<PAGE> 1
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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NO. 0-28196
WEBLINK WIRELESS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2575229
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 LEE PARKWAY, SUITE 100 75219
DALLAS, TEXAS (Zip code)
(Address of principal executive offices)
(214) 765-4000
(Registrant's telephone number, including area code)
(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
--- ---
As of August 1, 2000, there were 42,448,016, 3,809,363, and 182,000 shares of
the registrant's class A, class B and class D common stock outstanding,
respectively. There were no shares of the registrant's class C common stock
outstanding at August 1, 2000.
<PAGE> 2
WEBLINK WIRELESS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999
and June 30, 2000..............................................................................3
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1999 and 2000............................................................4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 2000............................................................5
Notes to Condensed Consolidated Financial Statements................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................18
Item 2. Changes in Securities and Use of Proceeds..........................................................18
Item 3. Defaults Upon Senior Securities....................................................................18
Item 4. Submission of Matters to a Vote of Security Holders................................................18
Item 5. Other Information..................................................................................18
Item 6. Exhibits and Reports on Form 8-K...................................................................18
</TABLE>
2
<PAGE> 3
WEBLINK WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,440 $ 9,322
Accounts receivable, net 39,857 38,493
Inventories 5,941 6,576
Other current assets, net 7,657 6,871
------------ ------------
Total current assets 63,895 61,262
Property and equipment, net 245,596 229,003
Narrowband licenses, net 129,228 127,565
Other assets 13,211 16,269
------------ ------------
Total assets $ 451,930 $ 434,099
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 21,918 $ 25,313
Deferred revenue 54,836 38,838
Other current liabilities 24,772 35,783
------------ ------------
Total current liabilities 101,526 99,934
Long-term debt 538,185 470,597
Other long-term liabilities 659 339
Commitments and contingencies
Stockholders' (deficit) equity:
Common stock, $.0001 par value per share, 75,000,000 shares authorized
40,772,267 issued and 40,764,267 outstanding at December 31, 1999, and
46,419,618 shares
issued and 46,411,618 outstanding at June 30, 2000 4 5
Treasury stock, at cost, 8,000 shares at December 31, 1999 and
June 30, 2000 (68) (68)
Additional paid-in capital 229,847 347,831
Accumulated deficit (417,758) (462,963)
Stock subscriptions receivable (465) (244)
Deferred compensation -- (21,332)
------------ ------------
Total stockholders' (deficit) equity (188,440) (136,771)
------------ ------------
Total liabilities and stockholders' (deficit) equity $ 451,930 $ 434,099
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE> 4
WEBLINK WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Recurring revenues $ 64,681 $ 63,683 $ 129,404 $ 126,696
Network revenues -- 2,253 -- 2,907
Equipment revenues 19,367 16,526 28,098 30,324
------------ ------------ ------------ ------------
Total revenues 84,048 82,462 157,502 159,927
Cost of equipment sold 21,747 20,919 32,674 36,194
------------ ------------ ------------ ------------
62,301 61,543 124,828 123,733
Operating expenses:
Technical 20,443 17,061 39,158 33,792
General and administrative 19,372 19,582 40,450 39,337
Selling 11,972 12,806 25,898 25,351
Depreciation and amortization 19,077 19,831 37,727 39,329
Amortization of stock compensation -- 2,132 -- 4,266
------------ ------------ ------------ ------------
Total operating expenses 70,864 71,412 143,233 142,075
------------ ------------ ------------ ------------
Operating income (loss) (8,563) (9,869) (18,405) (18,342)
Other (income) expense:
Interest expense 16,430 15,709 31,455 32,893
Interest income (146) (475) (351) (897)
Gain on sale of Canadian affiliate -- -- -- (3,331)
Other 501 206 1,042 520
------------ ------------ ------------ ------------
Total other (income) expense 16,785 15,440 32,146 29,185
------------ ------------ ------------ ------------
Loss before extraordinary item (25,348) (25,309) (50,551) (47,527)
Extraordinary item:
Gain from early extinguishment of debt -- -- -- 2,322
------------ ------------ ------------ ------------
Net loss $ (25,348) $ (25,309) $ (50,551) $ (45,205)
============ ============ ============ ============
Net loss per share:
(basic and diluted)
Loss before extraordinary item $ (0.63) $ (0.54) $ (1.25) $ (1.06)
Extraordinary gain -- -- -- 0.05
------------ ------------ ------------ ------------
Net loss $ (0.63) $ (0.54) $ (1.25) $ (1.01)
============ ============ ============ ============
Weighted average number
of shares outstanding
(basic and diluted) 40,413 46,389 40,403 44,557
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE> 5
WEBLINK WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (50,551) $ (45,205)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Extraordinary gain -- (2,322)
Depreciation and amortization 37,727 39,329
Amortization of stock compensation -- 4,266
Provision for bad debts 3,246 2,473
Loss on sale of property and equipment -- 234
Gain on sale of Canadian affiliate -- (3,331)
Accretion of discount on senior discount notes 28,555 16,567
Amortization of deferred debt issuance costs 851 1,017
Utilization of Canadian roaming credits -- 338
Changes in certain assets and liabilities:
Increase in accounts receivable (14,048) (1,447)
(Increase) decrease in inventories 2,316 (635)
(Increase) decrease in other current assets (117) 786
(Increase) decrease in other assets 43 (1,094)
Increase in accounts payable 223 3,395
Decrease in deferred revenue (2,141) (15,998)
Increase in other current liabilities 391 11,011
------------ ------------
Net cash provided by operating activities 6,495 9,384
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (23,495) (21,208)
Sale of short-term investments 1,000 --
Proceeds from the sale of property and equipment -- 44
Proceeds from the sale of Canadian affiliate -- 2,560
Other (29) (19)
------------ ------------
Net cash used in investing activities (22,524) (18,623)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock under
the stock option plan 116 7,900
Payments of stock subscriptions receivable 21 221
Deferred debt issuance costs (3,202) --
Borrowings under the Credit Facility 25,000 --
Borrowings on the vendor financing arrangement 539 --
Payments on the vendor financing arrangement (10,224) --
------------ ------------
Net cash provided by financing activities 12,250 8,121
------------ ------------
Net increase (decrease) in cash and cash equivalents (3,779) (1,118)
Cash and cash equivalents, beginning of period 17,476 10,440
------------ ------------
Cash and cash equivalents, end of period $ 13,697 $ 9,322
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,383 $ 1,795
Taxes -- --
Supplemental schedule of noncash investing and financing activities:
Common stock issued in exchange for 11 1/4% Senior Subordinated
Discount Exchange Notes $ -- $ 81,005
Write-off of deferred debt issuance costs-11 1/4% Notes, net -- 1,148
Early extinguishment of 11 1/4% Senior Subordinated Discount Exchange Notes,
at accreted value -- 84,475
Equity conversion related to unconsolidated subsidiary -- 3,482
Phantom stock awards -- 25,598
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE> 6
WEBLINK WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
1. GENERAL
The predecessor corporation of WebLink Wireless, Inc. ("WebLink") was
incorporated as a Delaware corporation on May 8, 1989, to provide wireless
messaging products and services, under the name PageMart, Inc. ("PageMart"). In
January 1995, PageMart effected a corporate reorganization pursuant to which
PageMart Nationwide, Inc., a Delaware corporation, became the holding company
parent of PageMart. In December 1995, the name of PageMart Nationwide, Inc. was
changed to PageMart Wireless, Inc. ("Wireless"). On January 28, 1998, PageMart
was merged into Wireless with Wireless as the surviving corporation. On December
1, 1999, the name of Wireless was changed to WebLink Wireless, Inc.. WebLink and
its subsidiaries are referred to herein as the "Company." The consolidated
financial statements of the Company include the accounts of PageMart PCS, Inc.,
PageMart II, Inc., PageMart Operations, Inc., WebLink International, Inc. and
certain other direct and indirect subsidiaries of WebLink. Each of these
companies is a wholly-owned subsidiary of WebLink. PageMart PCS, Inc. holds
certain narrowband personal communications services licenses. PageMart II, Inc.
