SVR Syniverse Holdings

Syniverse Holdings, Inc. (NYSE:SVR), a leading provider of technology and business solutions for the global telecommunications industry, today reported results for second quarter 2009.

• Total revenue for second quarter 2009 was $113.5 million, an 11.1% decrease compared to second quarter 2008.
• Net revenue, which excludes off-network database queries, was $111.8 million, an 11.5% decrease compared to second quarter 2008.
• Net income was $16.5 million or $0.24 per diluted share, 19.0% and 19.2% decreases, respectively, compared to second quarter 2008.
• Cash net income, a non-GAAP financial measure described below, was $25.4 million or $0.37 per diluted share, 10.4% and 10.3% decreases respectively compared to second quarter 2008.
• Adjusted EBITDA, a non-GAAP financial measure described below, was $51.6 million, an 11.6% decrease compared to second quarter 2008.
• Net cash provided by operating activities was $33.3 million in the second quarter 2009 compared to $40.9 million in the second quarter 2008.
• Operating free cash flow, a non-GAAP financial measure described below, was $19.2 million in the second quarter 2009 compared to $33.3 million in the second quarter 2008.

“Syniverse’s second quarter results reflect our continued ability to manage the company to deliver earnings,” said Tony Holcombe, President and CEO. “Our transaction-based business continues to perform, and we continue to believe that the global surge in smartphone penetration, messaging and mobile data usage provides Syniverse with a solid operating environment.”

David Hitchcock, Executive Vice President and CFO, said focused cost management helped Syniverse drive margins and maintain strong cash flow during the second quarter.

“The ongoing impact of the proactive cost control program we implemented last fall has been very positive for Syniverse,” Hitchcock said. “Despite revenues that were softer than expected, we continued to generate healthy cash net income and adjusted EBITDA, and we continued building cash balances that will give us strategic flexibility.”

Please refer to the information set forth below under the captions “Non-GAAP Measures” and “Reconciliation of Non-GAAP Measures to GAAP” for an explanation of non-GAAP financial measures as well as a reconciliation of such non-GAAP financial measures to GAAP financial measures.

Second Quarter 2009 Service Line Revenue

Technology Interoperability Services

Technology interoperability services revenues were $66.3 million in the quarter, a 17.3% decrease compared to second quarter 2008. Clearing house revenues were down while growth in messaging and mobile data slowed due to customer-specific events, including major customer renewals, certain insourcing decisions and customer consolidation activities.

Network Services

Network services revenues were $30.8 million in the quarter, a 2.6% decrease compared to second quarter 2008, primarily due to decreases in intelligent database services.

Number Portability Services

Number portability services revenues were $7.8 million in the quarter, a 21.0% increase compared to second quarter 2008 due to increased porting volumes.

Call Processing Services

Call processing services revenues were $6.4 million in the quarter, a 12.0% decrease compared to second quarter 2008 primarily due to expected declines in signaling solutions and legacy fraud-related services.

Enterprise Solutions

Enterprise solutions revenues were $0.4 million in second quarter 2009.

Off-Network Database Queries (Pass-Through)

Pass-through revenues for second quarter 2009 were $1.7 million.

Second Quarter 2009 Business Highlights

• Syniverse commercially launched Syniverse MORESM, an extensive portfolio of roaming hub solutions designed to meet the diverse roaming needs of all types of operators both today and in the future.
• Syniverse acquired the assets of Wireless Solutions International (WSI), a Boca Raton, Fla.-based provider of global managed roaming and wireless network solutions.
• The company continued its successful integration of BSG Wireless, with $8.8 million of annualized run-rate cost savings realized through June 30, 2009.

