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
second quarter 2008.
Total revenues were $127.6 million for second quarter 2008, a 39.7%
increase compared to second quarter 2007.
Net revenues, which exclude off-network database queries or
pass-through revenue, were $126.2 million for second quarter 2008, a
40.6% increase compared to second quarter 2007.
Net income was $20.4 million in second quarter 2008, a 74.4% increase
compared to second quarter 2007.
Net income per diluted share was $0.30 in second quarter 2008, a 72.7%
increase compared to second quarter 2007.
Cash net income, a non-GAAP financial measure, was $28.4 million for
second quarter 2008, a 58.9% increase compared to second 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 $0.42 in second quarter 2008, a
57.3% increase compared to second quarter 2007.
Adjusted EBITDA, a non-GAAP financial measure, was $58.3 million for
second quarter 2008, a 57.3% increase compared to second quarter 2007.
“Syniverse continues to report record results
driven by double-digit organic growth and successful acquisition
integration,” said Tony Holcombe, President
and CEO, Syniverse. “We are capitalizing on
the growth in messaging and wireless data while increasing our market
share, and now provide services to more than 600 operators worldwide.
Syniverse also is successfully executing our plan to integrate BSG
Wireless, and we continue to anticipate $12 million of annualized cost
synergies as we integrate the two businesses.”
Chief Financial Officer David Hitchcock added, "Organic net revenue
growth exceeded 25% during the second quarter as technology
interoperability services continue to accelerate. Costs were again well
contained as we realize the benefits of our increasing scale, leading to
$40.9 million of cash from operating activities. In addition, inclusive
of $13.0 million of capital expenditures, we generated $33.3 million of
operating free cash flow in the quarter.”
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 the foregoing non-GAAP financial measures as well as a
reconciliation of such non-GAAP financial measures to GAAP financial
measures.
Second Quarter 2008 Service Line Revenue
Technology Interoperability Services
Technology interoperability services revenues were $80.2 million in
second quarter 2008, a 90.7% increase compared to second quarter 2007.
The increase included $13.7 million of revenues attributable to BSG
Wireless, which was included in Syniverse’s
income statement beginning on January 1. Excluding revenues from BSG
Wireless, technology interoperability revenue grew 58.1% during the
second quarter of 2008 driven by increases across the product line. Data
services, such as SMS interoperability and mobile data roaming, continue
their explosive growth, while growth in clearing house services, UniRoam®
and technology products from ITHL all showed strong double-digit
increases.
Network Services
Network services revenues were $31.6 million in second quarter 2008,
1.3% increase compared to second quarter 2007. Increases in SS7, data
networking and Visibility®
were largely offset by continued declines elsewhere.
Number Portability Services
Number portability services revenues were $6.4 million in second quarter
2008, a 7.2% decrease compared to second quarter 2007. Results were
primarily due to lower volumes in 2008.
Call Processing Services
Call processing services revenues were $7.3 million in second quarter
2008, a 13.2% decrease compared to second quarter 2007. This decrease
was attributable to continued declines in legacy fraud-related services
and a decline in signaling solutions.
Enterprise Solutions
Enterprise solutions revenues were $0.6 million in second quarter 2008.
Off-Network Database Queries (Pass-Through)
Pass-through revenues for second quarter 2008 were $1.4 million.
Second Quarter 2008 Business Highlights
Continued the integration of BSG Wireless.
Gained additional market traction with recent product introductions,
including DataNet, GSM Visibility and financial clearing house
services.
Completed implementation for June launch of true number portability in
Singapore.
Outlook
The company is revising its guidance and providing the following outlook
for 2008:
Net Revenues $485 - 495 million
Net Income $69 - 74 million
Adjusted EBITDA $223 - $230 million
Cash Net Income $105 - $110 million
Additionally, the company expects to generate operating free cash flow
in excess of $118 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 Cash Net Income is determined by first calculating Adjusted
Net Income. Adjusted Net Income is calculated by 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 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. To calculate Cash
Net Income, the cash benefit of our tax-deductible goodwill is added to
Adjusted Net Income. This cash benefit is a result of the differing
treatments of approximately $362 million of goodwill on our balance
sheet that primarily is the result of acquisitions that we made from
Verizon and IOS North America. 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 to net income the
following items: 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 adding to (or
subtracting from) Net cash provided by operating activities the
following items: (capital expenditures), cash paid (received) in legal
settlement and accrued but not yet paid acquisition-related earn-out and
other contingent payments.
