Syniverse Sales Rise 40%, Guidance Upped - Analyst Blog

Syniverse Holdings Inc. (SVR) reported second-quarter 2010 adjusted earnings per share of 43 cents which met the Zacks Consensus Estimate. It exceeded the 36 cents in the year-earlier quarter.

Revenue

Syniverse reported second quarter 2010 revenues of $158.8 million, up 39.9% from $113.5 million in the year-ago quarter and ahead of the Zacks Consensus Estimate of $153.0 million. The year-over-year increase in revenues may be attributed to growth across all geographical regions, supported by strong growth in Roaming Services and Messaging Services. However, a partial setback was noticed due to the downfall in the Network Services segment.

Excluding revenue contribution from Off-Network Database Queries of $1.3 million (not included in any geographical region), net revenue increased 40.9% year over year to $157.5 million.

By segment, Roaming revenue grew 14% year over year to $73.0 million, mainly attributable to increased volumes in roaming activities.

Messaging revenue was $49.3 million, up 521% from $7.9 million in the year-ago quarter. The increase was due to the significant contribution of $43.1 million from Verisign Inc.’s (VRSN) Messaging and Mobile Media Services business, which was acquired in October 2009.

Network revenue, which includes Off-Network Database Queries of $1.3 million, decreased 10.3% year over year to $31.7 million. Growth in IPX transport services was more than offset by the customer migrations from the SS7 solutions business.

Geographically, revenue from North America ( U.S. and Canada ) increased 52.4% year over year to $124.5 million. International revenue (Europe, Middle East and Africa, Asia Pacific, Caribbean and Latin America ) contributed $33.0 million, up 10.0% from the year-ago quarter.

Operating Results

Cost of operations jumped 46.5% year over year to $59.9 million. Gross margin was 62.3%, down 170 basis points from 64% in the year-earlier quarter. This decline in gross margin may be attributed to higher percentage of costs over total revenue.

Selling and marketing expenses in the quarter surged 55.7% year over year to $3.7 million. General and administrative expenses in the second quarter were $23.7 million, up 39.4% from the year-ago quarter. Operating margin in the quarter slipped 160 basis points year over year to 27.2%. The increase in operating expenses could be the reason for the downfall.

Syniverse reported net income on a GAAP basis of $22.6 million, or 32 cents per share, compared with $16.5 million, or 24 cents in the year-ago quarter. However, excluding the impact of noncontrolling interest, purchase accounting amortization and acquisition and integration expenses of Messaging business, but including stock-based compensation expense, adjusted net income in the quarter was $32.0 million or 43 cents versus $24.2 million or 36 cents in the second quarter of 2009.

Balance Sheet and Cash Flow

Syniverse exited the second quarter with cash balance of $120.7 million, up from $95.8 million in the previous quarter. Receivables were $136.6 million, down from $137.4 million in the previous quarter. Syniverse is free of any long-term debt.

Syniverse generated $39.3 million in cash from operating activities, compared with $18.2 million in the previous quarter and $33.3 million in the comparable period last year. Syniverse incurred total capital expenditure of $14.6 million, compared with $13.4 million in the previous quarter and $14.1 million in year-earlier quarter. Operating free cash flow in the quarter was $24.8 million, up $20.1 million from the previous quarter and $5.6 million from the comparable period last year.

Guidance

Based on the significant renewal rate (99%) noticed in the second quarter and improving demand trend, Syniverse increased its full-year guidance.

Net revenue is expected to be in the range of $615.0 to $635.0 million (previously $605.0-$625.0 million). Adjusted EBIDTA is expected to range between $255.0 million and $265.0 million (previously $239.0-$259.0 million). Syniverse expects net income to be in the range of $82.0-$89.0 million (previously $75.0-$83.5 million), while cash net income is expected to range between $129.0 million and $135.5 million (previously $124.0-$131.0 million). Operating free cash flow is expected to be approximately $100.0 million or more.

Conclusion

Syniverse provides technology to the wireless communications industry. The company's products provide a seamless global network by integrating multiple carriers' networks.

We remain positive due to improving roaming volumes and messaging growth, which is expected to drive revenue and margin growth, going forward.

Despite concerns regarding Syniverse’s European exposure, we remain encouraged by the upbeat guidance, improving demand trend and absence of any long-term debt.

We currently have a short-term Buy rating (Zacks #2 Rank) on Syniverse.

 

 
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