Syniverse Hlgs (NYSE:SVR)
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Syniverse Holdings, Inc. (NYSE:SVR), a leading provider of
mission-critical technology services to wireless telecommunications
companies worldwide, today reported results for the first quarter 2007.
Total revenues were $84.4 million for the first quarter 2007, an 11.9%
increase compared to the first quarter 2006.
Net revenues, which excludes off-network database queries or
pass-through revenue, was $82.7 million for the first quarter 2007, a
12.7% increase compared to the first quarter 2006.
Net income was $7.6 million in the first quarter 2007, compared to
$3.6 million in the first quarter 2006.
Cash net income, a non-GAAP measure of profitability, was $14.2
million for the first quarter 2007, a 24.3% increase compared to the
first quarter 2006. Cash net income reflects the positive cash impact
resulting from the significant difference in amortization of goodwill
for financial reporting and tax purposes, and is determined by adding
the cash savings arising from the tax deductible goodwill amortization
to adjusted net income.
Cash net income per share was $0.21 in the first quarter 2007, a 24.1%
increase compared to the first quarter 2006.
Adjusted EBITDA, a non-GAAP measure of operating cash flow, was $30.7
million for the first quarter 2007, a 14.3% increase compared to $26.8
million in the first quarter 2006.
“Syniverse continued to make key strategic
progress in the first quarter coupled with strong financial performance,”
said Tony Holcombe, President and CEO of Syniverse. “We
continued to see increases in our data products and the expansion of our
services globally. The competitive environment in North America remains
intense, but Syniverse is responding through efforts to lower our costs
and increase the differentiation of our product offerings.”
Chief Financial Officer Ray Lawless added, “Syniverse
grew in the first quarter by a combination of organic and acquired
revenues, with gross margins again exceeding 60%. Syniverse generated
$8.2 million in free cash from operations in our seasonally slowest
quarter, and we expect to exceed $70 million in free cash flow for 2007.”
First Quarter 2007 Service Line Revenue
Technology Interoperability Services
Technology Interoperability Services revenues were $37.8 million in the
first quarter 2007, a 46.3% increase compared to the first quarter 2006,
primarily driven by the inclusion of $6.0 million from ITHL and
increases in clearing, SMS interoperability and mobile data roaming.
Excluding ITHL, organic revenue growth was 23.3% for Technology
Interoperability Services in the first quarter 2007 compared to the same
period in 2006.
Network Services
Network Services revenues were $30.4 million in the first quarter 2007,
a 3.4% decrease compared to the first quarter 2006, primarily driven by
wireline migrations and competitive pricing, and partially offset by
increases in data networking.
Number Portability Services
Number Portability Services revenues were $6.1 million in the first
quarter 2007, a 9.3% decrease compared to the first quarter 2006, as the
price impact of certain renewals was nearly offset by increased revenues
from new services provided to Canadian mobile operators.
Call Processing Services
Call Processing Services revenues were $7.2 million in the first quarter
2007, a 0.2% increase compared to the first quarter 2006, as increases
in international roaming supported by signaling solutions were offset by
a decline in fraud services.
Enterprise Solutions
Enterprise Solutions revenues were $1.2 million in the first quarter
2007.
Off-Network Database Queries (Pass-Through)
Pass-through revenues for the first quarter 2007 were $1.7 million.
First Quarter 2007 Business Highlights
Successful implementation of a wireless number portability (WNP)
clearinghouse solution for all Canadian mobile operators.
Successful migrations of three Vodafone operating companies to
Syniverse platforms.
Consolidation of data center vendors.
Continued successful integration of ITHL into Syniverse.
Acquisition of BSG’s
Wireless Clearing and Financial Settlement Business
On April 2, Syniverse announced it had signed a definitive agreement to
acquire the wireless clearing and financial settlement business of
Billing Services Group (LSE:BILL), a leading global provider of
clearing, settlement, payment and financial risk management solutions
for communications service providers, for approximately $290 million in
cash (which includes debt to be refinanced at closing).
The transaction is subject to customary closing conditions, including
BSG shareholder approval, which was received on April 23, and regulatory
approvals.
Syniverse expects the transaction to be accretive to adjusted net income
and cash net income in 2007, and anticipates providing updated financial
guidance following the closing.
Outlook
The company reiterates its existing outlook for 2007, excluding the
impact of the proposed acquisition.
Net Revenues $325 - $335 million
Adjusted EBITDA $125 - $130 million
Cash Net Income $55 - $60 million
Additionally, the company expects to generate operating free cash flow
in excess of $70 million.
Non-GAAP Measures
Syniverse's Cash Net Income is determined by adding the cash benefit of
our tax-deductible goodwill to Adjusted Net Income. This benefit is a
result of the differing treatments of approximately $362 million of
goodwill on our balance sheet created primarily from our acquisitions
from Verizon and of IOS North America. While not amortized for GAAP
purposes, goodwill amortization is deductible in calculating our taxable
income and, hence, reduces cash tax liabilities.