Outlook

Syniverse affirms its outlook for net income, Adjusted EBITDA and cash net income for 2009 as set forth below:

          Net Income                 $64.5 – 74 million   Adjusted EBITDA $210 - $225 million   Cash Net Income $99 - $108 million

Syniverse currently believes that 2009 net revenues will be close to the lower end of the 2009 guidance of $460 million. However, due to the uncertainty related to the timing of its sales of technology turn-key solutions and the uncertainty surrounding the peak summer month roaming volumes, Syniverse cannot specifically determine whether its revenues will exceed or fall short of $460 million. Syniverse believes that for 2009 it will generate approximately $90 million of operating free cash flow, rather than its previous guidance of “in excess of $100 million.” The difference in operating free cash flow is due to the expected timing of certain payments.

With the continuing successful integration of BSG Wireless, Syniverse expects to realize approximately $12.0 million of annualized run-rate cost savings by the end of 2009. Approximately $8.8 million of the expected cost savings have been realized through June 30, 2009, with the remainder to be realized by the end of 2009. Expected Adjusted EBITDA and cash net income have been adjusted to exclude the one-time costs related to integrating the businesses and the duplicative costs that are expected to be eliminated by the end of 2009. For periods beginning on Jan. 1, 2009, cash net income assumes a long-term effective tax rate of 37.5%; for periods through Dec. 31, 2008, the long-term effective tax rate assumption was 39%.

Non-GAAP Measures

Syniverse's cash net income is determined by first calculating adjusted net income. Adjusted net income is calculated by (i) adding the following items to net income: provision for income taxes, restructuring, SFAS 123R non-cash compensation, purchase accounting amortization and BSG Wireless transition expenses; (ii) adjusting the resulting pre-tax sum for a provision for income taxes at an assumed long-term tax rate of 37.5% (39.0% for all periods through Dec. 31, 2008), which excludes the effect of our net operating losses; and (iii) adding to that sum the cash benefit of our tax-deductible goodwill. The cash benefit is a result of the differing treatments of approximately $362.0 million of goodwill on our balance sheet, which primarily is the result of acquisitions that we made from Verizon in February 2002 and IOS North America in September 2004. Specifically, while this goodwill is not amortized for GAAP purposes, the amortization of goodwill is nonetheless deductible in calculating our taxable income and, hence, reduces actual cash tax liabilities.

Syniverse's Adjusted EBITDA is determined by adding the following items to net income: interest expense, net, provision for income taxes, depreciation and amortization, restructuring, SFAS 123R non-cash compensation, and BSG Wireless transition expenses.

Syniverse's operating free cash flow is determined by subtracting capital expenditures from net cash provided by operating activities.

A reconciliation of adjusted net income, cash net income and Adjusted EBITDA to net income, the closest GAAP financial measure, is presented in the financial tables below under the heading “Reconciliation of Non-GAAP Measures to GAAP.” A reconciliation of operating free cash flow to net cash provided by operating activities, the closest GAAP measure, is presented in the financial tables below under the heading “Reconciliation of Non-GAAP Measures to GAAP.”

We present adjusted net income, cash net income and related per-share amounts because we believe they provide useful information regarding our operating results in addition to our GAAP measures. We believe that adjusted net income provides our investors with valuable insight into our profitability exclusive of certain adjustments. In addition, cash net income provides further insight into the cash impact resulting from the different treatments of goodwill for financial reporting and tax purposes. We rely on adjusted net income and cash net income as primary measures of Syniverse’s earnings exclusive of these certain and other non-cash charges.

We present Adjusted EBITDA and operating free cash flow because we believe that Adjusted EBITDA and operating free cash flow provide useful information regarding our continuing operating results. We rely on Adjusted EBITDA and operating free cash flow as primary measures to review and assess the operating performance of our management team in connection with our executive compensation and bonus plans. We also review Adjusted EBITDA and operating free cash flow to compare our current operating results with corresponding periods and with the operating results of other companies in our industry. In addition, we utilize Adjusted EBITDA and operating free cash flow as an assessment of our overall liquidity and our ability to meet our debt service obligations.

