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 third quarter 2008.
Total revenue for third quarter 2008 was $137.2 million, a 36.8%
increase compared to third quarter 2007.
Net revenue, which excludes off-network database queries, was $135.8
million, a 36.9% increase compared to third quarter 2007.
Net income was $25.5 million, or $0.37 per diluted share, 54.5% and
53.2% increases respectively, compared to third quarter 2007.
Cash net income, a non-GAAP financial measure described below, was
$34.2 million, or $0.50 per diluted share, 54.7% and 53.4% increases,
respectively, compared to third quarter 2007.
Adjusted EBITDA, a non-GAAP financial measure described below, was
$67.6 million, a 51.0% increase compared to third quarter 2007.
Cash flow from operations was $45.8 million, a 56.3% increase compared
to the third quarter 2007.
“I am pleased to report that Syniverse has
once again achieved solid results this quarter,”
said Tony Holcombe, President and CEO. “Our
seventh consecutive quarter of organic growth was driven by the ongoing
strong performance of our technology interoperability business. The
people and technology investments we made early last year continue to
generate solid returns for our shareholders. Furthermore, a global
renewal rate of 99 percent is a clear proof point of the service quality
and value we provide our customers.”
David Hitchcock, Executive Vice President and CFO, added, “I
am proud to announce that the company generated record quarterly net
revenues of $135.8 million as a result of organic growth that exceeded
20%. These results contributed free cash flow of $36.7 million for 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 non-GAAP financial measures as well as a reconciliation
of such non-GAAP financial measures to GAAP financial measures.
Third Quarter 2008 Service Line Revenue
Technology Interoperability Services
Technology interoperability services revenues were $88.6 million in the
quarter, a 73.6% increase compared to third quarter 2007. The increase
includes $15.8 million of revenues attributable to BSG Wireless, which
was included in Syniverse’s income statement
beginning on January 1, 2008. Excluding revenues from BSG Wireless,
technology interoperability revenue grew 42.7%, driven by increases in
messaging and mobile data services, clearing house services and UniRoam®.
Network Services
Network services revenues were $31.1 million in the quarter, a 2.8%
decrease compared to third quarter 2007. Increases in SS7 transport,
data networking and Visibility®
Services were offset by expected continued declines in other parts of
the segment.
Number Portability Services
Number portability services revenues were $8.1 million in the quarter, a
14.4% increase compared to third quarter 2007. Results were driven by
increased porting volumes in 2008.
Call Processing Services
Call processing services revenues were $7.5 million in the quarter, a
7.9% decrease compared to third quarter 2007. This decrease was
primarily due to continued declines in legacy fraud-related services.
Enterprise Solutions
Enterprise solutions revenues were $0.5 million in third quarter 2008.
Off-Network Database Queries (Pass-Through)
Pass-through revenues for third quarter 2008 were $1.4 million.
Third Quarter 2008 Business Highlights
The successful integration of BSG Wireless continues on schedule.
Colibria and Syniverse announced a joint development agreement for an
advanced messaging hub that will drive seamless interworking and
interconnections between IM, SMS, MMS and presence applications for
mobile operators.
Entel PCS switched to Syniverse’ complete
set of roaming solutions.
Verizon Wireless and Syniverse announced a three-year contract
extension for ongoing data clearing and roaming services.
Outlook
Syniverse reiterates its existing guidance for 2008:
Net Revenues
$485 - 495 million
Net Income
$69 - 74 million
Adjusted EBITDA
$223 - $230 million
Cash Net Income
$105 - $110 million
Operating Free Cash Flow
in excess of $118 million
Assuming we continue to be successful integrating BSG Wireless,
Syniverse expects to realize approximately $12 million of annualized
cost savings. Approximately $4 million of the expected cost savings are
expected to be realized in 2008, with the remainder to be realized in
2009. 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: (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 39%, 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 million of goodwill on our balance
sheet which 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 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 adding the
following items to (or subtracting them from) net cash provided by
operating activities: (capital expenditures), (cash received in legal
settlement), change in working capital due to ITHL contingent payment
and change in working capital due to payment of BSG pre-acquisition
contractual obligation.
A reconciliation of each 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 and cash net income 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 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 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.
Third 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
1-866-713-8565; international callers may dial direct (+1) 617-597-5324.
The passcode for this call is 69317082. 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 today and will remain available through Nov. 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 87044381.
