Syniverse Holdings Inc. F1Q09 Earnings Call Transcript

Syniverse Holdings Inc. (SVR)

F1Q09 Earnings Call Transcript

May 07, 2009 at 4:30 pm ET

Executives

Tony G. Holcombe - President and Chief Executive Officer

David W. Hitchcock - Chief Financial Officer

Jim Huseby - Vice President, Investor Relations

Analysts

Amir Rozwadowski - Barclays Capital

John Bright - Avondale Partners, LLC

Analyst for Tom Ernst - Deutsche Bank Securities

Analyst for Andrey Glukhov - Brean Murray Caret

Daniel Meron - RBC Capital Markets

Analyst for Katherine Egbert - Jefferies & Co.

Scott Sutherland - Wedbush Morgan Securities Inc.

Lauren Ye - JP Morgan

Presentation

Operator

Good day ladies and gentlemen and welcome to the Syniverse Holdings quarter one 2009 earnings conference call. Please be aware that this call is being recorded. At this time, I will turn the call over to Jim Huseby, Vice President of Investor Relations. Please go ahead, Mr. Huseby.

Jim Huseby

Thank you, Operator and good afternoon everyone. On behalf of Syniverse, I want to thank you for joining us today. On the call with us today are Syniverse’s President and Chief Executive Officer, Tony Holcombe; and Chief Financial Officer, David Hitchcock.

During the call today, Tony will provide an overview of the quarter, an update on the BSG integration, and speak about some new products and opportunities. David will then provide additional detail on the Company's financial performance during the quarter including a region overview and provide an analysis of some relevant trends in our business then turn the call back over to Tony for some concluding remarks before we open it up to your questions.

We issued a press release just after the close and have prepared some slides that David will be speaking to on this call. Both of these items are available in the Investor Relations section of our website at www.syniverse.com. We encourage you to download the slides for you to use on this call if you have not already done so. Today’s call is also being webcast over the internet. It too is available on our website and will be archived and available for replay shortly after we conclude.

In our press release and on today’s call we have included the discussion of certain non-GAAP measures, including adjusted EBITDA, adjusted net income, cash net income, and operating free cash flow. You will find a reconciliation of each of these items, as well as other information about our use of these measures in our earnings press release and on the website.

Before I turn things over to Tony I would like to caution all participants that today’s call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Including statements about our business outlook, strategy, net revenue, adjusted EBITDA, net income, cash net income, and operating free cash flow outlooks for 2009, expected synergies related to BSG wireless, statements about how the slowing global economy will affect our business and statements about historical results in the wireless communications industry that may suggest trends for our business. These statements are based on assumptions, estimates and other inherently subjective information available to us at the time of this presentation and are not guarantees of future performance.

Actual results could materially differ from our current expectations as a result of many factors including unpredictable quarterly fluctuations in our business, changes in economic conditions, the effects of competition on our customers’ use of our services, changes in our customers’ network configurations, any adverse changes in our agreements with our vendors or partners, the impact of international expansion efforts on our business, the ability to integrate the operations of BSG Wireless and changes in our tax status. These and other risks and uncertainties associated with our business are described in our filings with the Security and Exchange Commission. We assume no obligation to update any forward-looking information.

With all that said, now I would like to turn the call over to our President and CEO, Tony Holcombe.

Tony Holcombe

Thank you, Jim. I am glad all of you in the call could join us today. First, I will provide a brief overview of our first quarter 2009 results. I will then spend some time talking about industry trends and how they are impacting Syniverse and before turning it over to David for a closer look at the numbers, I will discuss a number of items from the BSG integration to new products to India mobile number portability that are important to our business today and in the future.

I am pleased with our first quarter performance as we are aware we thought would be in terms of revenue and profitability with net revenue just under $108 million. As expected, this was slightly lower than we what we saw a year ago in the first quarter 2008. Also, as expected, technology interoperability services revenues were down due to the rising contract renewal and the Alltel and Sprint in sourcing.

Our adjusted EBITDA at $47 million also was in line with our expectations as our cost came down. We generated over $10 million of operating free cash in the quarter and cash on hand as of March 31 was $174 million. I think it is important to note here how we generate revenue at Syniverse is different from how operators generate revenue. The two are not joined at the hill. Here is why; when an operator uses Syniverse as a roaming clearinghouse, we process and charge for individual roaming events. It does not matter where that subscriber is located, whether that subscriber is making a voice call, sending a text message or opening a data session to check out email or sports score or how much the operator charges the subscriber for one of those activities as long as that subscriber is roaming. For Syniverse, each of those individual actions count as a single event, a transaction and we collect the fee for each one. Operators on the other hand gain or lose revenue based on varying charges for different events. Some subscriber actions generate greater revenue for operators while others generate less.