A reconciliation of Adjusted Net Income, Cash Net Income and Adjusted
EBITDA to net income, the closest GAAP measure, is presented in the
financial tables below under the caption “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 caption “Reconciliation
of Non-GAAP Measures to GAAP.”
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 Syniverse’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.
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 an investor a greater
understanding of, and an enhanced level of transparency into, the means
by which our management team operates our company. 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 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, and Adjusted
Net Income and Cash Net Income should not be considered as a replacement
for, or in lieu of, net income. We attempt to 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 only.
Second Quarter 2008 Earnings Call
Syniverse will host a conference call today at 4:30 p.m. ET to discuss
these results, and the accompanying slides for the conference call have
been posted to the Syniverse website at www.syniverse.com.
To participate on this call, U.S. callers may dial toll-free free
1-888-873-4896; international callers may dial direct (+1) 617-213-8850.
The passcode for this call is 66117475. 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 6:30
p.m. ET on August 4 and will remain available through August 18 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 63723020.
About Syniverse
Syniverse Technologies (NYSE:SVR) provides solutions that allow more
than 600 communications companies in over 120 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.
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 and Section 21E of the Securities Act of
1934, 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
ability to continue to report strong results, whether as a result of
organic growth and acquisitions or otherwise; Syniverse’s
ability to continue to capitalize on the positive growth in messaging
and wireless data; Syniverse’s ability to
successfully and timely integrate BSG Wireless, and to realize the
anticipated cost savings of that integration when and in the amounts
anticipated; the ability of Syniverse to gain market acceptance and
penetration in respect of several recent product introductions,
including Datanet, GSM Visibility and Financial Clearing House services;
Syniverse’s guidance for 2008, 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 2008,
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 December 31, 2007 under
the captions “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
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, 2008
June 30, 2007
June 30, 2008
June 30, 2007
Technology Interoperability Services
$
80,209
$
42,061
$
148,911
$
79,856
Network Services
31,643
31,245
61,384
61,669
Number Portability Services
6,435
6,938
13,385
13,044
Call Processing Services
7,313
8,422
15,702
15,630
Enterprise Solution
634
1,089
1,419
2,280
Revenues excluding Off Network Database Queries
126,234
89,755
240,801
172,479
Off Network Database Queries
1,385
1,620
2,463
3,274
Total Revenues
127,619
91,375
243,264
175,753
Cost of operations
41,589
34,075
79,567
67,516
Gross Margin
86,030
57,300
163,697
108,237
Gross Margin %
67.4
%
62.7
%
67.3
%
61.6
%
Gross Margin % before
Off Network Database Queries
68.2
%
63.8
%
68.0
%
62.8
%
Sales and marketing
12,200
7,652
22,954
14,464
General and administrative
19,868
13,616
38,010
27,603
Depreciation and amortization
13,791
10,724
27,424
21,003
Restructuring
-
773
17
2,555
Operating income
40,171
24,535
75,292
42,612
Other expense, net
Interest expense, net
(8,925
)
(5,572
)
(18,215
)
(11,196
)
Other, net
(272
)
75
(215
)
128
(9,197
)
(5,497
)
(18,430
)
(11,068
)
Income before provision for income taxes
30,974
19,038
56,862
31,544
Provision for income taxes
10,622
7,370
21,117
12,230
Net income
$
20,352
$
11,668
$
35,745
$
19,314
Net income per share
Basic
$
0.30
$
0.17
$
0.53
$
0.29
Diluted
$
0.30
$
0.17
$
0.53
$
0.29
Shares used in calculation
Basic
67,619
67,294
67,564
67,257
Diluted
68,112
67,439
68,010
67,396
Other Supplemental Information:
Revenue by region (1)
(unaudited):
Three Months Ended
Six Months Ended
June 30, 2008
June 30, 2007
June 30, 2008
June 30, 2007
North America
$
90,932
$
70,593
$
173,145
$
135,945
Asia Pacific
11,855
9,528
22,073
19,249
Caribbean and Latin America
7,456
5,594
15,315
10,784
Europe, Middle East and Africa
15,991
4,040
30,268
6,501
Subtotal non- North American Revenue
35,302
19,162
67,656
36,534
Revenues excluding Off Network Database Queries
126,234
89,755
240,801
172,479
Off Network Database Queries
1,385
1,620
2,463
3,274
Total Revenues
$
127,619
$
91,375
$
243,264
$
175,753
(1) Based on "bill to" location on invoice.
