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 fourth quarter and
full year 2006.
Total revenues were $85.8 million for the fourth quarter 2006, a 2.7%
increase compared to the fourth quarter 2005. For the year 2006, total
revenues were $337.0 million, a 1.4% decrease from 2005.
Net revenues, which excludes off-network database queries or
pass-through revenue, was $84.6 million for the fourth quarter 2006, a
3.0% increase compared to the fourth quarter 2005. For the year 2006,
net revenues were $328.9 million, a 0.7% decrease from 2005.
Net income attributable to common stockholders was $59.1 million in
the fourth quarter 2006, compared to $15.3 million in the fourth
quarter 2005. For the year 2006, net income attributable to common
stockholders was $89.7 million compared to $5.6 million in 2005.
Cash net income, a non-GAAP measure of profitability, was $13.8
million for the fourth quarter 2006, compared to $17.1 million in the
fourth quarter 2005. For the year, cash net income was $57.3 million
compared to $65.2 million in 2005. 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 $0.20 in the fourth quarter 2006
compared to the $0.25 reported in the fourth quarter 2005. For the
year 2006, cash net income per share was $0.85 compared to $0.96 in
2005.
Adjusted EBITDA, a non-GAAP measure of operating cash flow, was $31.2
million for the fourth quarter 2006, compared to $36.3 million in the
fourth quarter 2005. For the year Adjusted EBITDA was $127.7 million
compared to $146.4 million in 2005.
“2006 was a challenging year for the company
and a year in which we implemented a number of significant changes in
the business,” said Syniverse President and
CEO Tony Holcombe. “We made significant
progress expanding our footprint outside of North America by furthering
our relationships with key global operators such as Vodafone and
TeliaSonera, and by acquiring Hong Kong-based ITHL in July. Our voice
and data clearinghouse products also continued to demonstrate solid
growth during the year. Nonetheless, 2006 also brought increased
competitive pressures that had negative implications in our core North
American clearinghouse and network services markets and impacted our
growth profile. As a result, we are focused on refining our strategy and
operational model to adjust for the current market environment in order
to better position the business for longer-term growth.”
Chief Financial Officer Ray Lawless added, “Our
fourth quarter and full year net revenues were within our guidance, but
our margins were below our historic levels, causing adjusted EBITDA and
cash net income to fall below the range that we had set. Part of this
difference relates to a $2.4 million revenue adjustment in the fourth
quarter related to a billing error during the first 9 months of 2006.
The adjustment did not impact our operating free cash flow, and for the
year, Syniverse generated $74.1 million in free cash flow from
operations.”
Lawless continued: “Looking forward to 2007,
we expect to see continued growth from our data products and in the
international arena to offset in part continued competitive pressure in
North America. As a result, we expect revenue, adjusted EBITDA and cash
net income to be largely flat in 2007, which is below our long-term
growth expectations for the business. We anticipate Syniverse to again
deliver strong free cash flow of over $70 million from operations during
the year.”
Fourth Quarter 2006 Service Line
Revenue
Technology Interoperability Services
Technology Interoperability Services revenues were $39.0 million in the
fourth quarter 2006, a 42.6% increase compared to the fourth quarter
2005, primarily driven by the inclusion of ITHL, increases in clearing,
Message Manager, and Mobile Data Roaming. Fourth quarter 2006 results
include a $2.4 million revenue adjustment for a billing error during the
first 9 months of 2006.
Network Services
Network Services revenues were $29.9 million in the fourth quarter 2006,
a 4.4% decrease compared to the fourth quarter 2005, primarily driven by
competitive pricing, partially offset by increases in data networking.
Number Portability Services
Number Portability Services revenues were $7.1 million in the fourth
quarter 2006, a 46.2% decrease compared to the fourth quarter 2005,
primarily driven by the previously disclosed migration of the Sprint
port center.
