SVR Syniverse Holdings

Syniverse Holdings, Inc. (NYSE:SVR), a leading provider of mission-critical technology services to wireless telecommunications companies worldwide, today reported results for second quarter 2006. -- Total revenues were $82.2 million for the second quarter 2006, a 5.4% decrease compared to the second quarter 2005. -- Net revenue, which excludes off-network database queries or pass-thru revenue, was $78.9 million for the second quarter 2006, a decrease of 5.4% compared to the second quarter 2005. -- Net income attributable to common stockholders was $9.5 million in the second quarter 2006, a decrease of 19.5% compared to the second quarter 2005. -- Cash net income, a non-GAAP measure of profitability, was $12.9 million for the second quarter 2006, an 18.4% decrease compared to the second quarter 2005. Cash net income reflects the positive cash impact resulting from the significant difference in amortization of goodwill for financial reporting and tax purposes and is determined by adding the cash savings arising from the tax deductible goodwill amortization to adjusted net income. -- Cash net income per share was $0.19 in the second quarter 2006, compared to $0.23 the second quarter 2005. -- Adjusted EBITDA, a non-GAAP measure of operating cash flow, was $29.3 million for the second quarter 2006, an 18.6% decrease compared to the second quarter 2005. "We continued to execute our international expansion strategy in the second quarter," said Syniverse President and CEO Tony Holcombe. "We have now successfully implemented eight Vodafone plus four TeliaSonera properties. Additionally, we added two European properties, one in Turkey and the other in Luxembourg. Late in the quarter, we expanded our position in Asia when we acquired Hong Kong-based ITHL." Chief Financial Officer Ray Lawless added, "During the second quarter, we exceeded our revenue guidance, and met our adjusted EBITDA and cash net income guidance. We expect to see continued improvements in all significant financial metrics through the year as we integrate ITHL and newly signed customers come on line. Because we closed ITHL late in the second quarter, there is no impact from ITHL on the income statement this quarter, but we will have a full quarter impact in the third quarter." "Our business model continued to generate significant free cash from operations," said Lawless. "We generated $19.1 million during the second quarter, and continue to expect that free cash flow will exceed $75 million for the full year." Second quarter 2006 Service Line Revenue Technology Interoperability Services Technology Interoperability revenue was $30.8 million in the second quarter 2006, a 13.2% increase compared to second quarter 2005, primarily driven by increases in GSM clearing, Message Manager, UniRoam, and Mobile Data Roaming. Network Services Network Services revenue was $31.5 million in the second quarter 2006, a 5.6% decrease compared to second quarter 2005, primarily driven by previously disclosed migrations and competitive pricing, partially offset by increases in GSM transport and data networking. Number Portability Services Number Portability revenue was $7.2 million in the second quarter 2006, a 42.7% decrease compared to the second quarter 2005, primarily driven by the previously disclosed migration of the Sprint port center. Call Processing Services Call Processing Services revenue was $7.3 million in the second quarter 2006, nearly flat compared to the second quarter 2005, with increases in international roaming supported by Signaling Solutions offset by a decline in fraud services. Enterprise Solutions Enterprise Solutions revenue was $2.1 million in the second quarter 2006. Off-Network Database Queries (Pass-Thru) Pass-thru revenue for the second quarter 2006 was $3.3 million. Second quarter 2006 Business Highlights -- Acquired Hong Kong-based ITHL for up to $45 million, including earn-outs of up to $7 million -- Appointed Nancy J. White as Chief Marketing Officer -- Continued international progress with new global customer wins across multiple products, including clearing & settlement and mobile data roaming. -- Successful migrations of seven operating companies from Vodafone and Telia Sonera to Syniverse platforms. Outlook The company provides the following estimates for 2006: -0- *T Third Quarter Full Year Net Revenues $89 million - $91 $330 million - $340 million million Adjusted EBITDA $39 million - $41 $135 million - $145 million million Cash Net Income $17 million - $19 $60 million - $70 million million *T Non-GAAP Measures Syniverse's Cash Net Income is determined by adding the cash benefit of our tax-deductible goodwill to Adjusted Net Income. This benefit is a result of the differing treatments of approximately $362 million of goodwill on our balance sheet created primarily from our acquisitions from Verizon and of IOS North America. While not amortized for GAAP purposes, goodwill amortization is deductible in calculating our taxable income and hence reduces cash tax liabilities. Syniverse's Adjusted Net Income is determined by adding the following to net income (loss): provision for income taxes, restructuring costs, amortization of intangibles recorded in purchase accounting, loss on extinguishment of debt, headquarters facilities move expenses, transition expenses of integrating the IOS North America business and less non-operating gains to arrive at Adjusted Net Income (loss) before provision