We believe that the disclosure of Adjusted EBITDA, operating free cash flow, adjusted net income and cash net income is useful to investors as these non-GAAP measures form the basis of how our management team reviews and considers our operating results. By disclosing these non-GAAP measures, we believe that we create for investors a greater understanding of, and an enhanced level of transparency into, the means by which our management team operates our company. We also believe these measures can assist investors in comparing our performance to that of other companies on a consistent basis without regard to certain items that do not directly affect our ongoing operating performance or cash flows.

Adjusted EBITDA, operating free cash flow, adjusted net income and cash net income have limitations as analytical tools, and you should not rely upon them, or consider them in isolation or as a substitute for GAAP measures, such as net income, cash flows from operating activities and other consolidated income or other cash flows statement data prepared in accordance with GAAP. In addition, these non-GAAP measures may not be comparable to other similarly titled measures of other companies. Because of these limitations, Adjusted EBITDA and operating free cash flow should not be considered as measures of discretionary cash available to us to invest in the growth of our business. Adjusted net income and cash net income also should not be considered as a replacement for, or a measure that should be used or analyzed in lieu of, net income. We attempt to compensate for these limitations by relying primarily upon our GAAP results and using Adjusted EBITDA, operating free cash flow, adjusted net income and cash net income as supplemental information only.

Second Quarter 2009 Earnings Call

Syniverse will host a conference call at 4:30 p.m. ET to discuss the results. To participate on this call, U.S. callers may dial toll free 1-800-706-7748; international callers may dial direct (+1) 617-614-3473. The passcode for this call is 52358746. This event also will be webcast live over the Internet in listen-only mode at www.syniverse.com/investorevents.

A replay of this call will be available beginning at approximately 7:30 p.m. ET on Aug. 5 and will remain available through Aug. 19 at 11:59 p.m. ET. To access the replay, U.S. callers may dial toll free 1-888-286-8010; international callers may dial direct (+1) 617-801-6888. The replay passcode is 17857005.

About Syniverse

Syniverse Technologies (NYSE:SVR) solutions allow more than 650 communications companies in over 140 countries to provide seamless mobile services by making it possible for disparate technologies and standards to interoperate. Syniverse's flexibility and customer focus permit its customers to quickly react to market changes and demands, enabling the delivery of everything from voice calls to sophisticated data and video services wherever and whenever subscribers need them. With more than 20 years in the industry, Syniverse is headquartered in Tampa, Florida, U.S.A., and has offices in major cities around the globe. Syniverse is ISO 9001:2000 certified and TL 9000 approved, adhering to the principles of customer focus and quality improvement practices. More information is available at www.syniverse.com. The contents of our website are not incorporated into or otherwise a part of this press release.

Cautionary Notice Regarding Forward-Looking Statements

Certain of the statements in this press release may constitute “forward-looking statements” for purposes of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Syniverse to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements include, without limitation: statements regarding Syniverse’s position for long-term success; Syniverse’s ability to continue to manage its costs; global wireless trends such as smartphone penetration, growth in messaging and mobile data usage, and competitive market pricing trends; Syniverse’s expectations of several new products, including Syniverse MORE; Syniverse’s ability to continue to report positive results in future periods and/or to continue to experience growth; Syniverse’s ability to successfully integrate its acquisition of the assets of Wireless Solutions International; Syniverse’s ability to continue to successfully and timely integrate BSG Wireless, and to realize the anticipated cost savings of that integration when and in the amounts anticipated; Syniverse’s belief of the value of Non-GAAP measures to its investors; Syniverse’s ability to reduce its long-term effective tax rate; and Syniverse’s guidance for 2009, as contained under the caption “Outlook,” including, without limitation, expected net revenues, net income, Adjusted EBITDA, cash net income and operating free cash flow for 2009, as well as the assumptions, estimates, and judgments applied in creating such guidance.

These forward-looking statements are based upon information presently available to the Company’s management and are inherently subjective, uncertain and subject to change, due to any number of risks and uncertainties, including, without limitation, those other risks and factors discussed in Syniverse’s Annual Report on Form 10-K for the year ended Dec. 31, 2008 under the captions “Cautionary Notice Regarding Forward-Looking Statements” and “Risk Factors” and otherwise in Syniverse’s reports and filings that it makes with the Securities and Exchange Commission.

