mrs. Andre C. Franco filed a lawsuit in the Circuit Court for Montgomery County, Maryland against Metrocall, Inc. (now USA Mobility Wireless, Inc. “Wireless”), and an employee of Wireless. The lawsuit arose from a vehicle accident involving the employee in December 2009. The case was settled on April 19, 2013 with no impact to our statement of income since we were fully insured for damages and our defense against this claim was assumed by the insurance carrier.

(22) Segment Reporting — We have two reportable operating segments: a Wireless segment and a Software segment. These segments are operated and managed as strategic business units and are organized by products and services. We measure and evaluate our segments based on segment operating income, consistent with the chief operating decision makers’ assessment of segment performance.

Our segments and their principal activities consist of the following:


Wireless		Provides local, regional and nationwide one-way paging and advanced two-way messaging services and mobile voice and data services through third party providers.
Software		Provides mission critical unified communications solutions for contact centers, emergency management, mobile event notification and messaging.

We use a non-GAAP financial measure as a key element in determining performance for purposes of incentive compensation under our annual STIP. That non-GAAP financial measure is operating cash flow (“OCF”), defined as earnings before interest, taxes, depreciation, amortization and accretion (“EBITDA”) less purchases of property and equipment. (EBITDA is defined as operating income plus depreciation, amortization and accretion, each determined in accordance with GAAP). The following table presents the key financial metrics of our segments for the periods stated:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
			(Dollars in thousands)
Revenues:
Wireless	$	37,771	$	42,783	$	76,550	$	87,048
Software		14,497		13,178		28,848		25,648

Total revenues		52,268		55,961		105,398		112,696


Operating expenses:
Wireless		25,796		28,872		52,673		58,459
Software		14,567		13,279		29,080		26,170

Total operating expenses		40,363		42,151		81,753		84,629


Operating income (loss):
Wireless		11,975		13,911		23,877		28,589
Software		(70)		(101)		(232)		(522)

Total operating income	$	11,905	$	13,810	$	23,645	$	28,067

USA MOBILITY, INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
			(Dollars in thousands)
EBITDA (as defined by the Company):
Wireless	$	14,355	$	16,765	$	28,653	$	34,258
Software		1,372		1,651		2,621		2,930

Total EBITDA		15,727		18,416		31,274		37,188

% of revenue		30.1%		32.9%		29.7%		33.0%

Capital expenditures:
Wireless		2,816		2,854		5,077		4,373
Software		111		34		191		66

Total capital expenditures		2,927		2,888		5,268		4,439

OCF (as defined by the Company):
Wireless		11,539		13,911		23,576		29,885
Software		1,261		1,617		2,430		2,864

Total OCF	$	12,800	$	15,528	$	26,006	$	32,749

% of revenue		24.5%		27.7%		24.7%		29.1%

Segment information for total assets is as follows for the periods stated:


	June 30, 2013		December 31, 2012
	(In thousands)
	(Unaudited)
Wireless⁽¹⁾	$	159,781	$	158,261
Software		159,143		164,366

Total assets	$	318,924	$	322,627

⁽¹⁾	Includes elimination of $141.6 million in investment in software operations recorded upon the acquisition of Amcom.

Below is a reconciliation of our non-GAAP measure for the periods stated:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
			(Dollars in thousands)
Operating income	$	11,905	$	13,810	$	23,645	$	28,067
Plus: Depreciation, amortization and accretion		3,822		4,606		7,629		9,121

EBITDA (as defined by the Company)		15,727		18,416		31,274		37,188
Less: Purchases of property and equipment		(2,927)		(2,888)		(5,268)		(4,439)

OCF (as defined by the Company)	$	12,800	$	15,528	$	26,006	$	32,749

Item 2. Management’s Discussion and Analysis of Financial Condition and Statements of Income

Forward-Looking Statements

This Quarterly Report contains forward-looking statements and information relating to USA Mobility, Inc. and its subsidiaries (“USA Mobility” or the “Company”) that set forth anticipated results based on management’s current plans, known trends and assumptions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “target”, “forecast” and similar expressions, as they relate to USA Mobility are forward-looking statements.

Although these statements are based upon current plans, known trends and assumptions that management considers reasonable, they are subject to certain risks, uncertainties and assumptions, including but not limited to those discussed below and under the captions “Business,” “Management’s Discussion and Analysis of Financial Condition and Statements of Income (“MD&A”),” and “Part I – Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the United States Securities and Exchange Commission (the “SEC”) on April 15, 2013 (the “2012 Annual Report”). Should known or unknown risks or uncertainties materialize, known trends change, or underlying assumptions prove inaccurate, actual results or outcomes may differ materially from past results and those described herein as anticipated, believed, estimated, expected, intended, targeted or forecasted. Investors are cautioned not to place undue reliance on these forward-looking statements.

The Company undertakes no obligation to update forward-looking statements. Investors are advised to consult all further disclosures the Company makes in its subsequent reports on Form 10-Q and Form 8-K that it will file with the SEC. Also note that, in the risk factors disclosed in the Company’s 2012 Annual Report, the Company provides a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to its business. These are factors that, individually or in the aggregate, could cause the Company’s actual results to differ materially from past results as well as those results that may be anticipated, believed, estimated, expected, intended, targeted or forecasted. It is not possible to predict or identify all such risk factors. Consequently, investors should not consider the risk factor discussion to be a complete discussion of all of the potential risks or uncertainties that could affect USA Mobility’s business, statement of income or financial condition, subsequent to the filing of this Quarterly Report.

Overview

The following MD&A is intended to help the reader understand the statements of income and financial position of USA Mobility. The MD&A is provided as a supplement to, and should be read in conjunction with, our 2012 Annual Report and our condensed consolidated financial statements and accompanying notes. A reference to a “Note” in this section refers to the accompanying Unaudited Notes to the Condensed Consolidated Financial Statements.

USA Mobility, Inc., a holding company, which, acting through our indirect wholly-owned subsidiary, USA Mobility Wireless, Inc. (“wireless operations”), is a leading provider of wireless messaging, mobile voice and data and unified communications solutions in the United States. In addition, through our indirect wholly-owned subsidiary, Amcom Software, Inc. (“Amcom” or “software operations”), which we acquired on March 3, 2011, we provide mission critical unified communications solutions for contact centers, emergency management, mobile event notification, and Smartphone messaging. Our combined product offerings are capable of addressing a customer’s mission critical communications needs. We provide paging services and selected software solutions in the United States and abroad, in Europe, Australia, Asia and the Middle East. We offer our services and products primarily to three major market segments: healthcare, government, and large enterprise. For both the three and six months ended June 30, 2013, approximately 70% and 30% of our consolidated revenue was generated by our wireless and software operations, respectively.

The following table indicates the revenue by key market segments for the periods stated and illustrates the relative significance of these market segments to our wireless operations.


	For the Three Months Ended June 30,								For the Six Months Ended June 30,
Market Segment	2013		% of Total		2012		% of Total		2013		% of Total		2012		% of Total
							(Dollars in thousands)
Healthcare	$	24,462		64.7%	$	25,593		59.8%	$	48,995		64.0%	$	51,725		59.4%
Government		3,020		8.0%		3,905		9.1%		6,361		8.3%		8,051		9.2%
Large Enterprise		4,330		11.5%		5,350		12.5%		8,888		11.6%		11,000		12.7%
Other		4,542		12.0%		5,964		14.0%		9,324		12.2%		12,193		14.0%

Total Direct		36,354		96.2%		40,812		95.4%		73,568		96.1%		82,969		95.3%
Total Indirect		1,417		3.8%		1,971		4.6%		2,982		3.9%		4,079		4.7%

Total	$	37,771		100.0%	$	42,783		100.0%	$	76,550		100.0%	$	87,048		100.0%

Our software operations focus primarily on the healthcare and government market segments, but with a greater emphasis on the healthcare market segment.


	For the Three Months Ended June 30,								For the Six Months Ended June 30,
Market Segment	2013		% of Total		2012		% of Total		2013		% of Total		2012		% of Total
							(Dollars in thousands)
Healthcare	$	10,041		69.3%	$	8,672		65.8%	$	19,370		67.1%	$	16,326		63.7%
Government		1,698		11.7%		1,157		8.8%		3,049		10.6%		2,573		10.0%
Large Enterprise		507		3.5%		586		4.4%		1,680		5.8%		1,183		4.6%
Other⁽¹⁾		715		4.9%		714		5.5%		1,349		4.7%		1,454		5.7%

Total Direct		12,961		89.4%		11,129		84.5%		25,448		88.2%		21,536		84.0%
Total Indirect		1,536		10.6%		2,049		15.5%		3,400		11.8%		4,112		16.0%

Total	$	14,497		100.0%	$	13,178		100.0%	$	28,848		100.0%	$	25,648		100.0%

⁽¹⁾	Other includes hospitality, resort and billable travel revenue.

Wireless Operations

Our wireless operations provide one-way and advanced two-way wireless messaging services including information services throughout the United States. We also offer voice mail, personalized greeting, message storage and retrieval, and equipment loss and/or maintenance protection to both one-way and two-way messaging subscribers.

We market and distribute our wireless services through a direct sales force and a small indirect sales channel.

Direct. The direct sales force rents or sells products and messaging services directly to customers ranging from small and medium-sized businesses to companies in the Fortune 1000, healthcare and related businesses, and Federal, state and local government agencies. We will continue to market to commercial enterprises, especially healthcare organizations, that are interested in low cost, highly reliable critical messaging. We maintain a sales presence in key markets throughout the United States in an effort to gain new customers and to retain and increase sales to existing customers. We also maintain several corporate groups, such as our Key Account Management team, focused on retaining and selling additional services to our key healthcare accounts as well as a team selling to government and national accounts. Our direct sales efforts also include a focus on cross-selling Amcom services to our extensive list of wireless customers.