Syniverse's Adjusted Net Income is determined by adding the following to
net income (loss): provision for income taxes, restructuring costs,
amortization of intangibles recorded in purchase accounting, loss on
extinguishment of debt, headquarters facilities move expenses,
transition expenses of integrating the IOS North America business, loss
from disposal of assets, SFAS 123R non-cash compensation, data
processing contract termination fee, litigation settlement and less
non-operating gains to arrive at Adjusted Net Income (loss) before
provision for income taxes. This adjusted pre-tax result is then further
adjusted for a provision for income taxes at an assumed long-term tax
rate of 39%, which excludes the effect of our NOLs.
We present Adjusted Net Income and Cash Net Income because we believe
that Adjusted Net Income and Cash Net Income 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 unusual adjustments, and
Cash Net Income provides further insight into the cash impact resulting
from the different treatments of goodwill for financial reporting and
tax purposes. Neither of these non-GAAP measures should be reviewed
without consideration of our net income and other GAAP measures.
Syniverse's Adjusted EBITDA is determined by adding the following to net
income (loss): net interest expense, provision for income taxes,
depreciation, amortization, restructuring charges, loss on
extinguishment of debt, headquarters facilities move expenses, the
transition expenses of integrating the IOS North America business, loss
from disposal of assets, SFAS 123R non-cash compensation, data
processing contract termination fee, litigation settlement and less
non-operating gains. A reconciliation of Adjusted EBITDA, Adjusted Net
Income and Cash Net Income to net income (loss) is presented in the
financial tables contained herein.
Syniverse's Free Cash Flow is determined by adding the following to Net
cash provided by operating activities: (capital expenditures), cash paid
(received) in legal settlement and (accrued but not yet paid acquisition
earn-out).
We present Adjusted EBITDA and Free Cash Flow because we believe that
Adjusted EBITDA and Free Cash Flow provide useful information regarding
our continuing operating results. We rely on Adjusted EBITDA and Free
Cash Flow as a primary measures to review and assess the operating
performance of our company and our management team in connection with
our executive compensation and bonus plans. We also review Adjusted
EBITDA and 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 also utilize Adjusted EBITDA and Free
Cash Flow as an assessment of our overall liquidity and our ability to
meet our debt service obligations.
We believe that Adjusted EBITDA, Free Cash Flow, Adjusted Net Income and
Cash Net Income are useful to investors to provide disclosures of our
operating results on the same basis as that used by our management. We
also believe that these measures can assist investors in comparing our
performance to that of other companies on a consistent basis without
regard to certain items, which do not directly affect our ongoing
operating performance or cash flows. Adjusted EBITDA, Free Cash Flow,
Adjusted Net Income and Cash Net Income have limitations as analytical
tools, and you should not consider them in isolation or as a substitute
for net income, cash flows from operating activities, and other
consolidated income or cash flows statement data prepared in accordance
with accounting principles generally accepted in the United States.
Because of these limitations, Adjusted EBITDA and Free Cash Flow should
not be considered as measures of discretionary cash available to us to
invest in the growth of our business, and Adjusted Net Income and Cash
Net Income should not be considered as a replacement for net income. We
compensate for these limitations by relying primarily on our GAAP
results and using Adjusted EBITDA, Free Cash Flow, Adjusted Net Income
and Cash Net Income as supplemental information.
First Quarter 2007 Earnings Call
Syniverse Technologies will host a conference call at 4:30 p.m. ET to
discuss these results. To participate on this call, U.S. callers may
dial toll-free 1-866-383-8009; international callers may dial direct
(+1) 617-597-5342. The passcode for this call is 86268781.
This event 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 April 30 at 6:30 p.m.
through May 14, 2007, 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 52569843
In addition, this earnings call will be archived on the Syniverse
Technologies corporate web site www.syniverse.com
under Investors – Webcasts and Presentations.
About Syniverse
Syniverse Technologies (NYSE:SVR) makes it possible for over 350
communications companies in more than 50 countries to address market
changes and demands as they deliver everything from voice calls to
sophisticated data and video services. By ensuring that disparate
technologies and standards interoperate, Syniverse allows operators to
provide seamless, interactive mobile services to their subscribers
wherever and whenever they need them. Celebrating its 20th anniversary
in 2007, 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.
Cautions about Forward-Looking Statements
This press release contains forward-looking statements, including
statements about business outlook and strategy, and statements about
historical results that may suggest trends for our business. These
statements are based on estimates and information available to us at the
time of this press release and are not guarantees of future performance.