You should not place undue reliance on any forward-looking statements, since those statements speak only as of the date that they are made. Syniverse has no obligation and does not undertake to publicly update, revise or correct any of the forward-looking statements after the date of this Press Release, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events, or otherwise, except as otherwise may be required by law.

   

Syniverse Holdings, Inc

Condensed Consolidated Statements of Income (unaudited)

and Other Supplemental Information

(In thousands except per share information)

            Three Months Ended Six Months Ended June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008 Technology Interoperability Services $ 66,343 $ 80,209 $ 129,263 $ 148,911 Network Services 30,819 31,643 60,794 61,384 Number Portability Services 7,788 6,435 15,028 13,385 Call Processing Services 6,435 7,313 13,592 15,702 Enterprise Solutions   390     634     780     1,419   Revenues excluding Off-Network Database Queries 111,775

 

126,234 219,457 240,801 Off-Network Database Queries   1,703     1,385     2,945     2,463   Total revenues 113,478

 

127,619 222,402 243,264   Cost of operations   40,904     41,589     80,862     79,567     Gross Margin 72,574

 

86,030 141,540 163,697   Gross Margin % 64.0 % 67.4 % 63.6 % 67.3 % Gross Margin % before Off-Network Database Queries 64.9 % 68.2 % 64.5 % 68.0 %   Sales and marketing 8,835 12,200 17,523 22,954 General and administrative 17,005 19,868 34,003 38,010 Depreciation and amortization 14,037 13,791 27,621 27,424 Restructuring   -     -     -     17     Operating income 32,697

 

40,171 62,393 75,292   Other income (expense), net Interest expense, net (7,446 ) (8,925 ) (14,610 ) (18,215 )   Other, net   851     (272 )   1,134     (215 )   (6,595 )   (9,197 )   (13,476 )   (18,430 )   Income before provision for income taxes 26,102

 

30,974 48,917 56,862   Provision for income taxes   9,624     10,622     16,407     21,117     Net income 16,478

 

20,352 32,510 35,745 Less: Net loss attributable to noncontrolling interest   (53 )   -     (53 )   -   Net income attributable to Syniverse Holdings, Inc. $ 16,531   $ 20,352   $ 32,563   $ 35,745     Net income per share Basic $ 0.24 $ 0.30 $ 0.47 $ 0.53 Diluted $ 0.24 $ 0.30 $ 0.47 $ 0.52   Shares used in calculation Basic 67,945 67,619 67,907 67,564 Diluted 68,029 67,740 67,980 67,649   Other Supplemental Information:   Revenue by region (1) (unaudited): Three Months Ended Six Months Ended June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008 North America (U.S. and Canada) $ 81,731 $ 90,932 $ 159,940 $ 173,145 Asia Pacific 9,406 11,855 18,871 22,073 Caribbean and Latin America (includes Mexico) 7,707 7,456 15,658 15,315 Europe, Middle East and Africa   12,931     15,991     24,988     30,268   Subtotal non- North American Revenue   30,044     35,302     59,517     67,656   Revenues excluding Off Network Database Queries 111,775 126,234 219,457 240,801 Off-Network Database Query Fees   1,703     1,385     2,945     2,463   Total Revenues $ 113,478   $ 127,619   $ 222,402   $ 243,264       (1) Based on "bill to" location on invoice.            

