Syniverse Technologies BSG Acquisition Update Call Transcript

Syniverse Technologies (SVR)

BSG Acquisition Update Call

January 15, 2008 4:30 pm ET

Executives

Jim Huseby – Vice President of Investor Relations

Tony Holcombe – Chief Executive Officer and President

David Hitchcock – Chief Financial Officer

Analysts

Amir Rozwadowski – Lehman Brothers

Scott Sutherland - Wedbush Morgan Securities

Tom Kucera – Avondale Partners

Tom Ernst – Deutsche Bank

Analyst for Liz Grausam – Goldman Sachs

Will Power – Robert W. Baird

Katherine Egbert – Jefferies

Sterling Auty – JP Morgan

Presentation

Operator

Welcome to the Syniverse Technologies’ 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.

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 is 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 our recent acquisition of BSG Wireless; the strategic benefits in greater detail about the synergies that we are seeking to realize over the next two years.

David will then review certain financial aspects about the transaction, including the impact to our balance sheet and a review of certain transaction related items that will be appearing in our non-GAAP reconciliation.

David will then turn the call back to Tony who will provide some brief comments about our business trends during the fourth quarter, and provide our expectations for 2008. After that, we will open the call up to your questions.

We issued a press release this afternoon, and have prepared some slides that we will be speaking to on this call. Both of these items are currently available on the Investor Relations section of our website, www.syniverse.com. We encourage you to download the slides for use on this call if you have not already done so.

Today’s call is also being webcast. It too is available on our website and will be archived and available shortly after we conclude.

In our press release and on today’s call, we have included discussion of certain non-GAAP measures including adjusted EBITDA, adjusted net income, cash net income and operating free cash flow. We have included a reconciliation of each of these items in our news 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 business outlook and strategy and statements about historical results that may suggest trends for our business.

These statements are based on estimates and information available to us at the time of this presentation and are not guarantees of future performance. Actual results could differ materially from our current expectations as a result of many factors, including unpredictable quarterly fluctuations in our business; the effect of competition on our customers’ use of our services; the risks and uncertainties inherent in or related to the proposed acquisition; and any adverse changes in the agreements with our vendors or partners; the impact of international expansion efforts on our business; our ability to integrate the operations of BSG Wireless and achieve the expected synergies; and changes in our tax status.

These and other risks and uncertainties associated with our business are described in our filings with the SEC.

With that said, I will turn the call over to our President and CEO, Tony Holcombe.

Tony Holcombe

Thank you Jim and welcome everyone to Syniverse’s BSG Update conference call. David and I will discuss our recently completed BSG Wireless acquisition first, and then we will follow with an update relative to 2007 performance, and provide full-year 2008 guidance for the newly combined company.

We are pleased to have completed the acquisition of the Wireless data and financial clearing business of BSG. This is an important acquisition for us. We are even more excited about its possibilities than when we first announced the intended transaction April 2.

As Jim indicated, we provided some slides on our website that David and I will speak to today, and I will begin by summarizing the transaction on slide three. First, this is an excellent transaction for Syniverse. BSG Wireless provides a great system for GSM clearing services combined with a world class financial clearinghouse.

Similar to Syniverse, BSG had a very strong customer service orientation. We believe this is a powerful differentiator versus the competition. And BSG brings us outstanding overall GSM product capabilities through an exceptional development team.

Prior to the acquisition, BSG had over 175 customers from around the world, with a concentration in Europe, Middle East and Africa. There is very little customer overlap between the Syniverse and BSG customer bases, so combined we now service over 500 customers in over 100 countries on 6 continents.

Our new customers include T-Mobile, KPN, O2, and (Wi?). BSG has 170 employees in Germany, London, Denmark, Luxemburg, Hong Kong and Tampa. So today, Syniverse has over 400 employees, more than a third of our total based outside of the United States. Frankly, the talented BSG employee base was a key factor in our decision to purchase the company.

BSG had revenues of $43.4 million in 2006, with EBITDA margins in excess of 50%. Revenues were $22.2 million in the first half of 2007, 16% better than the first half of 2006. Driven by the positive currency impact, BSG revenues are in euros and pounds, and the acquisition of United Clearing on March 1, 2006.

Second half 2007 operating results were consistent with our expectations and the first half trends. Aside from the impact of the continued weakening dollar across the second half, BSG saw continued growth in financial settlement and data clearing volumes. We will file the required 8-K, including Q3 results for BSG in early February.