Subscribers also see varying charges based upon their locations when they use devices. For example, when US subscribers on a vacation use their mobile phones on a ship while cruising through the Caribbean, they could easily be charge $5 per minute but if they decide to send an SMS, the roaming rate is likely to be closer to $0.35 per SMS. To cut cost, subscribers may choose not to make any voice calls and instead, send a higher number of ultimately less expensive text messages. If they disembark on a ship when in port and make calls using the local national operator's network, the cost of those calls for the subscribers will probably be different as for the revenue of their home operators.

As you can see, the mix of voice calls, length of calls, number of data sessions and amount of data downloaded and number of text messages sent and received can lead to a broad range of possible roaming revenue for the operator. At Syniverse, we charge the operator for the total number of roaming events at their contracted rate per transaction. Our revenue is not tied up to the duration, type or location of each event so our performance, Syniverse revenue, is not directly tied to operator reported revenues. That said, when we set guidance for 2009, we anticipate Syniverse would not be immune to the global economic situation and as expected, we are seeing slowing growth in global roaming buy-ins which drive just over half of our total business. These products include our data clearinghouse, MBR services, UniRoam, signaling solutions and others.

On our clearinghouse platforms for example, we have seen a decrease in voice transactions and a slower growth rate and mobile data transactions in first quarter. Although the total number of transactions we processed both voice and data together increased almost 7% when compared to the same timeframe in 2008. This was driven by the increase in mobile data transactions. Another data clearing news could be as the integration is right on schedule. We had successfully upgraded all tier-one operators in North America as well have a number of other customers around the world and by the end of third quarter, we will have more than 90% of our data clearinghouse volume on the upgraded system. We continue to expect $12 million in annual run rate cost savings by the end of 2009.

As I have said many times before, we cannot be more pleased with this acquisition. The people, the technologies and the upgrade process have surpassed our expectations. I cannot go too far in the call without mentioning the rise in acquisition of Alltel. Integration schedules and revenues are on expectations and consistent with our previous communications so basically we have nothing new to report here.

As for our products in first quarter, we made a number of announcements and I would like to highlight some of them right now. One of those was about a new suite of business intelligent solutions. We are developing data driven tool sets that will enable operators to optimize their revenue and at the same time, offer their subscribers a better quality of service. The first of these suite business intelligent solutions already is on track to create a strong product pipeline for us in 2009. RoamWise is a tool that provides operators with the ability to analyze and forecast roaming revenue thus, allowing them to get maximum benefit from discounting agreements to optimize their roaming revenues and improve the efficiency of their roaming operations. This happens because RoamWise centralizes the analysis of historical and real time roaming data and builds a comprehensive picture of future roaming trends so that business decisions can be made rapidly and effectively.

We are finding our GSM customers above individual operators and group operator organizations are expressing a lot of interest in RoamWise and we already have more than a dozen trials underway, our plan in countries from the United States to Japan to Russia to Latin America. RoamWise will replicate the same successful path we saw with DataNet and which large number of operators signed up and we implement them incrementally and the estimated total market size for this product is roughly 20 million, again similar to DataNet.

We are also proud to announce that we have signed our first customer for Syniverse NEXT, the industry's first advanced messaging hub. You may recall that we talked about this innovative solution quite extensively during our last call. I expect we will see more customers lining up for NEXT as we complete trials and operators learn more about the value that this type of solution brings to them and their subscribers. The first quarter also saw us awarded the India mobile number portability license. We were selected to provide the country's telecommunications operators with a number of portability clearinghouse and centralized database solutions for the next 10 years.

Because the country is so large, the government of India decided to divide the license between two providers. We were selected to receive the license for the larger, more significant Zone 1 which includes the service areas of Delhi and Mumbai. The timeline specified by India's DoT is at the MNP, mobile number portability, has to be rolled out in metro and Category A service areas six months in the award of license and the remaining areas of zone in the subsequent six months. Based on current schedules and timelines, we expect to go live by the end of the third quarter. Expected revenues in this contract are $5 million to $10 million on an annual basis once the full solution is operational.

Before David speaks to you, I want to reiterate once again that we are right where we expected to be with our numbers. We also expect continued organic growth for a number of reasons including increasing transaction volumes globally from a growing data and messaging environment, our robust product pipeline and opportunities from an expanding customer market as internet providers, cable operators and others outside the traditional mobile space turn to us to provide the interconnection and services they need as they move into the mobile space.

Additionally, our strong business model continues to generate cash allowing us to act on opportunities that come our way and we continue to reap the benefits of a cost controlled program that was proactively put into place last fall. I will now turn the program over to David and we will both answer your questions after he takes a closer look at the numbers.

David Hitchcock

Thanks Tony. As a reminder, I will be speaking from the slides that are posted on our website that Jim mentioned at the beginning of the call. I will start on Slide 2.

Syniverse delivered a solid first quarter with net revenues at $107.7 million consistent with our expectations. We continue to manage to the customer specific headwinds that we have spoken to you about at length and also the impact of reduced travel due to the challenging economic conditions on roaming volumes.