and PageMart Operations, Inc. hold certain Federal Communications Commission
("FCC") licenses. Other than these licenses, the subsidiaries of WebLink have no
significant assets or liabilities.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles for interim financial information and are in the form
prescribed by the Securities and Exchange Commission in instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The interim unaudited financial
statements should be read in conjunction with the audited financial statements
of the Company for the year ended December 31, 1999. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
3. RECURRING REVENUES
Recurring revenues for the three months ended June 30, 2000 were
favorably affected by the recognition of $3.8 million of one-time revenues in
the Traditional Paging Division associated with the revision of estimates.
Average revenue per unit ("ARPU") in the Traditional Paging Division would have
been $7.85 without these one-time revenues versus the $8.39 reported for the
three months ended June 30, 2000.
4. REVENUE RECOGNITION OF NONRECURRING ENGINEERING FEE
The Company has entered into agreements with Arch Communications Group,
Inc. ("Arch"), Metrocall, Inc. ("Metrocall") and Verizon Paging ("formerly known
as AirTouch Paging ["Verizon"]"). The agreements are organized into two phases.
Currently, Arch, Metrocall and Verizon are marketing their switch-based wireless
data services utilizing the Company's wireless data network. During the second
phase, Arch, Metrocall and Verizon will install their own networks leveraging
the Company's infrastructure and sites. Under these agreements, the companies
share certain capital and operating expenses, which will significantly lower
costs for those companies. Verizon elected to enter the second phase of the
agreement in a limited part of the United States in January of 2000. As part of
the agreements, the companies have agreed to pay a non-recurring engineering fee
("NRE"), which represents access to WebLink's technology for constructing a
two-way wireless data network. This fee will be recognized by the Company on a
straight-line basis as network revenues over the period from the election date
for the second phase to the end of the contract. As part of the Verizon
agreement, the Company pays Verizon an NRE for the use of some of its sites,
which is recognized on a straight-line basis over a similar period as technical
expense.
5. NETWORK REVENUES
Network revenues are comprised of: (1) NRE fees, (2) construction
revenues related to the installation of transmitting and receiving equipment and
(3) non-airtime service revenues.
6. EARNINGS PER SHARE
Net loss per share amounts reflected on the Condensed Consolidated
Statements of Operations are based upon the weighted average number of common
shares outstanding. Under the provisions of Statement of Financial
6
<PAGE> 7
Accounting Standards No. 128 - Earnings per Share, dilutive securities are
excluded from the calculation of earnings per share when there is a net loss
because their inclusion would be anti-dilutive. The securities listed below were
not included in the computation of dilutive loss per share for the three and six
months ended June 30, 1999 and 2000, since the effect from the conversion would
be anti-dilutive.
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 2000
--------------- ---------------
<S> <C> <C>
Stock Options 5,767,759 6,783,636
Phantom Stock -- 1,075,000
Warrants 785,198 637,308
--------------- ---------------
6,552,957 8,495,944
=============== ===============
</TABLE>
7. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective November 15, 1995, WebLink International, Inc. (formerly
PageMart International, Inc.) purchased 200,000 shares of common stock of
PageMart Canada Limited ("PageMart Canada") which represented 20% of the
ownership of PageMart Canada. The remaining 800,000 shares were held by PageMart
Canada Holding Corporation ("Canada Holding"). Canada Holding was owned 50%
(1,000,000 shares of class A common stock) by third-party Canadian investors
unrelated to WebLink International, Inc. and 50% (1,000,000 shares of class B
common stock) by WebLink International, Inc.. The common shares have identical
economic rights, but voting control of Canada Holding was held by the class A
common stockholders as the class A shares have two votes per share. The Company
accounted for its investments in PageMart Canada and Canada Holding under the
equity method. Such investments were included in Other Current Assets in the
Condensed Consolidated Balance Sheets.
On February 1, 2000, WebLink International, Inc. sold its investments
in PageMart Canada to Bell Mobility Paging Inc. ("Bell Mobility"), a
wholly-owned subsidiary of Bell Canada. WebLink International, Inc. received
cash consideration and Bell Mobility repaid certain intercompany liabilities by
providing Canadian roaming credits. The Canadian roaming credits are recorded at
present value using an 11 1/4% discount rate. A nonrecurring gain of
approximately $3.3 million was recognized on this transaction. The terms of the
sale established an exclusive 10-year network relationship with Bell Mobility as
the Canadian member of the Company's international network. Concurrently,
pursuant to the Agreement Among Stockholders of PageMart Canada dated July 28,
1995, 714,286 shares of class A common stock of the Company were issued in
exchange for the 1,000,000 class A common shares held by the third-party
Canadian investors in Canada Holding.
8. LONG-TERM DEBT
In March 2000, the Company issued 3.8 million shares of its class A
common stock in exchange for $84.5 million accreted value ($115.9 million
maturity value) of the 11 1/4% Senior Subordinated Discount Exchange Notes due
2008 (the "11 1/4% Notes"). The Company also wrote down approximately $1.1
million of net deferred debt issuance costs. In connection with this
transaction, the Company recognized an extraordinary gain of $2.3 million
related to the early retirement of debt.
9. STOCK OPTION/STOCK PURCHASE PLANS
Effective January 3, 2000, the Board of Directors adopted and the
stockholders approved at the April 5, 2000 annual meeting, the WebLink Wireless,
Inc. 2000 Flexible Incentive Plan (the "Flexible Incentive Plan"). The Flexible
Incentive Plan provides for the grant of nonqualified and incentive stock
options, stock appreciation rights, restricted stock, performance awards,
dividend equivalent rights, phantom stock, and other awards of incentive
compensation to individuals, partnerships, corporations, joint ventures and any
other form of business organization (collectively, "Persons") who are
responsible for the management, growth and financial success of the Company,
including, without limitation, officers, directors, employees and consultants.
The purpose of the Flexible Incentive Plan is to strengthen the Company by
providing eligible Persons with the opportunity to acquire a proprietary
interest or increase their proprietary interest in the Company, thereby
providing a means of attracting desirable employees, directors, vendors and
consultants, and encouraging them to remain in the service of the Company.
