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, 2005
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 001-32432 | ||
| 333-88168 | ||
SYNIVERSE HOLDINGS, INC.
SYNIVERSE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 30-0041666 | |
| 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 ¨ No x
Explanatory Note: On February 10, 2005, Syniverse Holdings, Inc. completed an initial public offering of its common stock.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
Shares Outstanding as of May 12, 2005
Syniverse Holdings, Inc.: 67,667,228 Shares of Common Stock, $0.001 par value
Syniverse Technologies, Inc.: 1,000 shares of common stock, no par value, all of which is owned by Syniverse Holdings, Inc.
2
FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash |
$ | 21,010 | $ | 17,919 | ||||
| Accounts receivable, net of allowances of $1,297 and $1,142, respectively |
73,292 | 79,450 | ||||||
| Deferred tax assets, net |
308 | 86 | ||||||
| Prepaid and other current assets |
7,574 | 4,789 | ||||||
| Total current assets |
102,184 | 102,244 | ||||||
| Property and equipment, net |
34,716 | 35,703 | ||||||
| Capitalized software, net |
52,878 | 54,663 | ||||||
| Deferred costs, net |
6,386 | 12,889 | ||||||
| Goodwill |
362,578 | 362,600 | ||||||
| Identifiable intangibles, net: |
||||||||
| Customer contract, net |
4,085 | 5,228 | ||||||
| Customer base, net |
200,090 | 203,866 | ||||||
| Other assets |
157 | — | ||||||
| Total assets |
$ | 763,074 | $ | 777,193 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,868 | $ | 7,680 | ||||
| Accrued payroll and related benefits |
5,493 | 15,453 | ||||||
| Accrued interest |
4,782 | 14,025 | ||||||
| Other accrued liabilities |
22,381 | 22,946 | ||||||
| Current portion of Term Note B, net of discount |
2,400 | 2,400 | ||||||
| Total current liabilities |
39,924 | 62,504 | ||||||
| Long-term liabilities: |
||||||||
| Deferred tax liabilities |
30,488 | 27,979 | ||||||
| Senior Subordinated Notes, net of discount |
157,308 | 241,817 | ||||||
| Term Note B, net of discount |
237,000 | 213,231 | ||||||
| Other long-term liabilities |
1,998 | 2,908 | ||||||
| Total long-term liabilities |
426,794 | 485,935 | ||||||
| Commitments and contingencies |
||||||||
| Class A cumulative redeemable preferred stock, par value $0.01; 300,000 shares authorized, 0 and 240,479.70 issued and outstanding at March 31, 2005 and December 31, 2004, respectively, including accrued and unpaid dividends of $0 and $95,134 at March 31, 2005 and December 31, 2004 (redemption value of $0 and $335,614 at March 31, 2005 and December 31, 2004, respectively) |
— | 335,614 | ||||||
| Stockholders’ equity (deficit): |
||||||||
| Preferred stock, $0.001 par value; 300,000 shares authorized; no shares issued |
— | — | ||||||
| Common stock, $0.001 par value; 100,300,000 shares authorized; 67,667,228 and 39,837,630 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively |
68 | 40 | ||||||
| Additional paid-in capital |
457,272 | 37,021 | ||||||
| Accumulated deficit |
(161,257 | ) | (144,305 | ) | ||||
| Accumulated other comprehensive income |
273 | 384 | ||||||
| Total stockholders’ equity (deficit) |
296,356 | (106,860 | ) | |||||
| Total liabilities and stockholders’ equity |
$ | 763,074 | $ | 777,193 | ||||
See Notes to Condensed Consolidated Financial Statements
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
| Three Months Ended March 31, 2005 |
Three Months Ended March 31, 2004 |
|||||||
| Revenues |
$ | 79,419 | $ | 76,670 | ||||
| Costs and expenses: |
||||||||
| Cost of operations (excluding depreciation and amortization shown separately below) |
32,426 | 35,155 | ||||||
| Sales and marketing |
5,662 | 5,275 | ||||||
| General and administrative |
9,709 | 8,621 | ||||||
| Provision for uncollectible accounts |
445 | 248 | ||||||
| Depreciation and amortization |
11,885 | 10,290 | ||||||
| 60,127 | 59,589 | |||||||
| Operating income |
19,292 | 17,081 | ||||||
| Other income (expense), net: |
||||||||
| Interest income |
339 | 171 | ||||||
| Interest expense |
(10,504 | ) | (13,931 | ) | ||||
| Loss on extinguishment of debt |
(23,788 | ) | — | |||||
| Other, net |
— | (6 | ) | |||||
| (33,953 | ) | (13,766 | ) | |||||
| Income (loss) before provision for income taxes |
(14,661 | ) | 3,315 | |||||
| Provision for income taxes |
2,291 | 2,104 | ||||||
| Net income (loss) |
(16,952 | ) | 1,211 | |||||
| Preferred stock dividends |
(4,195 | ) | (7,601 | ) | ||||
| Net loss attributable to common stockholders |
$ | (21,147 | ) | $ | (6,390 | ) | ||
| Basic and diluted net loss per common share |
$ | (0.43 | ) | $ | (0.16 | ) | ||
| Basic and diluted weighted average common shares outstanding |
48,784 | 39,838 | ||||||
See Notes to Condensed Consolidated Financial Statements
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
| Three Months March 31, 2005 |
Three Months March 31, 2004 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income (loss) |
$ | (16,952 | ) | $ | 1,211 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization including amortization of deferred debt issuance costs |
12,869 | 12,833 | ||||||
| Provision for uncollectible accounts |
445 | 248 | ||||||
| Deferred income tax expense |
2,287 | 2,091 | ||||||
| Loss on extinguishment of debt |
23,788 | — | ||||||
| Loss on disposition of property |
— | 127 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
5,713 | (9,236 | ) | |||||
| Other current assets |
(2,865 | ) | 597 | |||||
| Accounts payable |
(12,725 | ) | 7,600 | |||||
| Other current liabilities |
(9,808 | ) | (5,113 | ) | ||||
| Other assets and liabilities |
668 | 308 | ||||||
| Net cash provided by operating activities |
3,420 | 10,666 | ||||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(4,219 | ) | (1,759 | ) | ||||