As we spoke about on our last call, we see $12 million of annualized run rate cost synergies by combining these two businesses. The savings come primarily from two sources: labor savings and processing savings. Over the past couple of years, Syniverse has done a very good job in integrating its acquisitions and realizing the cost savings that we had expected going into the transactions.

We integrated the EDS North American business in 2005 by migrating their customers to our platforms in a timely manner, while reducing overhead costs as we had expected. We were able to reduce headcount very significantly, but just as important, we kept the people that we wanted to keep.

And like with BSG, our acquisition of ITHL about 18 months ago, both expanded our customer reach – in that case primarily in Asia – and brought us a number of new products.

Moving on to slide four, I will recap some of the strategic and financial benefits that we see in this transaction. All of our acquisitions must either increase our global scale or provide additional new products that we can sell to our global customer base. This acquisition does both.

Most obviously, combining BSG Wireless with Syniverse increases our global scale. This scale gives us relationships with more customers around the world, and allows us to reduce our overall processing costs both today and going forward.

And, the acquisition fills an important gap in our product portfolio: financial clearing and settlement. Operators are continuing to consolidate vendors and we now offer one-stop shopping for all clearing services by being able to combine financial clearing with data clearing.

Having this capability, the ability to simplify roaming operations by collecting and dispersing funds to the operators’ roaming partners is important today, as it allows us to counter the one strength our primary competitor possessed that we previously could not directly match. The financial clearing capability positions us well for the future as we believe it is a necessity for our business going forward.

With the acquisition completed, we expect we will compete with Mach for nearly every GSM operator on a global basis. Mach continues to have the largest market share in GSM clearing globally, but we have been successfully competing with them for a couple of years now.

Most of the new customers we have acquired over the past couple of years have been Mach clients previously, while only a few smaller ones have been with BSG.

We believe that we offer a superior value proposition; a premier data and financial clearing platform; more services than our competitors; and emerging new services like our new data net anti-fraud product, all backed with superior customer service by a company that is committed to this business. We, Syniverse, service the largest wireless operators in the world which speaks to our global reach, capabilities and reliability.

On slide five, I will discuss a bit more about the synergies. Regarding the BSG integration, we expect to realize the synergies in three $4 million steps. Step one concerns SG&A headcount: obviously as we put together the two organizations, duplication is going to occur. We believe one of our greatest assets is the leveraging of our collective experience and expertise.

We continue to being committed to having the best employees in the industry, and we will try, wherever possible, to redeploy top performers to other areas of the company, where their knowledge and expertise can be of great use in other essential services.

That being said, we still must begin to eliminate duplicate SG&A headcount. We have already started on these reductions, and we will continue to reduce headcount over the next 6 months. These reductions are unrelated to the migrations and will be mostly realized before the first migration occurs.

Step two is the labor savings resulting from a consolidated platform. Syniverse has significant technical headcount that supports our data clearing platform and does customization and development work. With the acquisition, some of the specialized skills will no longer be needed as we migrate away from our platform.

We will carefully evaluate those employees whose positions are affected by the consolidated platform and will retain the best of the best. By the time the migrations are complete, our platform labor costs will be down by about $4 million annually. These savings will scale in with the migrations. Savings will start slowly with the savings accelerating as the migrations proceed.

Finally, step three is the processing savings that come with the migrations to a more efficient platform. Again, our philosophy will be combining the best of the Syniverse and BSG platforms and applications. Our emphasis will be on minimizing the impact to our customers while providing unparalleled flexibility and outstanding customer service. The timing of this $4 million of savings is directly tied to migration volumes moved off our mainframe processor.

Based on our current plans, we expect to have executed on most of the initial $4 million in SG&A savings by the time we report our third quarter results and therefore expect to achieve roughly one-third of the full $12 million run rate of synergies by the end of 2008.

With that, let me turn it over to David for some comments on the financial statement impact.

David Hitchcock

Thanks Tony. I will start with slide six; slide six shows our pro-forma debt structure for the transaction and our debt pay-down during the fourth quarter.

You can see on the left-hand column our debt structure as of September 30. We completed the August refinancing, paying down $25 million in the process to bring the balance on our term loan down to $112 million. We had not yet drawn down on the delayed draw tranches.

Our leverage ratio as of September 30 was just over 2 times. Focusing in on the pro-forma column on the right, during fourth quarter, we obviously took down both delayed draw tranches to fund the purchase price of the acquisition. We also used $57 million of our free cash flow to further pay down the term loan which now has a balance of $55 million.