Indirect. Within the indirect channel, we contract with and invoice an intermediary for airtime services. The intermediary or “reseller” in turn markets, sells, and provides customer service to the end user. Generally, there is no contractual relationship that exists between us and the end subscriber. Therefore, operating costs per unit to provide these services are lower than those required in the direct distribution channel. Indirect units in service

typically have lower average revenue per unit (“ARPU”) than direct units in service. The rate at which subscribers disconnect service in the indirect distribution channel has generally been higher than the rate experienced with direct customers, and we expect this trend to continue in the foreseeable future.

The following table summarizes the breakdown of our direct and indirect units in service at specified dates:


	As of June 30, 2013				As of March 31, 2013				As of June 30, 2012
Distribution Channel	Units		% of Total		Units		% of Total		Units		% of Total
					(Units in thousands)
Direct		1,380		95.4%		1,397		94.4%		1,477		93.3%
Indirect		65		4.6%		83		5.6%		106		6.7%

Total		1,445		100.0%		1,480		100.0%		1,583		100.0%

As noted above in the “Overview”, our key market segments are healthcare, government and large enterprise. The following table indicates the percentage of our units in service by key market segments for the periods stated and illustrates the relative significance of these market segments to our wireless operations.


Market Segment	As of June 30, 2013		As of March 31, 2013		As of June 30, 2012
Healthcare		70.9%		68.4%		64.9%
Government		9.1%		10.1%		11.1%
Large Enterprise		8.1%		8.3%		8.9%
Other		7.3%		7.6%		8.4%

Total Direct		95.4%		94.4%		93.3%
Total Indirect		4.6%		5.6%		6.7%

Total		100.0%		100.0%		100.0%

The following table sets forth information on our direct units in service by account size for the periods stated:


	As of June 30, 2013				As of March 31, 2013				As of June 30, 2012
Account Size	Units		% of Total		Units		% of Total		Units		% of Total
	(Units in thousands)
1 to 3 Units		47		3.4%		49		3.5%		58		3.9%
4 to 10 Units		28		2.0%		29		2.1%		35		2.3%
11 to 50 Units		67		4.8%		71		5.1%		82		5.6%
51 to 100 Units		45		3.2%		47		3.4%		52		3.6%
101 to 1000 Units		305		22.1%		321		23.0%		356		24.1%
> 1000 Units		888		64.5%		880		62.9%		894		60.5%

Total direct units in service		1,380		100.0%		1,397		100.0%		1,477		100.0%

Our core offering includes subscriptions to one-way or two-way messaging services for a periodic (monthly, quarterly, semi-annual, or annual) service fee. This is generally based upon the type of service provided, the geographic area covered, the number of devices provided to the customer and the period of commitment. A subscriber to one-way messaging services may select coverage on a local, regional or nationwide basis to best meet their messaging needs. Two-way messaging is generally offered on a nationwide basis. We offer ancillary services, such as voicemail and equipment loss/maintenance protection, which help increase the monthly recurring revenue we receive along with these traditional messaging services.

The following table summarizes the breakdown of our one-way and two-way units in service at specified dates:


	As of June 30, 2013				As of March 31, 2013				As of June 30, 2012
Service Type	Units		% of Total		Units		% of Total		Units		% of Total
	(Units in thousands)
One-way messaging		1,343		92.9%		1,362		92.0%		1,453		91.8%
Two-way messaging		102		7.1%		118		8.0%		130		8.2%

Total		1,445		100.0%		1,480		100.0%		1,583		100.0%

The demand for one-way and two-way messaging declined at each specified date and we believe demand will continue to decline for the foreseeable future. Demand for our services has also been impacted by the uncertainty in the United States economy and high unemployment rates nationwide.

As demand for one and two messaging has declined, we have developed or added service offerings in order to increase our revenue potential and mitigate the decline in our wireless business. During 2012, we launched a new service called Amcom Mobile Connect Select that allows our paging numbers and network to integrate with smartphones to deliver a paging experience via a smartphone application. We will continue to look for ways to innovate and provide customers the highest value possible.

We provide wireless messaging services to subscribers for a periodic fee, as described above. In addition, subscribers either lease a messaging device from us for an additional fixed monthly fee or they own a device, having purchased it either from us or from another vendor. We also sell devices to resellers who lease or resell devices to their subscribers and then sell messaging services utilizing our networks.

We derive the majority of our revenues from fixed monthly or other periodic fees, charged to subscribers for wireless messaging services. Such fees are not generally dependent on usage. As long as a subscriber maintains service, operating results benefit from recurring payment of these fees. Revenues are generally based upon the number of units in service and the monthly charge per unit. The number of units in service changes based on subscribers added, referred to as gross placements, less subscriber cancellations, or disconnects. The net of gross placements and disconnects is commonly referred to as net gains or losses of units in service or net disconnect rate. The absolute number of gross placements as well as the number of gross placements relative to average units in service in a period, referred to as the gross placement rate, is monitored on a monthly basis. Disconnects are also monitored on a monthly basis. The ratio of units disconnected in a period to average units in service for the same period, called the disconnect rate, is an indicator of our success at retaining subscribers, which is important in order to maintain recurring revenues and to control operating expenses.

The following table sets forth our gross placements and disconnects for the periods stated:


	For the Three Months Ended
	June 30, 2013				March 31, 2013				June 30, 2012
Distribution Channel	Gross Placements		Disconnects		Gross Placements		Disconnects		Gross Placements		Disconnects
					(Units in thousands)
Direct		54		71		42		66		53		84
Indirect		1		19		1		12		2		5

Total		55		90		43		78		55		89

The following table sets forth information on the direct net disconnect rate by account size for our direct customers for the periods stated:


	For the Three Months Ended
Account Size	June 30, 2013		March 31, 2013		June 30, 2012
1 to 3 Units		(5.1%)		(4.8%)		(5.7%)
4 to 10 Units		(5.3%)		(6.0%)		(6.2%)
11 to 50 Units		(6.4%)		(4.8%)		(4.1%)
51 to 100 Units		(5.3%)		(4.0%)		(2.4%)
101 to 1000 Units		(5.0%)		(3.9%)		(4.7%)
> 1000 Units		1.1%		(0.2%)		(0.3%)

Total direct net unit loss %		(1.3%)		(1.7%)		(2.0%)

The other factor that contributes to revenue, in addition to the number of units in service, is the monthly charge per unit. As previously discussed, the monthly charge per unit is dependent on the subscriber’s service, extent of geographic coverage, whether the subscriber leases or owns the messaging device, and the number of units the customer has in the account. The ratio of revenues for a period to the average units in service, for the same period, commonly referred to as ARPU, is a key revenue measurement as it indicates whether charges for similar services and distribution channels are increasing or decreasing. ARPU by distribution channel and messaging service are monitored regularly.

The following table sets forth ARPU by distribution channel for the periods stated:


	ARPU For the Three Months Ended
Distribution Channel	June 30, 2013		March 31, 2013		June 30, 2012
Direct	$	8.33	$	8.40	$	8.62
Indirect		6.31		5.85		5.97
Total		8.22		8.25		8.45

While ARPU for similar services and distribution channels is indicative of changes in monthly charges and the revenue rate applicable to new subscribers, this measurement on a consolidated basis is affected by several factors, including the mix of units in service and the pricing of the various components of our services. Gross revenues decreased year over year but at a slower rate than previous years. We expect future sequential annual revenues to decline in line with recent trends. The change in ARPU in the direct distribution channel is the most significant indicator of rate-related changes in our revenues. The decrease in consolidated ARPU for the quarter ended June 30, 2013 from the quarter ended June 30, 2012 was due to the change in composition of our customer base as the percentage of units in service attributable to larger customers continues to increase. These larger customers benefit from lower pricing associated with their larger number of units-in-service. We believe that without further price adjustments, ARPU would trend lower for both the direct and indirect distribution channels in 2013 and that price increases could mitigate, but not completely offset, the expected declines in both ARPU and revenues.

The following table sets forth information on direct ARPU by account size for the periods stated:


	For the Three Months Ended
Account Size	June 30, 2013		March 31, 2013		June 30, 2012
1 to 3 Units	$	15.12	$	15.22	$	15.49
4 to 10 Units		14.29		14.33		14.40
11 to 50 Units		11.96		12.06		12.24
51 to 100 Units		10.42		10.47		10.35
101 to 1000 Units		8.84		8.84		9.01
> 1000 Units		7.19		7.23		7.34

Total direct ARPU	$	8.33	$	8.40	$	8.62

Software Operations

Our software operations offer a focused suite of unified communications solutions that include call center operations, clinical alerting and notifications, mobile communications and public safety solutions. Given the focused nature of our software products, our primary market has been the healthcare industry, particularly hospitals. We have identified hospitals with 200 or more beds as the primary targets for our software solutions.

We develop, sell, and support enterprise-wide systems for hospitals and other organizations needing to automate, centralize, and standardize mission critical communications. These solutions are used for contact centers, clinical alerting and notification, mobile communications and messaging and for public safety notifications. These areas of market focus compliment the market focus of our wireless operations outlined above. We have a sales presence and customer base both domestically, throughout the United States, and internationally, in Europe, Australia, Asia and the Middle East.

Our software operations have established solutions for:

•

Hospital Call Centers — These solutions encompass operator and answering services along with call recording, scheduling and selective additional support modules.

•

Clinical Workflow Communication — These solutions address hospital code processing as well as physician support tools.

•

Communication Applications — These solutions support hospital notification and appointment support.

•

Communications Infrastructure — These solutions support the wireless messaging infrastructure and offer a software product that can link disparate communications software (“middleware”).

•

Public Safety — These solutions implement and support emergency communication systems.

In our software operations we sell software solutions, professional services (installation and training), equipment (to be used in conjunction with the software) and post-contract support (on-going maintenance). Our software is licensed to end users under an industry standard software license agreement. Our software operations are organized as follows to support this business.

Marketing. We have a centralized marketing function which is focused on supporting our software products and vertical sales efforts by strengthening our Amcom brand, generating sales leads, and facilitating the sales process. These marketing functions are accomplished through targeted email campaigns, webinars, regional and national user conferences, monthly newsletters, and participation at industry trade shows.

