Syniverse Hlgs (NYSE:SVR)
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Syniverse Holdings, Inc.
(NYSE:SVR), a leading provider of technology and business solutions for
the global telecommunications industry, today reported results for the
first quarter 2008.
Total revenues were $115.6 million for first quarter 2008, a 37.1%
increase compared to first quarter 2007.
Net revenues, which exclude off-network database queries or
pass-through revenue, were $114.6 million for first quarter 2008, a
38.5% increase compared to first quarter 2007.
Net income was $15.4 million in first quarter 2008 a 101.3% increase
compared to first quarter 2007.
Net income per diluted share was $0.23 in first quarter 2008, a 99.7%
increase compared to first quarter 2007.
Cash net income, a non-GAAP financial measure, was $25.0 million for
first quarter 2008, a 76.3% increase compared to first quarter 2007.
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 diluted share was $0.37 in first quarter 2008, a
74.8% increase compared to first quarter 2007.
Adjusted EBITDA, a non-GAAP financial measure, was $53.0 million for
first quarter 2008, a 72.8% increase compared to first quarter 2007.
“Syniverse reported a strong first quarter
driven by continued strength in messaging and mobile data,”
said Tony Holcombe, President and CEO, Syniverse. “The
acquisition of BSG Wireless has significantly increased our global
focus, while adding a complementary financial clearing service. The
integration is successfully underway. And there have been no surprises,
and our plan is on schedule. We continue to anticipate $12 million of
annualized cost synergies as we integrate the two businesses.”
Chief Financial Officer David Hitchcock added, "Syniverse continues to
see a favorable mix shift towards technology interoperability while
diversifying our revenue base globally, enabling us to generate $23.3
million of cash from operating activities. In addition, after $7.3
million of capex, we generated $15.9 million of operating free cash flow
in the quarter.”
First quarter 2008 Service Line Revenue
Technology Interoperability Services
Technology interoperability services revenues were $68.7 million in
first quarter 2008, an 81.8% increase compared to first quarter 2007.
The increase included $12.8 million from BSG Wireless, which was
included in Syniverse’s income statement
beginning on January 1. Excluding revenues from BSG Wireless, technology
interoperability grew 47.9% driven by strong increases in data services,
such as SMS interoperability and mobile data roaming, growth in clearing
house services, and growth in the company’s
UniRoam product.
Network Services
Network services revenues were $29.7 million in first quarter 2008, a
2.2% decrease compared to first quarter 2007. First quarter results were
impacted by customer migrations offset by increases in data networking
and growth in the company’s Visibility
product.
Number Portability Services
Number portability services revenues were $7.0 million in first quarter
2008, a 13.8% increase compared to first quarter 2007. Results were
primarily due to full quarter revenues from new services provided to
Canadian mobile operators in 2008 compared to a partial quarter in first
quarter 2007.
Call Processing Services
Call processing services revenues were $8.4 million in first quarter
2008, a 16.4% increase compared to first quarter 2007. Performance was
driven by strong increases in signaling solutions offset by continued
declines in legacy fraud-related services.
Enterprise Solutions
Enterprise solutions revenues were $0.8 million in first quarter 2008.
Off-Network Database Queries (Pass-Through)
Pass-through revenues for first quarter 2008 were $1.1 million.
First quarter 2008 Business Highlights
Continued the integration of BSG Wireless, with significant progress
in achieving SG&A synergies.
Awarded 2008 "Best Roaming Product or Service" for Syniverse DataNet
anti-fraud product in the GSM Association's (GSMA) 13th annual Global
Mobile Awards at the Mobile World Congress.
Continued gaining market traction from recent product introductions,
including DataNet, GSM Visibility, and financial clearing house
services.
Appointed Jeff Gordon as Chief Technology Officer in January,
succeeding Paul Wilcock, who retired.
Appointed Alfred de Cárdenas as Executive
Vice President of North America in March.
