U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER 333-88168-01 333-88168
SYNIVERSE HOLDINGS, LLC
SYNIVERSE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 30-0041664 | |
| Delaware | 06-1262301 |
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
201 N. Franklin Street, Suite 700
Tampa, Fl 33602
(Address of principal executive office)
(Zip code)
(813) 273-3000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
As of May 12, 2004, there were 2,000 shares of Syniverse Technologies, Inc.’s no par value common stock outstanding, which are owned of record by Syniverse Holdings, Inc., a company that is owned by Syniverse Holdings, LLC.
2
PART 1
FINANCIAL INFORMATION
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
SYNIVERSE HOLDINGS, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
| March 31, 2004 (unaudited) |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash |
$ | 5,623 | $ | 8,299 | ||||
| Accounts receivable, net of allowances of $2,523 and $2,535, respectively |
70,599 | 61,611 | ||||||
| Deferred tax assets |
369 | 369 | ||||||
| Prepaid and other current assets |
5,655 | 6,284 | ||||||
| Total current assets |
82,246 | 76,563 | ||||||
| Property and equipment, net |
31,520 | 33,548 | ||||||
| Capitalized software, net |
65,564 | 67,653 | ||||||
| Deferred costs, net |
13,296 | 14,584 | ||||||
| Goodwill |
331,291 | 331,263 | ||||||
| Identifiable intangibles, net: |
||||||||
| Customer contract, net |
8,596 | 9,705 | ||||||
| Trademark |
— | 685 | ||||||
| Customer base, net |
193,557 | 196,270 | ||||||
| Total assets |
$ | 726,070 | $ | 730,271 | ||||
| LIABILITIES AND UNITHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 10,877 | $ | 4,029 | ||||
| Accrued payroll and related benefits |
9,326 | 8,881 | ||||||
| Accrued interest |
5,845 | 14,136 | ||||||
| Other accrued liabilities |
20,900 | 17,419 | ||||||
| Current portion of Term Note B, net of discount |
33,236 | 33,589 | ||||||
| Total current liabilities |
80,184 | 78,054 | ||||||
| Long-term liabilities: |
||||||||
| Deferred taxes |
21,791 | 19,700 | ||||||
| Subordinated Notes, net of discount |
241,232 | 241,037 | ||||||
| Term Note B, net of discount |
164,621 | 174,749 | ||||||
| Other liabilities |
3,263 | 2,955 | ||||||
| Total long-term liabilities |
430,907 | 438,441 | ||||||
| Unitholders’ equity: |
||||||||
| Class A Preferred Units-an unlimited number authorized, none issued or or outstanding |
— | — | ||||||
| Class B Preferred Units-an unlimited number authorized, 252,367.50 units issued and outstanding at March 31, 2004 and December 31, 2003; liquidation preference of $252,367 |
252,367 | 252,367 | ||||||
| Common Units-an unlimited number authorized, 90,640,541 and 90,505,405 units issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
120,355 | 120,351 | ||||||
| Accumulated deficit |
(158,157 | ) | (159,368 | ) | ||||
| Accumulated other comprehensive income |
414 | 426 | ||||||
| Total unitholders’ equity |
214,979 | 213,776 | ||||||
| Total liabilities and unitholders’ equity |
$ | 726,070 | $ | 730,271 | ||||
See Notes to Condensed Consolidated Financial Statements
3
SYNIVERSE HOLDINGS, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
| Three Months March 31, 2004 |
Three Months Ended March 31, 2003 (unaudited) |
|||||||
| Revenues |
$ | 76,670 | $ | 64,312 | ||||
| Costs and expenses: |
||||||||
| Cost of operations |
35,155 | 26,643 | ||||||
| Sales and marketing |
5,275 | 5,125 | ||||||
| General and administrative |
8,621 | 9,056 | ||||||
| Provision for uncollectible accounts |
248 | 369 | ||||||
| Depreciation and amortization |
10,290 | 8,990 | ||||||
| Restructuring |
— | 1,841 | ||||||
| 59,589 | 52,024 | |||||||
| Operating income |
17,081 | 12,288 | ||||||
| Other income (expense), net: |
||||||||
| Interest income |
171 | 268 | ||||||