Syniverse Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands except share information)
June 30,
December 31,
2008
2007
(unaudited)
ASSETS
Current assets:
Cash
$
92,775
$
49,086
Accounts receivable, net of allowances of $588 and $762, respectively
93,846
79,378
Prepaid and other current assets
15,818
12,240
Total current assets
202,439
140,704
Property and equipment, net
47,262
43,856
Capitalized software, net
62,924
62,615
Deferred costs, net
9,901
10,786
Goodwill
628,621
616,304
Identifiable intangibles, net
226,065
232,023
Other assets
2,315
1,262
Total assets
$
1,179,527
$
1,107,550
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
6,395
$
5,006
Accrued payroll and related benefits
12,744
12,016
Accrued interest
8,908
5,910
Deferred revenues
4,996
5,327
Other accrued liabilities
29,955
34,789
Current portion of Term Note B
3,585
3,459
Total current liabilities
66,583
66,507
Long-term liabilities:
Deferred tax liabilities
62,175
43,587
7 3/4% senior subordinated notes due 2013
175,000
175,000
Term Note B, less current maturities
352,192
344,476
Other long-term liabilities
7,090
7,188
Total long-term liabilities
596,457
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;
68,821,784 shares issued and
68,429,786 shares outstanding and 68,683,075 shares issued and
68,302,956 shares outstanding
at June 30, 2008 and December 31, 2007, respectively
68
68
Additional paid-in capital
467,485
463,711
Retained earnings
40,596
4,851
Accumulated other comprehensive income
8,368
2,191
Common stock held in treasury, at cost; 391,998 and 380,119 at June
30, 2008 and
December 31, 2007, respectively
(30
)
(29
)
Total stockholders' equity
516,487
470,792
Total liabilities and stockholders' equity
$
1,179,527
$
1,107,550
Syniverse Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six Months Ended June 30,
2008
2007
Cash flows from operating activities
Net income
$
35,745
$
19,314
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization including amortization of deferred
debt issuance costs
28,309
21,428
Provision for (recovery of) uncollectible accounts
(153
)
131
Deferred income tax expense
13,991
9,910
Stock-based compensation
2,424
1,469
Loss on disposition of property
18
348
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(13,766
)
(1,553
)
Other current assets
(3,266
)
(1,973
)
Accounts payable
2,096
(480
)
Other current liabilities
(1,146
)
(7,643
)
Other assets and liabilities
(126
)
(2,216
)
Net cash provided by operating activities
64,126
38,735
Cash flows from investing activities
Capital expenditures
(20,361
)
(16,053
)
Acquisition of BSG Wireless
(823
)
-
Acquisition of ITHL
-
(735
)
Net cash used in investing activities
(21,184
)
(16,788
)
Cash flows from financing activities
Principal payments on senior credit facility
(1,786
)
(696
)
Employee stock purchase plan
388
430
Stock options exercised
1,391
16
Minimum tax withholding on restricted stock awards
(429
)
(275
)
Purchase of treasury stock
(1
)
(1
)
Net cash used in financing activities
(437
)
(526
)
Effect of exchange rate changes on cash
1,184
114
Net increase in cash
43,689
21,535
Cash at beginning of period
49,086
26,704
Cash at end of period
$
92,775
$
48,239
Supplemental cash flow information
Interest paid
$
15,180
$
11,763