Outlook
The company is revising guidance and providing the following outlook for
2008:
Net Revenues
$455 - $465 million
Net Income
$59 - $64 million
Adjusted EBITDA
$207 - $214 million
Cash Net Income
$97 - $102 million
Additionally, the company expects to generate operating free cash flow
in excess of $108 million for 2008.
Syniverse expects to realize approximately $12 million of annualized run
rate cost savings in connection with its integration of BSG Wireless.
Approximately one-third of this total is expected to be realized by year
end 2008, with the remainder to be realized in 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.
Non-GAAP Measures
Syniverse's Adjusted Net Income is determined by adding the following to
net income: provision for income taxes, restructuring, SFAS 123R
non-cash compensation, purchase accounting amortization and BSG Wireless
transition expenses to arrive at Adjusted Net Income 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.
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 EBITDA is determined by adding the following to net
income: interest expense, net, provision for income taxes, depreciation
and amortization, restructuring, SFAS 123R non-cash compensation, and
BSG Wireless transition expenses. A reconciliation of Adjusted EBITDA,
Adjusted Net Income and Cash Net Income to net income is presented in
the financial tables contained herein.
Syniverse's Operating Free Cash Flow is determined by adding (or
subtracting) 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 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 certain 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. We rely on Adjusted Net Income and Cash Net Income as
primary measures of the company’s earnings
exclusive of these certain and other non-cash 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 company and 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. None of these non-GAAP measures should be reviewed
without consideration of our net income, cash from operations and other
GAAP measures.
We believe that Adjusted EBITDA, Operating 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 are 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 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 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
Operating 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, Operating Free Cash Flow, Adjusted Net Income and Cash Net
Income as supplemental information.
First quarter 2008 Earnings Call
Syniverse will host a conference call today at 4:30 p.m. ET to discuss
these results and accompanying slides have been posted to the Syniverse
website. To participate on this call, U.S. callers may dial toll-free
1-866-770-7129; international callers may dial direct (+1) 617-213-8067.
The passcode for this call is 39041124. 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 shortly after the call
concludes through May 20 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 61108448.
About Syniverse
Syniverse Technologies (NYSE:SVR) makes it possible for over 500
communications companies in more than 100 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. 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, strategy, net revenue, net income,
adjusted EBTIDA, cash net income and operating free cash flow outlook
for 2008, expected synergies and cost savings related to the integration
of BSG Wireless, 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; adverse changes in our agreements with our
vendors or partners; the impact of international expansion efforts on
our business; changes in our tax status; risks or uncertainties inherent
in or related to the integration of BSG Wireless (including
unanticipated operating costs and business disruptions); and other risks
and uncertainties described in our quarterly and annual reports filed
with the Securities and Exchange Commission. These and other risks and
uncertainties associated with our business are described in our filings
with the Securities and Exchange Commission. We assume no obligation to
update any forward-looking information contained in this press release
as a result of new information, future events or otherwise.
Syniverse Holdings, Inc.