Three million shares of common stock are currently reserved for
issuance under the Flexible Incentive Plan, subject to adjustment in the event
of a recapitalization, stock split, reverse stock split, dividend or other
distribution, reorganization, merger, consolidation, or other similar corporate
transaction.
On February 10, 2000, 1,075,000 shares of phantom stock were granted
under the Flexible Incentive Plan with a three year vesting period. The phantom
stock is payable in the Company's class A common stock at zero cost to the
recipients. Based on the closing market price of $23.8125 reported on The Nasdaq
Stock Market ("Nasdaq") on February 10, 2000, these grants have an aggregate
market value of $25.6 million. The compensation cost associated with the grants
is recorded as amortization of stock compensation over the vesting period.
Accordingly, $8.5 million will be incurred in each of 2000, 2001 and 2002 and
$2.1 million and $4.3 million was recognized for the three and six months ended
June 30, 2000, respectively.
7
<PAGE> 8
At the April 5, 2000 annual meeting of stockholders, a proposal to
amend the Company's Nonqualified Formula Stock Option Plan for Non-Employee
Directors ("Director's Plan") to increase the maximum number of authorized
shares of the Company's common stock which may be issued under the Director's
Plan by 200,000 to a total of 300,000 shares was adopted.
10. COMPREHENSIVE INCOME (LOSS)
In January 1998, the Company adopted the Financial Accounting Standards
Board Statement No. 130 - Reporting Comprehensive Income, which establishes
standards for reporting comprehensive income and its components within the
financial statements. Comprehensive income is defined as all changes in the
equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. The Company's comprehensive income components are
immaterial for the three and six months ended June 30, 1999 and 2000; therefore,
comprehensive income (loss) is the same as net income (loss) for both periods.
11. RELATED PARTY TRANSACTION
The Company has entered into an agreement with the chairman and chief
executive officer providing that all obligations on his indebtedness totaling
approximately $178,000, including $15,000 of accrued interest, to the Company
will be suspended until and forgiven on January 3, 2001 if his employment has
not previously been terminated by the Company for cause or by the chairman for a
reason other than good reason (as defined in such agreement).
12. REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") which currently must be adopted for the fourth quarter of 2000. SAB
101 provides additional guidance on revenue recognition as well as criteria for
when revenue is generally realized and earned and also requires the deferral of
incremental costs. The Company is currently assessing the impact of SAB 101.
13. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131 - Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). The Company adopted SFAS 131 for the fiscal year ending December
31, 1998. SFAS 131 establishes accounting standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
The Company's reportable segments are divisions that offer different
products and/or services. The Company reports segments based on these divisions,
as management makes operating decisions and assesses individual performances
based on the performance of these segments.
The Company has three reportable segments: Wireless Data, Traditional
Paging and International Divisions. Through its Wireless Data Division, the
Company offers two-way messaging and internet-based information services.
Through its Traditional Paging Division, the Company provides paging and other
one-way wireless messaging services to its subscribers. Through its
International Division, the Company provides messaging services in selected
countries on a seamless international network. The Company pursues international
opportunities through network affiliation agreements between the Company and the
owners of foreign networks.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies presented in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, except
for the allocation of equity and debt by division.
The Company has allocated equity and long-term debt between its
Wireless Data and Traditional Paging Divisions. The methodology the Company
follows results in the attribution of the proceeds of each offering based on the
specific capital and operating requirements of each division. Free cash flow
("Free Cash Flow"), defined as earnings (loss) before interest, taxes,
depreciation and amortization, and amortization of stock compensation
("EBITDA"), less capital expenditures, generated by a division is utilized to
reduce its respective debt allocation. As of June 30, 2000, $146.0 million and
$180.2 million of equity and $406.4 million and $64.2 million of long-term debt
have been allocated to Wireless Data and Traditional Paging, respectively. For
the six months ended June 30, 2000, interest expense of $27.6 million and $5.3
million was allocated to Wireless Data and Traditional Paging, respectively.
The Wireless Data, Traditional Paging and International Divisions each
incur, and are charged, direct costs associated with their separate operations.
Common costs shared by the divisions are allocated based on the estimated
utilization of resources using various factors that attempt to mirror the true
economic cost of operating each
8
<PAGE> 9
division. Amortization of stock compensation is allocated equally to the
Wireless Data and Traditional Paging Divisions.
The following table sets forth segment financial information related to
the Company's various operations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
(UNAUDITED)
TRADITIONAL
WIRELESS DATA PAGING INTERNATIONAL CONSOLIDATED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 3,548 $ 80,335 $ 165 $ 84,048
Operating (loss) income (17,681) 9,236 (118) (8,563)
Interest expense 12,328 4,102 -- 16,430
Interest income 142 4 -- 146
Net (loss) income (29,867) 4,980 (461) (25,348)
EBITDA (9,553) 20,185 (118) 10,514
Total assets 331,734 151,384 2,866 485,984
Capital expenditures 7,302 4,916 -- 12,218
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
(UNAUDITED)
TRADITIONAL
WIRELESS DATA PAGING INTERNATIONAL CONSOLIDATED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 12,787 $ 69,623 $ 52 $ 82,462
Operating (loss) income (18,344) 8,650 (175) (9,869)
Interest expense 13,293 2,416 -- 15,709
Interest income 283 192 -- 475
Net (loss) income (31,408) 6,273 (174) (25,309)
EBITDA (6,880) 19,149 (175) 12,094
Total assets 303,489 130,219 391 434,099
Capital expenditures 8,478 3,807 -- 12,285
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
(UNAUDITED)
TRADITIONAL
WIRELESS DATA PAGING INTERNATIONAL CONSOLIDATED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 4,201 $ 153,037 $ 264 $ 157,502
Operating (loss) income (33,849) 15,714 (270) (18,405)
Interest expense 21,987 9,468 -- 31,455
Interest income 347 4 -- 351
Net (loss) income (55,489) 6,048 (1,110) (50,551)
EBITDA (17,996) 37,588 (270) 19,322
Total assets 331,734 151,384 2,866 485,984
Capital expenditures 14,123 9,372 -- 23,495
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
(UNAUDITED)
TRADITIONAL
WIRELESS DATA PAGING INTERNATIONAL CONSOLIDATED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 19,786 $ 140,003 $ 138 $ 159,927
Operating (loss) income (36,071) 18,062 (333) (18,342)
Interest expense 27,572 5,321 -- 32,893
Interest income 561 336 -- 897
(Loss) income before extraordinary item (65,121) 18,104 (510) (47,527)
EBITDA (13,481) 39,067 (333) 25,253
Total assets 303,489 130,219 391 434,099
Capital expenditures 14,568 6,640 -- 21,208
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the results of operations and
financial condition of the Company for the three and six months ended June 30,
1999 and 2000. This discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and the Notes thereto included
elsewhere in this report.
