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PAGING CARRIERS PRODUCE MORE REVENUE, MORE NET LOSSES

Several paging carriers recently released their first-quarter earnings results. Five companies showed increased net revenues, while four reported increased net losses from first-quarter 1997 figures.

PageMart Wireless Inc. said it added 139,106 domestic subscribers for the quarter, bringing its total domestic subscribers to 2.6 million. Its average revenue per unit increased to $7.86, from $7.80 in the previous quarter. PageMart has added at least 100,000 subscribers during almost every quarter for the last four years, the company reported.

Its first-quarter net loss was $23.7 million, or 59 cents per share, compared with a net loss of $12 million, or 30 cents per share, reported for the first quarter of 1997. The company said the loss reflects an extraordinary charge of $13.8 million, or 34 cents per share, related to the early retirement of its 12.25-percent senior discount notes.

Net revenues for the quarter totaled $77.1 million, compared with $61.7 million for the same period last year.

Arch Communications Group Inc. added 126,000 subscribers during the quarter, which brought it past the 4-million subscriber milestone. However, the quarter also marked a decline in the company’s ARPU, which was $8.39 after the first quarter of last year, fell to $7.91 the last quarter of 1997 and dropped to $7.78 for the quarter ended March 31.

The company also reported a first-quarter net loss of $45.84 million, or $2.20 per share, slightly less than the net loss of $45.85 million, or $2.21 cents per share, it reported for the corresponding quarter last year. Net revenues totaled $94.7 million, a 7-percent increase compared with $88.4 million in net revenues for the same quarter of 1997.

Metrocall Inc. reported quarterly net subscriber additions of 86,023-below some analysts’ expectations of 100,000-compared with 85,213 net adds during the first quarter last year. At the end of the first quarter, Metrocall counted 4.12 million total subscribers, an increase of approximately 85 percent compared with the 2.28 million it counted on March 31, 1997.

Metrocall completed its acquisition of ProNet Inc. Dec. 30.

The company reported record net revenues of $96.3 million for the first quarter, an increase of about 59 percent compared with $60.6 million for the same quarter of 1997.

Its first-quarter net loss was $30.5 million, or 75 cents per share, compared with a net loss of $13.3 million, or 54 cents per share, reported during the same period last year. ARPU*was $7.28.

Paging Network Inc. reported its domestic ARPU increased to $7.36 in the first quarter of 1998, compared with $7.10 for the corresponding quarter of 1997, and $7.11 in the previous quarter. PageNet added 107,850 pagers during the quarter.

The company’s net revenues totaled $234.6 million for the first quarter ended March 31, a 21-percent increase compared with $193.9 million for the same quarter of 1997. Its first-quarter net loss-impacted by a $74 million restructuring charge-was $92.4 million, or 90 cents per share, compared with a net loss of $37.3 million, or 36 cents per share, reported for the corresponding quarter of last year.

Free cash flow of $11.7 million for the first quarter exceeded the record results PageNet reported for the last quarter of 1997, and represents an improvement of $87.3 million compared with the first three months of 1997.

Paging Partners Corp. reported a net loss of $6.3 million, or 4 cents per share, compared with $5.8 million, or 8 cents per share, in the same quarter last year. Net revenue increased to $2.4 million, from $1.7 million a year ago.

The company’s subscriber base rose to 160,000, an increase of about 10,000 subscribers. However, its ARPU shrank from $5.27 for the first quarter of 1997 to $4.03 this year.

Analysis

Industry analysts look for several factors when analyzing quarterly results. The first measure is free cash flow from operations, or what remains after paying for capital expenses. This is calculated by subtracting capital expenses from the company’s earnings before interest, taxes, depreciation and amortization. The higher the number, the better.

Second is ARPU. Sometimes, what increases free cash flow decreases ARPU, such as the practice of selling pagers vs. leasing them. When leasing a pager, the carrier usually charges more for service costs on top of the lease price to make up the cost of the unit. This increases the amount each unit brings in, but overall hurts operating cash flow because companies rarely completely recoup the cost of a leased pager.

Finally the debt-to-EBITDA ratio is important because it determines how leveraged a company is. The lower the better.

Using these measurements as a ruler, analysts say the industry’s first-quarter results point to an industrywide trend of focusing on profitability and away from growth at all costs.

Jeanine Oburchay of Bear Stearns & Co. said the industry in general made positive moves toward profitability, as it has slowed growth and reduced capital spending on pagers. She could name no company that displayed negative trends.

Positive business practices contributing to this include a move toward selling pagers outright rather than leasing them and increased consolidation.

Oburchay named PageNet and Mtel Inc. as the companies with the most notable first-quarter results. Mtel was able to reduce debt by $10 million, when many analysts expected that level to remain even or even increase a bit. The expectation now is that the company could conceivably reach true positive free cash flow, or a net gain, by the end of the year, making it the next paging company to achieve profitability since AirTouch Paging.

PageNet was able to reach positive free cash flow after debt services, meaning its operating expenses, minus capital expenditures and interest was a positive figure. “That’s one of the big goals of the industry,” Oburchay said.

Those companies intending to build out narrowband personal communications services networks face added expenses for that endeavor, meaning it may take them a little longer before reaching true profitability.

PageNet stock was trading at $14 by press time, Mtel at $24, Arch at $5 and PageMart at $9.50.

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