If you take the low end of our estimated adjusted EBITDA guidance for the full-year 2007, had we included the last 12 months of BSG results through June 30 and the $12 million of expected run rate synergies, you get a pro-forma 12 month adjusted EBITDA of $192 million on a $520 million debt balance.

For a leverage ratio, that is well below three times – a very comfortable place for us given the cash flow generating capabilities of the business. We will continue to pay down debt with our free cash flow, unless we find an appropriate M&A target.

Moving to slide seven, I would like to remind you about how you can expect to see the acquisition and synergies reflected in our non-GAAP metrics, beginning with Q1 2008 results. Similar to how we presented the progress of our IOS North America acquisition a couple of years ago, we will be identifying certain costs that we do not expect to continue in the business upon full integration, as transition costs.

These costs can be divided into two parts: first, integration-specific expenses, including any temporary headcount needed for the migrations, travel for the integration teams, other one-time costs related specifically to the integration project.

Second pocket is applicative expenses that we do not plan to have remain following the full integration. These expenses include duplicative data processing costs, and duplicative headcount.

Now let me turn it back over to Tony for a few final comments about the BSG and some brief comments about the news release that we just issued this afternoon.

Tony Holcombe

Thank you, David. On our last slide, you can see we will be soon providing additional updates on the state of the business. Our next two events will both be in February. We will report our fourth quarter results after market close on Tuesday, February 19, and we will hold an abbreviated conference call thereafter.

Two days later, on February 21, we will host our annual analyst day meeting. We will be sending out invitations soon.

I am going to make a few brief comments about the news release that we issued this afternoon. Syniverse had a strong fourth quarter, and although we have not yet completed all of our year-end procedures, we would like to provide some preliminary results for 2007.

Net revenues in the $369 million to $371 million range; adjusted EBITDA in the $154 million to $156 million range; cash net income between $74 million and $75.3 million. All of these results were significantly in excess of expectations in the guidance that we provided in October.

In addition, we exceeded our free cash flow guidance, driven by the strong EBITDA results and good cash collections. I will not dive too deep into the detail at this time, other than to say that we saw a continuation of these same trends in the fourth quarter that we have been seeing in the earlier quarters.

That means higher data revenues, led by Mobile Data Roaming and SMS volumes. Network was flat for the year, while Number Portability was down slightly and Call Processing up slightly.

Now let me comment on the Verizon contract renewal. Through the years, Syniverse and Verizon have had a strong long-term partnership, and we believe our capabilities, technical service quality and global focus are very well-aligned with Verizon. We have had an active and ongoing dialogue with them regarding the contract renewal, and we continue to be focused on addressing their needs on their time table.

Our renewal three years ago capped off a protracted renewal process, and this renewal is even more complex. Today, there are more services involved, including Mobile Data Roaming and UniRoam, in addition to clearing.

Our 2008 guidance includes best estimates in the timing and pricing for these negotiations as they stand today. We will update these estimates as appropriate if our estimates change as the negotiations progress.

Our guidance for 2008, including BSG is, net revenues of $425 million to $440 million; adjusted EBITDA of $190 million to $200 million; cash net income of $85 million to $90 million and operating free cash flow in excess of $100 million.

Taking my previous comments into consideration we expect to see the first and second halves of 2008 to be in greater balance, rather than our typical, historical pattern where the second half is much stronger than the first. In 2007, we had approximately 47% of our revenues in the first half; in 2008, this figure is likely to be closer to 50%.

In closing, I would like to take a moment and recognize our outgoing CTO Paul Wilcock, who announced his retirement yesterday after 20 years with Syniverse. I have had the privilege of working closely with Paul over the past several years. I consider Paul who led the development and introduction of products and services that are the foundation of Syniverse today, one of the finest technology experts in the mobile telecommunications industry.

He also has been an outstanding leader in our organization, and I know his everyday presence will be missed. Paul will remain with Syniverse through March 31 and then on a consulting basis for the next 12 months. He will be assisting with the transition of his duties to Jeff Gordon who joins us from Convergys Corporation, where he was Senior Vice President and led technology development.

Jeff has extensive experience in the global wireless and technology sector from his years at Convergys, Bell Atlantic, IBM and General Electric and has authored seven U.S. patents related to systems architecture and wireless communications.

With that, we will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question will be from the line of Amir Rozwadowski - Lehman Brothers.

Amir Rozwadowski – Lehman Brothers

You mentioned in terms of looking at your 2008, that there should be a balance more in terms of your sales, can you give us a little bit of color as to the impact of that and what are the drivers right now you see in the business that will shift more sales in the first half of 2008 versus second half of 2008?