Cost of goods sold was up by about $2 million on higher network and operational infrastructure cost to support higher volumes, new products and a growing global footprint. Gross margins remained healthy at 64% of net revenue. They are down from last year due mostly to the Verizon renewal and the MDR in sourcing. As it is typical due to our normal seasonal patterns, we expect margins to improve across the remainder of the year.

SG&A was down 11% as our efforts on the cost control front started to show results. These savings should continue through the year and I expect SG&A as a percent of net revenue at 23.9% for the quarter to be lower for the full year. Depreciation and amortization has little change from last year as BSG is included in both periods and our interest costs were lower this year due to the decline in interest cost for a variable rate debt leading to pre-tax income of $22.8 million. Our effective tax rate was lower as we realized a one-time tax true-up from our German operations which benefited us by $1.5 million in the quarter resulting in an effective tax rate of 29.7%.

Excluding this adjustment, our effective tax rate would have been 36.1% for the quarter. GAAP net income was $16 million, a 4.2% increase versus last year and $0.23 per diluted share, a 2.7% year-over-year increase on $67.9 million diluted shares.

Slide 3 reconciles our non-GAAP measures. Syniverse delivered $47.2 million of adjusted EBITDA in the first quarter, $5.8 million less in the prior year quarter but on our expectations and a strong result given that customer specific and economic impacts. Adjusted EBITDA margin was 43.9%, down from 46.3% in the prior year's quarter but higher than our historic first quarter margins. I have covered the two biggest reconciling items; interest expense and income tax provision on the last slide.

Moving down to cash net income, recall that we had made a change to our expected long term tax rate. The first quarter of 2009 cash net income calculation includes a 37.5% rate while last year's rate was 39%. Cash net income was $23.1 million in the quarter or $0.34 a share, down $0.03 from last year's quarter.

Slide 4 breaks down our revenues by service line and by region. Technology interoperability remains our biggest category at $62.9 million or 58% of net revenues. It declined 8.4% year-over-year as most of the impacts to the customer specific headwinds in the economy were felt here. The biggest driver of this decline was in our clearinghouse products, which is not surprising given its exposure to just about all of our headwinds. Even with these impacts as Tony indicated earlier, we saw solid organic volume growth in total transactions on our clearinghouse platforms.

Elsewhere in technology interoperability, we saw a year-over-year shrink in our messaging interoperability products in UniRoam as well as DataNet which continue to grow as we implement new customers. ITHL was weaker year-over-year due mainly to the timing of certain projects. As you know, this is one area of our business that is operator CapEx sensitive. Network Services posted a modest year-over-year growth primarily due to organic volume growth on our SS7 network as existing customers expand our footprint.

Number portability also grew due to organic volume growth while call processing client less than we had anticipated as organic volume growth helped to offset the declines from the Verizon renewal and certain migrations we have discussed previously which are driven by customers transitioning from CDMA to GSM networks.

Looking at our revenues by geography, the weakness in EMEA is obvious while Asia Pacific also saw a year-over-year decline though our transaction based products were down only slightly in Asia Pacific in line with our expectations. North America also decline what was impacted by the renewals in the MDR in sourcing. CALA continues to grow. EMEA revenues for the quarter were not only impacted by the difficult economic environment but were also impacted by the strengthening of the dollar on a year-over-year basis versus the euro and the pound. The $1.8 million of the $2.2 million revenue decline for the region was driven by FX. In total for Syniverse, FX reduced revenue growth by 2.2 percentage points versus the prior year quarter.

Indicative of slowing cross border travel, EMEA voice calls were down year-over-year. As Tony explained, we realized revenue based on the total number of roaming events, whether those roaming events are voice calls, text messages or data sessions. Less than a third of this quarter's total roaming records came from voice calls and we are indifferent about the length of those calls which can significantly affect roaming revenues for operators. SMS volumes were also affected but strong growth continued in the number of data sessions we processed showing the ongoing strength in wireless data adoption. EMEA was the only region where roaming volumes declined versus the prior year quarter. Outside of EMEA, we are seeing low double digit volume growth in our GSM clearinghouse. Like EMEA, voice calls are down but messaging and mobile data volumes are still showing strong double digit growth.

Let us move to Slide 5 and talk about cash flow. Syniverse generated $10.2 million of free cash flow in the quarter, typically our weakest cash flow quarter of the year. We are impacted in the first quarter by the low seasonality on the top line along with the semiannual interest payments and annual performance compensation payments among other costs. Capital expenditures in the quarter were $6.8 million, down slightly versus the prior year quarter and we expect the full year capital expenditures to be lower than last year both on an absolute level and as a percentage or revenues. Our plan includes the investment that we will be making in our new India datacenter which we expect full support on number portability contract along with our further expansion in the region. We continue to make the necessary investments for our advanced messaging hub mix and we are continuing to strengthen Syniverse's overall technology platform.

At the bottom of the page, you can see that we paid $10.1 million in cash interest as our rates on our variable rate debt were lower this year versus last and as expected, our cash taxes increased to $8.9 million while we made only the scheduled amortization payments on our credit facility.

