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"Last week's acquisition of VeriSign's Mobile Messaging Division is a major step in the evolution of Syniverse, as the newly-expanded messaging business will comprise about 30 percent of our revenues going forward," said Tony Holcombe, President and CEO. "We have effectively deployed $175 million that will have a tremendous payback and propel our business forward through the addition of outstanding people, products, scale and reach."
Syniverse cited solid results for the quarter in a period of global economic weakness:
-- Total revenue for third quarter 2009 was $116.7 million, a 15.0% decrease compared to third quarter 2008.
-- Net revenue, which excludes off-network database queries, was $115.1 million, a 15.2% decrease compared to third quarter 2008.
-- Net income was $17.6 million or $0.26 per diluted share, 31.0% and 30.9% decreases, respectively, compared to third quarter 2008.
-- Cash net income, a non-GAAP financial measure described below, was $28.2 million or $0.41 per diluted share, 17.4% and 18% decreases respectively compared to third quarter 2008.
-- Adjusted EBITDA, a non-GAAP financial measure described below, was $56.1 million, a 17.1% decrease compared to third quarter 2008.
-- Net cash provided by operating activities was $32.8 million in the third quarter 2009 compared to $45.8 million in the third quarter 2008.
-- Operating free cash flow, a non-GAAP financial measure described below, was $26.7 million in the third quarter 2009 compared to $36.7 million in the third quarter 2008.
David Hitchcock, Executive Vice President and CFO, said continued cost management helped Syniverse drive margins and earnings during the third quarter.
"We again managed costs very aggressively during the period, posting a strong Adjusted EBITDA margin of 48.7 percent for the quarter," Hitchcock said. "Despite revenues that were softer than expected, we continued to deliver solid cash net income and strong free cash flow."
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 2009 Service Line Revenue
Technology Interoperability Services
Technology interoperability services revenues were $66.8 million in the quarter, a 24.5% decrease compared to third quarter 2008. Revenues were down due to the impact of the general global economic slowdown, previously-disclosed customer-specific events and weakness in the sales of ITHL products in Asia Pacific.
Network Services
Network services revenues were $31.9 million in the quarter, a 2.7% increase compared to third quarter 2008, due to increases in SS7 and IP networking.
Number Portability Services
Number portability services revenues were $8.5 million in the quarter, a 5.4% increase compared to third quarter 2008 due to increased porting volumes.
Call Processing Services
Call processing services revenues were $7.5 million in the quarter, a 1.2% decrease compared to third quarter 2008.
Enterprise Solutions
Enterprise solutions revenues were $0.4 million in third quarter 2009.
Off-Network Database Queries (Pass-Through)
Pass-through revenues for third quarter 2009 were $1.6 million.
Third Quarter 2009 Business Highlights
-- Syniverse announced in third quarter its intention to acquire VeriSign's mobile messaging business for approximately $175 million in cash, subject to working capital adjustments. The acquisition closed October 23.
-- Syniverse announced a bundled service agreement with Canadian integrated communications company Videotron, continuing Syniverse's success in providing industry-leading solutions to new entrants to the mobile space, including cable operators as well as Internet, VoIP and applications service providers.
-- The company continued its successful integration of BSG Wireless, with $11 million of annualized run-rate cost savings realized through September 30, 2009.
Outlook
Syniverse provides the following outlook for 2009 as set forth below:
Net Revenues $466 - $472 million Net Income $59.5 - $64 million Adjusted EBITDA $202 - $209 million Cash Net Income $98.5 - $103 million Operating Free Cash Flow $80 - $85 million
The revised full-year outlook includes the impact of the recent messaging acquisition, which closed on October 23.
The successful integration of BSG Wireless continues, and Syniverse expects to realize approximately $12 million of annualized run-rate cost savings upon full integration. Approximately $11 million of the expected cost savings have been realized through September 30, 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. For periods beginning on Jan. 1, 2009, cash net income assumes a long-term effective tax rate of 37.5%; for periods through Dec. 31, 2008, the long-term effective tax rate assumption was 39%.
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, non-cash stock compensation, BSG Wireless transition expense, messaging acquisition and transition expenses and purchase accounting amortization; (ii) adjusting the resulting pre-tax sum for a provision for income taxes at an assumed long-term tax rate of 37.5% (39% for all periods through Dec. 31, 2008), 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 in February 2002 and IOS North America in September 2004. 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, non-cash stock compensation, BSG Wireless transition expenses and messaging acquisition and transition expenses.