Condensed Consolidated Statements of Income (unaudited)
and Other Supplemental Information
(In thousands except per share information)
Three Months Ended
Three Months Ended
March 31, 2008
March 31, 2007
Technology Interoperability Services
$
68,701
$
37,795
Network Services
29,741
30,424
Number Portability Services
6,950
6,106
Call Processing Services
8,389
7,208
Enterprise Solution
786
1,191
Revenues excluding Off Network Database Queries
114,567
82,724
Off Network Database Queries
1,078
1,654
Total Revenues
115,645
84,378
Cost of operations
37,978
33,441
Gross Margin
77,667
50,937
Gross Margin %
67.2
%
60.4
%
Gross Margin % before
Off Network Database Queries
67.8
%
61.6
%
Sales and marketing
10,754
6,812
General and administrative
18,142
13,987
Depreciation and amortization
13,633
10,279
Restructuring
17
1,782
Operating income
35,121
18,077
Other expense, net
Interest expense, net
(9,290
)
(5,624
)
Other, net
57
53
(9,233
)
(5,571
)
Income before provision for income taxes
25,888
12,506
Provision for income taxes
10,495
4,860
Net income
$
15,393
$
7,646
Net income per share
Basic
$
0.23
$
0.11
Diluted
$
0.23
$
0.11
Shares used in calculation
Basic
67,509
67,221
Diluted
67,909
67,353
Other Supplemental Information:
Revenue by region(1) (unaudited):
Quarter Ended
Quarter Ended
March 31, 2008
March 31, 2007
North America
$
82,213
$
65,352
Asia Pacific
10,218
9,721
Caribbean and Latin America
7,859
5,190
Europe, Middle East and Africa
14,277
2,461
Subtotal non- North American Revenue
32,354
17,372
Revenues excluding Off Network Database Queries
114,567
82,724
Off Network Database Queries
1,078
1,654
Total Revenues
$
115,645
$
84,378
(1) Based on "bill to" location on invoice.
Syniverse Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands except share amounts)
March 31,
December 31,
2008
2007
(unaudited)
ASSETS
Current assets:
Cash
$
64,525
$
49,086
Accounts receivable, net of allowances of $927 and $762, respectively
84,244
79,378
Prepaid and other current assets
16,091
12,240
Total current assets
164,860
140,704
Property and equipment, net
43,084
43,856
Capitalized software, net
62,833
62,615
Deferred costs, net
10,343
10,786
Goodwill
630,249
616,304
Identifiable intangibles, net
231,104
232,023
Other assets
2,507
1,262
Total assets
$
1,144,980
$
1,107,550
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
5,077
$
5,006
Accrued payroll and related benefits
11,968
12,016
Accrued interest
1,792
5,910
Deferred revenues
4,511
5,327
Other accrued liabilities
31,889
34,789
Current portion of Term Note B
3,585
3,459
Total current liabilities
58,822
66,507
Long-term liabilities:
Deferred tax liabilities
57,579
43,587
7 3/4% senior subordinated notes due 2013
175,000
175,000
Term Note B, less current maturities
353,097
344,476
Other long-term liabilities
7,241
7,188
Total long-term liabilities
592,917
570,251
Commitments and contingencies
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;
68,711,605 shares issued and 68,319,607 shares outstanding and
68,683,075 shares issued and 68,302,956 shares outstanding at March
31, 2008 and December 31, 2007, respectively
68
68
Additional paid-in capital
464,804
463,711
Retained earnings
20,240
4,851
Accumulated other comprehensive income
8,159
2,191
Common stock held in treasury, at cost; 391,998 and 380,119 at March
31, 2008 and December 31, 2007, respectively
(30
)
(29
)
Total stockholders' equity
493,241
470,792
Total liabilities and stockholders' equity
$
1,144,980
$
1,107,550
Syniverse Holdings, Inc.
Condensed Consolidated Statement of Cash Flows (unaudited)
(In thousands)
Three Months Ended March 31,
2008
2007
Cash flows from operating activities
Net income
$
15,393
$
7,646
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization including amortization of deferred
debt issuance costs
14,076
10,496
Provision for uncollectible accounts
169
78
Deferred income tax expense
8,760
3,432
Stock-based compensation
1,077
486
Loss on disposition of property
-
294
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(4,535
)
1,207
Other current assets
(3,546
)
(2,578
)
Accounts payable
9
(1,690
)
Other current liabilities
(8,178
)
2,055
Other assets and liabilities
37
(396
)
Net cash provided by operating activities
23,262
21,030
Cash flows from investing activities
Capital expenditures
(7,341
)
(9,589
)
Acquisition of BSG Wireless
(767
)
-
Acquisition of ITHL
-
(735
)
Net cash used in investing activities
(8,108
)
(10,324
)
Cash flows from financing activities
Principal payments on senior credit facility
(891
)
(348
)
Employee stock purchase plan
3
-
Stock options exercised
194
16
Minimum tax withholding on restricted stock awards
(181
)
(80
)
Purchase of treasury stock
(1
)
(1
)
Net cash used in financing activities
(876
)
(413
)
Effect of exchange rate changes on cash
1,161
54
Net increase in cash
15,439
10,347
Cash at beginning of period
49,086
26,704
Cash at end of period
$
64,525
$
37,051
Syniverse Holdings, Inc.