Turning to the balance sheet items on Slide 6, we continue to build our cash reserves in the quarter so our cash balance was $174 million at March 31. Looking at the two pieces of our debt, the $175 million on our senior subordinated notes remains unchanged with the maturity not until 2013. The balance on our credit facility is now $330 million reflecting required amortization and the impact of currency fluctuations on our euro-based debt. With regards to our credit facility, we recently completed an amendment to change our administrative agent. This was an action that we are eventually going to make given our former agent’s financial status. We are aware of no issues with their performance while in bankruptcy but we expect that they will eventually wind down operations.

As a result of this amendment, we now have almost $44 million available to us under our revolving credit facility. Relative to use of our existing cash balances, our priorities have not changed. We continue to evaluate investment opportunities and expect to maintain and grow these balances in the near term given the strategic flexibility to provide this particularly with the high cost of incremental debt. Our leverage ratios are little changed from last quarter with our total leverage ratio at 2.2 times and net of cash is slightly smaller 1.4 times.

Moving on to Slide 7, as I have done each quarter since we made the BSG acquisition, I will discuss the breakdown of our transition expenses. We recorded $2.6 million in transition expenses in the first quarter. We have made significant progress in this integration and I am pleased to say that we are on schedule. We are in the middle of our customer upgrades and the cost savings that we had identified two years ago during the due diligence period are now being realized. We should expect our quarterly transition cost to decline sequentially from here to the end of the year when the project will be complete. The one-time integration specific cost are expected to be lower in each subsequent quarter but now is the time that you will begin to see significant reductions in the duplicative cost as we are realizing those synergies in our cost of goods sold line.

In the quarter, the transition expenses were composed of $1 million for integration specific expenses which was primarily temporary headcount to assist with the upgrades and $1.6 million of duplicative cost which is down $300,000 from last quarter and $0.5 million over the first six months of upgrades. The upgrades continue and by the time we report in early August, we will be in the homestretch on this critical project. We have made significant progress already but more lies ahead. Nonetheless, I am extremely pleased with our execution to this point.

Moving on to Slide 8, we are reiterating our annual guidance. More specifically, full year 2009 guidance is net revenues between $460 million and $480 million, GAAP net income of $64.5 million to $74 million, adjusted EBITDA of $210 million to $225 million, cash net income of $99 million to $108 million and operating free cash flow in excess of $100 million. Over the first third of the year, we have seen historically greater volatility in our monthly results but our first quarter total is where we expected it to be. The year started slowly but we have seen some positive volume trends in March and April that may indicate that we have passed our low point.

We are entering the seasonally strongest part of our year and we expect the normal seasonal patterns and will be watching travel and roaming trends closely for any changes. Our costs were down 2% versus the prior year quarter and our cost reduction efforts are positively impacting EBITDA. Discretionary spending had slowed and headcount ticked down again. We ended the quarter at 1218 FDEs, down 28 from the prior year quarter and more importantly, down 63 or 5% from our peak in October 2008. We will continue to execute on a cost reduction plan throughout the rest of the year to maintain our historic margins.

Finally, Slide 9 discusses the key takeaways for the first quarter. First, we executed in the quarter and delivered results that were consistent with our internal plan. Consequently, we are reiterating the same full year guidance that we spoke to you about in February. We are seeing an impact from travel reductions in our roaming volumes but the impact is uneven. EMEA is being hit the hardest while CALA volumes have shown relatively few signs of a significant negative impact. Mobile data adoption rates continue to drive growth in overall roaming transactions. Our cost reduction programs are on schedule and we are on track to deliver the 3% to 6% reduction in overall cost that was included as far as our guidance for the year.

We continue to execute our BSG integration plan and are on schedule five quarters into our plan. Through March 31, we have achieved $6 million of the $12 million of annualized run rate cost synergies that we expect to achieve by yearend. Finally, Syniverse continues to generate free cash and consistent with previous quarters we continue to grow our cash balances. We ended the quarter with $174 million of cash and we continue to evaluate strategic uses of this cash versus using it to reduce our outstanding debt.

With that, I would like to turn the call back over to Tony for some final remarks.

Tony Holcombe

Thank you, David. Before we take your questions, I want to acknowledge some important groups of people. First, I want to let those of you who have joined our call today know that David, Jim and I appreciate your interest in Syniverse. I also want to thank our more than 650 customers around the world. Their confidence in our products and people which is evidenced by 98% renewal rate is very much valued by all of us at Syniverse and of course, I have to give kudos to our more than 1100 employees around the world. I have never worked with a group that is more talented or dedicated and I want to thank all of you and now, I would like to ask the operator to begin the Q&A session.

Question-and-Answer Session

Operator

(Operator's instruction) Your first question comes from the line of Amir Rozwadowski - Barclays Capital.

