SVR Syniverse Holdings

Syniverse Holdings, Inc. (NYSE:SVR), a leading provider of technology and business solutions for the global telecommunications industry, today reported results for third quarter 2010.

“Strengthening global business trends in combination with broad successes across our company, especially in the roaming and messaging lines of business, have resulted in an excellent third quarter for Syniverse,” said Tony Holcombe, President and CEO. “Mobile data use continues to rise across the globe, and we continue to experience strong organic growth across all parts of our messaging business.”

Syniverse cited strong results for the quarter:

• Total revenue for third quarter 2010 was $166.9 million, a 43.0% increase compared to third quarter 2009.
• Net revenue, which excludes off-network database queries, was $165.6 million, a 43.9% increase compared to third quarter 2009.
• Net income attributable to Syniverse was $23.3 million or $0.33 per diluted share, 31.5% and 29.0% increases, respectively, compared to third quarter 2009.
• Cash net income, a non-GAAP financial measure described below, was $36.4 million or $0.53 per diluted share, 29.1% and 27.3% increases, respectively, compared to third quarter 2009.
• Adjusted EBITDA, a non-GAAP financial measure described below, was $70.7 million, a 26.2% increase compared to third quarter 2009.
• Net cash provided by operating activities was $49.0 million in the third quarter 2010, a 49.3% increase compared to third quarter 2009.
• Operating free cash flow, a non-GAAP financial measure described below, was $33.3 million in the third quarter 2010, a 24.5% increase compared to third quarter 2009.

David Hitchcock, Executive Vice President and CFO, said that execution throughout Syniverse continues to be strong.

“We have made very positive progress in the integration of our messaging acquisition of one year ago, and we believe that Syniverse now has in place the people, the products and the capacity to command a global leadership position in a messaging environment that presently shows no signs of slowing,” he said. “When you add in the success we’ve had with our IPX network solution, as well as the global growth mobile data usage, you can see that Syniverse is in a good position to end the year on a high note.”

Please refer to the information set forth at the end of this news release under the headings “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 2010 Operating Segment Review: Segment revenue and operating income are summarized in the tables included with this press release.

Roaming Services

Roaming revenues were $83.8 million in the quarter, a 21.3% increase compared to third quarter 2009. Revenues were higher due primarily to a 25% increase in adjusted volumes in the roaming clearing house and from increases in the company’s Mobile Data Roaming service.

Messaging Services

Messaging revenues were $45.3 million compared to $5.2 million in the third quarter 2009. The increase was driven by our messaging acquisition, which contributed $39.0 million of revenue in the quarter.

Network Services

Network revenues, excluding Off-Network Database Queries of $1.3 million, were $34.4 million, a 5.4% decrease from third quarter 2009. This decrease is primarily due to certain customer migrations from our SS7 solutions, partially offset by increased volumes in our number portability products.

Recent Merger Agreement

As further described in the Form 8-K filed with the SEC on Monday, November 1, 2010, Syniverse has previously announced that it has entered into a definitive agreement to be acquired in a merger transaction for $31.00 per share in cash by an entity sponsored by The Carlyle Group.

Outlook

Because of the announcement that Syniverse had entered into a definitive agreement to be acquired, Syniverse will no longer provide or update financial guidance.

Third quarter 2010 Earnings Call

Syniverse will not be hosting a conference call to discuss these third-quarter results.

About Syniverse

Syniverse Technologies (NYSE:SVR) makes mobile work for more than 800 mobile operators, cable and Internet providers, and enterprises in over 160 countries. With unmatched expertise and more than 20 years simplifying the complexities of roaming, messaging and networking, Syniverse serves as the force at the center of the mobile communications universe, keeping people connected today and forging new connections for tomorrow. Nobody knows mobile like Syniverse. For more information, visit www.syniverse.com, follow Syniverse on Twitter or find Syniverse on Facebook.

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 the increasing usage of messaging and mobile data around the world; Syniverse’s strategic position; Syniverse’s integration of its acquired messaging business; and Syniverse’s belief of the value of Non-GAAP measures to its investors.

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, 2009, as updated by Syniverse’s Quarterly Reports on Form 10-Q, 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 news 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.