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 positive results in future periods and/or
to continue to experience organic growth; Syniverse’s
ability to realize the benefits of investments that it has made in its
people and technology; Syniverse’s ability to
continue to realize a positive global renewal rate; Syniverse’s
ability to provide a high level of service quality and value to its
customers; 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; and 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
Nine Months Ended
Sept. 30,2008
Sept. 30,2007
Sept. 30,2008
Sept. 30, 2007
Technology Interoperability Services
$
88,568
$
51,006
$
237,577
$
130,862
Network Services
31,097
31,990
92,382
93,659
Number Portability Services
8,076
7,060
21,462
20,104
Call Processing Services
7,546
8,191
23,248
23,821
Enterprise Solutions
524
943
1,943
3,223
Revenues excluding Off Network Database Queries
135,811
99,190
376,612
271,669
Off Network Database Queries
1,358
1,088
3,821
4,362
Total Revenues
137,169
100,278
380,433
276,031
Cost of operations
43,133
34,584
122,700
102,100
Gross Margin
94,036
65,694
257,733
173,931
Gross Margin %
68.6
%
65.5
%
67.7
%
63.0
%
Gross Margin % before
Off Network Database Queries
69.2
%
66.2
%
68.4
%
64.0
%
Sales and marketing
11,071
7,483
34,025
21,947
General and administrative
19,784
14,317
57,794
41,920
Depreciation and amortization
13,809
10,861
41,233
31,864
Restructuring
(46
)
(319
)
(29
)
2,236
Operating income
49,418
33,352
124,710
75,964
Other expense, net
Interest expense, net
(8,686
)
(6,201
)
(26,901
)
(17,397
)
Other, net
(164
)
(90
)
(379
)
38
(8,850
)
(6,291
)
(27,280
)
(17,359
)
Income before provision for income taxes
40,568
27,061
97,430
58,605
Provision for income taxes
15,101
10,582
36,218
22,812
Net income
$
25,467
$
16,479
$
61,212
$
35,793
Net income per share
Basic
$
0.38
$
0.24
$
0.91
$
0.53
Diluted
$
0.37
$
0.24
$
0.90
$
0.53
Shares used in calculation
Basic
67,757
67,377
67,629
67,298
Diluted
68,204
67,607
68,075
67,467
Other Supplemental Information:
Revenue by region (1) (unaudited):
Three Months Ended
Nine Months Ended
Sept. 30,2008
Sept. 30,2007
Sept. 30,2008
Sept. 30,2007
North America (U.S. and Canada)
$
98,346
$
77,274
$
271,491
$
213,219
Asia Pacific
10,357
11,279
32,430
30,528
Caribbean and Latin America (includes Mexico)
8,099
6,243
23,413
17,027
Europe, Middle East and Africa
19,009
4,394
49,278
10,895
Subtotal non- North American Revenue
37,465
21,916
105,121
58,450
Revenues excluding Off Network Database Queries
135,811
99,190
376,612
271,669
Off Network Database Queries
1,358
1,088
3,821
4,362
Total Revenues
$
137,169
$
100,278
$
380,433
$
276,031
(1) Based on "bill to" location on invoice.
Syniverse Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands except share information)
Sept. 30,
Dec. 31,
2008
2007
(unaudited)
ASSETS
Current assets:
Cash
$
126,035
$
49,086
Accounts receivable, net of allowances of $644 and $762, respectively
98,599
79,378
Prepaid and other current assets
16,099
12,240
Total current assets
240,733
140,704
Property and equipment, net
47,699
43,856
Capitalized software, net
60,740
62,615
Deferred costs, net
9,456
10,786
Goodwill
608,952
616,304
Identifiable intangibles, net
215,791
232,023
Other assets
2,130
1,262
Total assets
$
1,185,501
$
1,107,550
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
7,233
$
5,006
Accrued payroll and related benefits
17,935
12,016
Accrued interest
1,797
5,910
Deferred revenues
5,422
5,327
Other accrued liabilities
30,994
34,789
Current portion of Term Note B
3,463
3,459
Total current liabilities
66,844
66,507
Long-term liabilities:
Deferred tax liabilities
65,086
43,587
7 3/4% senior subordinated notes due 2013
175,000
175,000
Term Note B, less current maturities
339,354
344,476
Other long-term liabilities
6,457
7,188
Total long-term liabilities
585,897
570,251
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;
68,844,182 shares issued and 68,446,184 shares outstanding and
68,683,075 shares issued and 68,302,956 shares outstanding at
September 30, 2008 and December 31, 2007, respectively
68
68
Additional paid-in capital
469,198
463,711
Retained earnings
66,063
4,851
Accumulated other comprehensive income
(2,539
)
2,191
Common stock held in treasury, at cost; 391,998 and 380,119 at
September 30, 2008 and December 31, 2007, respectively
(30
)
(29
)
Total stockholders' equity
532,760
470,792
Total liabilities and stockholders' equity
$
1,185,501
$
1,107,550
Syniverse Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended September 30,
2008
2007
Cash flows from operating activities
Net income
$
61,212
$
35,793
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization including amortization of deferred
debt issuance costs
42,563
32,661
Provision for (recovery of) uncollectible accounts
(129
)
203
Deferred income tax expense
24,006
19,086
Stock-based compensation
3,738
2,445
Loss on disposition of property
478
1,061
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(19,664
)
(8,314
)
Other current assets
(3,518
)
(1,513
)
Accounts payable
8,205
618
Other current liabilities
(6,949
)
(10,022
)
Other assets and liabilities
(26
)
(3,982
)
Net cash provided by operating activities
109,916
68,036
Cash flows from investing activities
Capital expenditures
(29,406
)
(21,974
)
Acquisition of BSG Wireless
(823
)
-
Acquisition of ITHL
-
(735
)
Net cash used in investing activities
(30,229
)
(22,709
)
Cash flows from financing activities
Debt issuance costs
-
(6,428
)
Principal payments on senior credit facility
(2,654
)
(24,561
)
Employee stock purchase plan
388
430
Stock options exercised
1,951
294
Minimum tax withholding on restricted stock awards
(590
)
(275
)
Purchase of treasury stock
(1
)
(1
)
Net cash used in financing activities
(906
)
(30,541
)
Effect of exchange rate changes on cash
(1,832
)
552
Net increase in cash
76,949
15,338
Cash at beginning of period
49,086
26,704
Cash at end of period
$
126,035
$
42,042
Supplemental cash flow information
Interest paid
$
30,018
$
21,421
Income taxes paid
9,059
2,826
Syniverse Holdings, Inc.