| Interest expense |
(13,931 | ) | (17,194 | ) | ||||
| Other, net |
(6 | ) | — | |||||
| (13,766 | ) | (16,926 | ) | |||||
| Income (loss) before provision for income taxes |
3,315 | (4,638 | ) | |||||
| Provision (benefit) for income taxes |
2,104 | (1,459 | ) | |||||
| Net income (loss) |
1,211 | (3,179 | ) | |||||
| Preferred unit dividends |
(7,598 | ) | (6,882 | ) | ||||
| Net loss attributable to common unitholders |
$ | (6,387 | ) | $ | (10,061 | ) | ||
See Notes to Condensed Consolidated Financial Statements
4
SYNIVERSE HOLDINGS, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
| Three Months March 31, 2004 |
Three Months March 31, 2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income (loss) |
$ | 1,211 | $ | (3,179 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization including amortization of deferred debt issuance costs |
12,833 | 14,058 | ||||||
| Provision for uncollectible accounts |
248 | 369 | ||||||
| Deferred income tax (benefit) expense |
2,091 | (1,438 | ) | |||||
| Loss (gain) on disposition of property |
127 | (91 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(9,236 | ) | 8,465 | |||||
| Other current assets |
597 | 568 | ||||||
| Accounts payable |
7,596 | (1,109 | ) | |||||
| Other current liabilities |
(5,113 | ) | (10,150 | ) | ||||
| Other assets and liabilities |
308 | 1,069 | ||||||
| Net cash provided by operating activities |
10,662 | 8,562 | ||||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(1,759 | ) | (724 | ) | ||||
| Net cash used in investing activities |
(1,759 | ) | (724 | ) | ||||
| Cash flows from financing activities |
||||||||
| Borrowings under revolving line of credit |
— | 1,500 | ||||||
| Principal payments on long-term debt |
(11,540 | ) | (42,275 | ) | ||||
| Issuance of common units |
4 | 13 | ||||||
| Repurchase of common units |
— | (9 | ) | |||||
| Net cash used in financing activities |
(11,536 | ) | (40,771 | ) | ||||
| Effect of exchange rate changes on cash |
(43 | ) | — | |||||
| Net decrease in cash |
(2,676 | ) | (32,933 | ) | ||||
| Cash at beginning of period |
8,299 | 42,190 | ||||||
| Cash at end of period |
$ | 5,623 | $ | 9,257 | ||||
| Supplemental cash flow information |
||||||||
| Interest paid |
$ | 19,641 | $ | 20,288 | ||||
| Income taxes paid |
— | — | ||||||
See Notes to Condensed Consolidated Financial Statements
5
SYNIVERSE HOLDINGS, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
| 1. | Basis of Presentation and Principles of Consolidation |
The accompanying condensed consolidated financial statements of Syniverse Holdings, LLC (the Ultimate Parent or Syniverse LLC) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.
On March 1, 2004, we changed our corporate name from TSI Telecommunication Holdings, LLC to Syniverse Holdings, LLC. In addition, we changed the names of each of our subsidiaries, as detailed below.
The condensed consolidated financial statements include the accounts of Syniverse Holdings, LLC (Syniverse LLC, formerly TSI Telecommunication Holdings LLC), Syniverse Holdings, Inc. (Syniverse Inc., formerly TSI Telecommunication Holdings Inc.), Syniverse Technologies, Inc. (Syniverse, formerly TSI Telecommunication Services Inc.), Syniverse Finance, Inc. (Syniverse Finance, formerly TSI Finance Company), Syniverse Networks, Inc. (Syniverse Networks, formerly TSI Telecommunication Networks Inc.), Syniverse Technologies, BV (Syniverse BV, formerly TSI Telecommunication Services, BV), for periods beginning on and after February 14, 2002, Syniverse Brience, LLC (Syniverse Brience, formerly TSI Brience, LLC) and Syniverse Holdings Limited (Syniverse Holdings, formerly Softwright Holdings Limited). References to “the Company” or “we” include all of the consolidated companies. All significant intercompany balances and transactions have been eliminated.