The form 10-Q contains statements that constitute forward-looking
statements. In addition to statements that speak to a time in the future, the
words "estimate," "project," "plan," "expect," "believe" and similar expressions
are intended to identify forward-looking statements. Readers are cautioned that
such forward-looking statements involve risks and uncertainties, and are subject
to change based on various important factors. The factors set forth in other
filings with the Securities and Exchange Commission, as well as the following
factors, could affect the Company's financial performance and could cause actual
results for 2000 and beyond to differ materially from those expressed in any
such forward-looking statements: economic conditions and consumer confidence
generally in the United States; the ability of the Company to manage its high
outstanding indebtedness; the impact of technological change in the
telecommunications industry; the future cost and availability of network
infrastructure and subscriber devices; the impact of competition and pricing of
paging and wireless data services; the timely market acceptance of new products
and services such as two-way messaging; change in regulation by the FCC and
various state regulatory agencies; and the potential technical problems relating
to the Company's wireless data network.
GENERAL
Through its Wireless Data Division, the Company has constructed and
operates a wireless data network which covers approximately 90% of the U.S.
population. The Company has incurred significant capital expenditures and
expects to incur additional capital expenditures and operating losses associated
with the implementation and deployment of its wireless data services. Management
does not expect the Wireless Data Division to generate positive EBITDA (defined
below) until 2001. Through its Traditional Paging Division, the Company provides
paging and other one-way wireless messaging services to its subscribers.
EBITDA represents earnings (loss) before interest, taxes, depreciation
and amortization, and amortization of stock compensation. EBITDA is a financial
measure commonly used in the Company's industry. EBITDA is not derived pursuant
to generally accepted accounting principles ("GAAP"), and therefore should not
be construed as an alternative to operating income, as an alternative to cash
flows from operating activities (as determined in accordance with GAAP) or as a
measure of liquidity. The calculation of EBITDA does not include commitments of
the Company for capital expenditures and payment of debt and should not be
deemed to represent funds available to the Company.
The Company sells or leases wireless messaging end-user devices to
subscribers, retailers and resellers. The Company earns recurring revenues from
subscribers in the form of fixed periodic fees and incurs substantial operating
expenses in offering its services, including technical, customer service, and
general and administrative expenses.
Since commencing operations in 1990, the Company has invested heavily
in its wireless communications network and administrative infrastructure in
order to establish nationwide coverage, sales offices in major metropolitan
areas, centralized customer service call centers and administrative support
functions. The Company incurs substantial fixed operating costs related to its
wireless communications infrastructure, which is designed to serve a larger
subscriber base than the Company currently serves in order to accommodate
growth. In addition, the Company incurs costs associated with each new
subscriber addition. The Company sustained consolidated operating losses in each
year of operations from inception through 1997. Although the Company recognized
a $2.5 million operating profit in 1998, the Company sustained an aggregate
$32.9 million operating loss from 1997 through 1999 and a $9.9 million and $18.3
million operating loss for the three and six months ended June 30, 2000,
respectively. The Wireless Data Division generated operating losses in 1997,
1998, 1999 and the three and six months ended June 30, 2000 and management
expects this trend to continue into 2001. In the third quarter of 1997, the
Company began generating operating profits in its Traditional Paging Division
and management expects this trend to continue through 2001. Nevertheless, the
Company expects to incur consolidated operating losses through 2001.
The Company's strategy is to expand its wireless data subscriber base
to increase profitability and cash flow through greater utilization of its
nationwide wireless communications network. From January 1, 1992 to June 30,
2000, the number of units in service increased from 52,125 to 2,427,464. This
includes 146,809 and 2,280,655 units in service from the Wireless Data Division
and Traditional Paging Division, respectively. None of the Company's growth is
attributable to acquisitions. The Company intends to achieve unit growth by
promoting its wireless data services through its direct sales force, national
retail distribution channels, private brand strategic alliances with
telecommunication companies and wireless data network alliances with companies
such as Arch, Metrocall and Verizon.
The Company has historically sold, rather than leased, substantially
all subscriber units used by its subscribers. As a result, the Company has had
much less capital invested in subscriber units than other carriers since it has
10
<PAGE> 11
recouped a substantial portion of subscriber unit costs upon sale to
subscribers, retailers and resellers. This has resulted in significantly lower
capital expenditures and depreciation expense than if the Company had leased
units to its subscribers. In addition, the Company's financial results are much
different than other carriers that lease subscriber units because the Company
recognizes the cost of subscriber units sold in connection with adding new
subscribers at the time of sale rather than capitalizing and depreciating the
cost of subscriber units over three years. In addition, the Company's retail
distribution strategy results in the recognition of expenses associated with
subscriber unit sales and other sales and marketing expenses in advance of new
subscribers being added to the base and generating revenues due to the inventory
carried by retailers. However, the Company expects to lease a larger proportion
of its wireless data subscriber units because of the high cost of wireless data
subscriber units compared to traditional paging units. In 1998, 1999 and the six
months ended June 30, 2000, the Company's capital expenditures for subscriber
units has increased as the result of the Company's increased leased units in
wireless data services.
The Company sells and leases its subscriber units through the following
distribution channels: (i) private brand strategic alliances and wireless data
network alliances through its Carrier Services Strategic Business Unit ("SBU"),
(ii) third party local resellers through its Reseller SBU, (iii) national and
regional retail stores through its National Retail SBU and (iv) direct sales
through its Field Sales and National Accounts SBU's. At June 30, 2000, 43% of
the Company's domestic units in service originated from the Carrier Services
SBU, 23% from the Reseller SBU, 20% from the National Retail SBU and 14% from
the Field Sales and the National Accounts SBU's. In the third quarter of 1998,
the Company announced the formation of its Wireless Control Systems (formerly
Telemetry) SBU. This SBU will begin generating recurring revenues in the third
quarter of 2000 as the first units were shipped in June.
For competitive and marketing reasons, the Company generally sells each
new unit to retailers for less than its acquisition cost. The Company's
accounting practices result in the loss on sales of equipment being recorded at
the time a unit is sold. Units sold by the Company during a given month may
exceed units activated and in service due to inventory stocking and distribution
strategies of retailers.
The Company derives its recurring revenue primarily from fixed periodic
fees for services. Consequently, the Company's ability to recoup its initial
selling and marketing costs, to meet operating expenses and to achieve
profitability is dependent on the average length of time that each customer
continues to utilize the Company's service, as operating results benefit from
the recurring payments of the fixed fees without the incurrence of additional
selling expenses by the Company. Conversely, operating results are adversely
affected by customer disconnections. Each month a percentage of the Company's
existing customers have their service terminated for a variety of reasons,
including failure to pay for service, dissatisfaction with service, and
switching to a competing service provider. The Company's average monthly
disconnection rates for the years ended December 31, 1997, 1998 and 1999 were
2.5%, 3.2% and 3.1%, respectively. For the three months ended June 30, 1999 and
2000, the Company's average disconnection rates were 2.9% and 3.0%,
respectively. Average monthly disconnect rates are calculated by dividing (a)
the sum of (i) the subscriber disconnections from each of the Carrier Services
SBU's strategic alliance partners, to the extent that each partner has net
disconnections, (ii) net subscriber disconnections from the local reseller
channel, taken as a whole and (iii) subscriber disconnections from all national
retail and direct sales channels, by (b) the total number of units in service at
the beginning of the period. Disconnect rates are stated as the monthly average
of each period presented.