| Net cash used in investing activities |
(4,219 | ) | (1,759 | ) | ||||
| Cash flows from financing activities |
||||||||
| Debt issuance fees paid |
(1,948 | ) | — | |||||
| Repayment of senior subordinated notes including prepayment premium and related fees |
(98,124 | ) | — | |||||
| Repayment of previous senior credit facility |
(220,073 | ) | (11,540 | ) | ||||
| Borrowings under new senior credit facility |
240,000 | — | ||||||
| Principal payments on new senior credit facility |
(600 | ) | — | |||||
| Proceeds from issuance of common stock, net of issuance costs of $20,847 |
261,073 | — | ||||||
| Redemption of Class A preferred stock at liquidation value |
(176,456 | ) | — | |||||
| Net cash provided by (used in) financing activities |
3,872 | (11,540 | ) | |||||
| Effect of exchange rate changes on cash |
18 | (43 | ) | |||||
| Net increase (decrease) in cash |
3,091 | (2,676 | ) | |||||
| Cash at beginning of period |
17,919 | 8,299 | ||||||
| Cash at end of period |
$ | 21,010 | $ | 5,623 | ||||
| Supplemental cash flow information |
||||||||
| Interest paid |
$ | 19,025 | $ | 19,641 | ||||
| Income taxes paid |
11 | — | ||||||
| Supplemental non-cash transactions |
||||||||
| Conversion of Class A cumulative redeemable preferred stock to common stock |
$ | 163,353 | $ | — | ||||
See Notes to Condensed Consolidated Financial Statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
1. Business and Recent Organizational Changes
We are a leading provider of mission-critical technology services to wireless telecommunications companies worldwide. Our solutions simplify technology complexities by integrating disparate carriers’ systems and networks in order to provide seamless global voice and data communications to wireless subscribers. Many carriers depend on our integrated suite of services to solve their most complex technology challenges and to facilitate the rapid deployment of next generation wireless services. We provide our services to over 300 telecommunication carriers in approximately 40 countries, including the ten largest U.S. carriers and six of the ten largest international wireless carriers. We deliver most of our services to wireless carriers through a transaction-based recurring revenue model.
We acquired the wireless clearinghouse business of Electronic Data Systems Corporation (“IOS North America”) on September 30, 2004. The acquisition was accounted for using the purchase method of accounting.
On January 17, 2005, Syniverse Holdings, LLC (Syniverse LLC), our former parent, contributed its ownership of all the non-voting common stock of Syniverse Networks, Inc. (Syniverse Networks) to us, resulting in our ownership of 100% of Syniverse Networks. From February 14, 2002 until January 17, 2005, Syniverse LLC owned all of the non-voting common stock and we owned all of the voting preferred stock of Syniverse Networks. Prior to February 14, 2002, the Verizon business, which we acquired, owned all of the operations that are now referred to as Syniverse Networks. Since this was a business combination of entities under common control, we have accounted for this 2005 transaction in a manner similar to a pooling of interests. As a result, all of our financial statements for this common control period include all of the historical results of Syniverse Networks.
On February 9, 2005, Syniverse LLC entered into an Amendment No. 1 to Limited Liability Company Agreement and Dissolution Agreement, dated as of February 9, 2005, with us and certain members of Syniverse LLC (the “Dissolution Agreement”). The Dissolution Agreement provided, among other things, for (i) the distribution of our capital stock to the members of Syniverse LLC, (ii) the termination of certain equity agreements among Syniverse LLC and its members and (iii) the subsequent dissolution of Syniverse LLC.
On February 9, 2005, we merged our subsidiaries, Syniverse Networks and Syniverse Finance, Inc. (Syniverse Finance), with and into Syniverse Technologies, Inc. (Syniverse).
On February 9, 2005, our Board of Directors approved (i) the reclassification of the outstanding shares of our non-voting class B common stock into shares of our voting common stock, (ii) the 1-for-2.485 reverse stock split of our common stock with respect to the number of shares but not the par value per share, (iii) the increase in the number of shares reserved for issuance under the Non-Employee Directors Plan for a total of 160,630 shares of our common stock reserved for issuance and (iv) the number of shares to be granted to new non-employee directors who do not otherwise have an equity interest in our company under the Non-Employee Directors Plan to 20,000 shares of our common stock. All shares of common stock and per common share amounts have been retroactively restated to reflect this reverse stock split. In addition, the amended and restated plan provided an additional one-time option grant to each of our existing non-employee and non-equity investor directors as of the date immediately prior to our initial public offering, entitling the holder to purchase 10,000 shares of our common stock at the offering price. These options will vest in equal annual amounts over a period of five years.
On February 10, 2005, we completed an initial public offering of 17,620,000 shares of common stock at a price of $16.00 per common share. The net proceeds of the offering of $261,073 after deducting underwriting discounts, commissions and expenses, along with $240,000 received from our new credit facility described in Note 7, were used to redeem 124,876 shares of our class A cumulative redeemable preferred stock described in Note 4, tender for 35% of our senior subordinated notes described in Note 7 and repa