Reconciliation of Non GAAP Measures to GAAP (unaudited)
(In thousands except per share information)
Three Months Ended
Three Months Ended
March 31, 2008
March 31, 2007
Reconciliation to adjusted EBITDA
Net income
$
15,393
$
7,646
Interest expense, net
9,290
5,624
Provision for income taxes
10,495
4,860
Depreciation and amortization
13,633
10,279
Restructuring
17
1,782
SFAS 123R non-cash compensation
1,077
486
BSG Wireless transition expenses
3,107
-
Adjusted EBITDA
$
53,012
$
30,677
Three Months Ended
Three Months Ended
March 31, 2008
March 31, 2007
Reconciliation to adjusted net income and cash net income
Net income
$
15,393
$
7,646
Add provision for income taxes
10,495
4,860
Income before provision for income taxes
25,888
12,506
Restructuring
17
1,782
SFAS 123R non-cash compensation
1,077
486
Purchase accounting amortization
7,119
4,703
BSG Wireless transition expenses
3,107
-
Adjusted income before provision for income taxes
37,208
19,477
Less assumed provision for income taxes at 39%
(14,511
)
(7,596
)
Adjusted net income
22,697
11,881
Add cash savings of tax deductible goodwill(1)
2,301
2,301
Cash net income
$
24,998
$
14,182
Adjusted net income per share
$
0.33
$
0.18
Cash net income per share
$
0.37
$
0.21
Diluted shares outstanding
67,909
67,353
1) Represents the cash benefit realized currently as a result of the
tax deductibility of goodwill amortization.
Three Months Ended
Three Months Ended
March 31, 2008
March 31, 2007
Reconciliation to operating free cash flow
Net cash provided by operating activities
$
23,262
$
21,030
Capital expenditures
(7,341
)
(9,589
)
Cash received in legal settlement
-
(2,500
)
Change in working capital due to ITHL contingent payment
-
(735
)
Operating Free Cash Flow
$
15,921
$
8,206
Supplemental cash flow information:
Cash interest paid
$
13,351
$
9,252
Cash income taxes paid
1,510
-
Syniverse Holdings Inc.
Reconciliation of Non GAAP Measure Estimates to GAAP (unaudited)
2008E
2008E
(in millions)
Low
High
Reconciliation to adjusted EBITDA
Net income
$
59.0
$
64.0
Interest expense, net
34.5
34.5
Provision for income taxes
40.0
42.0
Depreciation and amortization(1)
55.5
55.5
SFAS 123R non-cash compensation
4.5
4.5
BSGW transition expenses(2)
13.5
13.5
Adjusted EBITDA
$
207.0
$
214.0
Reconciliation to adjusted net income and cash net income
Net income
$
59.0
$
64.0
Add provision for income taxes
40.0
42.0
Income (loss) before provision for income taxes
99.0
106.0
Adjustments income (loss) before provision for income taxes
Purchase accounting amortizations
28.5
28.5
SFAS 123R non-cash compensation
4.5
4.5
BSGW transition expenses(2)
13.5
13.5
Adjusted income (loss) before provision for income taxes
145.5
152.5
Less assumed provision for income taxes
(57.7
)
(59.7
)
Adjusted net income
87.8
92.8
Add cash savings of tax deductible goodwill(3)
9.2
9.2
Cash net income
$
97.0
$
102.0
1) Includes preliminary estimates of purchase accounting
amortizations for BSGW.
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.