Sales. We have organized our global sales organization into two theaters: the Americas and International. We sell our software products through a direct and channel sales force. The direct sales effort is geographically focused with the exception of dedicated government specialists. The direct sales force targets unified communication leadership such as chief information officers, information technology directors, telecommunications directors and contact center managers. Additionally, we target clinical leadership including chief medical officers and chief nursing officers. The timing for a direct sale from initial contact to final sale ranges from 6 to 18 months depending on the type of software solution.

The direct sales force is complemented by a channel sales force consisting of a dedicated team of managers. These managers coordinate relationships with alliance partners who provide sales introductions for our direct sales force.

Professional Services. We offer implementation services for our software products. These implementation services are provided by a dedicated group of professional service employees. Our professional services staff uses a branded, consistent methodology that provides a comprehensive phased work plan for both new software installations and/or upgrades. In support of our implementation methodology, we manage the various aspects of the process through a professional services automation tool. A typical implementation process ranges from 30 to 180 days depending on the type of implementation. We may also use professional services partners to implement our solutions for customers.

Customer Support. To support our software products, we have established a dedicated customer support organization. Due to the mission critical nature of our software products, we provide 24 hours a day, 7 days a week, 365 days a year customer support that customers can access via telephone, email or the Internet.

Product Development. We maintain a product development group focused on developing new software products along with ongoing maintenance and enhancement of existing products. Our product development group uses a methodology that balances enhancement requests from a number of sources including customers, the professional services staff, customer support incidents, known defects, market and technology trends, and competitive requirements. These requests are reviewed and prioritized based on criteria that include the potential for increased revenues, customer/employee satisfaction, possible cost savings and development time and expense.

Revenue from software operations is included in software revenue and other in the consolidated statements of income. For purposes of MD&A, we break out revenue from software operations into two primary components: operations revenue and maintenance revenue.

Operations revenue in software operations consists of software license revenue, professional services revenue, and equipment sales. In most instances, we recognize equipment revenue when it is delivered to the customer, and software license revenue and professional services revenue when the application is ready for use at the customer location and all service obligations are satisfied under such arrangements.

Maintenance revenue in software operations is for ongoing support of a software application or equipment and is recognized ratably over the period of coverage, typically one year. The maintenance renewal rates for the three months ended June 30, 2013 and 2012 were 99.4% and 98.8%, respectively, and for the six months ended June 30, 2013 and 2012 were 99.0% and 99.2%, respectively.

Revenue from software operations increased by 10.0% and 12.5% for the three and six months ended June 30, 2013, respectively, compared to the same period in 2012 due primarily to an increase in operations revenue as revenue was recognized on larger dollar sales in 2013 as compared to 2012. The breakout of revenue by component from software operations was as follows for the periods stated:


Revenue	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(Dollars in thousands)
Operations revenue	$	7,552	$	6,695	$	15,141	$	12,752
Maintenance revenue		6,945		6,483		13,707		12,896

Total software operations revenue	$	14,497	$	13,178	$	28,848	$	25,648

On a regular basis, our software operations engage in contractual arrangements with our customers to provide software licenses, professional services, and equipment sales. In addition, we enter into contractual arrangements for maintenance with our customers on new solutions or renewals on existing solutions. These contractual arrangements are reported as bookings and represent future revenue. Bookings increased by 3.6% and 8.6% for the three and six months ended June 30, 2013 compared to the same period in 2012, respectively. The increase reflects the continuing success of our expanding software sales force, in both the American and International theaters, in closing business and expanding market penetration with new customers, as well as selling additional solutions to our installed customer base. During the six months ended June 30, 2013, we received orders for our newest software products, Amcom Care Connect and Amcom Critical Test Results Management, as the Company continues to develop additional value to provide to our customers. Amcom Care Connect helps doctors communicate with each other more easily by using the right device at the right time which ultimately improves patient care. Amcom Critical Test Results Management streamlines the communication of critical test results for doctors which also expedites patient care.

The following table summarizes total bookings for the period stated:


Bookings	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
			(Dollars in thousands)
Operations and maintenance new orders		$ 8,566		$ 7,250		$ 17,380		$ 14,294
Maintenance and other recurring revenue		7,060		7,836		12,499		13,208

Total bookings		$15,626		$15,086		$29,879		$27,502

Software operations reported a backlog of $39.6 million at June 30, 2013, which represented all purchase orders received from customers not yet recognized as revenue. The following table reconciles the Company’s reported backlog at June 30, 2013:


Backlog	June 30, 2013
	(Dollars in thousands)
Beginning balance at January 1, 2013		$ 40,626
Bookings		29,879

Available		$ 70,505
Recognized revenue		(28,848)
Other⁽¹⁾		(2,081)

Total backlog at June 30, 2013		$ 39,576

⁽¹⁾	Other reflects cancellations and other adjustments related to aged orders not likely to be completed.

Operations — Consolidated

Our operating expenses are presented in functional categories. Certain of our functional categories are especially important to overall expense control and management; these operating expenses are categorized as follows:

•

Cost of revenue. These are expenses associated with costs for pagers for the wireless operations and hardware, third-party software, professional services, payroll and related expenses, and various other expenses associated with the software operations for installation and maintenance support.

•

Service, rental, and maintenance. These are expenses associated with the operation of our networks and the provision of messaging services. Expenses consist largely of site rent expenses for transmitter locations, telecommunication expenses to deliver messages over our networks, and payroll and related expenses for our engineering and pager repair functions. Expenses related to the development and maintenance of our software products are included in this category.

•

Selling and marketing. These are expenses associated with our direct sales force and indirect sales channel and marketing expenses in support of those sales groups. This classification consists primarily of payroll and related expenses and commission expenses.

•

General and administrative. These are expenses associated with customer service, inventory management, billing, collections, bad debt, and other administrative functions. This classification consists primarily of payroll and related expenses, outside service expenses, tax, license and permit expenses, and facility rent expenses.

We review the percentages of these operating expenses to revenues on a regular basis. Even though the operating expenses are classified as described above, expense control and management are also performed by expense category. Approximately 70% of the operating expenses referred to above were incurred in payroll and related expenses, site and facility rent expenses and telecommunication expenses for the three and six months ended June 30, 2013 and 2012, respectively.

Payroll and related expenses include wages, incentives, employee benefits and related taxes. On a monthly basis, we review the number of employees in major functional categories such as direct sales, engineering and technical staff, customer service, collections and inventory. We also review the design and physical locations of functional groups to continuously improve efficiency, to simplify organizational structures, and to minimize the number of physical locations for the wireless operations.

We have reduced our wireless employee base by approximately 12.2% to 361 full-time equivalent employees (“FTEs”) at June 30, 2013 from 411 FTEs at June 30, 2012. We anticipate continued staffing reductions in 2013 for wireless operations, consistent with the declining subscriber and revenue trends. For our software operations, we expect staffing increases in 2013 to support our revenue growth. The software operations had 298 FTEs at June 30, 2013, an increase of 8.4% from 275 FTEs at June 30, 2012.

Site rent expenses for transmitter locations are largely dependent on our paging networks. We operate local, regional, and nationwide one-way and two-way paging networks. These networks each require locations on which to place transmitters, receivers, and antennae. Generally, site rent expenses are incurred for each transmitter location. Therefore, site rent expenses for transmitter locations are highly dependent on the number of transmitters, which in turn is dependent on the number of networks. In addition, these expenses generally do not vary directly with the number of subscribers or units in service, which is detrimental to our operating margins as revenues decline. In order to reduce these expenses, we have an active program to consolidate the number of networks, and thus transmitter locations, which we refer to as network rationalization. We have reduced the number of active transmitters by 4.0% to 4,601 active transmitters at June 30, 2013 from 4,795 active transmitters at June 30, 2012.

Telecommunication expenses are incurred to interconnect our paging networks and to provide telephone numbers for customer use, points of contact for customer service, and connectivity among our offices. These expenses for wireless operations are dependent on the number of units in service and the number of office and network locations that we maintain. The dependence on units in service is related to the number of telephone numbers provided to customers and the number of telephone calls made to our call centers, though this is not always a direct dependency. For example, the number or duration of telephone calls to call centers may vary from period to period based on factors other than the number of units in service, which could cause telecommunication expenses to vary regardless of the number of units in service. In addition, certain phone numbers we provide to our customers may have a usage component based on the number and duration of calls to the subscriber’s messaging device. Telecommunication expenses do not necessarily vary in direct relationship to units in service. Therefore, based on the factors discussed above, efforts are underway to review and reduce telephone circuit inventories for wireless operations. Telecommunication expenses are also incurred for our offices and call centers for software operations.

Statements of Income

Comparison of the Statements of Income for the Three Months Ended June 30, 2013 and 2012


	For the Three Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
	(Dollars in thousands)
Revenues:
Service, rental and maintenance, net	$	36,370	$	—	$	36,370	$	41,114	$	—	$	41,114	$	(4,744)		(11.5%)
Software revenue and other, net		1,401		14,497		15,898		1,669		13,178		14,847		1,051		7.1%

Total	$	37,771	$	14,497	$	52,268	$	42,783	$	13,178	$	55,961	$	(3,693)		(6.6%)

Selected operating expenses:
Cost of revenue	$	112	$	5,373	$	5,485	$	156	$	5,060	$	5,216	$	269		5.2%
Service, rental and maintenance		10,538		2,284		12,822		11,464		2,428		13,892		(1,070)		(7.7%)
Selling and marketing		2,563		3,784		6,347		2,972		2,947		5,919		428		7.2%
General and administrative		10,201		1,684		11,885		11,426		1,068		12,494		(609)		(4.9%)
Severance and restructuring		2		—		2		—		24		24		(22)		(91.7%)

Total	$	23,416	$	13,125	$	36,541	$	26,018	$	11,527	$	37,545	$	(1,004)		(2.7%)

FTEs		361		298		659		411		275		686		(27)		(3.9%)

Active transmitters		4,601		—		4,601		4,795		—		4,795		(194)		(4.0%)