Syniverse LLC acquired Brience, Inc. (Brience) in July 2003. Due to common control of both Syniverse LLC and Brience since February 14, 2002 by funds associated with GTCR, the acquisition was accounted for in a manner similar to a pooling of interests. Therefore, all historical financial statements of Syniverse LLC since February 14, 2002 include Brience’s historical financial results.
Syniverse LLC acquired Syniverse Holdings Limited on December 19, 2003. The acquisition was accounted for using the purchase method of accounting and the results of operations of Syniverse Holdings have been included since December 19, 2003.
| 2. | Summary of Significant Accounting Policies |
Revenue Recognition
We derive revenues from five primary categories: Network Services, Number Porting Services, Technology Interoperability Services, Call Processing Services, and Other Outsourcing Services. The revenue recognition policy for each of these areas is as follows:
| • | Network Services primarily generate revenue by charging per-transaction processing fees, circuit fees and port fees. The monthly SS7 connection fee is based on the number of links as well as the number of switches to which a customer signals and is recognized in the period when the service is rendered. The per-transaction fees are based on the number of subscriber events and database queries made through our network and are recognized as revenues at the time the transactions are performed. Syniverse Brience’s software revenues are generated through license fees, maintenance agreements and professional services. License fee revenues consist principally of revenue from the licensing of our software. Revenue is recognized from software license fees on a straight-line basis over the period beginning with the completion of implementation and customer acceptance and ending with conclusion of the first maintenance period. Maintenance agreements call for us to provide technical support and software enhancements to customers. Revenue on technical support and software enhancement rights is recognized ratably over the term of the support agreement. Professional services include consulting, training and installation services to our customers. Revenue from such services is generally recognized on a straight-line basis over the same period as the software license fee. |
6
| • | Number Porting Services primarily generate revenues by charging per-transaction processing fees, monthly fixed fees, and fees for customer implementations. We defer revenues related to customer implementations, and recognize these fees on a straight-line basis over the life of the initial customer agreements. We recognize processing revenues at the time the transactions and services are performed. |
| • | Technology Interoperability Services primarily generate revenues by charging per-transaction processing fees. For our wireless roaming, wireline and SMS clearinghouse services, revenues vary based on the number of data/messaging records provided to us by telecommunications carriers for aggregation, translation and distribution among carriers. These revenues are based on the number of wireless roaming subscriber telephone calls and messages that take place on our customers’ networks. We recognize revenues at the time the transactions are performed. |
| • | Call Processing Services primarily generate revenue by charging per-transaction processing fees and software licensing fees. The per-transaction fee is based on the number of validation, authorization, and other call processing messages generated by wireless subscribers and is recognized as revenue at the time the transactions are performed. We provide turnkey software solutions for which we charge customers a software licensing fee. For turnkey software, we recognize revenue when accepted by the customer. |
| • | Other Outsourcing Services primarily generate revenue by charging per-subscriber fees. We recognize revenues at the time the service is performed. |
Due to our billing cycles, which for some products lag as much as 60 days after services are rendered, we estimate the amounts of unbilled revenue each reporting period.
Stock-Based Compensation
We account for our stock options and related grants thereunder using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees”. However, pro forma information regarding net income and earnings per share as required by Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (SFAS 123), is provided in our financial statements and is determined as if we had accounted for our employee and non-employee director stock options under the fair value method of SFAS 123, as amended by SFAS 148.
Outstanding options as of March 31, 2004 and March 31, 2003 had a weighted average remaining contractual life of 8.9 and 9.2 years, respectively.
Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if we had accounted for our employee stock options granted subsequent to December 31, 1994 under the fair value method set forth in SFAS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
| March 31, 2004 |
March 31, 2003 |
|||||
| Risk-free interest rate |
4.30 | % | 4.50 | % | ||
| Volatility factor |
— | — | ||||
| Dividend yield |
— | — | ||||
| Weighted average expected life of options |
5 | 5 |
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of