Tony Holcombe

I think Amir that the point we are trying to make there is that when we look at all of the factors associated with our business today, particularly around the Verizon contract renewal and our best estimates of how those negotiations and timings will take place, factored in with other aspects of the business, is the reason we are giving you some color and some highlights about how that shift takes place.

Amir Rozwadowski – Lehman Brothers

In terms of that outlook, can you provide us a little bit of color as to how much that guidance includes BSG? Would you be able to provide an organic versus a plus-BSG outlook?

Tony Holcombe

I think we are going to be looking at the business on a combined basis going forward. I think from a perspective of how we expect to see BSG’s organic growth, you should expect it be very similar to ours; their primary revenue stream is roaming and clearing and we talked all year about the strong nature of roaming and clearing, particularly in the GSM market. Again, we would expect to see that for our business as well as their business in 2008.

Their financial clearinghouse business, which is a new product line for us, again they have had a very successful 2007, we would expect that to continue in 2008.

Amir Rozwadowski – Lehman Brothers

Thank you very much for taking my questions.

Operator

Your next question will be from the line of Scott Sutherland - Wedbush Morgan Securities.

Scott Sutherland - Wedbush Morgan Securities

I wanted to follow-up on that last question. I am not sure if you can, but in your 2008 guidance how much revenue from BSG, and maybe how many pennies of accretion do you expect in the first year from BSG?

Tony Holcombe

I think, again Scott, like we talked about, we are going to be looking at the combined numbers going forward. We are not going to be talking about BSG as a stand-alone entity going forward. There is a variety of reasons for that. We are consolidating the operations of the company; we will certainly highlight in 2008 new customer wins we have that are relevant, particularly around financial clearinghouse.

As we talked publicly, we clearly want to talk about and market that financial clearinghouse product in our customer base, and so we will certainly add some color to that. But I think relative to the combined numbers, BSG’s growth patterns should be very similar to ours in roaming and clearing.

The only caveat that we would provide some additional color going forward is that we mentioned in the script, is that BSG today, primarily bills their customers in euros or pounds. So there is obviously some new impact in currency conversion on our numbers going forward, and we can provide some color on that as we get into 2008.

Scott Sutherland - Wedbush Morgan Securities

More broadly then, it looks like you have some pretty nice cash EPS guidance. Would you say BSG was a positive contributor to that guidance be an increase from a stand-alone Syniverse?

David Hitchcock

As we look at 2008, clearly the BSG acquisition is accretive from the cash net income perspective, so the answer is yes.

Scott Sutherland - Wedbush Morgan Securities

You have had maybe five or six months to look at the lower roaming rate on personal usage in Europe; how are you seeing those trends go? And secondly, on your equalizing first half and second half, how do you look at the business on an economic standpoint, and the impact from the macro environment?

Tony Holcombe

I think relative to the roaming in Europe, what we have seen and most of the impact that we saw was in the second half of the summer season, which is obviously look very closely at in European roaming, it’s the big driver, most of the data is pretty consistent at this point, what we have seen is personal usage increase pretty dramatically; because of reduction in roaming rates relative to business usage, there really wasn’t much impact, which pretty much led you to think business people were roaming, they saw the value and paid the higher rates; personal usage was not interested in paying those higher rates of voice traffic.

We saw voice traffic come up and we did not see decreases in messaging traffic going along with that. So pretty much the model we expected; we only got to see a part of that look in 2007, certainly we’ll get a full-year impact in 2008. But the trend lines are very positive for us and remember again, the bulk of BSG’s revenues are coming for us out of euros so again we think that is a very positive trend line for us.

Relative to overall economic growth issues, as we look at the business today, we see what wireless carriers are generally talking about is continued strong growth in data and advanced services; we see continued acceptance and penetration of devices and services on devices; we continue to see wireless be the primary mode of communication in third-world developing countries – so from the trend lines we see in the market today we continue to see strong growth across the regions, strong growth across the operators and strong growth across the types of services that operators are able to get consumers to take.

Scott Sutherland - Wedbush Morgan Securities

Thank you.

Operator

Your next question will be from the line of Tom Kucera – Avondale Partners.

Tom Kucera – Avondale Partners

This is Tom Kucera for John Bright. First, I wanted to clarify a point here, which was, it seems you noted that you will be making a non-GAAP adjustment on the transition expenses? And I wanted to be clear on that in terms of the scope of that, if you’ll effectively be excluding the synergies you are discussing from cash net income from the get-go?