Revenues — Wireless

Our total revenues were $37.8 million and $42.8 million for the three months ended June 30, 2013 and 2012, respectively. The decrease in total revenues reflected the decrease in demand for our wireless services. Service, rental and maintenance revenues, net of $36.4 million and $41.1 million for the three months ended June 30, 2013 and 2012, respectively, consist primarily of recurring fees associated with the provision of messaging services and rental of leased units and is net of a provision for service credits. Included in software revenue and other, net was $1.4 million and $1.7 million for the three months ended June 30, 2013 and 2012, respectively, of revenues associated with system sales, the sale of devices and charges for leased devices that are not returned and are net of anticipated credits. The table below details total service, rental and maintenance revenues, net for the periods stated:


	For the Three Months Ended June 30,
	2013		2012
	(Dollars in thousands)
Service, rental and maintenance revenues, net:
Paging:
Direct:
One-way messaging	$	30,246	$	33,353
Two-way messaging		4,408		5,264

	$	34,654	$	38,617

Indirect:
One-way messaging	$	956	$	1,308
Two-way messaging		454		623

	$	1,410	$	1,931

Total paging:
One-way messaging	$	31,202	$	34,661
Two-way messaging		4,862		5,887

Total paging revenue		36,064		40,548
Non-paging revenue		306		566

Total service, rental and maintenance revenues, net	$	36,370	$	41,114

The table below sets forth units in service and service revenues, the changes in each between the three months ended June 30, 2013 and 2012 and the changes in revenues associated with differences in ARPU and the number of units in service:


	Units in Service						Revenues
	As of June 30,						For the Three Months Ended June 30,						Change Due To:
	2013		2012		Change		2013⁽¹⁾		2012⁽¹⁾		Change		ARPU		Units
	(Units in thousands)						(Dollars in thousands)
One-way messaging		1,343		1,453		(110)	$	31,202	$	34,661	$	(3,459)	$	(683)	$	(2,776)
Two-way messaging		102		130		(28)		4,862		5,887		(1,025)		(97)		(928)

Total		1,445		1,583		(138)	$	36,064	$	40,548	$	(4,484)	$	(780)	$	(3,704)

⁽¹⁾	Amounts shown exclude non-paging revenue.

As previously discussed, demand for messaging services has declined over the past several years and we anticipate that it will continue to decline for the foreseeable future, which would result in reductions in service, rental and maintenance revenues, net due to the lower number of subscribers and related units in service.

Revenues — Software

Software revenue and other for software operations was $14.5 million and $13.2 million for the three months ended June 30, 2013 and 2012, respectively, which consisted of operations revenue from software license revenue, professional services revenue, equipment sales, and maintenance revenue. The table below details total software revenue and other for software operations for the periods stated:


Revenue	For the Three Months Ended June 30,
	2013		2012
	(Dollars in thousands)
Operations revenue	$	7,552	$	6,695
Maintenance revenue		6,945		6,483

Total software operations revenue	$	14,497	$	13,178

The increase in operations revenue primarily reflects the recognition of software license and professional services in larger dollar sales in 2013 as compared to 2012.

Operating Expenses — Consolidated

Cost of revenue. Cost of revenue consisted primarily of the following items:


	For the Three Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
	(Dollars in thousands)
Payroll and related	$	—	$	2,917	$	2,917	$	—	$	2,324	$	2,324	$	593		25.5%
Cost of sales		112		2,021		2,133		156		2,278		2,434		(301)		(12.4%)
Other		—		435		435		—		458		458		(23)		(5.0%)

Total cost of revenue	$	112	$	5,373	$	5,485	$	156	$	5,060	$	5,216	$	269		5.2%

FTEs		—		129		129		—		115		115		14		12.2%

As illustrated in the table above, cost of revenue for the three months ended June 30, 2013 increased $0.3 million or 5.2% from the same period in 2012 due to the following variances:

•

Payroll and related — The increase of $0.6 million in payroll and related expenses was due to installment costs associated with the software operations. Total FTEs who performed software installations and provided maintenance support as of June 30, 2013 and 2012 were 129 FTEs and 115 FTEs, respectively.

•

Cost of sales — The decrease of $0.3 million in cost of sales was primarily due to the reduction to software operations’ costs due to lower cost basis for licenses and equipment sales resulted from less utilization of third party products.

Service, Rental and Maintenance. Service, rental and maintenance expenses consisted primarily of the following items:


	For the Three Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
	(Dollars in thousands)
Site rent	$	4,237	$	—	$	4,237	$	4,421	$	—	$	4,421	$	(184)		(4.2%)
Telecommunications		1,885		—		1,885		2,346		—		2,346		(461)		(19.7%)
Payroll and related		3,395		1,679		5,074		3,625		1,735		5,360		(286)		(5.3%)
Stock based compensation		10		—		10		6		—		6		4		66.7%
Other		1,011		605		1,616		1,066		693		1,759		(143)		(8.1%)

Total service, rental and maintenance	$	10,538	$	2,284	$	12,822	$	11,464	$	2,428	$	13,892	$	(1,070)		(7.7%)

FTEs		143		58		201		157		64		221		(20)		(9.0%)

As illustrated in the table above, service, rental and maintenance expenses for the three months ended June 30, 2013 decreased $1.1 million or 7.7% from the same period in 2012 due to the following variances:

•

Site rent — The decrease of $0.2 million in site rent expenses was primarily due to the rationalization of our networks, which has decreased the number of transmitters required to provide service to our customers. The reduction in transmitters has, in turn, reduced the number of lease locations required for the wireless operations. Active transmitters declined 4.0% in the second quarter of 2013 from the same period in 2012.

•

Telecommunications — The decrease of $0.5 million in telecommunication expenses was due to the consolidation of our networks. We believe continued reductions in these expenses will occur as our networks continue to be consolidated as anticipated throughout 2013 for our wireless operations.

•

Payroll and related — Payroll and related expenses for wireless operations were incurred largely for field technicians, their managers, and in-house repair personnel, and payroll and related expenses for software operations were incurred for product development, product strategy and quality assurance personnel. The decrease in payroll and related expenses of $0.3 million was due to reductions of $0.2 million and $0.1 million in payroll and related expenses for wireless and software operations, respectively. Wireless operations FTEs decreased by 14 FTEs to 143 FTEs at June 30, 2013 from 157 FTEs at June 30, 2012. Software operations FTEs decreased by 6 FTEs to 58 FTEs at June 30, 2013 from 64 FTEs at June 30, 2012.

•

Other — The decrease of $0.1 million in other expenses was due primarily to lower outside services expenses, training expenses and various other miscellaneous expenses for the software operations of $88,000, and lower outside services expenses and repair and maintenance expenses for the wireless operations of $55,000.

Selling and Marketing. Selling and marketing expenses consisted of the following items:


	For the Three Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
							(Dollars in thousands)
Payroll and related	$	1,524	$	2,148	$	3,672	$	1,912	$	1,632	$	3,544	$	128		3.6%
Commissions		791		728		1,519		824		519		1,343		176		13.1%
Stock based compensation		17		—		17		18		—		18		(1)		(5.6%)
Other		231		908		1,139		218		796		1,014		125		12.3%

Total selling and marketing	$	2,563	$	3,784	$	6,347	$	2,972	$	2,947	$	5,919	$	428		7.2%

FTEs		74		82		156		88		66		154		2		1.3%

As indicated in the table above, selling and marketing expenses for the three months ended June 30, 2013 increased by $0.4 million, or 7.2%, from the same period in 2012. Selling and marketing expenses consisted primarily of payroll and related expenses, which increased by $0.1 million for the three months ended June 30, 2013 compared to the same period in 2012 due to the increase of payroll and related expenses of $0.5 million for the software operations, offset by a reduction of $0.4 million in payroll and related expenses for the wireless operations due to headcount reductions of 14 FTEs to 74 FTEs at June 30, 2013 from 88 FTEs at June 30, 2012. Software operations FTEs increased by 16 FTEs to 82 FTEs at June 30, 2013 from 66 FTEs at June 30, 2012.

The sales and marketing staff are all involved in selling our paging and software products and services domestically and internationally, as well as reselling other wireless products and services such as cellular phones and email devices under authorized agent agreements. These expenses support our efforts to maintain gross placements of units in service, which mitigated the impact of disconnects on our revenue base for wireless operations, and to identify business opportunities for additional or future software sales. We have a centralized marketing function which is focused on supporting our software products and vertical sales efforts by strengthening our brand, generating sales leads and facilitating the sales process. These marketing functions are accomplished through targeted email campaigns, webinars, regional and national user conferences, monthly newsletters and participation at industry trade shows. We sell our software products through a direct and channel sales force that consists of a dedicated team of managers. We have increased the number of software sales and marketing staff with the intention of increasing our potential sales opportunities. We have reduced the overall cost of our selling and marketing activities on the wireless operations by focusing on the most productive sales and marketing employees.

Commission expenses increased by $0.2 million for the three months ended June 30, 2013 compared to the same period in 2012 due primarily to an increase in commission expenses for software operations due to the higher revenue in 2013.

Other expenses increased by $0.1 million for the three months ended June 30, 2013 compared to the same period in 2012 due primarily to increases in outside services of $65,000 and travel and entertainment expenses of $40,000 for the software operations.