Approximately 85% of the Company's average revenue per unit ("ARPU") is
attributable to fixed fees for airtime, coverage options and features. The
remainder is dependent on usage. Management anticipates that the Company's
consolidated ARPU will increase as subscriber additions in the Wireless Data
Division increase, since wireless data services yield a significantly higher
ARPU than traditional paging services. Management anticipates that the Company's
Traditional Paging Division's ARPU will remain constant or decline slightly in
the foreseeable future.
RESULTS OF OPERATIONS
WIRELESS DATA DIVISION
The Company's Wireless Data Division is expected to fuel the growth of
the Company in the future. Nationwide coverage was first offered on December 15,
1998 with coverage to 70% of the U.S. population. When the wireless data network
was substantially completed in April 1999, approximately 90% of the U.S.
population was covered. The following discussion analyzes the results of this
division's operations, unless otherwise indicated.
Units in Service
The Company had 24,416 units in service as of June 30, 1999 compared to
146,809 as of June 30, 2000. Wireless Data net subscriber additions during the
fourth quarter of 1999 were 12,574, below the second and third quarter 1999
levels, as they were negatively affected by the unavailability of acceptable
two-way subscriber devices from manufacturers. The Company received its first
shipments of full two-way wireless data devices in February 2000, contributing
to the 32,722 net subscriber additions reported in the first quarter of 2000 and
52,512 net subscriber additions for the second quarter of 2000. The Company
received its first Motorola Talkabout T900's in June, 2000 and management
expects that wireless data net subscriber additions will increase in the third
quarter of 2000 due to the expected increase in marketability of the Talkabout
T900, given that Motorola began its advertising campaign in late July 2000.
11
<PAGE> 12
Revenues
Revenues for the three and six months ended June 30, 1999 were $3.5
million and $4.2 million, respectively, compared to $12.8 million and $19.8
million for the three and six months ended June 30, 2000, respectively.
Recurring revenues for the same periods were $675,000, $882,000, $4.9 million
and $9.0 million, respectively. Revenues from equipment sales for the same
periods were $2.9 million, $3.3 million, $5.6 million and $7.9 million,
respectively. In the first quarter of 2000, Verizon elected to enter the second
phase of their network affiliation agreement with the Company and in the second
quarter of 2000, the Company completed the construction of a custom network for
the U. S. Department of Energy. For the three and six months ended June 30,
2000, network revenue of $2.3 million and $2.9 million, respectively, were
recognized. Network revenues are comprised of: (1) NRE fees; (2) construction
revenues related to the installation of transmitting and receiving equipment;
and (3) non-airtime service revenues. The Company did not recognize any
comparable revenue for the three and six months ended June 30, 1999. ARPU was
$15.69 for the three months ended June 30, 1999 compared to $13.66 for the three
months ended June 30, 2000. Management expects Wireless Data ARPU to vary
somewhat throughout 2000 as growth in individual quarters from a low base often
reflects a difference in channel mix.
Cost of Equipment Sold
The cost of equipment sold for the three and six months ended June 30,
1999 was $3.1 million and $3.6 million, respectively, compared to $6.7 million
and $9.1 million for the three and six months ended June 30, 2000, respectively.
Management expects a larger proportion of new wireless data units will be
leased, rather than sold, resulting in lower cost of equipment sold, higher
capital expenditures and higher depreciation expense.
Operating Expenses
Technical expenses were $7.3 million and $13.4 million for the three
and six months ended June 30, 1999, respectively, compared to $7.8 million and
$14.8 million for the three and six months ended June 30, 2000, respectively.
Management expects technical costs to increase in 2000 as the Company plans to
add transmitters and receivers to improve and expand its coverage.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
and six months ended June 30, 1999 and 2000 were $1.3 million, $2.5 million,
$1.4 million and $2.7 million, respectively. As the number of wireless data
units in service grows, additional resources will be required to be allocated to
support those customers, some of which will be shifted from the Traditional
Paging Division. This is expected to cause an increase in general and
administrative expenses in the Wireless Data Division.
Selling expenses for the three and six months ended June 30, 1999 were
$1.5 million and $2.7 million, respectively, compared to $3.9 million and $6.6
million for the three and six months ended June 30, 2000, respectively.
Management expects to aggressively market wireless data services, and selling
expenses are expected to increase as a result. If market growth warrants,
selling expenses may increase significantly in the future.
Depreciation and amortization was $8.1 million and $15.9 million for
the three and six months ended June 30, 1999, respectively, compared to $10.4
million and $20.5 million for the three and six months ended June 30, 2000,
respectively. The nationwide buildout of the Company's wireless data network was
substantially completed in April 1999. As a result, the Company recorded higher
depreciation expense in the first and second quarters of 2000.
TRADITIONAL PAGING DIVISION
The Company provides domestic one-way paging services in its
Traditional Paging Division. This division is a mature business requiring only a
maintenance level of capital investment and producing EBITDA, operating income
and net income. Management expects EBITDA from this division to decline over
time. The following discussion analyzes the results of this division's
operations, unless otherwise indicated.
Units in Service
Units in service from domestic one-way paging operations were 2,564,053
and 2,280,655 as of June 30, 1999 and 2000, respectively. In addition, PageMart
Canada's units in service were 61,708 at June 30, 1999. As a result of its
ownership interest in PageMart Canada, the Company's proportional share of the
units in service of PageMart Canada was 37,025 units at June 30, 1999. On
February 1, 2000, the Company sold its ownership interest in PageMart Canada;
therefore, the Company will no longer report a proportional share of the units
in service of PageMart Canada (see Note 7 to the Condensed Consolidated
Financial Statements of the Company).
The Company's one-way operations experienced a net decrease of 106,789
units in service in the second quarter of 2000, which reflects the general
market for traditional paging. This continues a trend from 1999. Management
believes there is a declining market for traditional one-way paging services,
and demand appears to be shifting to the higher quality and greater benefits of
wireless data services. Therefore, management expects net subscriber losses to
continue in 2000.
12
<PAGE> 13
Revenues
Total revenues for the three and six months ended June 30, 1999 and
2000 were $80.3 million, $153.0 million, $69.6 million and $140.0 million,
respectively. Recurring revenues for airtime, voice mail and other services for
the same periods were $64.0 million, $128.5 million, $58.7 million and $117.7
million, respectively. The decrease in recurring revenue is due primarily to the
declining number of subscriber units. Recurring revenues for the second quarter
of 2000 were favorably affected by the recognition of $3.8 million of one-time
revenues associated with the revision of estimates. Revenues from equipment
sales for the three and six months ended June 30, 1999 and 2000 were $16.3
million, $24.5 million, $10.9 million and $22.3 million, respectively. The
decrease in equipment revenue in the second quarter is due primarily to a
decrease in the average unit sales price resulting from sales of the PerComm
Odyssey pager. In the second quarter, the Company began selling the $29 PerComm
Odyssey pager to national retail stores across the country. The remainder of the
decline is due to the decrease in the market for traditional paging devices.
The Company's ARPU was $8.38 and $8.39 in the second quarters of 1999
and 2000, respectively. ARPU for the second quarter of 2000 was increased by
$0.54 due to the recognition of $3.8 million in one-time revenues. Excluding
these one-time revenues, ARPU would have been $7.85 in the second quarter of
2000. The decrease in ARPU, excluding these one-time revenues, from second
quarter 1999 levels is principally due to a decrease in subscribers in the
National Retail distribution channel, which generally has a higher ARPU.