Syniverse Holdings, Inc

Reconciliation of Non GAAP Measures to GAAP (unaudited)

(In thousands except per share information)

    Three Months Ended Six Months Ended June 30, 2009 June 30, 2008 June 30, 2009   June 30, 2008   Reconciliation to adjusted EBITDA Net income $ 16,478 $ 20,352 $ 32,510 $ 35,745 Interest expense, net 7,446 8,925 14,610 18,215 Provision for income taxes 9,624 10,622 16,407 21,117 Depreciation and amortization 14,037 13,791 27,621 27,424 Restructuring - - - 17 SFAS 123R non-cash compensation 1,908 1,347 3,015 2,424 BSG Wireless transition expenses   2,059     3,294     4,625     6,401   Adjusted EBITDA $ 51,552  

 

$ 58,331   $ 98,788   $ 111,343       Three Months Ended Six Months Ended June 30, 2009 June 30, 2008 June 30, 2009   June 30, 2008 Reconciliation to adjusted net income and cash net income Net income $ 16,478 $ 20,352 $ 32,510 $ 35,745 Add provision for income taxes   9,624     10,622     16,407     21,117   Income before provision for income taxes 26,102

 

30,974 48,917 56,862   Restructuring - - - 17 SFAS 123R non-cash compensation 1,908 1,347 3,015 2,424 Purchase accounting amortization 6,917 7,119 13,708 14,238 BSG Wireless transition expenses   2,059     3,294     4,625     6,401   Adjusted income before provision for income taxes 36,986

 

42,734 70,265 79,942   Less assumed provision for income taxes at 37.5% for 2009 and 39% for 2008   (13,870 )

 

  (16,666 )   (26,349 )   (31,177 )   Adjusted net income 23,116

 

26,068 43,916 48,765   Add cash savings of tax deductible goodwill(1)   2,301     2,301     4,602     4,602     Cash net income $ 25,417  

 

$ 28,369   $ 48,518   $ 53,367     Adjusted net income per share $ 0.34 $ 0.38 $ 0.65 $ 0.72 Cash net income per share $ 0.37 $ 0.42 $ 0.71 $ 0.78 Diluted shares outstanding 68,029 67,740 67,980 67,649   1) Represents the cash benefit realized currently as a result of the tax deductibility of goodwill amortization.   Three Months Ended Six Months Ended June 30, 2009 June 30, 2008 June 30, 2009   June 30, 2008 Reconciliation to operating free cash flow Net cash provided by operating activities $ 33,273 $ 40,864 $ 50,274 $ 64,126 Capital expenditures (14,121 ) (13,020 ) (20,936 ) (20,361 ) Change in working capital due to payment of BSG pre-acquisition contractual obligation   -     5,440     -     5,440   Operating Free Cash Flow $ 19,152   $ 33,284   $ 29,338   $ 49,205     Supplemental cash flow information: Cash interest paid $ 3,256 $ 1,829 $ 13,327 $ 15,180 Cash income taxes paid 12,870 4,857 $ 21,768 6,367      

Syniverse Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share data)

    June 30, December 31, 2009 2008 (Unaudited) ASSETS Current assets: Cash $ 187,846 $ 165,605 Accounts receivable, net of allowances of $4,018 and $2,347, respectively 86,005 88,782 Prepaid and other current assets   30,626     20,971   Total current assets   304,477     275,358     Property and equipment, net 54,749 50,251 Capitalized software, net 59,752 60,184 Deferred costs, net 8,255 7,288 Goodwill 601,588 596,662 Identifiable intangibles, net 199,508 208,518 Other assets   1,701     1,573   Total assets $ 1,230,030   $ 1,199,834     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,049 $ 7,311 Accrued payroll and related benefits 7,275 20,111 Accrued interest 5,177 5,160 Accrued income taxes 2,168 9,891 Deferred revenues 3,916 4,260 Other accrued liabilities 27,552 28,975 Current portion of Term Note B   3,427     3,431   Total current liabilities   61,564     79,139   Long-term liabilities: Deferred tax liabilities 73,625 65,546 7 3/4% senior subordinated notes due 2013 175,000 175,000 Term Note B, less current maturities 333,237 335,382 Other long-term liabilities   10,089     8,925   Total liabilities   653,515     663,992     Stockholders' equity: Preferred stock, $0.001 par value; 300,000 shares authorized; no shares issued - -

Common stock, $0.001 par value; 100,300,000 shares authorized; 68,930,279 shares issued and 68,738,281 shares outstanding and 68,847,632 shares issued and 68,455,634 shares outstanding at June 30, 2009 and December 31, 2008, respectively