General and Administrative. General and administrative expenses consisted of the following items:


	For the Three Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
	(Dollars in thousands)
Payroll and related	$	4,667	$	995	$	5,662	$	5,148	$	824	$	5,972	$	(310)		(5.2%)
Stock based compensation		371		230		601		254		(273)		(19)		620		(3263.2%)
Bad debt		189		76		265		171		99		270		(5)		(1.9%)
Facility rent		479		360		839		542		326		868		(29)		(3.3%)
Telecommunications		245		98		343		341		102		443		(100)		(22.6%)
Outside services		1,864		247		2,111		2,347		111		2,458		(347)		(14.1%)
Taxes, licenses and permits		1,151		15		1,166		1,367		59		1,426		(260)		(18.2%)
Other		1,235		(337)		898		1,256		(180)		1,076		(178)		(16.5%)

Total general and administrative	$	10,201	$	1,684	$	11,885	$	11,426	$	1,068	$	12,494	$	(609)		(4.9%)

FTEs		144		29		173		166		30		196		(23)		(11.7%)

As illustrated in the table above, general and administrative expenses for the three months ended June 30, 2013 decreased by $0.6 million, or 4.9%, from the same period in 2012 due to the following variances:

•

Payroll and related — Payroll and related expenses were incurred mainly for employees in customer service, information technology, inventory, collections, finance and other support functions as well as executive management. Payroll and related expenses decreased by $0.3 million due primarily to lower payroll and related expenses of $0.5 million for wireless operations reflecting headcount reductions of 22 FTEs to 144 FTEs at June 30, 2013 from 166 FTEs at June 30, 2012 for wireless operations, partially offset by higher payroll and related expenses of $0.2 million for software operations despite a reduction of 1 FTEs to 29 FTEs at June 30, 2013 from 30 FTEs at June 30, 2012. The increase in payroll and related expenses for the software operations is primarily due to more senior level positions in 2013 than 2012 and due to the benefit in 2012 to payroll and related expense for forfeitures under the 2012 Short-Term Incentive Plan (“STIP”) associated with the departure of former executives in the software operations.

•

Stock based compensation — Stock based compensation expenses consisted primarily of amortization of compensation expense associated with restricted stock units (“RSUs”) awarded to certain eligible employees for both wireless and software operations and amortization of compensation expense for restricted stock awarded to non-executive members of our Board of Directors under the Equity Plans (see Note 15). Stock based compensation expenses increased by $0.6 million due to higher amortization of compensation expense of $0.1 million related to the 2011 Long-Term Incentive Plan (“LTIP”) for the wireless operations during the three months ended June 30, 2013 compared to the same period in 2012 since the 2011 LTIP award was effective on January 1, 2013 while 2012 included amortization of compensation expense for the 2009 LTIP. Stock based compensation expenses increased by $0.5 million for the software operations for the three months ended June 30, 2013 compared to the same period in 2012 due to the net benefit to stock based compensation in 2012 related to the forfeiture under the 2011 LTIP associated with the departure of former executives in the software operations.

•

Telecommunications — The decrease of $0.1 in telecommunication expenses reflected continued office and staffing reductions as we continue to streamline our operations and reduce our telecommunication requirements for the wireless operations.

•

Outside services — Outside services expenses consisted primarily of costs associated with printing and mailing invoices, outsourced customer service, temporary help, and various professional fees. The decrease of $0.3 million in outside services expenses was due primarily to lower professional services of

$0.4 million for wireless operations, partially offset by higher professional services of $0.1 million for software operations for the three months ended June 30, 2013 compared to the same period in 2012.

•

Taxes, licenses and permits — Tax, license and permit expenses consist of property, franchise, gross receipts and transactional taxes. The decrease in tax, license and permit expenses of $0.3 million was primarily due to lower universal service fund (“USF”) fees of $0.2 million and lower transactional taxes of $0.1 million due to the resolution of various state and local tax audits at amounts lower than the originally estimated liabilities for the wireless operations.

•

Other — The decrease of $0.2 million in other expenses was due primarily to an increase in net credits of $0.1 million for the software operations shared costs that have been allocated to cost of revenue, service, rental and maintenance and selling and marketing categories and a decrease in office expenses of $47,000 for the software operations.

Severance and Restructuring. We incurred severance and restructuring expenses of $2,000 for the three months ended June 30, 2013 compared to $24,000 for the same period in 2012 for lease restructuring.

Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expenses were $3.8 million for the three months ended June 30, 2013 compared to $4.6 million for the same period in 2012. There was $0.3 million in lower depreciation expense for the period from fully depreciated paging infrastructure and other assets, $0.1 million in lower depreciation expense on paging devices resulting from fewer purchases of paging devices and from fully depreciated paging devices, and $0.4 million in lower amortization expense for the software operations. Depreciation, amortization and accretion expenses for software operations represented $1.4 million of the total $3.8 million in depreciation, amortization and accretion expenses for the three months end June 30, 2013 and $1.7 million of the total $4.6 million in depreciation, amortization and accretion expenses for the three months ended June 30, 2012.

Interest Expense, Net; Other (Expense) Income, Net and Income Tax Expense

Interest Expense, Net. Net interest expense remains constant at $0.1 million for the three months ended June 30, 2013 from $0.1 million for the same period in 2012.

Other (Expense) Income, Net. Net other expense increased to $0.1 million for the three months ended June 30, 2013 from a net income of $0.4 million for the same period in 2012. The increase in expense in 2013 was primarily due to a net loss on asset disposals (mainly peripherals) compared to a net gain on asset disposals (mainly land) in 2012 in our wireless operations.

Income Tax Expense. Income tax expense for the three months ended June 30, 2013 was $4.9 million, a decrease of $0.8 million from the $5.7 million income tax expense for the same period in 2012 and was primarily a result of lower pre-tax income. We did not adjust the deferred income tax asset valuation allowance as of June 30, 2013. The following is the effective tax rate reconciliation for the three months ended June 30, 2013 and 2012, respectively:


	For the Three Months Ended June 30,
	2013			2012
	(Dollars in thousands)
Income before income tax expense	$	11,766		$	14,180

Income tax expense at the Federal statutory rate	$	4,118	35.0%	$	4,963	35.0%
State income taxes, net of Federal benefit		498	4.2%		444	3.1%
Change in valuation allowance		—	0.0%		(27)	(0.2%)
State income tax audit		—	0.0%		248	1.8%
Other		322	2.8%		105	0.7%

Income tax expense	$	4,938	42.0%	$	5,733	40.4%

The increase in the effective tax rate for the three months ended June 30, 2013 results from an increase in state income taxes and items that are not deductible for income tax purposes.

Statements of Income

Comparison of the Statements of Income for the Six Months Ended June 30, 2013 and 2012


	For the Six Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
							(Dollars in thousands)
Revenues:
Service, rental and maintenance, net	$	73,777	$	—	$	73,777	$	83,592	$	—	$	83,592	$	(9,815)		(11.7%)
Software revenue and other, net		2,773		28,848		31,621		3,456		25,648		29,104		2,517		8.6%

Total	$	76,550	$	28,848	$	105,398	$	87,048	$	25,648	$	112,696	$	(7,298)		(6.5%)

Selected operating expenses:
Cost of revenue	$	107	$	10,561	$	10,668	$	329	$	9,703	$	10,032	$	636		6.3%
Service, rental and maintenance		21,367		4,487		25,854		23,498		4,697		28,195		(2,341)		(8.3%)
Selling and marketing		5,039		7,524		12,563		6,020		5,552		11,572		991		8.6%
General and administrative		21,382		3,655		25,037		22,934		2,729		25,663		(626)		(2.4%)
Severance and restructuring		2		—		2		9		37		46		(44)		(95.7%)

Total	$	47,897	$	26,227	$	74,124	$	52,790	$	22,718	$	75,508	$	(1,384)		(1.8%)

FTEs		361		298		659		411		275		686		(27)		(3.9%)

Active transmitters		4,601		—		4,601		4,795		—		4,795		(194)		(4.0%)

Revenues — Wireless

Our total revenues were $76.6 million and $87.0 million for the six months ended June 30, 2013 and 2012, respectively. The decrease in total revenues reflected the decrease in demand for our wireless services. Service, rental and maintenance revenues, net of $73.8 million and $83.6 million for the six months ended June 30, 2013 and 2012, respectively, consist primarily of recurring fees associated with the provision of messaging services and rental of leased units and is net of a provision for service credits. Included in software revenue and other, net was $2.8 million and $3.5 million for the six months ended June 30, 2013 and 2012, respectively, of revenues associated with system sales, the sale of devices and charges for leased devices that are not returned and are net of anticipated credits. The table below details total service, rental and maintenance revenues, net for the periods stated:


	For the Six Months Ended June 30,
	2013		2012
	(Dollars in thousands)
Service, rental and maintenance revenues, net:
Paging:
Direct:
One-way messaging	$	61,183	$	67,615
Two-way messaging		8,969		10,824

	$	70,152	$	78,439

Indirect:
One-way messaging	$	1,979	$	2,711
Two-way messaging		984		1,273

	$	2,963	$	3,984

Total paging:
One-way messaging	$	63,162	$	70,326
Two-way messaging		9,953		12,097

Total paging revenue		73,115		82,423
Non-paging revenue		662		1,169

Total service, rental and maintenance revenues, net	$	73,777	$	83,592

The table below sets forth units in service and service revenues, the changes in each between the six months ended June 30, 2013 and 2012 and the changes in revenues associated with differences in ARPU and the number of units in service:


	Units in Service						Revenues
	As of June 30,						For the Six Months Ended June 30,						Change Due To:
	2013		2012		Change		2013⁽¹⁾		2012⁽¹⁾		Change		ARPU		Units
	(Units in thousands)						(Dollars in thousands)
One-way messaging		1,343		1,453		(110)	$	63,162	$	70,326	$	(7,164)	$	(1,320)	$	(5,844)
Two-way messaging		102		130		(28)		9,953		12,097		(2,144)		(146)		(1,998)

Total		1,445		1,583		(138)	$	73,115	$	82,423	$	(9,308)	$	(1,466)	$	(7,842)

⁽¹⁾	Amounts shown exclude non-paging revenue.

Revenues — Software

Software revenue and other for software operations was $28.8 million and $25.6 million for the six months ended June 30, 2013 and 2012, respectively, which consisted of operations revenue from software license revenue, professional services revenue, equipment sales, and maintenance revenue. The table below details total software revenue and other for software operations for the periods stated:


Revenue	For the Six Months Ended June 30,
	2013		2012
	(Dollars in thousands)
Operations revenue	$	15,141	$	12,752
Maintenance revenue		13,707		12,896

Total software operations revenue	$	28,848	$	25,648

The increase in operations revenue primarily reflects the recognition of software license and professional services in larger dollar sales in 2013 as compared to 2012.