David Hitchcock

What we will be reporting on a non-GAAP basis, if you go back to my comments, we will be adding both transition expenses and the duplicative costs, both from a processing and a headcount perspective, to get to our adjusted EBITDA and our cash net income.

Tom Kucera – Avondale Partners

Does that effectively mean that full $12 million run rate or, how does it differ from that?

David Hitchcock

That is the run rate we expect to achieve by the end of 2009.

Tom Kucera – Avondale Partners

Another question in terms of the headcount adjustments; first, how specifically would you say you spelled these out at this point on the reductions there? And second, to what extent do you believe those will be coming fro BSG versus Syniverse?

Tony Holcombe

To answer the first question Tom is we have a very detailed two-year conversion plan laid out on a pro-forma basis; let me remind you that when we announced the acquisition back in April we were moving forward to a quick resolution, we had to take a detour with the EC on a phase two review so during the phase two review we disengaged a lot of the conversation with the BSG team until we got through that review for obvious reasons.

Since we announced the closing of the transaction back in the middle of December, the teams have been very busy re-engaged; we have been validating all of the assumptions, the numbers, a very detailed plan down by position and pretty much have signed off on it, so we do have a very detailed plan it is laid out in subsequent pieces such as that.

Part of the plan itself talks to what applications will be the best of class applications going forward. So as we publicly talked about in our comments today, we intend to be using the BSG platform from the back-end processing side; relative to the front-end platforms, we are still working through an analysis of which of those will be the survivor platforms and how we will handle that relative to our customers and relative to BSG’s customers.

The plan has accounted for that. It will be inappropriate for us to talk about specific people; suffice it to say, as we said in the comments today, we are going to make sure we keep our very best people; we are going to make sure we get the headcount reductions cause we need to get the cost synergies and that process has already started, so we are very comfortable and confident with the numbers that we quoted for 2008, and we feel very good about the plan as it moves into 2009.

Tom Kucera – Avondale Partners

Thank you for taking my questions and congratulations on the quarter.

Operator

Your next question will come from the line of Tom Ernst – Deutsche Bank.

Tom Ernst – Deutsche Bank

I am curious what’s the reaction of the customers to the merger? Do you have any anecdotes of either excitement or apprehension out of the customers and what do you think the net effect is?

Tony Holcombe

It’s a good question Tom. We have actually had a lot of our management out meeting with the customers since we closed the acquisition. We’ve had a team that’s been in Europe all last week. The feedback we get from the BSG employees and the customers we have been talking to directly is that they are very excited about it; they really like BSG; they like the fact that we’re going to take a look at best of breed on applications and services and continue that; they know we are keeping customer service support people in place to support them; they like the fact that Syniverse can bring a lot more technology and frankly capital to the program to follow up on some of the ideas that they have at BSG.

So all in all I would say it has been very positive from that side. On the Syniverse side, it’s obviously muted because we haven’t shared a lot at this point as we have walked through the program and the processes and how it works, so from that standpoint I think customers are excited about the fact that we have expanded our global reach; we have certainly added quite a bit of GSM product capabilities to the mix.

Bottom line here is that customers that we deal with, they want global presence; they want their customers to be able to roam anywhere in the world and access any kind of service they have. Clearly us adding BSG to our base of business gives us the capability to do it, so I would say universally right now the reaction is very positive.

Tom Ernst – Deutsche Bank

Following up on that, what would you say is the most common apprehension you hear from customers that you are addressing?

Tony Holcombe

Most customers want to know is my account rep going to be there, or the people I talk to everyday going to be there? Who do I call if I have a question? Those are questions we are very good at answering; we are very customer service focused. We tell the BSG customers clearly, your customer support people are still in place. The majority of all the people at BSG will still be in place. Obviously there is some SG&A adjustments we have to make that we are walking through right now.

As for the Syniverse customers, no impact – all your account rep support people are in place, and as we develop the actual conversion plan and work through how we are going to do this in a way that really is very minimally impactful on customers, we will be able to share the additional information.

We were very proactive, sharing information; we got information out to our employees, to BSG’s employees, our customers, their customers. We have a global sales conference here in Tampa next week with all of our sales people from all over the world are going to be in town to understand messages and understand what is going on with the business going forward.

From a communications standpoint, I think we are off to a very solid start.

Tom Ernst – Deutsche Bank

Great. I might have missed this, as I dropped off during the first couple of questions. Did you provide an outlook for the first quarter? And if not, should we expect the normal seasonality? It looks like a lot of the efficiencies we are looking to get out of BSU really aren’t going to come in this first quarter? Is that the way we should think about it?