Management expects ARPU to remain constant or decline slightly in the
foreseeable future with variations from changes in distribution and product mix.
Cost of Equipment Sold
The cost of equipment sold for the three and six months ended June 30,
1999 and 2000 was $18.6 million, $28.8 million, $14.1 million and $26.7 million,
respectively. The decrease in 2000 was chiefly due to the decrease in the cost
of subscriber devices. The Company expects subscriber device costs to decrease
throughout 2000. The loss on equipment sold (equipment revenue less cost of
equipment sold) is recognized when subscriber devices are shipped to the
retailers, usually before the devices are placed into service. The Company has
historically sold rather than leased the majority of devices.
Operating Expenses
Technical expenses were $13.1 million, $25.7 million, $9.3 million and
$19.0 million, respectively, for the three and six months ended June 30, 1999
and 2000. The decrease in 2000 was due in part to the decrease in the subscriber
base and the maturation of operations. Additionally, management expects on-going
technical expenses to slowly decline as resources are transferred to the
Wireless Data Division. Based on an average monthly cost per unit in service,
technical expenses were $1.72 and $1.33 for the three months ended June 30, 1999
and 2000, and $1.65 and $1.31 for the six months ended June 30, 1999 and 2000,
respectively. The per unit decreases were the result of increased operating
efficiencies and the transfer of resources to the Wireless Data Division.
During the second quarter of 2000, the Traditional Paging Division's
technical expenses were favorably affected by a $2.1 million reduction related
to the execution of interconnection agreements with certain local exchange
carriers ("LEC's") as provided in the Telecommunication Act of 1996. The Company
expects further favorable financial benefits as agreements are executed with
other LEC's. The total reduction for the six months ended June 30, 2000 was $3.6
million.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
and six months ended June 30, 1999 and 2000 were $18.1 million, $38.0 million,
$18.2 million and $36.6 million, respectively. The decrease was largely due to
increased operating efficiencies and the transfer of resources to the Wireless
Data Division. On an average cost per month per unit in service basis, general
and administrative expenses were $2.37 and $2.60 for the three months ended June
30, 1999 and 2000, and $2.44 and $2.52 for the six months ended June 30, 1999
and 2000, respectively. Management expects general and administrative costs in
the Traditional Paging Division to decline as resources are transferred to the
Wireless Data Division.
Selling expenses for the three and six months ended June 30, 1999 and
2000 were $10.3 million, $22.9 million, $8.9 million and $18.6 million,
respectively. The decrease is the result of the maturation of operations.
Management expects selling expenses to remain relatively constant in the near
future. During the three and six months ended June 30, 1999 and 2000, the
Company incurred $145,000, $312,000, $85,000 and $166,000, respectively, in
selling expenses associated with international operations.
Depreciation and amortization for the three and six months ended June
30, 1999 and 2000 was $10.9 million, $21.9 million, $9.4 million and $18.9
million, respectively. The decrease resulted from the spending of only
maintenance levels in capital expenditures. Depreciation and amortization should
remain relatively constant in the future. As an average cost per month per unit
in service, depreciation and amortization was $1.43 and $1.41 for the three and
six months ended June 30, 1999, and $1.35 and $1.30 for the three and six months
ended June 30, 2000, respectively.
13
<PAGE> 14
CONSOLIDATED
Amortization of Stock Compensation
On February 10, 2000, 1,075,000 shares of Phantom Stock were granted
under the Flexible Incentive Plan with a three year vesting period. Based on the
closing market price of $23.8125 reported on Nasdaq on February 10, 2000, these
grants have an aggregate market value of $25.6 million. The compensation cost
associated with the grants is recorded as amortization of stock compensation
over the vesting period. Accordingly, $8.5 million will be incurred in each of
2000, 2001 and 2002 and $2.1 million and $4.3 million was recognized for the
three and six months ended June 30, 2000, respectively.
Interest Expense
Consolidated interest expense increased from $16.4 million and $31.5
million for the three and six months ended June 30, 1999 to $15.7 million and
$32.9 million for the three and six months ended June 30, 2000. The increase in
2000 was the result of the increased interest related to the 15% Senior Discount
Exchange Notes due 2005 (the "15% Notes"), and the $100 million credit facility
with Bankers Trust Company and Morgan Stanley Senior Funding, Inc. (the "Credit
Facility") offset somewhat by decreased interest related to the 11 1/4% Notes
due to the conversion of $84.5 million accreted value to equity. For the three
and six months ended June 30, 1999 and 2000, respectively, interest expense
related to the 15% Notes was $7.0 million, $13.7 million, $8.0 million and $15.8
million; to the 11 1/4% Notes, $7.9 million, $15.7 million, $6.4 million and
$14.6 million; to a vendor financing arrangement, $104,000, $352,000 $0 and $0;
and to the Credit Facility, $1.2 million, $1.3 million, $1.2 million and $2.3
million.
Net Loss
The Company sustained a consolidated loss for the three and six months
ended June 30, 1999 of $25.3 million and $50.6 million, respectively. For the
three and six months ended June 30, 2000, the Company sustained a consolidated
net loss before an extraordinary item of $25.3 million and $47.5 million,
respectively, including a $3.3 million gain recognized from the sale of the
Company's investment in its Canadian affiliate in the first quarter (see Note 7
to the Condensed Consolidated Financial Statements of the Company). A one-time
extraordinary gain of $2.3 million was recognized in the first quarter of 2000
in conjunction with the early retirement of $84.5 million accreted value of the
11 1/4% Notes. Including the extraordinary item, the Company's consolidated net
loss was $25.3 million and $45.2 million for the three and six months ended June
30, 2000, respectively.
Divisional Allocations
The Company has allocated long-term debt between its Wireless Data and
Traditional Paging Divisions. The methodology the Company follows results in the
attribution of the proceeds of each offering based on the specific capital and
operating requirements of each division. Free Cash Flow, defined as EBITDA less
capital expenditures, ("Free Cash Flow") generated by a division is utilized to
reduce its respective debt allocation. As of June 30, 2000, $146.0 million and
$180.2 million of equity and $406.2 million and $64.2 million of long-term debt
has been allocated to the Wireless Data and Traditional Paging Divisions,
respectively.
The Wireless Data, Traditional Paging and International Divisions each
incur, and are charged, direct costs associated with their separate operations.
Common costs shared by the divisions are allocated based on the estimated
utilization of resources using various factors that attempt to mirror the true
economic cost of operating each division. Amortization of stock compensation is
allocated equally to the Wireless Data and Traditional Paging Divisions.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The tables below set forth management's presentation of the results of
the Wireless Data and Traditional Paging Divisions' operations and other data on
a quarterly basis for the six most recent fiscal quarters. This presentation
should be read in conjunction with the Condensed Consolidated Financial
Statements of the Company and the Notes thereto included elsewhere in this
report and the Company's quarterly reports on Form 10-Q for the corresponding
periods below, and should not be considered in isolation or as an alternative to
results of operations that are presented in accordance with GAAP.