Amir Rozwadowski - Barclays Capital

Just digging a little bit more in terms of the volume trends, you mentioned that you had a 7% increase in overall volumes. Can you give us a little bit of color in terms of what the number was in terms of data traffic?

Tony Holcombe

I will talk to it a little broadly and David can look up a little bit the specifics. I mean clearly what we are seeing in the data traffic is we are continuing to see strong double digit growth across all the regions even with the economic impacts and I will let David give you a little more detail about it.

David Hitchcock

Sure Tony. If I look across our total clearing house platform, calls as we have indicated earlier were down on a year-over-year quarterly basis. Data sessions were still up strong north of 50% year-over-year.

Amir Rozwadowski - Barclays Capital

Okay great. And then, David, you have mentioned that if we look at the trajectory through the quarter and perhaps through the first month of the second quarter, you have seen some suggestions that there has been further improvement there. Should we expect that trend to stay flattish or improve through the course of the year?

Tony Holcombe

Yes. Let me take that. I mean I think as we talked in the last quarter, we started to see the impact of the economic crisis starting around September and we have been tracking that pretty consistently. As David, I think alluded to on his remarks; January and February look like the low point. March certainly improved and April has certainly improved.

Again, based on what we have laid out for our guidance for the year which we are sticking with at this point is that we expect to see slight improvement as that comes up. Obviously you have the factor-in the seasonality which we get into in Q2 and Q3. So, given those trends right now, I think we are feeling more comfortable about where the numbers are. But as we stated earlier this is pretty much playing out the way we had laid the plan for the year.

Amir Rozwadowski - Barclays Capital

Great! That is very helpful to me. And then, lastly, if I may, the opportunity in India, looking beyond number portability, how should we think about the opportunities from your perspective and further expanding services within the region?

Tony Holcombe

Yes. That is a great question. Let us stay with number portability for a minute. In addition to the actual number portability contract which we want in India we also have our ITHL division which will be selling services to the operators that they need to connect into the number portability data house.

So, those are one of our contract possibilities for virtually all of the operators in India and then I think as we mentioned on previous calls we had a very successful selling in the CDMA operators in India that gives us a chance to really chase GSM operators, there is about 14 GSM operators in that market that we will be targeting. I will expect will be announcing contracts simultaneously when we are rolling out the datacenter operation.

So, again, that is an opportunity for us on data clearinghouse and all of data clearinghouse related services, standalone ITHL services, the operators that need to connect to the number portability system and the overall number portability contract, and as David mentioned in his remarks, we are putting a full pledge datacenter operation into India showing commitment that we had to the marketplace and what we think is a long term opportunity here.

Amir Rozwadowski - Barclays Capital

Was not having a datacenter a hindrance and turn out drive additional business regionally before, Tony?

Tony Holcombe

Yes. There were some local requirements according to the India regulators and the combination of the local number portability LAN and putting the datacenter in, gives us the efficiency to make that workforce.

Operator

Your next question comes from the line of John Bright - Avondale Partners.

John Bright - Avondale Partners, LLC

Tony, what is the largest and the most attractive opportunity of the ones that you mentioned? Can you talk about RoamWise, Syniverse NEXT, Syniverse MORE and you also talked about India, maybe give us some framework on the size and attractiveness of the respective opportunities.

Tony Holcombe

Okay. John, simply think about India, we talked specifically about $5 million to $10 million of local number portability opportunity as it ramps up in the 2010 starting to get revenues at the end of 2009. On the RoamWise, we talked about a $20 million opportunity and as we said on the call, think about that like a data net operation so we will be deploying those solutions across the variety of operators because it looks like the demand is going to be a very strong for that product throughout 2009.

So, again, if we can pick up…, we always try to target large market share but if you think $20 million opportunity, if we get picked up $5 million to $10 million there, is potentials and that kind of market going forward that helps your side.

So those are the ones we have real good visibility on and we have pretty good color about what we think is going to happen.

On Syniverse NEXT that is going to be driven by the IM interoperability platform that we rolled out. We have active discussions in Asia right now. We have active discussions in Latin America today. We have a customer that we have just signed up in North America that I cannot talk specifically to.

A little less visibility into what those revenues look like as soon as we have better views on that we can tell you and Syniverse MORE is in the process of having a variety of conversation with carriers around the globe today.

Again, it is a little early for us to get too much color in that area but once we have something we will be happy to share it.

John Bright - Avondale Partners, LLC

David, we are going to the expenses. I think you mentioned 2% year-over-year reduction in expenses, cost of operations take up a bit in the first quarter, three to six, correct me if I am wrong, is the objective by the end of the year. When should we start seeing you cost severance of 3% range and what are the variables that get you to 6%?

David Hitchcock

So, John, I would say that probably should see as cross over that mid-year as we talked about the second quarter. We talked year-over-year relatively to being down to 2%. I think another good way to look at it John to show you some of the progress, obviously, I will talk about the headcount reductions off about 5%, headcount down about 5% since the peak in October.