David Hitchcock

Tom, we are not doing quarterly guidance any more, we have gone to annual guidance, as we did in 2007. Relative to what we talked about, we broke out in the slides and you can pick those up and look at it, and we can talk to you after the fact, about where we think the savings are going to be. Roughly about one-quarter of the savings are going to be in 2008 and then the remainder in 2009.

So again, most of those early savings are coming from staff rationalizations on the SG&A side and some other positions that we are looking through.

Tom Ernst – Deutsche Bank

So absent the guidance, is there anything that is atypical to normal seasonality that would either boost or hurt the business as we look towards the first quarter?

David Hitchcock

No, we only gave some guidance relative to in the past we have had second half results were, percentage basis, stronger than first half results. We have shown those. They are probably going to be more of a 50-50 break this year for all of the factors that we outline in the script.

Tom Ernst – Deutsche Bank

Thank you again.

Operator

Your next question comes from Liz Grausam – Goldman Sachs.

Analyst for Liz Grausam – Goldman Sachs

Just to drill down into some of the revenue items in the fourth quarter, I believe that you had said that the call processing revenue was up year over year. I was just trying to understand what was driving that? I think that earlier in the year that you had said that the legacy call processing was expected to drop off. I am just trying to understand it a little bit.

Tony Holcombe

If you remember, Kim, call processing is made up of two different types of products that we have today. One of them is a legacy group of products that are slowly dwindling away and going away; and then on top of that, as we have a very successful signaling solutions product built in to that number.

So it is the mix change of those. There is nothing really unique about Q4. The same trends that we saw in the first half of the year are the same trends that we see in Q4.

Analyst for Liz Grausam – Goldman Sachs

Thank you. Regarding the margin, just looking at the outlook for 2008 it looks like the adjusted EBITDA margin is improving by a couple hundred basis points. I was wondering if most of that is coming from something of a currency benefit from BSG or is there something a little more fundamental that we are seeing.

Tony Holcombe

I will answer part of that question, and I will let David jump in on the other thing. I think the biggest thing you are seeing there are the efficiency gains that we are getting by combining the two businesses. So what you are really looking at there is the duplicate costs we no longer have between putting our business and BSG’s business together. There is some impact to currency, and I can let David speak to that. But primarily what you are seeing on margin improvement there is all about the efficiency gains that we have by putting the two businesses together.

David Hitchcock

Tony, I think you hit it on the head. That is the key driver. The currency impacts were minimal from that perspective.

Analyst for Liz Grausam – Goldman Sachs

It looks like the benefit from the higher EBITDA margins isn’t really translating to the net income line. Is that mainly due to the higher interest expenses?

David Hitchcock

That is the key driver, that would be correct in terms of the differences between the two. Obviously our taking on incremental debt to get the transaction closed, so that would be one of the key drivers of that difference.

Analyst for Liz Grausam – Goldman Sachs

There is nothing else going on there that you guys are anticipating?

David Hitchcock

No.

Operator

Your next question comes from Will Power – Robert W. Baird.

Will Power – Robert W. Baird

Thanks for taking the question and congratulations on the Q4 results. I am curious on Q4, because normally you would see a drop off just from seasonal factors and if I look at the midpoint of the full year ’07 numbers, it looks like Q4 revenue and EBITDA was pretty flat sequentially. I am wondering if we can get a little bit more color on really what appear to be particularly strong data in international expansion trends.

Tony Holcombe

I think you’ve nailed it right there, Will. We will try to answer that question a little more fully for you. I think from the international expansion remember that we are continuing to convert Vodafone properties so we have some additional Vodafone properties that you would expect to see in there. We have also signed some new business that we were able to put online.

Relative to organic growth, it is all about data. It is just tremendous, explosive growth on messaging; Q4 messaging was just phenomenal; SMS messaging was very, very strong. I think you hear the same comment from most all of the carriers that we deal with. Data expansion, think mobile data devices, BlackBerries, PC air cards, things of that nature; again, very, very strong.

As we talk to carriers around the world, the one consistent theme we always hear is that as soon as a carrier rolls out some type of data product and service, the growth is just fairly phenomenal and it doesn’t really matter which size carrier or where in the world they are.

So again, I think those are just very, very strong growth characteristics and if you think about our business model on a per transaction or per event of some type charge, again, the leveragability of that is very strong and solid, positive growth in those areas really just fall through to our bottom line.

