Company Quick10K Filing
Quick10K
Syniverse
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-05-09 Quarter: 2018-05-09
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-01-16 Other Events
8-K 2018-12-18 Officers
8-K 2018-12-03 Officers
8-K 2018-03-09 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-23 Officers
8-K 2018-02-15 Officers, Exhibits
8-K 2018-02-12 Regulation FD
8-K 2018-01-24 Earnings, Regulation FD, Exhibits
8-K 2018-01-09 Officers
8-K 2017-12-29 Other Events
SSTK Shutterstock 1,690
SBCF Seacoast Banking of Florida 1,430
MLP Maui Land & Pineapple 222
ESXB Community Bankers Trust 162
OPES Opes Acquisition 151
APEX Apex 2 0
DLOC Digital Locations 0
LRDC Laredo Oil 0
DPDW Deep Down 0
AMAR Amarillo Biosciences 0
SVR 2018-09-30
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 svr-93018xex311.htm
EX-31.2 svr-93018xex312.htm
EX-32.1 svr-93018xex321.htm
EX-32.2 svr-93018xex322.htm

Syniverse Earnings 2018-09-30

SVR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 svr-093018x10q.htm 10-Q Document

 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
 _________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
COMMISSION FILE NUMBER    333-176382 
_________________________
SYNIVERSE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
__________________________
 
Delaware
30-0041666
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
8125 Highwoods Palm Way
Tampa, Florida 33647
(Address of principal executive office)
(Zip code)
(813) 637-5000
(Registrant’s telephone number, including area code)
________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  o    No  x
    
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company  o       
Emerging growth company o      
 
 
(Do not check if a smaller  reporting company)
 
 
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
    

1


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

The number of shares of common stock of the registrant outstanding at November 2, 2018 was 1,000.
 
 
 
 
 


2



TABLE OF CONTENTS

 
 
Page
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

3


GLOSSARY OF TERMS
Term
Definition
2011 Plan
2011 Equity Incentive Plan
4G
Fourth generation
A2P
Application to Peer
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Carlyle
Investment funds affiliated with The Carlyle Group
CDMA
Code division multiple access
CNAM
Caller name directory
EIS
Enterprise & Intelligence Solutions
E.U.
European Union
FASB
Financial Accounting Standards Board
FCC
Federal Communications Commission
FCPA
Foreign Corrupt Practices Act
GMAC
Guideline merged and acquired company
GPC
Guideline public company
GSM
Global system for mobiles
IASB
International Accounting Standards Board
IPX
Interworking packet exchange
LTE
Long-term evolution
M2M
Machine-to-machine
MNO
Mobile network operator
MTS
Mobile Transaction Services
MVNO
Mobile virtual network operators
NOL
Net operating loss
OFAC
The Office of Foreign Assets Control of the U.S. Department of the Treasury
OTT
Over-the-top provider
SEC
Securities and Exchange Commission
SS7
Signaling System 7
U.S.
United States of America
U.S. GAAP
Accounting principles generally accepted in the United States
VIE
Variable interest entity
VoLTE
Voice over LTE



4


PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SYNIVERSE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
75,684

 
$
127,677

Accounts receivable, net of allowances of $16,693 and $16,486, respectively
168,331

 
168,149

Income taxes receivable
4,645

 
4,134

Prepaid and other current assets
30,607

 
23,204

       Total current assets
279,267

 
323,164

Property and equipment, net
84,429

 
93,203

Capitalized software, net
91,018

 
102,454

Goodwill
2,301,320

 
2,314,281

Identifiable intangibles, net
215,981

 
258,986

Deferred tax assets
3,242

 
3,608

Investment in unconsolidated subsidiaries
45,259

 
47,258

Other assets
16,901

 
4,972

       Total assets
$
3,037,417

 
$
3,147,926

LIABILITIES AND STOCKHOLDER EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
39,225

 
$
20,837

Income taxes payable
2,370

 
4,784

Accrued liabilities
83,401

 
89,249

Deferred revenues
8,282

 
5,997

Current portion of capital lease obligation
5,310

 
6,410

Current portion of long-term debt, net of original issue discount and deferred financing costs
58,315

 
2,595

       Total current liabilities
196,903

 
129,872

Long-term liabilities:
 
 
 
