5353 Institute Lane No.

9 Houston, Texas 77005-1881

USA Mobility (USMO): The Case for Extreme Undervaluation

Data as of 2/25/2010
Market Cap: $255 million
Price: $11.33
Shares Outstanding: 22,500,165
Valuation: Market Cap / Avg. 3 Year Estimated Free Cash Flow = 4.05X
Real Economic Cost Basis / Avg. 3 Year Estimated Free Cash Flow = 2.85X

Added Bonus, if utilized: Net Operating Losses — The Company has a Federal net operating loss
(“NOL”) carry-forward (before the Internal Revenue Code (“IRC”) Section 382 limitation) of $914
million as of December 31, 2009. These losses expire in various amounts through 2029. Approximately
$532 million of these NOLs are subject to an annual $6.1 million Section 382 limitation (IRC Section 382
limits a company’s ability to utilize net operating losses). Therefore, approximately $410 million of these
NOLs will expire unutilized due to the Section 382 limitation. The remaining NOLs of approximately
$382 million are not subject to an IRC Section 382 limitation. With the effective settlement of the
liability for uncertain tax positions, the NOL carry-forward is the same for financial reporting and income
tax purposes. (Source: 2009 10-K, bold my own)

Business: USMO is a leading provider of reliable and affordable wireless communications solutions to the
healthcare, government, large enterprise and emergency response sectors. As a single-source provider, USA
Mobility’s strategy is to focus on the business-to-business marketplace and to offer the Company’s wireless
connectivity solutions. The Company operates nationwide networks for both one-way paging and advanced
two-way messaging services. (Summary Abridged)

Cash Flow Generation

Year 2004 2005 2006 2007 2008 2009
Free Cash Flow (in millions) 95.0 125.8 126.3 96.0 87.7 84.6

USA Mobility had a Free Cash Flow peak of $126.3m in 2006. Free Cash Flow is at $84.6m in 2009.
Using those numbers, the compound annual growth rate for Free Cash Flow is -12.5% from 2006 to 2009.
To be conservative, let's assume it's -15% compounded every year for the next 10 years.

We get a table of free cash flow estimates of:

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Free Cash Flow 84.6 71.91 61.12 51.95 44.16 37.54 31.91 27.12 23.05 19.59 16.65

Balance Sheet and Valuation

$133.75m cash and receivables – $54.75m in total liabilities = $79m excess cash on balance sheet.
$255m market cap - $79m excess cash = $176m real economic cost basis, which is net of the excess
cash which could be dividended out in a return of capital, etc. and is not needed in the business.

Therefore, valuation < 3X forward FCF, if the above estimates are accurate.
Calculation: $176 million < ($71.91m 2010E + $61.12m 2011E + 51.95m 2012E)
Opportunities

I. If entrepreneurial management could be introduced, including the aggressive recruitment of talent

from companies such as Apple, Google, or Research in Motion, the rate of decline in revenue and free
cash flow might be slowed, or even reversed with the introduction of new products, leading to a
dramatic increase in shareholder value. (Probability: Unlikely)

II. Conversely, a more conventional approach of extreme cost cutting and capex reduction might
retard the rate of decline of Free Cash Flow and lead to a similarly dramatic increase in shareholder
value. Of course, such measures could only be done in areas which would not affect the reliability of
service. However, it looks like management is already engaged in extreme cost cutting and
capex reduction.

III. We advocate the immediate dividend of $79 million in excess capital on the balance sheet. In
addition, USA Mobility should institute a policy of dividending to shareholders almost 100% of any
year's Free Cash Flow in order to maximize shareholder value. USMO has already has instituted a
moderate dividend and share buyback. We simply advocate vastly larger dividends than are currently
paid out and on an expedited basis. USMO could easily afford to do this with its excess capital and
strong free cash flow generation. We estimate that a dividend of the excess capital on the
balance sheet should equal approximately $3.51 per share. We also estimate that a dividend
from Free Cash Flow alone could easily exceed $2.00 per share for the next four years if all
FCF was paid out to shareholders. (Probability: Very High if Shareholders/Activists Demand It)

IV. Dividend policy advocated above would represent an excellent economic return to shareholders,
even absent a buyout offer by a shrewd acquirer. However, USMO could use its substantial cash
flow to make an acquisition and utilize its NOL carry-forward (Probability: Moderate)

V. In addition, if an acquisition was contemplated, the strength of the balance sheet, the company's
high profit margins, and its strong free cash flow generation, combined with, extreme undervaluation,
might make USA Mobility an excellent candidate for the use of debt financing by a shrewd acquirer.
(Probability: Moderate)

Primary Risks

I. The rate of decline in Free Cash Flow could be higher than estimated.

II. Management might not be able to reduce costs and capex commensurate with revenue decreases.

III. Revenue and Cash Flow could "fall off a cliff.”

IV. Management could overpay for potential acquisitions.

 Disclosure

Contrarian Industries, LLC is not a registered investment advisor. Nothing in this white
paper should be construed as investment advice. It is merely the personal opinion of
Contrarian Industries, LLC Managing Member Harry Long. Contrarian Industries, LLC and
Harry Long disclaim any liability for any actions taken on reliance on the data and opinions
reflected in this white paper.

Contrarian Industries, LLC does not give investment advice to any entity or individual.
Contrarian Industries, LLC does engage in private investment activities, algorithmic system
R&D, and strategic consulting.

Contrarian Industries, LLC is long USMO. Positions may change at any time, without
notice.

Clients, family members, and friends of Harry Long and Contrarian Industries, LLC may
go long USMO at any time. Positions may change at any time, without notice.

Contrarian Industries, LLC and Harry Long disclaim any liability for any errors or
omissions in data, facts, or analysis/opinion in this white paper and are under no obligation
to update this white paper as new data is reported.

Investors should consult a registered investment advisor for advice on financial matters.