14
<PAGE> 15
WIRELESS DATA DIVISION
<TABLE>
<CAPTION>
============================================================================================
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1999 1999 1999 1999 2000 2000
------------ ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Recurring revenues $ 207 $ 675 $ 1,811 $ 2,809 $ 4,049 $ 4,939
Network revenues -- -- -- -- 654 2,253
Equipment revenues 446 2,873 3,760 806 2,296 5,595
------------ ------------ ------------ ------------ ------------ ------------
653 3,548 5,571 3,615 6,999 12,787
Cost of equipment sold 574 3,053 3,725 942 2,486 6,662
------------ ------------ ------------ ------------ ------------ ------------
Net revenues 79 495 1,846 2,673 4,513 6,125
Technical expenses 6,144 7,297 6,818 6,736 7,077 7,764
General and administrative 1,195 1,270 1,445 1,804 1,307 1,383
expenses
Selling expenses 1,183 1,481 1,537 1,927 2,730 3,858
Depreciation and amortization 7,725 8,128 9,390 9,951 10,059 10,398
Amortization of stock compensation -- -- -- -- 1,067 1,066
------------ ------------ ------------ ------------ ------------ ------------
Operating loss (EBIT) $ (16,168) $ (17,681) $ (17,344) $ (17,745) $ (17,727) $ (18,344)
============ ============ ============ ============ ============ ============
EBITDA(1) $ (8,443) $ (9,553) $ (7,954) $ (7,794) $ (6,601) $ (6,880)
============ ============ ============ ============ ============ ============
Other data:
Ending units in service 4,259 24,416 49,001 61,575 94,297 146,809
ARPU(2) $ 27.37 $ 15.69 $ 16.44 $ 16.94 $ 17.32 $ 13.66
</TABLE>
----------
(1) Earnings (loss) before interest, taxes, depreciation and amortization, and
amortization of stock compensation.
(2) Calculated by dividing recurring revenues for the quarter by the simple
average number of units in service during that quarter. Stated as the
monthly average for the quarter.
TRADITIONAL PAGING DIVISION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1999 1999 1999 1999 2000 2000
------------ ------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Recurring revenues $ 64,516 $ 64,006 $ 64,549 $ 62,029 $ 58,964 $ 58,744
Equipment revenues 8,186 16,329 17,052 14,514 11,416 10,879
------------ ------------ ------------ ------------ ------------ ------------
72,702 80,335 81,601 76,543 70,380 69,623
Cost of equipment sold 10,269 18,556 18,827 15,656 12,626 14,115
------------ ------------ ------------ ------------ ------------ ------------
Net revenues 62,433 61,779 62,774 60,887 57,754 55,508
Technical expenses 12,571 13,146 12,674 11,229 9,654 9,297
General and administrative 19,883 18,102 18,809 18,211 18,448 18,199
expenses
Selling expenses 12,576 10,346 10,315 10,411 9,734 8,863
Depreciation and amortization 10,925 10,949 10,572 10,507 9,439 9,433
Amortization of stock compensation -- -- -- -- 1,067 1,066
------------ ------------ ------------ ------------ ------------ ------------
Operating income (EBIT) $ 6,478 $ 9,236 $ 10,404 $ 10,529 $ 9,412 $ 8,650
============ ============ ============ ============ ============ ============
EBITDA(1) $ 17,403 $ 20,185 $ 20,976 $ 21,036 $19,918 (4) $19,149 (5)
============ ============ ============ ============ ============ ============
Other data:
EBIT margin(2) 10.4% 15.0% 16.6% 17.3% 16.3% 15.6%
EBITDA margin(2) 27.9% 32.7% 33.4% 34.5% 34.5% 34.5%
Ending units in service 2,527,595 2,564,053 2,622,530 2,559,353 2,387,444 2,280,655
ARPU(3) $ 8.36 $ 8.38 $ 8.30 $ 7.98 $ 7.95 $ 8.39
</TABLE>
----------
(1) Earnings (loss) before interest, taxes, depreciation and amortization, and
amortization of stock compensation.
(2) Calculated by dividing quarterly EBIT or EBITDA by net revenues.
(3) Calculated by dividing recurring revenues for the quarter by the simple
average number of units in service during that quarter. Stated as the
monthly average for the quarter.
(4) Excluding comparable items to those listed in footnote (5), EBITDA would
have been $17.7 million for the quarter.
(5) Excluding one-time revenues, reductions in technical expense associated
with the Telecommunications Act of 1996, and the increased equipment losses
associated with the PerComm launch, EBITDA would have been $14.8 million
for the quarter.
15
<PAGE> 16
SEASONALITY
Device usage is slightly higher during the spring and summer months,
which is reflected in higher incremental usage fees earned by the Company. The
Company's retail sales are generally subject to seasonal fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically required substantial capital
investment for the development and installation of its wireless communications
network, the procurement of subscriber units, and expansion into new and in
existing markets. To date, these investments by the Company have been funded by
the proceeds from the issuance of common stock, preferred stock, long-term debt,
as well as borrowings under bank and vendor financing arrangements.
Capital expenditures were $23.5 million and $21.2 million for the six
months ended June 30, 1999 and 2000, respectively. The Company committed to
purchase $40 million in network infrastructure equipment and ReFLEX25 wireless
data subscriber units from Motorola from December 1, 1995 to June 30, 2001. The
Company fully met this commitment in the first quarter of 2000.
The Company's net cash provided by operating activities for the six
months ended June 30, 1999 and 2000 was $6.5 million and $9.4 million. Net cash
used in investing activities was $22.5 million and $18.6 million, respectively,
and was primarily for capital expenditures. Net cash provided by financing
activities was $12.3 million and $8.1 million, respectively. Cash provided by
financing activities in 1999 resulted primarily from the borrowing of $25.0
million under the Company's Credit Facility. Cash provided by financing
activities in 2000 primarily resulted from the proceeds received from the
issuance of common stock under the Company's stock option plan.
The 11 1/4% Notes, which are unsecured senior subordinated obligations
of the Company, mature in 2008 and were issued at a substantial discount from
their principal amount at maturity. In March 2000, the Company issued 3.8
million shares of its class A common stock in exchange for $84.5 million
accreted value ($115.9 million maturity value) of the 11 1/4% Notes. The
accretion of original issue discount on the 11 1/4% Notes will cause an increase
in indebtedness, after the exchange transaction, from June 30, 2000 to February
1, 2003 of $77.8 million. From and after August 1, 2003, interest on the 11 1/4%
Notes will be payable semiannually, in cash.
The 15% Notes, which are unsecured senior obligations of the Company,
mature in 2005 and were issued at a substantial discount from their principal
amount at maturity. The 15% Notes were fully accreted by February 1, 2000. From
and after August 1, 2000, interest on the 15% Notes will be payable
semiannually, in cash. The Company has paid the August 1, 2000 interest payment.
Management believes it has the necessary resources, including availability under
the Credit Facility, to meet the cash requirements of the interest payment in
February 2001.