Additional Information and Where to Find It

In connection with the proposed merger, Syniverse Holdings, Inc. (the “Company”) will prepare a proxy statement to be filed with the SEC. When completed, a definitive proxy statement and a form of proxy will be mailed to the stockholders of the Company. THE COMPANY’S SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT REGARDING THE PROPOSED MERGER BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. The Company’s stockholders will be able to obtain, without charge, a copy of the proxy statement (when available) and other relevant documents filed with the SEC from the SEC’s website at http://www.sec.gov. The Company’s stockholders will also 4be able to obtain, without charge, a copy of the proxy statement and other relevant documents (when available) by directing a request by mail or telephone to Syniverse Holdings, Inc., 8125 Highwoods Palm Way, Tampa, Florida 33647, attn: Corporate Secretary, or from the Company’s website, http://www.syniverse.com.

The Company and its directors and officers may be deemed to be participants in the solicitation of proxies from the Company’s stockholders with respect to the special meeting of stockholders that will be held to consider the proposed merger. Information about the Company’s directors and executive officers and their ownership of the Company’s common stock is set forth in the proxy statement for the Company’s 2010 Annual Meeting of stockholders, which was filed with the SEC on April 5, 2010. Stockholders may obtain additional information regarding the interests of the Company and its directors and executive officers in the proposed merger, which may be different than those of the Company’s stockholders generally, by reading the proxy statement and other relevant documents regarding the proposed merger, when filed with the SEC.

Syniverse Holdings, Inc.

Condensed Consolidated Statements of Income (unaudited) (In thousands except per share information)       Three Months Ended Nine Months Ended September 30, September 30,   2010   2009   2010     2009     Revenues from external customers $ 165,604 $ 115,110 $ 471,020 $ 334,567 Off-Network Database Queries   1,266     1,552     3,671     4,497   Total Revenues 166,870 116,662 474,691 339,064   Cost of operations   61,939     41,326     178,088     122,188   Gross Margin 104,931 75,336 296,603 216,876   Gross Margin % 62.9 % 64.6 % 62.5 % 64.0 % Gross Margin % before Off-Network Database Queries 63.4 % 65.4 % 63.0 % 64.8 %   Sales and marketing 15,232 8,789 41,540 26,312 General and administrative 24,984 15,986 71,373 49,989 Depreciation and amortization   19,092     14,585     56,376     42,206     121,247     80,686     347,377     240,695     Operating income 45,623 35,976 127,314 98,369   Other expense, net: Interest expense, net (6,908 ) (7,026 ) (20,512 ) (21,636 ) Other, net   1,870     (40 )   2,674     1,094     (5,038 )   (7,066 )   (17,838 )   (20,542 )   Income before provision for income taxes 40,585 28,910 109,476 77,827 Provision for income taxes   17,600     11,338     44,426     27,745     Net income 22,985 17,572 65,050 50,082 Net loss attributable to noncontrolling interest   357     172     916     225   Net income attributable to Syniverse Holdings, Inc. $ 23,342   $ 17,744   $ 65,966   $ 50,307     Net income per common share: Basic $ 0.33   $ 0.26   $ 0.95   $ 0.73   Diluted $ 0.33   $ 0.26   $ 0.94   $ 0.73     Weighted average common shares outstanding: Basic   68,819     68,088     68,540     67,965   Diluted   69,280     68,303     68,913     68,078   Syniverse Holdings, Inc. Condensed Consolidated Balance Sheets (In thousands except share data)     September 30, December 31, 2010   2009   (Unaudited) ASSETS Current assets: Cash $ 153,517 $ 91,934 Accounts receivable, net of allowances of $8,336 and $7,290, respectively 150,393 126,127 Prepaid and other current assets   40,312     20,813   Total current assets 344,222 238,874   Property and equipment, net 80,779 64,315 Capitalized software, net 65,563 75,249 Deferred costs, net 6,103 7,388 Goodwill 676,049 685,710 Identifiable intangibles, net 212,791 234,938 Other assets   3,989     3,250   Total assets $ 1,389,496   $ 1,309,724     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,864 $ 8,020 Transition services payable - 16,609 Accrued payroll and related benefits 22,969 9,832 Accrued interest 1,760 5,150 Accrued income taxes - 1,468 Deferred revenues 6,300 6,197 Other accrued liabilities 32,987 32,042 Current portion of Term Note B   3,387     3,452   Total current liabilities 76,267 82,770 Long-term liabilities: Deferred tax liabilities 108,700 87,254 7 3/4% senior subordinated notes due 2013 175,000 175,000 Term Note B, less current maturities 325,160 334,012 Other long-term liabilities   11,928     9,534   Total liabilities   697,055     688,570     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; 70,189,838 shares issued and 69,989,840 shares outstanding and 69,574,505 shares issued and 69,382,507 shares outstanding at September 30, 2010 and December 31, 2009, respectively