Will Power – Robert W. Baird

I apologize if I missed this, but did you all provide a total integration cost or transition cost expectation? I know you planned to exclude that from the adjusted numbers, but is there a total cash integration cost number we should be thinking about?

David Hitchcock

We have not provided that, as we work through the next couple of weeks and prepare for the Q4 earnings discussion on February 19 we will have more data available at that point in time.

Operator

[break in audio]

Jim Huseby

Let’s move to the next question, operator.

Operator

Your next question comes from Katherine Egbert – Jefferies.

Katherine Egbert – Jefferies

Going back to the revenue question, can you tell us, did Syniverse grow organically in ’08?

Tony Holcombe

Yes.

Katherine Egbert – Jefferies

I noticed on Q4 you beat the revenue, the consensus revenue by about $7 million or $8 million and then you also had about a $7 million beat on EBITDA, so that implies a lot of leverage on those additional revenues. Can you talk about that?

David Hitchcock

Yes, as we were talking previously, when you get strong volume growth in certain product characteristics, let’s talk about data transactions or SMS or MMS type transactions as examples, there is a fair amount of leveragability.

Again, remember we make substantial investments in making sure we have the productive capacity to handle that for the customers. Customers are very concerned that volume gets handled; the volumes for SMS during Christmas were extraordinary, and we had the productive capacity to provide that without any blip in service. Customers were very excited and thrilled with that service and support they got, so there is a lot of value proposition from the carrier’s side.

But it is a highly leveragable business model, so when we do achieve positive growth you do see a very nice pop to the EBITDA line.

Katherine Egbert – Jefferies

Did ITHL contribute?

Tony Holcombe

Yes, ITHL had a solid quarter in Q4. It was not as strong as the Q4 previous year, but there were some unique events in Q4 the previous year. We were very pleased with the ITHL performance and continue to be pleased with the addition of that management team and those assets to us.

Katherine Egbert – Jefferies

A couple questions on the merger. How many employees have you eliminated so far in the first 30 days?

Tony Holcombe

Well, that is a little too granular. I don’t think we are going to get quite to that point. As we said before, we are working through how do we move employees around, how do we reduce, reductions in headcounts. As we talked about on the call, we are getting just under 200 employees which puts us up to nearly 1,200 employees on a global basis. What we are looking at are employees who are affected. Primarily where we are looking right no is on the SG&A side. Ultimately moving in to duplicate services relative to specific developments.

We try to work very hard to make sure we keep our best people, keep our people informed and provide appropriate compensation packages if we are not able to retain them. But as I said, those releases are already underway and we feel very good that we are on target with the plan.

Katherine Egbert – Jefferies

How many total people do you expect to eliminate and when will you be done?

Tony Holcombe

As we said in the call, the cost breakouts fall into three major areas. There is staff and SG&A, that is the first group. The second group is we eliminate duplicate platforms from the application side. Finally, processing cost savings. So we are still walking through specific headcount numbers and we tend to want to share that with our employees first and foremost to make sure that they are well-informed about what is going on.

Suffice it to say is that the plan is well laid out and we feel very comfortable that we are on our way to achieving those results.

Operator

Your next question comes from Sterling Auty – JP Morgan.

Sterling Auty – JP Morgan

The first six months revenue for BSG, the $22 million, just so I understand, that is for the six months through June?

David Hitchcock

That is correct.

Sterling Auty – JP Morgan

Is there any revenue in that $22 million that you would not get, for some reason, whether it is from acquisition accounting or anything else?

David Hitchcock

No.

Sterling Auty – JP Morgan

Is there any – you mentioned the nine months will be filed and it is in line with what you expect. Was there any reason from a macro level that it would have seen acceleration or deceleration from the 16% growth?

David Hitchcock

The one key thing about the 16% growth – and Tony mentioned this – these revenues are in euros and in pounds, so you do get, as you work through 2007 especially versus 2006, you did have a significant weakening of the dollar. So as we translate those revenues, that does drive part of the growth rate.

The growth rate on a constant currency perspective is obviously not 16%; in fact, it is probably in the mid single-digits and we would expect, as we said, we expect those trends to continue.

Sterling Auty – JP Morgan

Would you expect that mid single-digit growth to continue at the baseline as part of Syniverse and then what factors that you’ve already talked about would apply that could help accelerate that a bit?

Tony Holcombe

I think as we said before, their roaming and clearing business is very similar to the trendlines you have seen us talk about in our roaming and clearing business this year, so I think that is fair. I think the upsides that are potentially there is the full year impact in the roaming season in Europe in 2008 relative to the reduced rates and the tariffs that the EC put in place.