Income taxes paid
6,367
1,650
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, 2008
June 30, 2007
June 30, 2008
June 30, 2007
Reconciliation to adjusted EBITDA
Net income
$
20,352
$
11,668
$
35,745
$
19,314
Interest expense, net
8,925
5,572
18,215
11,196
Provision for income taxes
10,622
7,370
21,117
12,230
Depreciation and amortization
13,791
10,724
27,424
21,003
Restructuring
-
773
17
2,555
SFAS 123R non-cash compensation
1,347
984
2,424
1,469
BSG Wireless transition expenses
3,294
-
6,401
-
Adjusted EBITDA
$
58,331
$
37,091
$
111,343
$
67,767
Three Months Ended
Six Months Ended
June 30, 2008
June 30, 2007
June 30, 2008
June 30, 2007
Reconciliation to adjusted net
income and cash net income
Net income
$
20,352
$
11,668
$
35,745
$
19,314
Add provision for income taxes
10,622
7,370
21,117
12,230
Income before provision for income taxes
30,974
19,038
56,862
31,544
Restructuring
-
773
17
2,555
SFAS 123R non-cash compensation
1,347
984
2,424
1,469
Purchase accounting amortization
7,119
4,703
14,238
9,406
BSG Wireless transition expenses
3,294
-
6,401
-
Adjusted income before provision for income taxes
42,734
25,498
79,942
44,974
Less assumed provision for income taxes at 39%
(16,666
)
(9,944
)
(31,177
)
(17,540
)
Adjusted net income
26,068
15,554
48,765
27,434
Add cash savings of tax deductible goodwill(1)
2,301
2,301
4,602
4,602
Cash net income
$
28,369
$
17,855
$
53,367
$
32,036
Adjusted net income per share
$
0.38
$
0.23
$
0.72
$
0.41
Cash net income per share
$
0.42
$
0.26
$
0.78
$
0.48
Diluted shares outstanding
68,112
67,439
68,010
67,396
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, 2008
June 30, 2007
June 30, 2008
June 30, 2007
Reconciliation to operating free cash flow
Net cash provided by operating activities
$
40,864
$
17,705
$
64,126
$
38,735
Capital expenditures
(13,020
)
(6,464
)
(20,361
)
(16,053
)
Cash received in legal settlement
-
-
-
(2,500
)
Change in working capital due to ITHL contingent payment
-
6,895
-
6,160
Change in working capital due to payment of BSG pre-acquisition
contractual obligation
5,440
-
5,440
-
Operating Free Cash Flow
$
33,284
$
18,136
$
49,205
$
26,342
Supplemental cash flow information:
Cash interest paid
$
1,829
$
2,511
$
15,180
$
11,763
Cash income taxes paid
4,857
1,650
6,367
1,650
Syniverse Holdings Inc.
Reconciliation of Non GAAP Measure Estimates to GAAP (unaudited)
2008E
2008E
(in millions)
Low
High
Reconciliation to adjusted EBITDA
Net income
$
69.0
$
74.0
Interest expense, net
36.0
36.0
Provision for income taxes
42.0
44.0
Depreciation and amortization(1)
57.0
57.0
SFAS 123R non-cash compensation
5.5
5.5
BSGW transition expenses(2)
13.5
13.5
Adjusted EBITDA
$
223.0
$
230.0
Reconciliation to adjusted net income and cash net
income
Net income
$
69.0
$
74.0
Add provision for income taxes
42.0
44.0
Income (loss) before provision for income taxes
111.0
118.0
Adjustments income (loss) 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)
13.5
13.5
Adjusted income (loss) before provision for income taxes
158.5
165.5
Less assumed provision for income taxes
(62.7
)
(64.7
)
Adjusted net income
95.8
100.8
Add cash savings of tax deductible goodwill(3)
9.2
9.2
Cash net income
$
105.0
$
110.0
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.