70 69 Additional paid-in capital 499,412 483,227 Retained earnings 215,548 149,582 Accumulated other comprehensive loss (23,309 ) (12,205 )

Common stock held in treasury, at cost; 199,998 at September 30, 2010 and 191,998 at December 31, 2009

  (15 )   (15 ) Total Syniverse Holdings, Inc. stockholders' equity 691,706 620,658 Noncontrolling interest   735     496   Total equity   692,441     621,154   Total liabilities and stockholders' equity $ 1,389,496   $ 1,309,724   Syniverse Holdings, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (In thousands)     Nine Months Ended September 30, 2010   2009     Cash flows from operating activities Net income $ 65,050 $ 50,082 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization including amortization of deferred debt issuance costs

57,661 43,499 Provision for uncollectible accounts 618 591 Deferred income tax expense 22,484 15,826 Stock-based compensation 9,399 5,288 Other, net (57 ) 76 Changes in operating assets and liabilities, net of acquisition: Accounts receivable (25,108 ) (2,539 ) Prepaids and other current assets (19,334 ) (6,081 ) Accounts payable 14,303 (14,478 ) Transition services payable (16,609 ) - Other current liabilities (2,832 ) (12,139 ) Other long-term assets and liabilities   879     2,951   Net cash provided by operating activities   106,454     83,076     Cash flows from investing activities Capital expenditures (43,680 ) (27,027 ) Acquisition, net of acquired cash   (497 )   (3,099 ) Net cash used in investing activities   (44,177 )   (30,126 )   Cash flows from financing activities Principal payments on senior credit facility (2,500 ) (2,580 ) Issuance of stock under employee stock purchase plan 1,132 415 Issuance of stock for stock options exercised 6,256 2,586 Minimum tax withholding on restricted stock awards (601 ) (295 ) Capital contribution from noncontrolling interest in a joint venture   1,092     981   Net cash provided by financing activities   5,379     1,107     Effect of exchange rate changes on cash   (6,073 )   (3,465 )   Net increase in cash 61,583 50,592 Cash at beginning of period   91,934     165,605     Cash at end of period $ 153,517   $ 216,197     Supplemental cash flow information Interest paid $ 22,627 $ 23,361 Income taxes paid 32,907 23,444 Syniverse Holdings, Inc. Segment Results Supplemental Information (unaudited)               Segment results: Three Months Ended September 30, Nine Months Ended September 30, 2010   2009   Change % 2010   2009   Change % (In thousands) (In thousands) Revenues: Roaming services $ 83,752 $ 69,066 21.3 % $ 222,680 $ 192,475 15.7 % Messaging services 45,265 5,231 765.3 % 142,013 22,597 528.5 % Network services (1) 35,628 37,879 -5.9 % 101,965 109,829 -7.2 % Corporate and Other   2,225     4,486   -50.4 %   8,033     14,163   -43.3 % Consolidated revenue $ 166,870   $ 116,662   43.0 % $ 474,691   $ 339,064   40.0 %   Segment operating income (loss): Roaming services $ 53,847 $ 42,799 25.8 % $ 138,982 $ 116,377 19.4 % Messaging services 16,212 95 16965.3 % 55,066 7,209 663.8 % Network services 9,235 14,022 -34.1 % 28,218 38,214 -26.2 % Corporate and Other   (33,671 )   (20,940 ) 60.8 %   (94,952 )   (63,431 ) 49.7 % Consolidated operating income $ 45,623   $ 35,976   26.8 % $ 127,314   $ 98,369   29.4 %   (1) Includes Off-Network Database Query revenues of $1,266 and $1,552 for the three months ended September 30, 2010 and 2009, respectively, and $3,671 and $4,497 for the nine months ended September 30, 2010 and 2009, respectively.       Revenue by region: Three Months Ended September 30, Nine Months Ended September 30, 2010   2009   2010   2009   (In thousands) (In thousands) North America (U.S. and Canada) $ 131,537 $ 81,527 $ 372,899 $ 241,467 Asia Pacific 9,293 9,447 28,184 28,317 Caribbean and Latin America (includes Mexico) 9,418 8,391 28,879 24,049 Europe, Middle East and Africa   15,356     15,745     41,058     40,734   Non-North American Revenue   34,067     33,583     98,121     93,100   Revenues excluding Off-Network Database Queries 165,604 115,110 471,020 334,567 Off-Network Database Queries (i)   1,266     1,552     3,671     4,497   Total Revenues $ 166,870   $ 116,662   $ 474,691   $ 339,064     (i) Off-Network Database Queries are not allocated to geograghic regions. Syniverse Holdings, Inc. Reconciliation of Non GAAP Measures to GAAP (unaudited) (In thousands except share data and per share information)         Three Months Ended September 30, Nine Months Ended September 30, 2010   2009   2010   2009     Reconciliation to adjusted EBITDA Net income $ 22,985 $ 17,572 $ 65,050 $ 50,082 Interest expense, net 6,908 7,026 20,512 21,636 Provision for income taxes 17,600 11,338 44,426 27,745 Depreciation and amortization 19,092 14,585 56,376 42,206 Non-cash stock compensation 3,407 2,273 9,399 5,288 BSG Wireless transition expenses - 1,511 - 6,136 Messaging acquisition and integration expenses   758     1,756     2,556     1,756   Adjusted EBITDA $ 70,750   $ 56,061   $ 198,319   $ 154,849       Three Months Ended September 30, Nine Months Ended September 30, 2010   2009   2010   2009   Reconciliation to cash net income Net income $ 22,985 $ 17,572 $ 65,050 $ 50,082 Add provision for income taxes   17,600     11,338     44,426     27,745   Income before provision for income taxes 40,585