We have some indications of that, but we certainly haven’t seen a full year impact. We have tried to factor that into our calculations for 2008, but there could be some upside associated with that. Again, we have taken what we think is the reasonable approach relative to the guidance we have given you for 2008.

Sterling Auty – JP Morgan

How much cash is on the balance sheet post the close of the acquisition?

David Hitchcock

We are still working through the close. We are still working through, obviously, the year end close. We don’t have everything complete as of yet, as Tony indicated earlier. But post acquisition, ballpark around $50 million.

Tony Holcombe

That includes a paydown of the debt that we used cash for in December in Q4.

Sterling Auty – JP Morgan

Can you remind us, what is the interest rate on the new debt, especially the dollar and the euro?

David Hitchcock

It is all LIBOR plus 250.

Sterling Auty – JP Morgan

Is that locked in now, though? What is the rate?

David Hitchcock

It is LIBOR plus 250.

Sterling Auty – JP Morgan

So it is all floating, so it didn’t just lock in at time?

David Hitchcock

That is correct.

Sterling Auty – JP Morgan

You mentioned in the guidance that the Verizon contract, your best estimate in terms of timing, then you mentioned that was part of the factor for the balance in ’08, 50% contribution in the first and second half. Can you at least give us a sense, is that both an impact from a timing, so you are guesstimating that it closes mid year, as well as what kind of impact from a pricing perspective?

Tony Holcombe

I think that is a little too granular there, Sterling. The answer is that we’ve given you the best guidance we can; we are obviously in some sensitive negotiations. As I said in the remarks, we are working with Verizon on Verizon’s schedule doing what Verizon asked us to do to provide that service.

It is a complicated contract so there are a lot of moving parts for them to work their way through. Our teams are working with them, we are very well engaged. We have given you our best estimate and if things change in those estimates, we will certainly come out and give the appropriate guidance to The Street.

Sterling Auty – JP Morgan

You mentioned going after the GSM customers. Is there a way to quantify what you think the opportunity that is out there for you to go after looks like either from a number of carriers or from a dollar perspective?

Tony Holcombe

It is a fairly limited universe, there are less than 1,000 carriers both on the CDMA and the GSM side. Outside of some regions of the world where we may not have cell support in place today but we are working to expand into, we would assume that all of the Ma customers outside of that are customers that we would be targeting to go after.

If you think about it from the standpoint of how the market looks at it, most of these contracts are three-year contracts so about one-third of these customers are available in any given time.

We have been very successful taking customers away all over the world over the last couple of years, we do not expect that to change.

Sterling Auty – JP Morgan

Now with this deal out of the way, it is a question we have talked about a number of times. What is your thought process, appetite and capability both from an operational as well as a financial perspective to do additional acquisitions, as those seem to be additional consolidation opportunities that are out there?

Tony Holcombe

I think we certainly had the appetite, we had the capability; again, our discipline and focus will not change. We are looking for products that we can deliver globally that have good growth curves and good potential that can provide services for our customers all over the world. We are looking for synergistic acquisitions that can provide some cost synergies.

We certainly have the capability from a debt side and our cash flow generation side to chase down some things, so trust me, the M&A teams are very active right now and we are looking at a variety of opportunities.

Sterling Auty – JP Morgan

Thanks.

Operator

Your next question comes from Scott Sutherland - Wedbush Morgan Securities.

Scott Sutherland - Wedbush Morgan Securities

I think last quarter you mentioned that with the BSG acquisition and then supporting some Vodafone properties, that migrations had slowed in those properties. Since the close, have those migrations picked up or are they expected to pick up?

Tony Holcombe

I think we are working through with Vodafone now the approach now that we have closed out of the transaction. I would say most of those migrations are pretty much online based upon what we would expect in the 2008 outlook for us right now.

Again, I think there is nothing but really good news there. Remember also that we successfully renewed the Vodafone contract to a multi-year extension in 2007 so we obviously were working with them about how do we look at this and how do we prepare for this going forward?

Scott Sutherland - Wedbush Morgan Securities

Thank you.

Operator

This concludes the Q&A session. I will turn the call back to Tony Holcombe for closing remarks.

Tony Holcombe

Thank you, operator. Thank you everyone for joining us on the call today. We are very excited about our preliminary Q4 results. We are particularly excited about getting BSG to be part of the Syniverse family and I think you can see by our numbers and our guidance for 2008 that we again expect to have a very, very good year.

Again, thank you for joining us on the call today.

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