Operating Expenses — Consolidated

Cost of revenue. Cost of revenue consisted primarily of the following items:


	For the Six Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
							(Dollars in thousands)
Payroll and related	$	—	$	5,755	$	5,755	$	—	$	4,692	$	4,692	$	1,063		22.7%
Cost of sales		107		3,916		4,023		329		4,142		4,471		(448)		(10.0%)
Other		—		890		890		—		869		869		21		2.4%

Total cost of revenue	$	107	$	10,561	$	10,668	$	329	$	9,703	$	10,032	$	636		6.3%

FTEs		—		129		129		—		115		115		14		12.2%

As illustrated in the table above, cost of revenue for the six months ended June 30, 2013 increased $0.6 million or 6.3% from the same period in 2012 due to the following variances:

•

Payroll and related — The increase of $1.1 million in payroll and related expenses was due to installment costs associated with the software operations. Total FTEs who performed software installations and provided maintenance support as of June 30, 2013 and 2012 were 129 FTEs and 115 FTEs, respectively.

•

Cost of sales — The decrease of $0.4 million in cost of sales was primarily due to the reduction to wireless operations’ costs of $0.2 million related primarily to a credit issued for a previously reported cost of a systems sale and due to the reduction to software operations’ costs of $0.2 million due to lower cost basis for licenses and equipment sales resulted from less utilization of third party products.

Service, Rental and Maintenance. Service, rental and maintenance expenses consisted primarily of the following items:


	For the Six Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
	(Dollars in thousands)
Site rent	$	8,472	$	—	$	8,472	$	9,212	$	—	$	9,212	$	(740)		(8.0%)
Telecommunications		3,774		—		3,774		4,658		—		4,658		(884)		(19.0%)
Payroll and related		6,945		3,332		10,277		7,444		3,445		10,889		(612)		(5.6%)
Stock based compensation		20		—		20		12		—		12		8		66.7%
Other		2,156		1,155		3,311		2,172		1,252		3,424		(113)		(3.3%)

Total service, rental and maintenance	$	21,367	$	4,487	$	25,854	$	23,498	$	4,697	$	28,195	$	(2,341)		(8.3%)

FTEs		143		58		201		157		64		221		(20)		(9.0%)

As illustrated in the table above, service, rental and maintenance expenses for the six months ended June 30, 2013 decreased $2.3 million or 8.3% from the same period in 2012 due to the following variances:

•

Site rent — The decrease of $0.7 million in site rent expenses was primarily due to the rationalization of our networks, which has decreased the number of transmitters required to provide service to our customers. The reduction in transmitters has, in turn, reduced the number of lease locations required for the wireless operations. Active transmitters declined 4.0% in the six months ended in June 30, 2013 from the same period in 2012.

•

Telecommunications — The decrease of $0.9 million in telecommunication expenses was due to the consolidation of our networks. We believe continued reductions in these expenses will occur as our networks continue to be consolidated as anticipated throughout 2013 for our wireless operations.

•

Payroll and related — Payroll and related expenses for wireless operations were incurred largely for field technicians, their managers, and in-house repair personnel, and payroll and related expenses for software operations were incurred for product development, product strategy and quality assurance personnel. The decrease in payroll and related expenses of $0.6 million was due to reductions of $0.5 million and $0.1 million in payroll and related expenses for wireless and software operations, respectively. Wireless operations FTEs decreased by 14 FTEs to 143 FTEs at June 30, 2013 from 157 FTEs at June 30, 2012. Software operations FTEs decreased by 6 FTEs to 58 FTEs at June 30, 2013 from 64 FTEs at June 30, 2012.

•

Other — The decrease of $0.1 million in other expenses was due primarily to lower outside services expenses of $57,000 and training expenses of $32,000 for the software operations.

Selling and Marketing. Selling and marketing expenses consisted of the following items:


	For the Six Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
	(Dollars in thousands)
Payroll and related	$	3,111	$	4,155	$	7,266	$	3,972	$	3,131	$	7,103	$	163		2.3%
Commissions		1,422		1,484		2,906		1,546		1,050		2,596		310		11.9%
Stock based compensation		34		—		34		34		—		34		—		0.0%
Other		472		1,885		2,357		468		1,371		1,839		518		28.2%

Total selling and marketing	$	5,039	$	7,524	$	12,563	$	6,020	$	5,552	$	11,572	$	991		8.6%

FTEs		74		82		156		88		66		154		2		1.3%

As indicated in the table above, selling and marketing expenses for the six months ended June 30, 2013 increased by $1.0 million, or 8.6%, from the same period in 2012. Selling and marketing expenses consisted primarily of payroll and related expenses, which increased $0.2 million for the six months ended June 30, 2013 compared to the same period in 2012 due to the increase of payroll and related expenses of $1.0 million for the software operations, offset by a reduction of $0.8 million in payroll and related expenses for the wireless operations due to headcount reductions of 14 FTEs to 74 FTEs at June 30, 2013 from 88 FTEs at June 30, 2012. Software operations FTEs increased by 16 FTEs to 82 FTEs at June 30, 2013 from 66 FTEs at June 30, 2012.

Commission expenses increased by $0.3 million for the six months ended June 30, 2013 compared to the same period in 2012 due primarily to an increase in commission expenses for software operations of $0.4 million, partially offset by a reduction of commission expenses for wireless operations of $0.1 million in line with the revenue and subscriber erosion.

Other expenses increased by $0.5 million for the six months ended June 30, 2013 compared to the same period in 2012 due primarily to increases in travel and entertainment expenses of $0.2 million, advertising expenses of $0.1 million and other miscellaneous expenses, net of $0.2 million for the software operations.

General and Administrative. General and administrative expenses consisted of the following items:


	For the Six Months Ended June 30,												Change Between 2013 and 2012
	2013						2012						Change Between 2013 and 2012
	Wireless		Software		Total		Wireless		Software		Total		Total		%
Payroll and related	$	9,390	$	2,298	$	11,688	$	10,443	$	2,019	$	12,462	$	(774)		(6.2%)
Stock based compensation		742		458		1,200		473		(77)		396		804		203.0%
Bad debt		383		157		540		348		156		504		36		7.1%
Facility rent		964		719		1,683		999		675		1,674		9		0.5%
Telecommunications		526		192		718		682		173		855		(137)		(16.0%)
Outside services		4,608		580		5,188		4,665		240		4,905		283		5.8%
Taxes, licenses and permits		2,376		23		2,399		2,855		72		2,927		(528)		(18.0%)
Other		2,393		(772)		1,621		2,469		(529)		1,940		(319)		(16.4%)

Total general and administrative	$	21,382	$	3,655	$	25,037	$	22,934	$	2,729	$	25,663	$	(626)		(2.4%)

FTEs		144		29		173		166		30		196		(23)		(11.7%)

As illustrated in the table above, general and administrative expenses for the six months ended June 30, 2013 decreased by $0.6 million, or 2.4%, from the same period in 2012 due to the following variances:

•

executive management. Payroll and related expenses decreased by $0.8 million due primarily to lower payroll and related expenses of $1.1 million for wireless operations reflecting headcount reductions of 22 FTEs to 144 FTEs at June 30, 2013 from 166 FTEs at June 30, 2012 for wireless operations, partially offset by higher payroll and related expenses of $0.3 million for software operations despite a reduction of 1 FTEs to 29 FTEs at June 30, 2013 from 30 FTEs at June 30, 2012. The increase in payroll and related expenses for the software operations is primarily due to more senior level positions in 2013 than 2012 and due to the benefit in 2012 to payroll and related expense for forfeitures under the 2012 STIP associated with the departure of former executives in the software operations.

•

Stock based compensation — Stock based compensation expenses consisted primarily of amortization of compensation expense associated with RSUs awarded to certain eligible employees for both wireless and software operations and amortization of compensation expense for restricted stock awarded to non-executive members of our Board of Directors under the Equity Plans (see Note 15). Stock based compensation expenses increased by $0.8 million due to higher amortization of compensation expense of $0.3 million related to the 2011 LTIP for the wireless operations during the six months ended June 30, 2013 compared to the same period in 2012 since the 2011 LTIP award was effective on January 1, 2013 while 2012 included amortization of compensation expense for the 2009 LTIP. Stock based compensation expenses increased by $0.5 million for the software operations for the six months ended June 30, 2013 compared to the same period in 2012 due to the net benefit to stock based compensation in 2012 related to the forfeiture under the 2011 LTIP associated with the departure of former executives in the software operations.

•

Telecommunications — The decrease of $0.1 million in telecommunication expenses reflected continued office and staffing reductions as we continue to streamline our operations and reduce our telecommunication requirements for the wireless operations.

•

Outside services — Outside services expenses consisted primarily of costs associated with printing and mailing invoices, outsourced customer service, temporary help, and various professional fees. The increase of $0.3 million in outside services expenses was due primarily to higher professional services for the six months ended June 30, 2013 compared to the same period in 2012 for software operations.

•

Taxes, licenses and permits — Tax, license and permit expenses consist of property, franchise, gross receipts and transactional taxes. The decrease in tax, license and permit expenses of $0.5 million was primarily due to lower USF fees of $0.3 million and lower transactional taxes of $0.2 million due to the resolution of various state and local tax audits at amounts lower than the originally estimated liabilities for the wireless operations.

•

Other — The decrease of $0.3 million in other expenses was due primarily to an increase in net credits of $0.2 million for the software operations shared costs that have been allocated to cost of revenue, service, rental and maintenance and selling and marketing categories, and a decrease in office expenses of $0.1 million for the software operations.

Severance and Restructuring. We incurred severance and restructuring expenses of $2,000 for the six months ended June 30, 2013 compared to $46,000 for the same period in 2012.

Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expenses were $7.6 million for the six months ended June 30, 2013 compared to $9.1 million for the same period in 2012. There was $0.6 million in lower depreciation expense for the period from fully depreciated paging infrastructure and other assets, $0.2 million in lower depreciation expense on paging devices resulting from fewer purchases of paging devices and from fully depreciated paging devices, and $0.7 million in lower amortization expense for the software operations. Depreciation, amortization and accretion expenses for software operations represented $2.9 million of the total $7.6 million in depreciation, amortization and accretion expenses for the six months end June 30, 2013 and $3.4 million of the total $9.1 million in depreciation, amortization and accretion expenses for the six months ended June 30, 2012.