for income taxes. This adjusted pre-tax result is then further adjusted for a provision for income taxes at an assumed long-term tax rate of 39%, which excludes the effect of our NOLs. We present Adjusted Net Income and Cash Net Income because we believe that Adjusted Net Income and Cash Net Income provide useful information regarding our operating results, in addition to our GAAP measures. We believe that Adjusted Net Income provides our investors with valuable insight into our profitability exclusive of unusual adjustments, and Cash Net Income provides further insight into the cash impact resulting from the different treatments of goodwill for financial reporting and tax purposes. Neither of these non-GAAP measures should be reviewed without consideration of our net income and other GAAP measures. Syniverse's Adjusted EBITDA is determined by adding the following to net income (loss): net interest expense, provision for income taxes, depreciation, amortization, restructuring charges, loss on extinguishment of debt, headquarters facilities move expenses, the transition expenses of integrating the IOS North America business and less non-operating gains. A reconciliation of Adjusted EBITDA, Adjusted Net Income and Cash Net Income to net income (loss) is presented in the financial tables contained herein. We present Adjusted EBITDA because we believe that Adjusted EBITDA provides useful information regarding our continuing operating results. We rely on Adjusted EBITDA as a primary measure 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 to compare our current operating results with corresponding periods and with the operating results of other companies in our industry. In addition, we also utilize Adjusted EBITDA as an assessment of our overall liquidity and our ability to meet our debt service obligations. We believe that Adjusted EBITDA, Adjusted Net Income and Cash Net Income are useful to investors to provide disclosures of our operating results on the same basis as that used by our management. We also believe that these measures can assist investors in comparing our performance to that of other companies on a consistent basis without regard to certain items, which do not directly affect our ongoing operating performance or cash flows. Adjusted EBITDA, Adjusted Net Income and Cash Net Income have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flows statement data prepared in accordance with accounting principles generally accepted in the United States. Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business, and Adjusted Net Income and Cash Net Income should not be considered as a replacement for net income. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, Adjusted Net Income and Cash Net Income as supplemental information. Second quarter 2006 Earnings Call Syniverse Technologies will host a conference call at 4:30 p.m. (ET) to discuss these results. To participate on this call, please dial 1 (866) 510-0712 (for U.S. callers) or +1 (617) 597-5380 (for international direct dial). The pass code for this call is 76523750. This event will be Webcast live over the Internet in listen-only mode at http://www.syniverse.com/investorevents. A replay of this call will be available beginning Tuesday, August 8, 2006, at 7:30 p.m. (ET) through Tuesday, August 22, 2006, 11:59 p.m. (ET). To access the replay, please dial 1 (888) 286-8010 (for U.S. callers) or +1 (617) 801-6888 (for international direct dial). The replay pass code is 88346548. In addition, this earnings call will be archived on the Syniverse Technologies corporate Web site http://www.syniverse.com under Investors - Webcasts and Presentations. About Syniverse Syniverse Technologies (NYSE:SVR) is a leading provider of mission-critical technology services to wireless telecommunications companies worldwide. Syniverse solutions simplify technology complexities by integrating disparate carriers' systems and networks in order to provide seamless global voice and data communications to wireless subscribers. Carriers depend on Syniverse's integrated suite of services to solve their most complex technology challenges and to facilitate the rapid deployment of next generation wireless services. Syniverse provides services to over 350 telecommunications carriers in more than 50 countries, including the ten largest U.S. wireless carriers and six of the ten largest international wireless carriers. Headquartered in Tampa, Fla., U.S.A., Syniverse has offices in major cities throughout North America, The Netherlands, China, the United Kingdom and a global sales force in Brazil, France, India, Italy, Japan, Luxembourg, Norway, Singapore and Slovakia. http://www.syniverse.com Cautions about Forward-Looking Statements This press release contains forward-looking statements, including statements about business outlook and strategy, and statements about historical results that may suggest trends for our business. These statements are based on estimates and information available to us at the time of this press release and are not guarantees of future performance. Actual results could differ materially from our current expectations as a result of many factors, including: unpredictable quarterly fluctuations in our business; the effects of competition or consumer and merchant use of our service; any adverse changes in our agreements with our listings providers; the impact of international expansion efforts on our business; and changes in our tax