If you look sequentially fourth quarter to first quarter, our costs were actually down 13% and there is a couple of items that need to normalize, where we have some severance costs in the fourth quarter of ’08. We had the shareholder rights plan cuts in the fourth quarter of ’08, and you also have to normalize for the variability in the ITHL revenues given its project base. But if I normalize for those, our costs were still down roughly 8% sequentially.

So, we are making very solid progress relative to the targets for the year.

John Bright - Avondale Partners, LLC

Okay, two final questions. One is, anything else that you see happening in the EMEA region that is maybe a cause for concern or symptomatic of volumes that might happen elsewhere?

Tony Holcombe

No. John, I think since we have the unique position of seeing in the global marketplace that is big. We have 650 customers and it varies in about 438 our data clearinghouse customers specifically. So, we have a pretty good global market look and if we just look at the spectrum of that, it just seems like the economy and economic impact are being felt pretty unevenly and it certainly appears throughout based upon roaming traffic that the economic impact is much more severe in the European market. It certainly seems to be stabilized in the North America and Asia and it is continued to be relatively strong in CALA.

So, I would not read anything more into it other than there is just some regional differences of how this global slowdown is affecting different parts of the world.

Operator

Your next question comes from the line of Tom Ernst - Deutsche Bank.

Analyst for Tom Ernst - Deutsche Bank Securities

This is Nandan on behalf of Tom. Just a couple of questions, to your point about the data clearinghouse services versus the financial clearing assets that you have acquired with BSG, have you been able to penetrate more accounts as a result of the acquisition?

Tony Holcombe

Yes. We have actually continued to increase numbers, I do not have the specific number on the top of my head right here but we can get back with you about that. But it continues to be what we are expecting when we acquired BSG. In many cases, the operator wants to see a package bid. So, we are providing both sets of services in that regard but clearly as we talked about many times in the call we continue to be able to successfully cross-sell that into our customer base.

Analyst for Tom Ernst - Deutsche Bank Securities

Okay thanks. And then related to the India project, what is the level of CapEx you expect to make this year and then into next year?

David Hitchcock

If you look at what we have talked about is we did put together a joint venture to proceed with that business. Our capital expenditures this year would probably be in the low single digit millions range, and it is included in obviously the forecast that I have provided for the total year.

Operator

Your next question comes from the line of Andrey Glukhov - Brean Murray.

Analyst for Andrey Glukhov - Brean Murray Caret

This is actually [Kyle Alison] for Andrey. Just a couple of questions for you, I know we have been talking about the roaming levels and even specifically in Europe. Can you really kind of drill down, are these kinds of levels you were interested in seeing coming into this quarter and even what you are seeing going forward? How should we think about that moving to the next a couple of quarters?

Tony Holcombe

Yes. Absolutely, I think from our perspective, the Q1 revenue numbers were virtually right on target where we thought we would be in Q1 and again if you adjust for seasonality, Q1 being the lowest quarter that we have and look at the seasonality starting to pick up in Q2 and Q3 being the largest and given how we are seeing in the volume trend, it is exactly where we thought we would be.

Analyst for Andrey Glukhov - Brean Murray Caret

Okay. And with Europe, can we see that getting hit any harder or is this has stabilized coming out in March and April?

Tony Holcombe

I think as we pointed out, March and April showed stabilization which is somewhat what we expected in those markets. I do not think we see people getting worst at this point. There are some people who are in better shape and others relative to their growth patterns. Again, basically, as we talked about overall, overall transaction and volumes were up 7% year-over-year so from that standpoint it does what we expect. There are certainly some differences on a regional basis.

Analyst for Andrey Glukhov - Brean Murray Caret

Right, right, okay, and then I guess with that how is this affecting or impacting moving it to the emerging markets? What you are seeing in those areas?

Tony Holcombe

It really it does not impact that. I mean we are successfully signing up new customers pretty consistently today at the Middle East and Africa. Those have been successful markets for us. Obviously, once we are up and live and operational in India we will expect to pick up some market share in that particular market. So, again, it is relative to the economic situation. I do not think we see much impact on picking up shares.

Analyst for Andrey Glukhov - Brean Murray Caret

Okay. And I guess my last real question is can you maybe talk a little bit around your cash position and maybe put what you are expecting to do with that?

Tony Holcombe

Sure. As I indicated in the script, we are continuing to evaluate strategic options, it does not make sense. Given the high costs of going out and securing new debt in today’s market, it does not make sense for us to pay down existing debt as we continue to evaluate strategic options that maybe in front of us.

Operator

Your next question comes from the line of Daniel Meron - RBC Capital Markets.

Daniel Meron - RBC Capital Markets

A couple of questions, first of all, if maybe too early right now, but, are you seeing any sort of impacts from the swine flu that is going around recently? How should we think about it going forward?