Syniverse's operating free cash flow is determined by subtracting capital expenditures, and adding change in working capital due to payment of BSG pre-acquisition contractual obligation from net cash provided by operating activities.
A reconciliation 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, cash net income and related per-share amounts 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 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 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 2009 Earnings Call
Syniverse will host a conference call at 4:30 p.m. ET to discuss the results. To participate on this call, U.S. callers may dial toll free 1-866-383-8008; international callers may dial direct +1 (617) 597-5341. The passcode for this call is 65583949. 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 7:30 p.m. ET on Nov. 2 and will remain available through Nov. 16 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 65518577.
About Syniverse
Syniverse Technologies (NYSE:SVR) provides mobile technology for the global telecommunications industry, making it possible for disparate data, messaging and voice technologies to interoperate anywhere, any time. Serving more than 800 communications companies in over 160 countries, Syniverse offers market-leading solutions that simplify the complexities of roaming, messaging, network interoperability and business intelligence for mobile operators, MSOs, enterprise verticals and emerging mobile providers. For more information, visit 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 position for long-term success; Syniverse's ability to continue to manage its costs; growth in messaging and Syniverse's expectations of its product portfolio and competitive position; Syniverse's ability to continue to report positive results in future periods and/or to continue to experience growth; Syniverse's ability to successfully integrate its acquired businesses; Syniverse's belief of the value of Non-GAAP measures to its investors; Syniverse's ability to reduce its long-term effective tax rate; and Syniverse's guidance for 2009, 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 2009, 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 Dec. 31, 2008 and Quarterly Reports for the quarters ended March 31, 2009 and June 30, 2009 under the captions "Cautionary Notice Regarding 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
September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
Technology Interoperability Services $ 66,844 $ 88,568 $ 196,107 $ 237,577
Network Services 31,944 31,097 92,738 92,382
Number Portability Services 8,514 8,076 23,542 21,462
Call Processing Services 7,459 7,546 21,051 23,248
Enterprise Solutions 349 524 1,129 1,943
Revenues excluding Off-Network Database Queries 115,110 135,811 334,567 376,612
Off-Network Database Queries 1,552 1,358 4,497 3,821
Total Revenues 116,662 137,169 339,064 380,433
Cost of operations 41,326 43,133 122,188 122,700
Gross Margin 75,336 94,036 216,876 257,733
Gross Margin % 64.6 % 68.6 % 64.0 % 67.7 %
Gross Margin % before
Off-Network Database Queries 65.4 % 69.2 % 64.8 % 68.4 %
Sales and marketing 8,789 11,071 26,312 34,025
General and administrative 15,986 19,784 49,989 57,794
Depreciation and amortization 14,585 13,809 42,206 41,233
Restructuring - (46 ) - (29 )
Operating income 35,976 49,418 98,369 124,710
Other expense, net
Interest expense, net (7,026 ) (8,686 ) (21,636 ) (26,901 )
Other, net (40 ) (164 ) 1,094 (379 )
(7,066 ) (8,850 ) (20,542 ) (27,280 )
Income before provision for income taxes 28,910 40,568 77,827 97,430
Provision for income taxes 11,338 15,101 27,745 36,218
Net income 17,572 25,467 50,082 61,212
Less: Net loss attributable to noncontrolling interest (172 ) - (225 ) -
Net income attributable to Syniverse Holdings, Inc. $ 17,744 $ 25,467 $ 50,307 $ 61,212
Net income per share
Basic $ 0.26 $ 0.37 $ 0.73 $ 0.90
Diluted $ 0.26 $ 0.37 $ 0.73 $ 0.89
Shares used in calculation
Basic 68,088 67,757 67,965 67,629
Diluted 68,303 67,817 68,078 67,706
Other Supplemental Information:
Revenue by region (1) (unaudited): Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
North America (U.S. and Canada) $ 81,527 $ 98,346 $ 241,467 $ 271,491
Asia Pacific 9,447 10,357 28,317 32,430
Caribbean and Latin America (includes Mexico) 8,391 8,099 24,049 23,413
Europe, Middle East and Africa 15,745 19,009 40,734 49,278
Subtotal non- North American Revenue 33,583 37,465 93,100 105,121
Revenues excluding Off Network Database Queries 115,110 135,811 334,567 376,612
Off Network Database Queries 1,552 1,358 4,497 3,821
Total Revenues 116662.312 137169 339063.922 380433
(1) Based on "bill to" location on invoice.