Reconciliation of Non GAAP Measures to GAAP (unaudited)
(In thousands except per share information)
Three Months Ended
Nine Months Ended
Sept. 30,2008
Sept. 30, 2007
Sept. 30,2008
Sept. 30,2007
Reconciliation to adjusted EBITDA
Net income
$
25,467
$
16,479
$
61,212
$
35,793
Interest expense, net
8,686
6,201
26,901
17,397
Provision for income taxes
15,101
10,582
36,218
22,812
Depreciation and amortization
13,809
10,861
41,233
31,864
Restructuring
(46
)
(319
)
(29
)
2,236
SFAS 123R non-cash compensation
1,314
976
3,738
2,445
BSG Wireless transition expenses
3,276
-
9,677
-
Adjusted EBITDA
$
67,607
$
44,780
$
178,950
$
112,547
Three Months Ended
Nine Months Ended
Sept. 30,2008
Sept. 30,2007
Sept. 30,2008
Sept. 30,2007
Reconciliation to adjusted net income and cash net income
Net income
$
25,467
$
16,479
$
61,212
$
35,793
Add provision for income taxes
15,101
10,582
36,218
22,812
Income before provision for income taxes
40,568
27,061
97,430
58,605
Restructuring
(46
)
(319
)
(29
)
2,236
SFAS 123R non-cash compensation
1,314
976
3,738
2,445
Purchase accounting amortization
7,119
4,703
21,357
14,109
BSG Wireless transition expenses
3,276
-
9,677
-
Adjusted income before provision for income taxes
52,231
32,421
132,173
77,395
Less assumed provision for income taxes at 39%
(20,370
)
(12,644
)
(51,548
)
(30,184
)
Adjusted net income
31,861
19,777
80,625
47,211
Add cash savings of tax deductible goodwill(1)
2,301
2,301
6,903
6,903
Cash net income
$
34,162
$
22,078
$
87,528
#
$
54,114
Adjusted net income per share
$
0.47
$
0.29
$
1.18
$
0.70
Cash net income per share
$
0.50
$
0.33
$
1.29
$
0.80
Diluted shares outstanding
68,204
67,607
68,075
67,467
(1) Represents the cash benefit realized currently as a result of
the tax deductibility of goodwill amortization.
Three Months Ended
Nine Months Ended
Sept. 30,2008
Sept. 30,2007
Sept. 30,2008
Sept. 30,2007
Reconciliation to operating free cash flow
Net cash provided by operating activities
$
45,790
$
29,301
$
109,916
$
68,036
Capital expenditures
(9,045
)
(5,921
)
(29,406
)
(21,974
)
Cash received in legal settlement
-
-
-
(2,500
)
Change in working capital due to ITHL contingent payment
-
-
-
6,160
Change in working capital due to payment of BSG pre-acquisition
contractual obligation
-
-
5,440
-
Operating Free Cash Flow
$
36,745
$
23,380
$
85,950
$
49,722
Supplemental cash flow information:
Cash interest paid
$
15,838
$
9,658
$
31,018
$
21,421
Cash income taxes paid
2,692
1,176
9,059
2,826
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 before provision for income taxes
111.0
118.0
Adjustments income before provision for income taxes
Purchase accounting amortization
28.5
28.5
SFAS 123R non-cash compensation
5.5
5.5
BSGW transition expenses(2)
13.5
13.5
Adjusted income 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.