In March 1997, the Company entered into a vendor financing arrangement
with an infrastructure vendor (the "Vendor Financing Arrangement"), providing
for the financing of infrastructure and other equipment over a period of 60
months up to a maximum aggregate amount of $30 million. Borrowings under the
Vendor Financing Arrangement are available until December 31, 2000 and are
secured by the equipment purchased. The interest rate applicable to such
financing is equal to the sum of 7% and the London interbank offered rate
("LIBOR") as published in The Wall Street Journal for three-month maturities or
the sum of 4.25% and the U.S. prime rate of interest as published in The Wall
Street Journal. As of June 30, 2000, the Company had no amounts outstanding
under the Vendor Financing Arrangement.
In March 1999, the Company entered into the Credit Facility which
provides for $75 million of multi-draw term loans (the "Term Loans") and $25
million of revolving loans (the "Revolving Loans"). On March 24, 1999, the
Company borrowed $25 million in Term Loans under the Credit Facility, of which
approximately $12 million was used to repay amounts outstanding under the Vendor
Financing Arrangement and to fund the fees and expenses of the Credit Facility.
As of June 30, 2000, total availability under the Credit Facility was $100
million, of which $25 million was outstanding in the form of Term Loans. The
Credit Facility bears interest at the U.S. prime rate plus 2.75% or at LIBOR
plus 3.75%. The weighted average interest rate on the amounts borrowed for the
period from January 1, 2000 to June 30, 2000 was 10.21%.
As of June 30, 2000, the Company's indebtedness was $238.3 million
under the 11 1/4% Notes, $207.3 million under the 15% Notes and $25 million
under the Credit Facility.
The indentures under which the 15% Notes and the 11 1/4% Notes were
issued, the Vendor Financing Arrangement and the Credit Facility contain certain
restrictive covenants that, among other things, limit the ability of the Company
to incur indebtedness, pay dividends, repurchase capital stock, engage in
transactions with stockholders and affiliates, create liens, sell assets, enter
into leases and engage in mergers and consolidations, and the Credit Facility
requires the Company to maintain certain operating and financial performance
measures and limits the ability of the Company to make capital expenditures.
16
<PAGE> 17
During 1999, the Company reported $45.4 million of consolidated EBITDA
and $45.7 million of consolidated capital expenditures. The Company anticipates
that the Wireless Data Division will require approximately $55 to $70 million of
capital to fund operations and capital expenditures during 2000, funded
principally by the Free Cash Flow from the Traditional Paging Division during
2000. The Traditional Paging Division is expected to generate $60 to $75 million
of EBITDA and require approximately $10 million of capital expenditures in 2000.
As of June 30, 2000, the Company had approximately $9.3 million in cash
and cash equivalents. At June 30, 2000, borrowings available under the Vendor
Financing Arrangement were $30 million and under the Credit Facility were $75
million. The Company anticipates that its cash balance and amounts available
under the Vendor Financing Arrangement and Credit Facility, combined with the
Free Cash Flow from the Company's Traditional Paging Division, will be
sufficient to fund the Company's consolidated operations, capital expenditures
and all cash interest costs through 2000. The Company will borrow further on its
Credit Facility and the vendor financing arrangement in the second half of this
year.
From time to time, the Company will selectively consider potential
opportunities to make acquisitions intended to enhance its strategic position in
the wireless messaging industry. If the Company were to pursue any such
acquisitions, the Company would expect to obtain any necessary financing through
additional borrowings and/or equity financing and would need to successfully
integrate the acquired business into the existing operations.
Future revenues, costs, product mix and new product acceptance are all
influenced by a number of factors which are inherently uncertain and difficult
to predict. Therefore, no assurance can be given that financing for such
investments will be available. No assurance can be given that the Company's
strategy will be implemented as currently planned or that the Company's
operations will generate positive cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's investment policy requires investments in high-quality
investment grade securities including obligations of the U.S. Government
guaranteed by the United States of America, money market deposits and corporate
commercial paper. The Company typically invests its surplus cash in these types
of securities for periods of relatively short duration. Although the Company is
exposed to market risk related to changes in short-term interest rates on these
investments, the Company manages these risks by closely monitoring market
interest rates and the duration of its investments. Due to the short-term
duration and the limited dollar amounts exposed to market interest rates,
management believes that fluctuations in short-term interest rates will not have
a material adverse effect on the Company's results of operations. The Company
does not enter into financial investments for speculation or trading purposes
and is not a party to any financial or commodity derivatives.
The Credit Facility bears interest at the U.S. prime rate plus 2.75% or
at LIBOR plus 3.75%. Therefore, the Credit Facility is subject to short-term
interest rate risk. At June 30, 2000, the balance outstanding under the Credit
Facility was $25.0 million. Consequently, a 100 basis point increase in the U.S.
prime rate or LIBOR would result in a $250,000 increase in interest expense over
a twelve month period.
17
<PAGE> 18
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal
course of business. In management's opinion, the ultimate outcome of these
lawsuits will not have a material adverse effect on the results of operations or
financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on April 5, 2000,
the following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
WITHHELD /
PROPOSAL FOR AGAINST ABSTAIN BROKER NONVOTES
----------------------------------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
1) Election of directors:
a) Leigh J. Abramson 34,438,951 99,030 -- --
b) Albert C. Black Jr 34,446,951 91,030 -- --
c) John D. Beletic 34,440,501 97,480 -- --
d) Guy L. de Chazal 34,438,951 99,030 -- --
e) Steven B. Dodge 34,447,351 90,630 -- --
f) Michael C. Hoffman 34,439,101 98,880 -- --
g) Pamela D.A. Reeve 34,447,501 90,480 -- --
2) Approval of proposal to adopt the 2000
Flexible Incentive Plan 26,304,657 8,178,677 54,647 --
3) Approval of an amendment to the
Company's Nonqualified Formula Stock
Option Plan for Non-Employee Directors
to increase the maximum number of
authorized shares of the Company's
common stock which may be issued under
the Nonqualified Formula Stock Option
Plan for Non-Employee Directors by
200,000 for a total of 300,000 shares 27,907,086 5,892,913 55,668 --
4) Ratification of Arthur Andersen LLP as
independent public accountants 34,475,638 23,520 38,823 --
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The exhibits listed on the accompanying index to exhibits are
filed as part of this quarterly report.
(b) Reports on Form 8-K
None
18
<PAGE> 19
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.
WEBLINK WIRELESS, INC.
AUGUST 14, 2000 BY: /s/JOHN D. BELETIC
------------------------------------------------
JOHN D. BELETIC
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AUGUST 14, 2000 BY: /s/JOHN R. HAUGE
------------------------------------------------
JOHN R. HAUGE
VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND CHIEF ACCOUNTING OFFICER)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
11.1* Statement regarding computation of per share earnings (loss)
for the three months ended June 30, 2000
11.2* Statement regarding computation of per share earnings (loss)
for the three months ended June 30, 1999
11.3* Statement regarding computation of per share earnings (loss)
for the six months ended June 30, 2000
11.4* Statement regarding computation of per share earnings (loss)
for the six months ended June 30, 1999
12.1* Computation of ratio of earnings to fixed charges
27.1* Financial Data Schedule
</TABLE>
* Filed herewith