 

28,910 109,476 77,827   Non-cash stock compensation 3,407 2,273 9,399 5,288 Purchase accounting amortization 9,102 7,020 27,387 20,728 BSG Wireless transition expenses - 1,511 - 6,136 Messaging acquisition and integration expenses   758     1,756     2,556     1,756   Adjusted income before provision for income taxes 53,852 41,470 148,818 111,735   Less assumed provision for income taxes at 37.5% (20,194 ) (15,551 ) (55,806 ) (41,901 ) Add cash savings of tax deductible goodwill(1)   2,775     2,301     8,328     6,903     Cash net income $ 36,433   $ 28,220   $ 101,340   $ 76,737     Cash net income per share $ 0.53 $ 0.41 $ 1.47 $ 1.13 Diluted shares outstanding 69,280 68,303 68,913 68,078  

(1) Represents the cash benefit realized currently as a result of the tax deductibility of goodwill amortization.

    Three Months Ended September 30, Nine Months Ended September 30, 2010   2009   2010   2009   Reconciliation to operating free cash flow Net cash provided by operating activities $ 48,976 $ 32,802 $ 106,454 $ 83,076 Capital expenditures   (15,721 )   (6,091 )   (43,680 )   (27,027 ) Operating free cash flow $ 33,255   $ 26,711   $ 62,774   $ 56,049  

Non-GAAP Measures

Syniverse's Adjusted EBITDA is determined by adding the following items to net income: interest expense, net, provision for income taxes, depreciation and amortization, non-cash stock compensation, and acquisition-related expenses, including transition and integration costs.

Syniverse's cash net income is calculated by: (i) adding the following items to net income: provision for income taxes, non-cash stock compensation, acquisition-related expenses, including transition and integration costs 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%, 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 $436 million of goodwill on our balance sheet, which primarily is the result of acquisitions that we made from Verizon in February 2002, IOS North America in September 2004 and VeriSign's mobile messaging business in October 2009. 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 operating free cash flow is determined by subtracting capital expenditures from net cash provided by operating activities.

A reconciliation of net income, the closest GAAP financial measure, to Adjusted EBITDA and cash net income is presented in the financial tables above 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, also is presented in the financial tables above under the heading "Reconciliation of Non-GAAP Measures to GAAP."

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 present cash net income and the related per-share amount because we believe it provides useful information regarding our operating results in addition to our GAAP measures. We believe that cash 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 cash net income as the primary measure of Syniverse's earnings exclusive of these certain non-cash charges.

We believe that the disclosure of Adjusted EBITDA, operating free cash flow 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 and cash net income have limitations as analytical tools and should not be relied upon or considered 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. 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 and cash net income as supplemental information only.