Syniverse Holdings, Inc
Reconciliation of Non GAAP Measures to GAAP (unaudited)
(In thousands except per share information)
Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
Reconciliation to adjusted EBITDA
Net income $ 17,572 $ 25,467 $ 50,082 $ 61,212
Interest expense, net 7,026 8,686 21,636 26,901
Provision for income taxes 11,338 15,101 27,745 36,218
Depreciation and amortization 14,585 13,809 42,206 41,233
Restructuring - (46 ) - (29 )
Non-cash stock compensation 2,273 1,314 5,288 3,738
BSG Wireless transition expenses 1,511 3,276 6,136 9,677
Messaging acquisition and transition expenses 1,756 - 1,756 -
Adjusted EBITDA $ 56,061 $ 67,607 $ 154,849 $ 178,950
Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
Reconciliation to adjusted net income and cash net income
Net income $ 17,572 $ 25,467 $ 50,082 $ 61,212
Add provision for income taxes 11,338 15,101 27,745 36,218
Income before provision for income taxes 28,910 40,568 77,827 97,430
Restructuring - (46 ) - (29 )
Non-cash stock compensation 2,273 1,314 5,288 3,738
BSG Wireless transition expenses 1,511 3,276 6,136 9,677
Messaging acquisition and transition expenses 1,756 - 1,756 -
Purchase accounting amortization 7,020 7,119 20,728 21,357
Adjusted income before provision for income taxes 41,470 52,231 111,735 132,173
Less assumed provision for income taxes at 37.5% for 2009 and 39% (15,551 ) (20,370 ) (41,901 ) (51,548 )
for 2008
Adjusted net income 25,919 31,861 69,834 80,625
Add cash savings of tax deductible goodwill(1) 2,301 2,301 6,903 6,903
Cash net income $ 28,220 $ 34,162 $ 76,737 $ 87,528
Adjusted net income per share $ 0.38 $ 0.47 $ 1.03 $ 1.19
Cash net income per share $ 0.41 $ 0.50 $ 1.13 $ 1.29
Diluted shares outstanding 68,303 67,817 68,078 67,706
1) Represents the cash benefit realized currently as a result of the
tax deductibility of goodwill amortization.
Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
Reconciliation to operating free cash flow
Net cash provided by operating activities $ 32,802 $ 45,790 $ 83,076 $ 109,916
Capital expenditures (6,091 ) (9,045 ) (27,027 ) (29,406 )
Change in working capital due to payment of BSG pre-acquisition
contractual obligation - - - 5,440
Operating Free Cash Flow $ 26,711 $ 36,745 $ 56,049 $ 85,950
Supplemental cash flow information:
Cash interest paid $ 10,034 $ 15,838 $ 23,361 $ 31,018
Cash income taxes paid 1,676 2,692 $ 23,444 9,059
Syniverse Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands except share data)
September 30, December 31,
2009 2008
(unaudited)
ASSETS
Current assets:
Cash $ 216,197 $ 165,605
Accounts receivable, net of allowances of $4,609 and $2,347, 92,417 88,782
respectively
Prepaid and other current assets 26,624 20,971
Total current assets 335,238 275,358
Property and equipment, net 53,014 50,251
Capitalized software, net 58,167 60,184
Deferred costs, net 7,821 7,288
Goodwill 607,719 596,662
Identifiable intangibles, net 196,276 208,518
Other assets 1,516 1,573
Total assets $ 1,259,751 $ 1,199,834
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,070 $ 7,311
Accrued payroll and related benefits 7,683 20,111
Accrued interest 1,802 5,160
Accrued income taxes 1,669 9,891
Deferred revenues 3,637 4,260
Other accrued liabilities 27,077 28,975
Current portion of Term Note B 3,476 3,431
Total current liabilities 50,414 79,139
Long-term liabilities:
Deferred tax liabilities 82,969 65,546
7 3/4% senior subordinated notes due 2013 175,000 175,000
Term Note B, less current maturities 337,143 335,382
Other long-term liabilities 10,276 8,925
Total liabilities 655,802 663,992
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; 69 68
69,449,596 shares issued and 69,257,598 shares outstanding and
68,847,632 shares issued and 68,455,634 shares outstanding at
September 30, 2009 and December 31, 2008, respectively
Additional paid-in capital 479,502 471,524
Retained earnings 133,622 83,315
Accumulated other comprehensive loss (10,051 ) (19,035 )