Call Processing Services
Call Processing Services revenues were $7.2 million in the fourth
quarter 2006, a 6.4% decrease compared to the fourth quarter 2005, with
increases in international roaming supported by Signaling Solutions,
offset by a decline in fraud services.
Enterprise Solutions
Enterprise Solutions revenues were $1.3 million in the fourth quarter
2006.
Off-Network Database Queries (Pass-Through)
Pass-through revenues for the third quarter 2006 were $1.3 million.
Fourth Quarter 2006 Business Highlights
Successful migrations of five operating companies from Vodafone and
TeliaSonera to Syniverse platforms.
Continued traction in Asia through strategic wins and renewals in
Thailand, Hong Kong, Singapore, Malaysia, Indonesia, and Vietnam.
Continued the successful integration of ITHL into Syniverse.
Outlook
The company provides the following outlook for 2007:
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 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.
Fourth Quarter 2006 Earnings Call
Syniverse Technologies will host a conference call at 4:30 p.m. EST to
discuss these results. To participate on the call, U.S. callers may dial
toll-free 1-866-271-0675; international callers may dial direct (+1)
617-213-8892. The passcode for the call is 40598279.
The event will be webcast live over the Internet in listen-only mode at http://www.syniverse.com/investorevents.
A replay of the call will be available beginning Feb. 27 at 7:30 p.m.
EST through Mar. 12, 2007, at 11:59 p.m. EST. 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 31298541.
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; and changes in our tax status. 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
Year Ended
Year Ended
Dec. 31,
2005
Dec. 31,
2006
Dec. 31,
2005
Dec. 31,
2006
Technology Interoperability Services
$
27,368
$
39,024
$
108,429
$
138,655
Network Services
31,246
29,879
132,120
124,832
Number Portability Services
13,260
7,134
50,836
28,766
Call Processing Services
7,735
7,240
28,619
29,315
Enterprise Solution
2,500
1,283
11,026
7,289
Revenues excluding Off Network Database Queries
82,109
84,560
331,030
328,857
Off Network Database Queries
1,509
1,281
10,761
8,162
Total Revenues
83,618
85,841
341,791
337,019
Cost of operations
30,715
34,694
129,190
134,641
Gross Margin
52,903
51,147
212,601
202,378
Gross Margin %
63.3%
59.6%
62.2%
60.0%
Gross Margin % before
Off Network Database Queries
64.4%
60.5%
64.2%
61.5%
Sales and marketing
5,643
6,785
23,344
25,446
General and administrative
13,213
13,958
49,396
58,508
Depreciation and amortization
11,494
10,638
46,815
41,172
Restructuring
-
-
143
1,006
Operating income
22,553
19,766
92,903
76,246
Other expense, net
Interest expense, net
(6,428)
(6,443)
(32,690)
(25,504)
Loss on extinguishment of debt
-
-
(42,804)
(924)
Other, net
1,442
(55)
1,436
332
(4,986)
(6,498)
(74,058)
(26,096)
Income before provision for (benefit from) income taxes
17,567
13,268
18,845
50,150
Provision for (benefit from) income taxes
2,294
(45,837)
9,041
(39,574)
Net income
15,273
59,105
9,804
89,724
Preferred stock dividends
-
-
(4,195)
-
Net income attributable to common stockholders
$
15,273
$
59,105
$
5,609
$
89,724
Net income per share
Basic
$
0.23
$
0.88
$
0.09
$
1.34
Diluted
$
0.23
$
0.88
$
0.09
$
1.33
IPO pro forma(1)
$
0.23
$
0.87
$
0.14
$
1.33
Shares used in calculation
Basic
66,518
67,106
61,973
66,943
Diluted
67,345
67,320
62,978
67,298
IPO pro forma(2)
67,667
67,667
67,667
67,667
Notes:
1)
Assumes no preferred stock dividends since all of the outstanding
preferred stock was either redeemed or converted to common shares
after our IPO.
2)
Assumes shares outstanding after our IPO were outstanding for the
full period above.