Tony Holcombe

Yes. Daniel, there is something we have surveyed, look at very carefully. One of the things that I would say is that we certainly have seen an impact in Mexico as you might expect. Mexico, to give you a point of reference, is maybe 2% plus of our overall roaming traffic. But I think what we are seeing is that it is a limited impact unless the pandemic gets worst and it seems to beginning better at this point relative to travel restrictions and so forth.

So, the bottom line maybe for a couple of weeks there is an impact but on a long term basis we do not think it has any significance to what we were reporting as far as numbers and what we expect to see are numbers going forward.

Daniel Meron - RBC Capital Markets

Okay. And then, David, can you give us a little bit of sense if there were any FX impacts this quarter, particularly impacting the European regions I guess?

David Hitchcock

Sure. If you look year-over-year from an FX perspective, our growth rate overall for Syniverse, our revenues quarter-over-quarter were down 6%. On a constant dollar, our revenues would have been down about 3.8%. So the 2.2% of the growth rate was driven entirely by the strengthening of the dollar versus the euro and the pound on a year-over-year basis. Obviously, the majority of that impact is driven out of the EMEA region.

Daniel Meron - RBC Capital Markets

Sure. Was there any offset on the bottom line or because of more severe operations are more US based. We know that there was also operation in Germany but was that offset on the bottom line or what was that?

David Hitchcock

There are a little bit but nothing of significance.

Daniel Meron - RBC Capital Markets

Okay. So basically, we saw the revenue growth rate impacted. It was slightly offset on the earnings but not to the same [FX rate]?

David Hitchcock

Absolutely.

Daniel Meron - RBC Capital Markets

Okay. And then some stuff from the competitive landscape of pricing pressures, have you seen increased pricing pressure or more aggressive competition, who do you see out there right now when you are try to go offer new businesses?

Tony Holcombe

Yes. We have consistently stated. It is a very competitive marketplace. Competitors are very aggressive on pricing. They try to use aggressive pricing in their own market and so we certainly have seen that. We have dealt in this market. I have been here three plus years now and the pricing is as every bit as competitive now as it was three years ago and we expect that to continue.

Daniel Meron - RBC Capital Markets

Okay. So this time it is the economic cycle is that necessary extending the pricing pressure just as usual I guess?

Tony Holcombe

As usual, that will be wise to say. Correct Daniel.

Operator

Your next question comes from the line of Katherine Egbert - Jefferies & Co.

Analyst for Katherine Egbert - Jefferies & Co.

This is [41.46] for Katherine. Just following up in the roaming, I would like you to contribute drilldown a little, but you mentioned that in the economic downturn some people who were previously using roaming voice services might move to using more text messages. But I am curious, what happens when people might even move down from, say something like, text messages to using information’s clients which I think generally just are covered by data plans that carriers have? Does that cause another significant step function in revenue decline?

David Hitchcock

Yes. That is a great question. I think let me can add. I will do a little drilldown here. I will give you a couple of pieces of that.

Number one is as we stated on the call we use SMS as an example. For us is the total number of transactions that drives our revenues. So, as we stated the total organic growth in transactions was 7%. If it is a data transaction or a session, we are getting paid on a session at that point. If it is a standalone instant messaging, if there is a roaming transaction associated with that and there may not be which means we never would have gotten the revenue and we do not get the revenues going forward but there is an instant message traffic that goes across the data broadband connection, we will get that because there would be logged in as a session.

So, again, I think the point we are trying to make is - as long as overall transactions grow, we are really indifferent to the type of transaction. So, the simple answer to your question is that instant messaging SMS, MMS, voice, data session, does not really matter as long as those are growing overall and they are growing overall because there are consumer demands for those because of the move to use the mobile device as a broadband.

In fact, I will give you another statistic that will help you here. Cisco recently put a study out and they talked about this. They talked about one smart phone generates more data traffic than 30 basic feature cell phones and one laptop air card generates more data traffic than 450 basic feature cell phones.

So, again, data growth here is very strong, very expediential and even on a probably the worst economic cycle we have seen in the last four years we got organic growth of 7%. So, all of those things on the long term basis worked to our advantage and all those things are very positive for us.

Analyst for Katherine Egbert - Jefferies & Co.

Okay. I guess so that implies that basically the pricing is pretty similar for text messages which are built to move advance into message sessions which are built on a session basis.

David Hitchcock

Yes, pricing is very customer specific, very regional specific. So I would not say there are all the same. But your point is correct in the sense that pricing for a clearinghouse transaction tends to be more uniform. It could be more specific by the type of technologies associated with it. But again, suffice it to say as long as we are getting overall growth in total transactions that is a net positive for us.

Analyst for Katherine Egbert - Jefferies & Co.

Okay that is great. And then, one final question, in the EU for example, roaming rates are going to decline. I am just curious; to what extent you might see or expect that those price declines to be offset by increased volumes?

David Hitchcock

Yes. I think the simple answer is we do not know. If you remember last year when voice traffic was mandated to be lower on roaming, we expected to see traffic go up. We did not see traffic go up but that is just about the time during that peak season that we saw the economic impacts start to hit in the September timeframe.