status. These and other risks and uncertainties associated with our business are described in our filings with the Securities and Exchange Commission. -0- *T Syniverse Holdings, Inc. Condensed Consolidated Statements of Operations (unaudited) (In thousands except per share information) Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2005 2006 2005 2006 -------- -------- --------- --------- Technology Interoperability Services $27,201 $30,798 $ 50,400 $ 56,634 Network Services 33,415 31,549 65,648 63,043 Number Portability Services 12,607 7,220 24,276 13,950 Call Processing Services 7,322 7,288 13,725 14,479 Enterprise Solution 2,927 2,084 6,009 4,214 -------- -------- --------- --------- Revenues excluding Off Network Database Queries 83,472 78,939 160,058 152,320 Off Network Database Queries 3,403 3,255 6,236 5,291 -------- -------- --------- --------- Total Revenues 86,875 82,194 166,294 157,611 Cost of operations 34,446 33,545 66,872 64,751 -------- -------- --------- --------- Gross Margin 52,429 48,649 99,422 92,860 Gross Margin % 60.3% 59.2% 59.8% 58.9% Gross Margin % before Off Network Database Queries 62.8% 61.6% 62.1% 61.0% Sales and marketing 5,812 6,871 11,474 12,364 General and administrative 12,380 13,673 22,534 30,984 Depreciation and amortization 12,190 9,868 24,075 19,849 Restructuring - - - 338 -------- -------- --------- --------- Operating income 22,047 18,237 41,339 29,325 Other expense, net Interest expense, net (8,192) (6,262) (18,357) (12,370) Loss on extinguishment of debt - - (23,788) (924) Other, net - 211 - 330 -------- -------- --------- --------- (8,192) (6,051) (42,145) (12,964) -------- -------- --------- --------- Income (loss) before provision for income taxes 13,855 12,186 (806) 16,361 Provision for income taxes 2,077 2,699 4,368 3,324 -------- -------- --------- --------- Net income (loss) 11,778 9,487 (5,174) 13,037 Preferred stock dividends - - (4,195) - -------- -------- --------- -------- Net income (loss) attributable to common stockholders $11,778 $ 9,487 $ (9,369) $ 13,037 ======== ======== ========= ========= Net income (loss) per share Basic $ 0.18 $ 0.14 $ (0.16) $ 0.20 Diluted $ 0.18 $ 0.14 $ (0.16) $ 0.19 IPO pro forma(1) $ 0.17 $ 0.14 $ (0.08) $ 0.19 Shares used in calculation Basic 66,061 66,909 57,470 66,828 Diluted 66,064 67,873 57,470 67,568 IPO pro forma(2) 67,667 67,667 67,667 67,667 Notes: 1) Assumes no preferred stock dividends since all of the outstanding preferred stock was either redeemed or converted to common shares after our IPO. 2) Assumes shares outstanding after our IPO were outstanding for the full period above. Selected Balance Sheet Data (unaudited): As of (in thousands) June 30, 2006 ------------- Cash $ 11,069 Senior subordinated notes $ 175,000 Term note B 177,424 ----------- Total debt $ 352,424 =========== Common stock and additional paid-in capital $ 457,597 Accumulated deficit and other comprehensive income (121,458) ----------- Total stockholders' equity $ 336,139 =========== *T -0- *T Syniverse Holdings, Inc. Reconciliation of Non GAAP Measures to GAAP (unaudited) (In thousands except per share information) Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2005 2006 2005 2006 -------- -------- -------- -------- Reconciliation to adjusted EBITDA Net income (loss) $11,778 $ 9,487 $(5,174) $13,037 Interest expense, net 8,192 6,262 18,357 12,370 Provision for income taxes 2,077 2,699 4,368 3,324 Depreciation and amortization 12,190 9,868 24,075 19,849 Restructuring - - - 338 Loss from disposal of assets 612 - 612 - SFAS 123R non-cash compensation - 329 - 329 IOS North America transition expenses 834 (258) 2,506 794 Facilities move expense 275 1,104 496 5,438 Loss on extinguishment of debt - - 23,788 924 Non-operating gains - (211) - (330) ------- ------- ------- ------- Adjusted EBITDA $35,958 $29,280 $69,028 $56,073 ======= ======= ======= ======= Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2005 2006 2005 2006 -------- -------- -------- -------- Reconciliation to adjusted net income (loss) and cash net income Net income (loss) $11,778 $ 9,487 $(5,174) $13,037 Add provision for income taxes 2,077 2,699 4,368 3,324 ------- ------- -------- -------- Income (loss) before provision for income taxes 13,855 12,186 (806) 16,361 Restructuring - - - 338 Loss from disposal of assets 612 - 612 - SFAS 123R non-cash compensation - 329 - 329 Purchase accounting amortization 6,412 4,188 12,842 8,414 IOS North America transition expenses 834 (258) 2,506 794 Facilities move expense 387 1,104 823 5,438 Loss on extinguishment of debt - - 23,788 924 Non-operating gains - (211) - (330) ------- ------- -------- -------- Adjusted income before provision for income taxes 22,100 17,338 39,765 32,268 Less assumed provision for income taxes at 39% (8,619) (6,762) (15,508) (12,585) ------- ------- -------- -------- Adjusted Net Income 13,481 10,576 24,257 19,683 Add cash savings of tax deductible goodwill(1) 2,300 2,300 4,600 4,600 ------- ------- -------- -------- Cash net income $15,781 $12,876 $28,857 $24,283 ======= ======= ======== ======== Adjusted net income per share after IPO $ 0.20 $ 0.16 $ 0.36 $ 0.29 Cash net income per share after IPO $ 0.23 $ 0.19 $ 0.43 $ 0.36 Shares outstanding after IPO(2) 67,667 67,667 67,667 67,667 1) Represents the cash benefit realized currently as a result of the tax deductibility of goodwill amortization. 2) Assumes shares outstanding after our IPO were outstanding for all periods above. *T