Interest Expense, Net; Other Income, Net and Income Tax Expense

Interest Expense, Net. Net interest expense decreased to $0.1 million for the six months ended June 30, 2013 from $0.3 million for the same period in 2012. This decrease was primarily due to less interest on debt associated with the Amcom acquisition as the debt was completely repaid on April 6, 2012.

Other Income, Net. Net other income decreased to $6,000 for the six months ended June 30, 2013 from $0.4 million for the same period in 2012. The decrease in income in 2013 was primarily due to a net loss of $0.2 million on asset disposals compared to a net gain of $0.2 million on asset disposals in 2012 in our wireless operations.

Income Tax Expense. Income tax expense for the six months ended June 30, 2013 was $9.8 million, a decrease of $1.5 million from the $11.3 million income tax expense for the same period in 2012 and was primarily a result of lower pre-tax income. We did not adjust the deferred income tax asset valuation allowance as of June 30, 2013. The following is the effective tax rate reconciliation for the six months ended June 30, 2013 and 2012, respectively:


	For the Six Months Ended June 30,
	2013			2012
	(Dollars in thousands)
Income before income tax expense	$	23,523		$	28,187

Income tax expense at the Federal statutory rate	$	8,233	35.0%	$	9,865	35.0%
State income taxes, net of Federal benefit		981	4.2%		896	3.2%
Change in valuation allowance		—	0.0%		(27)	(0.1%)
State income tax audit		—	0.0%		248	0.9%
Other		556	2.3%		297	1.0%

Income tax expense	$	9,770	41.5%	$	11,279	40.0%

The increase in the effective tax rate for the six months ended June 30, 2013 results from an increase in state income taxes and items that are not deductible for income tax purposes.

Liquidity and Capital Resources — Consolidated

Cash and Cash Equivalents

At June 30, 2013, we had cash and cash equivalents of $72.0 million. The available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of invested cash and cash in our operating accounts. The invested cash is invested in interest bearing funds managed by third-party financial institutions. These funds invest in direct obligations of the government of the United States. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

At any point in time, we have approximately $3.0 to $5.0 million in our operating accounts that are with third-party financial institutions. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts.

We intend to use our cash on hand to provide working capital, to support operations, and to return value to stockholders through cash dividends and repurchases of our common stock. We may also consider using cash to fund acquisitions of assets of other businesses that we believe will provide a measure of growth or revenue stability while supporting our operating structure.

Overview

In the event that net cash provided by operating activities and cash on hand are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce or eliminate our cash dividends to stockholders, reduce or eliminate our common stock repurchase program, and/or sell assets or seek additional financing beyond the availability on our revolving credit facility. We can provide no assurance that reductions in planned capital expenses or proceeds from asset sales would be sufficient to cover shortfalls in available cash or that additional financing would be available on acceptable terms. As of June 30, 2013, our available cash on hand was $72.0 million and our available borrowing capacity under our revolving credit facility was approximately $40.0 million (see “Borrowings” below).

Based on current and anticipated levels of operations, we anticipate net cash provided by operating activities, together with the available cash on hand at June 30, 2013, should be adequate to meet anticipated cash requirements for both our wireless and software operations for the foreseeable future.

The following table sets forth information on our net cash flows from operating, investing, and financing activities for the periods stated:


	For the Six Months Ended June 30,				Change Between 2013 and 2012
	2013		2012		Change Between 2013 and 2012
	(Dollars in thousands)
Net cash provided by operating activities		$ 23,142		$ 33,759		$ (10,617)
Net cash used in investing activities		(5,259)		(7,121)		(1,862)
Net cash used in financing activities		(6,900)		(39,325)		(32,425)

Net Cash Provided by Operating Activities. As discussed above, we are dependent on cash flows from operating activities to meet our cash requirements. Cash from operations varies depending on changes in various working capital items including deferred revenues, accounts payable, accounts receivable, prepaid expenses and various accrued expenses. The following table includes the significant cash receipt and expenditure components of our cash flows from operating activities for the periods indicated, and sets forth the change between the indicated periods:


	For the Six Months Ended June 30,				Change Between 2013 and 2012
	2013		2012		Change Between 2013 and 2012
	(Dollars in thousands)
Cash received from customers		$ 104,889		$ 112,706		$ (7,817)

Cash paid for —
Payroll and related costs		43,195		37,458		5,737
Site rent costs		8,460		9,441		(981)
Telecommunication costs		4,268		5,353		(1,085)
Interest costs		6		127		(121)
Other operating costs		25,818		26,568		(750)

		81,747		78,947		2,800

Net cash provided by operating activities		$ 23,142		$ 33,759		$ (10,617)

Net cash provided by operating activities decreased $10.6 million for the six months ended June 30, 2013 compared to the same period in 2012 due to lower cash received from customers by $7.8 million and an increase in cash paid for operating activities by $2.8 million. Cash received from customers consisted of revenues and direct taxes billed to customers adjusted for changes in accounts receivable, deferred revenue and tax withholding amounts. The decrease of $7.8 million was due to lower revenue of $7.3 million, lower deferred revenue of $4.1 million and lower accrued sales taxes of $0.2 million, partially offset by lower accounts receivable of $3.8 million.

The increase in cash paid for operating activities of $2.8 million was as follows:

•

Cash payments for payroll and related costs increased by $5.7 million due to higher costs of $2.7 million in payroll and related costs for wireless operations primarily due to the payment of the cash award under the 2009 LTIP during the second quarter of 2013 and higher payroll costs of $3.0 million for software operations, in line with headcount trends.

•

Cash payments for site rent costs decreased $1.0 million. This decrease was due primarily to lower site rent expenses for leased locations as we rationalized our network and incurred lower payments in 2013 for wireless operations.

•

Cash payments for telecommunication costs decreased $1.1 million. This decrease was due primarily to the consolidation of our networks and reflects continued office and staffing reductions to support our smaller customer base for wireless operations.

•

Cash payments for interest costs decreased $0.1 million primarily due to less interest on debt associated with the Amcom acquisition as the debt was completely repaid on April 6, 2012.

•

Cash payments for other operating costs decreased $0.7 million. The decrease was due primarily to lower taxes, licenses and permits costs of $0.5 million, lower repair and maintenance costs of $0.2 million, lower office costs of $0.1 million and lower various other costs of $0.3 million, partially offset by higher travel and entertainment costs of $0.2 million and outside services costs of $0.2 million.

Net Cash Used In Investing Activities. Net cash used in investing activities decreased $1.9 million for the six months ended June 30, 2013 compared to the same period in 2012 due to lower acquisition costs of $3.0 million in the six months ended in June 30, 2013 from the same period in 2012, partially offset by higher capital expenses for property and equipment for both operations of $1.1 million.

Net Cash Used In Financing Activities. Net cash used in financing activities decreased $32.4 million for the six months ended June 30, 2013 from the same period in 2012 due to the prepayment of debt of $28.2 million during the six months ended June 30, 2012. In addition, we paid $4.2 million less in cash dividends to the stockholders during the six months ended June 30, 2013 compared to the same period in 2012. For the six months ended June 30, 2013, we paid a total of $5.4 million (or $0.25 per share of common stock) in quarterly cash dividends and accumulated cash dividends of $1.5 million earned on vested RSUs associated with 2009 LTIP compared to $11.1 million (or $0.50 per share of common stock) in quarterly cash dividends for the same period.

Future Cash Dividends to Stockholders. On August 1, 2013, our Board of Directors declared a regular quarterly cash dividend of $0.125 per share of common stock, with a record date of August 19, 2013, and a payment date of September 10, 2013. This cash dividend of approximately $2.7 million will be paid from available cash on hand.

Common Stock Repurchase Program. On July 31, 2008, our Board of Directors approved a program to repurchase our common stock in the open market. Credit Suisse Securities (USA) LLC administers such purchases. We expect to use available cash on hand and net cash provided by operating activities to fund the common stock repurchase program.

The Company’s stock repurchase program has been extended at various dates between 2009 through 2012 by our Board of Directors. On July 24, 2012, our Board of Directors approved a fifth supplement to the common stock repurchase program effective August 1, 2012 which reset the repurchase authority to $25.0 million as of August 1, 2012 and extended the purchase period through December 31, 2013. This repurchase authority allows us, at management’s discretion, to selectively repurchase shares of our common stock from time to time in the open market depending upon market price and other factors.

We made no common stock repurchases during the six months ended June 30, 2013. (See Note 15 for further discussion on our common stock repurchase program.)

Borrowings. On November 8, 2011 we executed the First Amendment to our Amended and Restated Credit Agreement (“Amended Credit Agreement”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”). The

Amended Credit Agreement increased the amount of the revolving credit facility to $40.0 million. The maturity date for the revolving credit facility is September 3, 2015. The Amended Credit Agreement also revised the London Interbank Offered Rate (“LIBOR”) definition to eliminate the LIBOR floor and reduced the interest rate margin to 3.25%. Borrowings under this facility are secured by a lien on substantially all of the existing assets, interests in assets and proceeds owned or acquired by us.

At June 30, 2013, we had no outstanding debt. (See Note 13 for further discussion on our long-term debt.)

Commitments and Contingencies

Operating Leases. We have operating leases for office and transmitter locations. Substantially all of these leases have lease terms ranging from one month to six years. We continue to review our office and transmitter locations, and intend to replace, reduce or consolidate leases, where possible. Total rent expense under operating leases for the three months ended June 30, 2013 and 2012 was approximately $4.5 million and $4.7 million, respectively, and for the six months ended June 30, 2013 and 2012 was approximately $9.1 million and $9.8 million, respectively, for the wireless operations. Total rent expense under operating leases for the three months ended June 30, 2013 and 2012 was $0.3 million and for the six months ended June 30, 2013 and 2012 was approximately $0.7 million and $0.6 million, respectively, for the software operations.