68 68 Additional paid-in capital 474,768 471,524 Retained earnings 115,878 83,315 Accumulated other comprehensive loss (15,173 ) (19,035 )

Common stock held in treasury, at cost; 191,998 at June 30, 2009 and 391,998 at December 31, 2008

  (15 )   (30 ) Total Syniverse Holdings, Inc. stockholders' equity 575,526 535,842 Noncontrolling interest   989     -   Total equity   576,515     535,842   Total liabilities and stockholders' equity $ 1,230,030   $ 1,199,834        

Syniverse Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

    Six Months Ended June 30, 2009 2008   Cash flows from operating activities Net income $ 32,510 $ 35,745

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization including amortization of deferred debt issuance costs

28,481 28,309 Provision for (recovery of) uncollectible accounts 356 (153 ) Deferred income tax expense 5,604 13,991 Stock-based compensation 3,015 2,424 Other, net 66 18   Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 3,320 (13,766 ) Other current assets (9,626 ) (3,266 ) Accounts payable, accrued payroll and related benefits (7,967 ) 2,096 Other current liabilities (7,946 ) (1,146 ) Other assets and liabilities   2,461     (126 ) Net cash provided by operating activities   50,274     64,126     Cash flows from investing activities Capital expenditures (20,936 ) (20,361 ) Acquisition of WSI, net of acquired cash (3,182 ) - Acquisition of BSG Wireless, net of acquired cash   -     (823 ) Net cash used in investing activities   (24,118 )   (21,184 )   Cash flows from financing activities Principal payments on senior credit facility (1,705 ) (1,786 ) Issuances of stock under employee stock purchase plan 415 388 Issuance of stock for stock options exercised 95 1,391 Minimum tax withholding on restricted stock awards (266 ) (429 ) Purchase of treasury stock - (1 ) Capital contribution from noncontrolling interest in a joint venture   981     -   Net cash provided by (used in) financing activities   (480 )   (437 )   Effect of exchange rate changes on cash   (3,435 )   1,184     Net increase in cash 22,241 43,689 Cash at beginning of period   165,605     49,086     Cash at end of period $ 187,846   $ 92,775     Supplemental cash flow information Interest paid $ 13,327 $ 15,180 Income taxes paid 21,768 6,367      

Syniverse Holdings Inc.

Reconciliation of Non GAAP Measure Estimates to GAAP (unaudited)

    2009E 2009E (in millions)   Low   High Reconciliation to adjusted EBITDA Net income $ 64.5 $ 74.0 Interest expense, net 32.0 32.0 Provision for income taxes 38.0 43.5 Depreciation and amortization(1) 62.5 62.5 SFAS 123R non-cash compensation 5.5 5.5 BSGW transition expenses(2)   7.5     7.5   Adjusted EBITDA $ 210.0   $ 225.0       Reconciliation to adjusted net income and cash net income Net income $ 64.5 $ 74.0 Add provision for income taxes   38.0     43.5   Income before provision for income taxes 102.5 117.5   Adjustments to income before provision for income taxes   Purchase accounting amortizations 28.5 28.5 SFAS 123R non-cash compensation 5.5 5.5 BSGW transition expenses(2)   7.5     7.5   Adjusted income before provision for income taxes 144.0 159.0   Less assumed provision for income taxes (54.2 ) (60.2 )   Adjusted net income 89.8 98.8   Add cash savings of tax deductible goodwill(3) 9.2 9.2     Cash net income $ 99.0   $ 108.0       1) Includes purchase accounting amortizations.

2) Represents certain costs that we do not expect to continue in the business upon full integration including:

a) Integration specific expenses, including any temporary headcount needed for the migrations, travel for the integration teams, and other one-time costs related to the integration project and:

b) Duplicative data processing and headcount expenses that we do not plan to remain following the full integration.

3) Represents the cash benefit realized currently as a result of the tax deductibility of goodwill amortization.