Ardis Brings More Than Revenue to AMSC
By Bob Starzynski
American Mobile Satellite Corp.'s acquisition of Motorola's Ardis division last week will triple the company's size and brighten its prospects for future growth, company officials said.
The Reston, Va.-based company started out with a grand plan: to provide cellular telephone coverage in rural markets nationwide via satellite. That idea flopped and then the company turned to niche business markets including trucking, maritime and emergency response services.
On March 31, American Mobile paid $100 million in cash and stock for Ardis, which offers data messaging to corporate clients. American Mobile officials tout its expanded network as being the only nationwide voice and data network that gives users the capabilities of two-way paging, e-mail and telephony.
With the acquisition, the company increases its data messaging subscriber base from less than 35,000 to 80,000, boosts its service revenue from $20 million last year to the current $60 million, and sees its employee count jump from under 300 to more than 500.
Walter Purnell, American Mobile's new president
The infusion of customers and revenue comes at an important time for American Mobile, which has traded on the Nasdaq National Market for four years. Since the company's stock price peaked at $30 in early 1996, it spent the next 18 months falling steadily to $6. News of the acquisition and the completion of a $335 million bond offering have put American Mobile on the rebound, closing April 2 at $12.
"I've been here for one-and-a-half years," said Gary Parsons, chief executive officer of American Mobile. "I wouldn't say we've turned the company around in that time. But it has been substantially repositioned with a much more credible business plan."
As part of the acquisition, Parsons turned over his president title at American Mobile to Walter Purnell, former president of Ardis. Parsons continues as chief executive officer and has taken over the company's board chairman position from Jack Shaw, who will continue to serve as a director.
When Parsons took over American Mobile in 1996, the company was focused on the consumer wireless voice market. That market was extremely competitive and fully saturated with formidable players.
Parson's first priority was to refocus his company's products on specific vertical commercial markets, like trucking, maritime and emergency response services. Those corporate clients would be more apt than consumers to buy mobile voice and data communications devices that cost between $3,000 and $6,000.
Shifting to the niche business markets "really helped stabilize things," said Scott Wright, an analyst covering American Mobile for Fahnestock & Co. in New York.
A worker communicates over
the Ardis wireless data network.
After doubling its net loss from 1995 to 1996 to $135 million, the loss was cut back to $119 million last year. Parsons said that gap will continue to narrow.
While moving into the new business markets was a big success for American Mobile, pricing started playing in its favor as well.
"Equipment prices have fallen into the $500 range," Parsons said. "Suddenly, customers could [justify the cost]."
American Mobile does not manufacture its user equipment, which includes vehicle-based communications terminals and portable devices, although it does sell the equipment. The company gets its profit from service revenues, not from the sale of equipment.
Company officials believe the Ardis acquisition will help it reach critical mass on its network, which includes one geosynchronous satellite and 1,700 transmission towers that work similarly to a cellular telephone network.
"This certainly makes them a formidable player," said Howard Rosencrans, an analyst with HD Brous & Co. in Great Neck, N.Y. "I don't think there is any question that they will continue to grow."
According to Parsons, newly signed contracts with several trucking companies give American Mobile a subscriber backlog of 100,000 - more than the company's current customer base. Parsons anticipates that backlog will continue to grow.
But American Mobile is not out of the woods yet, Wright cautioned. "Gary Parsons has some potentially powerful assets in place," he said. "Now all eyes are going to be on execution. They are running out of time to show that they can make the company work. So far, the market has been patient with this company."
Because half of the Ardis acquisition is in stock, Schaumburg, Ill.-based Motorola becomes the second largest American Mobile stockholder. The first is Hughes Electronics Corp. of Los Angeles.
Neither Wright nor Rosencrans would forecast when they believe American Mobile will turn cash positive or become profitable. But Rosencrans said it "certainly won't be in 1998."
Parsons could not be specific with his forecast, either. "Let's just say that we are well through the heavy-loss cycle and are now reducing our losses," he said.
Still, American Mobile has more than $250 million left over from its debt offering that could be used for several purposes. Parsons said part of the money will be used to help the company execute the existing orders from its backlog.
He did not rule out the possibility of additional acquisitions. He also did not say whether there are other such deals in the works.
|American Mobile Satellite Corp.|
|Nasdaq symbol: SKYC|
Headquarters: Reston, Va.
Chief executive: Gary Parsons
|American Mobile Satellite Corp.|
| ||1997 ||1996 ||1995 |
|Service revenue ||$20.7 M ||$9.2 M ||$6.9 M |
|Equipment revenue ||$23.5 M ||$18.5 M ||$1.9 M |
|Total revenue ||$44.2 M ||$27.7 M ||$8.8 M |
|Net loss ||($119.2 M) ||($134.6 M) ||($66.9 M) |
|Source: Securities and Exchange Commission|