Common stock held in treasury, at cost; 191,998 and 391,998 at (15 ) (30 )
September 30, 2009 and December 31, 2008, respectively
Total Syniverse Holdings, Inc. stockholders' equity 603,127 535,842
Noncontrolling interest 822 -
Total equity 603,949 535,842
Total liabilities and stockholders' equity $ 1,259,751 $ 1,199,834
Syniverse Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Nine Months Ended
September 30,
2009 2008
Cash flows from operating activities
Net income $ 50,082 $ 61,212
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization including amortization of deferred 43,499 42,563
debt issuance costs
Provision for (recovery of) uncollectible accounts 591 (129 )
Deferred income tax expense 15,826 24,006
Stock-based compensation 5,288 3,738
Other, net 76 478
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (2,539 ) (19,664 )
Other current assets (6,081 ) (3,518 )
Accounts payable, accrued payroll and related benefits (14,478 ) 8,205
Other current liabilities (12,139 ) (6,949 )
Other assets and liabilities 2,951 (26 )
Net cash provided by operating activities 83,076 109,916
Cash flows from investing activities
Capital expenditures (27,027 ) (29,406 )
Acquisition of WSI, net of acquired cash (3,099 ) -
Acquisition of BSG Wireless, net of acquired cash - (823 )
Net cash used in investing activities (30,126 ) (30,229 )
Cash flows from financing activities
Principal payments on senior credit facility (2,580 ) (2,654 )
Issuances of stock under employee stock purchase plan 415 388
Issuance of stock for stock options exercised 2,586 1,951
Minimum tax withholding on restricted stock awards (295 ) (590 )
Purchase of treasury stock - (1 )
Capital contribution from noncontrolling interest in a joint venture 981 -
Net cash provided by (used in) financing activities 1,107 (906 )
Effect of exchange rate changes on cash (3,465 ) (1,832 )
Net increase in cash 50,592 76,949
Cash at beginning of period 165,605 49,086
Cash at end of period $ 216,197 $ 126,035
Supplemental cash flow information
Interest paid $ 23,361 $ 31,018
Income taxes paid 23,444 9,059
Syniverse Holdings Inc.
Reconciliation of Non GAAP Measure Estimates to GAAP (unaudited)
2009E 2009E
(in millions) Low High
Reconciliation to adjusted EBITDA
Net income $ 59.5 $ 64.0
Interest expense, net 28.5 28.5
Provision for income taxes 33.5 36.0
Depreciation and amortization(1) 60.5 60.5
Non-cash stock compensation 8.5 8.5
BSG Wireless transition expenses(2) 7.0 7.0
Messaging acquisition and transition expenses(3) 4.5 4.5
Adjusted EBITDA $ 202.0 $ 209.0
Reconciliation to adjusted net income and cash net income
Net income $ 59.5 $ 64.0
Add provision for income taxes 33.5 36.0
Income before provision for income taxes 93.0 100.0
Adjustments income before provision for income taxes
Purchase accounting amortizations 29.0 29.0
Non-cash stock compensation 8.5 8.5
BSG Wireless transition expenses(2) 7.0 7.0
Messaging acquisition and transition expenses(3) 4.5 4.5
Adjusted income before provision for income taxes 142.0 149.0
Less assumed provision for income taxes (53.2 ) (55.7 )
Adjusted net income 88.8 93.3
Add cash savings of tax deductible goodwill(4) 9.7 9.7
Cash net income $ 98.5 $ 103.0
1) Includes purchase accounting amortizations.
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 acquisition related expenses which are included in
our operating results, such as legal, investment and accounting
advisors and integration specific expenses, including any
temporary headcount, travel for the integration teams, and other
one-time costs related to acquisitions.
4) Represents the cash benefit realized currently as a result of the
tax deductibility of goodwill amortization.
SOURCE: Syniverse Holdings, Inc.
Syniverse Holdings, Inc. Investor Relations Jim Huseby, +1-813-637-5000 or Corporate Communications Diane Rose, +1-813-637-5077 diane.rose@syniverse.com
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