Syniverse Holdings, Inc. (NYSE:SVR), a leading provider of
technology and business solutions for the global telecommunications
industry, today reported results for third quarter 2009, and
addressed its recent acquisition of VeriSign’s Mobile Messaging
Division.
“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% for 2008 (15,551 )
(20,370 ) (41,901 ) (51,548 ) 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, respectively
92,417 88,782 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; 69,449,596 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
69 68 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 September 30, 2009 and December 31,
2008, respectively
(15 ) (30 ) 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 debt issuance costs
43,499 42,563 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.
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