Syniverse Beats Zacks Consensus - Analyst Blog

Syniverse Holdings Inc. (SVR) reported third quarter 2010 adjusted earnings per share of 53 cents, which was above the Zacks Consensus Estimate of 47 cents.

Revenue

Syniverse reported third quarter 2010 revenues of $166.9 million, up 43.0% from $116.6 million in the year-ago quarter but below the Zacks Consensus Estimate of $163.0 million.

The year-over-year increase in revenues may be attributed to strengthening global business trends in combination with broad success across the company, especially in the roaming and messaging lines of business. Excluding revenue contribution of $165.6 million from Off-Network Database Queries, net revenue increased 43.9% year over year.

By segment, Roaming revenue grew 21.3% year over year to $83.8 million, mainly attributable to increased volumes in roaming activities. Messaging revenue was $45.3 million, up 771.2% from $5.2 million in the year-ago quarter. The increase was due to the acquisition of its Messaging business, which generated $39.0 million in revenues in the quarter.

Network revenue, which includes Off-Network Database Queries of $1.3 million, decreased 5.4% year over year to $34.4 million. This decline may be attributed to migration of certain customers from the SS7 solution, partially offset by increased volumes in the number of portability products.

Geographically, revenues from North America (U.S. and Canada) increased 61.3% year over year to $131.53 million. International revenues (Europe, Middle East and Africa, Asia Pacific, Caribbean and Latin America) contributed $15.35 million, down 2.5% from the year-ago quarter.

Operating Results

Cost of operations jumped 49.9% year over year to $61.9 million. Gross margin was 62.9%, down 120 basis points from 64.6% in the year-earlier quarter. This decline in gross margin may be attributed to a higher percentage of costs over total revenue. Selling and marketing expenses in the quarter surged 73.3% year over year to $15.2 million.

General and administrative expenses in the third quarter were $23.9 million, up 56.3% from the year-ago quarter. Operating margin in the quarter slipped 350 basis points year over year to 27.3%. The increase in operating expenses could be the reason for the downfall.

On a GAAP basis, Syniverse reported net income of $23.3 million, or 33 cents per share, compared with $17.7 million, or 26 cents in the year-ago quarter. Excluding the impact of non-controlling interest, purchase accounting amortization and acquisition and integration expenses of the Messaging business, but including stock-based compensation expense, adjusted net income in the quarter was $36.4 million or 53 cents per share versus $28.2 million or 41 cents per share in the third quarter of 2009.

Balance Sheet and Cash Flow

Syniverse exited the quarter with a cash balance of $153.5 million, up from $120.7 million in the previous quarter. Receivables were $150.4 million, down from $136.6 million in the previous quarter. Syniverse is free of any long-term debt.

Syniverse generated $49.0 million in cash from operating activities, compared with $39.3 million in the previous quarter. Operating free cash flow in the quarter was $33.3 million, up 24.5% from the comparable period last year.

 Guidance

As Syniverse had entered into a definitive agreement to be acquired by the privately owned Carlyle group, Syniverse will no longer provide or update its financial guidance.

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 improving demand trends and the absence of any long-term debt.

 Syniverse currently has a short-term Buy rating (Zacks #2 Rank).