Other Commitments. We have various Letter of Credits (“LOCs”) outstanding with multiple state agencies. The LOCs typically have one to three-year contract requirements and contain automatic renewal terms. The deposits of $0.1 million related to the LOCs are included within other assets on the condensed consolidated balance sheets.

Off-Balance Sheet Arrangements. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships

Contingencies. See Note 21 for further discussion on our contingencies.

Related Party Transactions

See Note 20 for further discussion on our related party transactions.

Application of Critical Accounting Policies

The preceding discussion and analysis of financial condition and statement of income are based on our consolidated financial statements, which have been prepared in conformity with United States generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. On an on-going basis, we evaluate estimates and assumptions, including but not limited to those related to the impairment of long-lived assets and intangible assets subject to amortization and goodwill, accounts receivable allowances, revenue recognition, asset retirement obligations, and income taxes. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no changes to the critical accounting policies reported in the 2012 Annual Report that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

Non-GAAP Financial Measures

We use a non-GAAP financial measure as a key element in determining performance for purposes of incentive compensation under our annual STIP for our wireless and software operations. That non-GAAP financial measure is operating cash flow (“OCF”), defined as EBITDA less purchases of property and equipment. (EBITDA is defined as operating income plus depreciation, amortization and accretion, each determined in accordance with GAAP). Purchases of property and equipment are also determined in accordance with GAAP. For purposes of STIP performance, OCF was as follows for the periods stated:


	For the Three Months Ended June 30,
	2013						2012
	Wireless		Software		Total		Wireless		Software		Total
	(Dollars in thousands)
Operating income (loss)	$	11,975	$	(70)	$	11,905	$	13,911	$	(101)	$	13,810
Plus: Depreciation, amortization and accretion		2,380		1,442		3,822		2,854		1,752		4,606

EBITDA (as defined by the Company)		14,355		1,372		15,727		16,765		1,651		18,416
Less: Purchases of property and equipment		(2,816)		(111)		(2,927)		(2,854)		(34)		(2,888)

OCF (as defined by the Company)	$	11,539	$	1,261	$	12,800	$	13,911	$	1,617	$	15,528


	For the Six Months Ended June 30,
	2013						2012
	Wireless		Software		Total		Wireless		Software		Total
	(Dollars in thousands)
Operating income (loss)	$	23,877	$	(232)	$	23,645	$	28,589	$	(522)	$	28,067
Plus: Depreciation, amortization and accretion		4,776		2,853		7,629		5,669		3,452		9,121

EBITDA (as defined by the Company)		28,653		2,621		31,274		34,258		2,930		37,188
Less: Purchases of property and equipment		(5,077)		(191)		(5,268)		(4,373)		(66)		(4,439)

OCF (as defined by the Company)	$	23,576	$	2,430	$	26,006	$	29,885	$	2,864	$	32,749

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Long-term Debt

As of June 30, 2013, we had no outstanding borrowings and the Amended Credit Agreement remains in effect with approximately $40.0 million of available debt capacity. We will be exposed to changes in interest rates should we undertake new borrowings under the Amended Credit Agreement (see Note 13 for further discussion on our long-term debt). The floating interest rate debt exposes us to interest rate risk, with the primary interest rate exposure resulting from changes in LIBOR.

The definitive extent of the interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. We do not customarily use derivative instruments to manage our interest rate risk profile.

We conduct a limited amount of business outside the United States. Currently, most transactions are billed and denominated in United States dollars and, consequently, we do not currently have any material exposure to the risk of foreign exchange rate fluctuations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

On March 28, 2013, we reported that management had identified a material weakness related to the design over revenue recognition processes as further described in Item 9A of our 2012 Annual Report filed with the SEC on April 15, 2013. The Public Company Accounting Oversight Board’s (PCAOB) Auditing Standard No. 5 defines a material weakness as a deficiency, or combination of deficiencies, that result in a reasonable possibility

that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Our material weakness resulted in a restatement of our consolidated financial statements for the year ended December 31, 2011 and the unaudited interim financial statements for the quarterly periods ended March 31, 2011, June 30, 2011, and September 30, 2011 as further discussed in Note 2 – Restatement of Consolidated Financial Statements in the Notes to Consolidated Financial Statements included in our 2012 Annual Report.

To remediate the material weakness, we are in the process of implementing a number of measures which include: (1) staffing and organizational changes, (2) adopting new revenue recognition processes and controls, (3) expanding revenue recognition training programs, and (4) implementing standardized global contracts. For additional details on our remediation plan, see “Management’s Remediation Initiatives and Changes in Internal Control Over Financial Reporting” included in Item 9A of our 2012 Annual Report. Once these measures are implemented, our processes and controls will be required to have operated for a sufficient period of time to provide reasonable assurance as to their effectiveness. The material weakness will be remediated when, in the opinion of management, the control procedures have been operating for a sufficient period of time and testing can be completed as to operating effectiveness.

As of the end of the quarterly period ended June 30, 2013, our management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), with the participation of our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures. As part of this evaluation, we have considered whether the internal control deficiencies as discussed above continued to exist. Although we have devoted time and resources toward remediating the material weakness as described above and made progress in that regard, our management has concluded that the internal control deficiencies related to the material weakness had not been remediated as of June 30, 2013. Based on the foregoing, management has concluded that due to the material weakness described in our 2012 Annual Report, our disclosure controls and procedures as defined under Rule 13a-15(e) under the Exchange Act were not effective as of June 30, 2013.

Changes in Internal Control Over Financial Reporting

Other than as described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We expect to continue to undertake changes in our operations and procedures throughout 2013 to remediate the material weakness identified in our 2012 Annual Report.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved, from time to time, in lawsuits arising in the normal course of business. We believe these pending lawsuits will not have a material adverse impact on our financial results or operations.

Item 1A. Risk Factors

The risk factors included in “Part I – Item 1A – Risk Factors” of the 2012 Annual Report have not materially changed during the quarter ended June 30, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to purchases made by the Company during the three months ended June 30, 2013:


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs⁽¹⁾
							(Dollars in thousands)
Beginning Balance							$	16,964
April 1 through April 30, 2013⁽²⁾		108,459	$	12.92		—		16,964
May 1 through May 31, 2013		—		—		—		16,964
June 1 through June 30, 2013		—		—		—		16,964

Total		108,459	$	12.92		—

⁽¹⁾

On July 31, 2008, our Board of Directors approved a program to repurchase up to $50.0 million of our common stock in the open market during the twelve month period commencing on or about August 5, 2008. On July 24, 2012, our Board of Directors approved a fifth supplement to the common stock repurchase program effective August 1, 2012 which reset the repurchase authority to $25.0 million as of August 1, 2012 and extended the purchase period through December 31, 2013.

⁽²⁾	On April 23, 2013, we purchased a total of 108,459 shares of common stock at a price of $12.92 per share by net settling vested awards under the 2012 STIP and the 2009 LTIP.

Item 5. Other Information

Based upon the required market capitalization criteria at June 30, 2013, we determined that we will remain an accelerated filer for the current year.

On July 23, 2013 (the grant date), the Board of Directors awarded the President and Chief Executive Officer (“CEO”) an additional 138,980 RSUs under the 2011 LTIP pursuant to his amended employment agreement dated July 29, 2013 (see Exhibit 10.6). In addition, as part of the amended employment agreement, the CEO agreed to extend the term of his employment from December 31, 2014 to December 31, 2017. The CEO also agreed to reduce his annual STIP compensation target from 200 percent of his base salary of $600,000 (payable 50 percent in cash and 50 percent in equity) to 100 percent of his base salary with all of the STIP compensation payable in cash.

Item 6. Exhibits


Exhibit No.		Description
10.1		USA Mobility Inc. 2009 Long-Term Incentive Plan⁽¹⁾

10.2		USA Mobility Inc. 2010 Short-Term Incentive Plan⁽¹⁾

10.3		USA Mobility Inc. 2011 Short-Term Incentive Plan⁽¹⁾

10.4		USA Mobility Inc. 2012 Short-Term Incentive Plan⁽¹⁾

10.5		USA Mobility Inc. 2013 Short-Term Incentive Plan^(1) (2)

10.6		First Amendment to the Second Amended and Restated Employment Agreement dated as of July 29, 2013⁽¹⁾

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated August 2, 2013⁽¹⁾

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated August 2, 2013⁽¹⁾

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated August 2, 2013⁽¹⁾

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated August 2, 2013⁽¹⁾

⁽¹⁾	Filed herewith.

⁽²⁾	Portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to requests for confidential treatment pursuant to Rule 24b-2.


101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema*

101.CAL		XBRL Taxonomy Extension Calculation*

101.LAB		XBRL Taxonomy Extension Labels*

101.PRE		XBRL Taxonomy Extension Presentation*

The financial information contained in these XBRL documents is unaudited. The information in these exhibits shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall they be deemed incorporated by reference into any disclosure document relating to USA Mobility, Inc., except to the extent, if any, expressly set forth by specific reference in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX


Exhibit No.		Description
10.1		USA Mobility Inc. 2009 Long-Term Incentive Plan⁽¹⁾

10.2		USA Mobility Inc. 2010 Short-Term Incentive Plan⁽¹⁾

10.3		USA Mobility Inc. 2011 Short-Term Incentive Plan⁽¹⁾

10.4		USA Mobility Inc. 2012 Short-Term Incentive Plan⁽¹⁾

10.5		USA Mobility Inc. 2013 Short-Term Incentive Plan^(1) (2)

10.6		First Amendment to the Second Amended and Restated Employment Agreement dated as of July 29, 2013⁽¹⁾

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated August 2, 2013⁽¹⁾

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated August 2, 2013⁽¹⁾

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated August 2, 2013⁽¹⁾

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated August 2, 2013⁽¹⁾

⁽¹⁾	Filed herewith.

⁽²⁾	Portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to requests for confidential treatment pursuant to Rule 24b-2


101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema*

101.CAL		XBRL Taxonomy Extension Calculation*

101.LAB		XBRL Taxonomy Extension Labels*

101.PRE		XBRL Taxonomy Extension Presentation*