Actual results could differ materially from our current expectations as
a result of many factors, including: unpredictable quarterly
fluctuations in our business; the effects of competition or consumer and
merchant use of our service; any adverse changes in our agreements with
our listings providers; the impact of international expansion efforts on
our business; changes in our tax status and risks or uncertainties
inherent in or related to the integration of the business we proposed to
acquire (including unanticipated operating costs and business
disruptions following the proposed transaction); our ability to secure
financing for the proposed acquisition; the timing or impact of any
regulatory or governmental approvals; satisfaction of the various
closing conditions set forth in the share purchase agreement for the
proposed acquisition. These and other risks and uncertainties associated
with our business are described in our filings with the Securities and
Exchange Commission.
Syniverse Holdings, Inc
Condensed Consolidated Statements of Operations (unaudited)
(In thousands except per share information)
Quarter Ended
Quarter Ended
March 31, 2006
March 31, 2007
Technology Interoperability Services
$ 25,837
$ 37,795
Network Services
31,493
30,424
Number Portability Services
6,730
6,106
Call Processing Services
7,191
7,208
Enterprise Solution
2,130
1,191
Revenues excluding Off Network Database Queries
73,381
82,724
Off Network Database Queries
2,036
1,654
Total Revenues
75,417
84,378
Cost of operations
31,206
33,441
Gross Margin
44,211
50,937
Gross Margin %
58.6%
60.4%
Gross Margin % before
Off Network Database Queries
60.2%
61.6%
Sales and marketing
5,493
6,812
General and administrative
17,311
13,987
Depreciation and amortization
9,981
10,279
Restructuring
338
1,782
Operating income
11,088
18,077
Other expense, net
Interest expense, net
(6,108)
(5,624)
Loss on extinguishment of debt
(924)
-
Other, net
119
53
(6,913)
(5,571)
Income before provision for income taxes
4,175
12,506
Provision for income taxes
625
4,860
Net income
$ 3,550
$ 7,646
Net income per share
Basic
$ 0.05
$ 0.11
Diluted
$ 0.05
$ 0.11
Shares used in calculation
Basic
66,747
67,221
Diluted
67,262
67,353
Selected Balance Sheet Data (unaudited):
As of
(in thousands)
March 31, 2007
Cash
$ 37,051
Senior subordinated notes
$ 175,000
Term note B
136,213
Total debt
$ 311,213
Common stock and additional paid-in capital
$ 459,585
Accumulated deficit and other comprehensive income
(39,572)
Total stockholders' equity
$ 420,013
Syniverse Holdings, Inc
Reconciliation of Non GAAP Measures to GAAP (unaudited)
(In thousands except per share information)
Quarter Ended
Quarter Ended
March 31, 2006
March 31, 2007
Reconciliation to adjusted EBITDA
Net income
$ 3,550
$ 7,646
Interest expense, net
6,108
5,624
Provision for income taxes
625
4,860
Depreciation and amortization
9,981
10,279
Restructuring
338
1,782
SFAS 123R non-cash compensation
-
486
IOS North America transition expenses
1,053
-
Facilities move expense
4,334
-
Loss on extinguishment of debt
924
-
Non-operating gains
(119)
-
Adjusted EBITDA
$ 26,794
$ 30,677
Quarter Ended
Quarter Ended
March 31, 2006
March 31, 2007
Reconciliation to adjusted net income and cash net income
Net income
$ 3,550
$ 7,646
Add provision for income taxes
625
4,860
Income before provision for income taxes
4,175
12,506
Restructuring
338
1,782
SFAS 123R non-cash compensation
-
486
Purchase accounting amortization
4,227
4,703
IOS North America transition expenses
1,053
-
Facilities move expense
4,334
-
Loss on extinguishment of debt
924
-
Non-operating gains
(119)
-
Adjusted income before provision for income taxes
14,932
19,477
Less assumed provision for income taxes at 39%
(5,823)
(7,596)
Adjusted net income
9,109
11,881
Add cash savings of tax deductible goodwill(1)
2,300
2,301
Cash net income
$ 11,409
$ 14,182
Adjusted net income per share
$ 0.14
$ 0.18
Cash net income per share
$ 0.17
$ 0.21
Diluted shares outstanding
67,262
67,353
(1) Represents the cash benefit realized currently as a result of
the tax deductibility of goodwill amortization.
Quarter Ended
Quarter Ended
March 31, 2006
March 31, 2007
Reconciliation to free cash flow
Cash from operations
$ 1,351
$ 21,030
Capital expenditures
(4,775)
(9,589)
Less cash received in legal settlement
-
(2,500)
Less contingent payment for ITHL acquisition
-
(735)
Free Cash Flows
$ (3,424)
$ 8,206
Supplemental information:
Cash interest paid
$ 10,237
$ 9,252
Cash income taxes paid
21
-