So, it is unclear to us how much maybe even August traffic as well as September traffic may have been impacted by the economic slowdown. So, given, we are going to now enter into 2009 and see that impact on data traffic. Again, it is going to be a combination of we would expect to see usage go up because the pricing is more palatable to the subscriber and we know they want to use the service and the flip side of this is what is the economic scenario looks like affecting organic growth.

So, it might be a little difficult to tell because we are not necessarily in a stage they were in 2009 anymore than we were in the later half in 2008. But generally speaking, we would expect to see traffic going up.

Operator

(Operators Instructions) Your next question comes from the line of Scott Sutherland - Wedbush Morgan.

Scott Sutherland - Wedbush Morgan Securities Inc.

Quick question. What percentage of revenue were your data services in Q1?

David Hitchcock

The proxy that we use for data which is the 40 data products was roughly $20 million in the quarter, Scott, which was roughly flat with last year’s quarter and down sequentially by roughly $8 million driven by obviously the NDR in sourcing, the Verizon renewal and the current economic conditions.

Scott Sutherland - Wedbush Morgan Securities Inc.

Okay. That is probably my next question. If you are going to back out the NDR and the Verizon renewal, can you get to a number organically, what is still growing close to triple digits or near that?

David Hitchcock

From a data perspective or from a revenue perspective?

Scott Sutherland - Wedbush Morgan Securities Inc.

From a revenue perspective, I know it have been growing closer to triple digits for you guys before this event. So I was just wondering if the...seeing forecast to the north?

David Hitchcock

I have not done the exact calculation but I think indicated data was up from transaction perspective, volume transaction across our clearinghouse platforms about just north of 50%. So, it probably would see closer to triple digit, if not triple digit growth if you account for the impact of those items. But I have not done that precise calculation.

Scott Sutherland - Wedbush Morgan Securities Inc.

One of an earlier question on your OpEx cuts, when do you expect the 3% to 6% to be fully reflected in Q2 or more in Q3?

David Hitchcock

More in Q3.

Scott Sutherland - Wedbush Morgan Securities Inc.

Okay. VeriSign, TNS recently closed the VeriSign acquisition, do you see any change in the competitive landscape or is it too early to tell as they gain some scale? They also mentioned in their call maybe some signs of life in network services and obviously you saw an up quarter year-over-year. Have you seen any difference there than maybe what some people expect?

Tony Holcombe

Yes. I think Scott we have obviously been competing against VeriSign head-to-head directly now here for several years. We have tend generally competed against TNS in the network services space so obviously now we will see them as the combined entity and I expect them to be a tough, aggressive competitor. We have competed against them going forward. So, I do not see any real change in that.

Relative network services, I would not read too much into the numbers going up. I think, as David stated in his remarks, we are seeing some of our customers expand their footprint. We have generated some incremental organic growth for us. But I do not expect to see change on that this year.

Operator

Your next question comes from the line of Lauren Ye - JP Morgan.

Lauren Ye - JP Morgan

This is Lauren for Sterling Auty. Just a follow up question on the European wholesale rates that are coming down this summer, have you factored any of that into your guidance?

Tony Holcombe

No Lauren because this is very difficult for us to tell exactly what that is going to look likes. So, we have taken in our traditional approach and looked at seasonality, adjusted for what we would expect to see on our forecast for the economic environment. So, we are going to have to look at that as they all come out at this point.

Lauren Ye - JP Morgan

Okay. And I also wanted to chat about I guess the Syniverse NEXT product. I wanted to understand I guess how you go to market on these so things some of your competitors are partnering with a larger carrier, but I think they are branding on their own but then there is also other competitors that are just signing on carriers and trying to be agnostic. I wanted to understand what you are doing and the strategy behind that.

Tony Holcombe

Yes, and you say Syniverse NEXT. You are talking about the…?

Lauren Ye - JP Morgan

I am talking about the Hub.

Tony Holcombe

Okay. You are talking about Syniverse MORE.

Lauren Ye - JP Morgan

MORE, yes, yes.

Tony Holcombe

Yes, with MORE, we are actually having conversation with carriers on a variety of fronts. In some cases we would act as the hub for the operator and other cases we may be partnering with the operator to provide the hub service. But we are fairly agnostic about our close data job here, just to meet the needs of the customers and they are looking for to accomplish in the market so you will see us probably evolve.

Lauren Ye - JP Morgan

Okay. And then I just saw in your balance sheet that you had a line item that is non-controlling interest. It is very small. But can you just talk about what that is?

David Hitchcock

Sure. That would be the partners’ contribution for the formation of the JV in India during the quarter.

Operator

(Operators Instructions) And that concludes the question-and-answer session. I will now turn it back to Tony for closing remarks.

Tony Holcombe

Okay. Thank you, Operator and thank you, everyone for joining us today and we will look forward to talking to you at the end of the Q2.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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