Selected Balance Sheet Data (unaudited):
As of
(in thousands)
Dec. 31,
2006
Cash
$
26,704
Senior subordinated notes
$
175,000
Term note B
136,561
Total debt
$
311,561
Common stock and additional paid-in capital
$
459,165
Accumulated deficit and other comprehensive income
(44,371)
Total stockholders' equity
$
414,794
Syniverse Holdings, Inc.
Reconciliation of Non GAAP Measures to GAAP (unaudited)
(In thousands except per share information)
Quarter Ended
Quarter Ended
Year Ended
Year Ended
Dec. 31, 2005
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2006
Reconciliation to adjusted EBITDA
Net income
$ 15,273
$ 59,105
$ 9,804
$ 89,724
Interest expense, net
6,428
6,443
32,690
25,504
Provision for (benefit from) income taxes
2,294
(45,837)
9,041
(39,574)
Depreciation and amortization
11,494
10,638
46,815
41,172
Restructuring
-
-
143
1,006
Loss from disposal of assets
-
-
612
-
SFAS 123R non-cash compensation
-
787
-
1,820
IOS North America transition expenses
704
(8)
3,777
786
Facilities move expense
1,567
25
2,172
5,298
Loss on extinguishment of debt
-
-
42,804
924
Data processing contract termination fee
-
962
-
962
Litigation settlement
-
(966)
-
402
Non-operating gains
(1,446)
-
(1,446)
(330)
Adjusted EBITDA
$ 36,314
$ 31,149
$ 146,412
$ 127,694
Quarter Ended
Quarter Ended
Year Ended
Year Ended
Dec. 31, 2005
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2006
Reconciliation to adjusted net
income (loss) and cash net income
Net income
$ 15,273
$ 59,105
$ 9,804
$ 89,724
Add provision for (benefit from) income taxes
2,294
(45,837)
9,041
(39,574)
Income before provision for income taxes
17,567
13,268
18,845
50,150
Restructuring
-
-
143
1,006
Loss from disposal of assets
-
-
612
-
SFAS 123R non-cash compensation
-
787
-
1,820
Purchase accounting amortization
5,774
4,717
24,359
17,848
IOS North America transition expenses
704
(8)
3,777
786
Facilities move expense
1,655
25
2,671
5,298
Loss on extinguishment of debt
-
-
42,804
924
Data processing contract termination fee
-
962
-
962
Litigation settlement
-
(966)
-
402
Non-operating gains
(1,446)
-
(1,446)
(330)
Adjusted income before provision for income taxes
24,254
18,785
91,765
78,866
Less assumed provision for income taxes at 39%
(9,459)
(7,326)
(35,788)
(30,758)
Adjusted net income
14,795
11,459
55,977
48,108
Add cash savings of tax deductible goodwill(1)
2,300
2,300
9,201
9,200
Cash net income
$ 17,095
$ 13,759
$ 65,178
$ 57,308
Adjusted net income per share after IPO
$ 0.22
$ 0.17
$ 0.83
$ 0.71
Cash net income per share after IPO
$ 0.25
$ 0.20
$ 0.96
$ 0.85
Shares outstanding after IPO(2)
67,667
67,667
67,667
67,667
1)
Represents the cash benefit realized currently as a result of the
tax deductibility of goodwill amortization.
2)
Assumes shares outstanding after our IPO were outstanding for all
periods above.
Quarter Ended
Quarter Ended
Year Ended
Year Ended
Dec. 31, 2005
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2006
Reconciliation to free cash flow
Cash from operations
40,173
44,151
110,577
97,811
Capital expenditures
(14,709)
(3,393)
(34,001)
(19,921)
Add cash paid in legal settlement
-
-
-
2,400
Less accrued but not yet paid acquisition earn out
-
(6,160)
-
(6,160)
Free Cash Flows
25,464
34,598
76,576
74,130
Supplemental information:
Cash interest paid
2,714
3,012
40,695
26,455
Cash income taxes paid
-
764
140
764