Deferred tax liabilities
75,724

 
73,793

Deferred revenues
1,908

 
2,096

Long-term capital lease obligation, less current portion
1,350

 
4,340

Long-term debt, net of current portion, original issue discount and deferred financing costs
1,857,550

 
1,940,613

Other long-term liabilities
38,512

 
36,805

       Total liabilities
2,171,947


2,187,519

Commitments and contingencies (Note 10)


 


Stockholder equity:
 
 
 
Common stock $0.01 par value; one thousand shares authorized, issued and outstanding as of September 30, 2018 and December 31, 2017

 

Additional paid-in capital
1,284,372

 
1,275,944

Accumulated deficit
(345,031
)
 
(261,615
)
Accumulated other comprehensive loss
(79,677
)
 
(63,226
)
   Total Syniverse Holdings, Inc. stockholder equity
859,664

 
951,103

Noncontrolling interest
5,806

 
9,304

       Total equity
865,470

 
960,407

       Total liabilities and stockholder equity
$
3,037,417

 
$
3,147,926


See accompanying notes to unaudited condensed consolidated financial statements.

5


SYNIVERSE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
Revenues
$
202,700

 
$
207,009

 
$
582,199

 
$
587,364

Costs and expenses:
 
 
 
 
 
 
 
Cost of operations (excluding depreciation and amortization shown separately below)
90,580

 
90,483

 
259,531

 
265,010

Sales and marketing
18,073

 
17,295

 
54,090

 
54,059

General and administrative
26,389

 
24,638

 
85,370

 
71,876

Depreciation and amortization
37,197

 
49,834

 
115,114

 
145,271

Employee termination benefits
415

 
457

 
5,735

 
609

Restructuring charges
8,294

 
1,097

 
8,510

 
5,126

 
180,948

 
183,804

 
528,350


541,951

Operating income
21,752

 
23,205

 
53,849

 
45,413

Other income (expense), net:
 
 
 
 
 
 
 
Interest expense, net
(40,855
)
 
(30,959
)
 
(122,348
)
 
(101,041
)
(Loss) gain on early extinguishment of debt, net

 
(56
)
 
(4,868
)
 
306

Equity loss in investees
(1,020
)
 
(125
)
 
(1,848
)
 
(639
)
Other, net
1,124

 
(896
)
 
1,876

 
(2,137
)
 
(40,751
)
 
(32,036
)
 
(127,188
)

(103,511
)
Loss before (benefit from) provision for income taxes
(18,999
)
 
(8,831
)
 
(73,339
)
 
(58,098
)
(Benefit from) provision for income taxes
(229
)
 
16,125

 
7,485

 
6,493

Net loss
(18,770
)
 
(24,956
)
 
(80,824
)

(64,591
)
Net income attributable to noncontrolling interest
190

 
809

 
460

 
2,199

Net loss attributable to Syniverse Holdings, Inc.
$
(18,960
)
 
$
(25,765
)
 
$
(81,284
)

$
(66,790
)

See accompanying notes to unaudited condensed consolidated financial statements.


6


SYNIVERSE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
Net loss
$
(18,770
)
 
$
(24,956
)
 
$
(80,824
)
 
$
(64,591
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment 
(5,073
)
 
12,716

 
(21,085
)
 
48,783

Changes related to cash flow derivative hedges
4,112

 

 
4,112

 

Amortization of unrecognized loss included in net periodic pension cost (1)
49

 
62

 
152

 
177

Other comprehensive (loss) income
(912
)
 
12,778

 
(16,821
)

48,960

Comprehensive loss
(19,682
)
 
(12,178
)
 
(97,645
)

(15,631
)
Less: comprehensive income attributable to noncontrolling interest
43

 
720

 
90

 
2,347

Comprehensive loss attributable to Syniverse Holdings, Inc.
$
(19,725
)
 
$
(12,898
)
 
$
(97,735
)

$
(17,978
)

(1)
Amortization of unrecognized loss included in net periodic pension cost is shown net of income tax expense of $22 and $67 for the three and nine months ended September 30, 2018, respectively, and net of income tax expense of $28 and $79 for the three and nine months ended September 30, 2017, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.


7


SYNIVERSE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER EQUITY
(IN THOUSANDS)

 
Stockholder of Syniverse Holdings, Inc.
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Deficit
 
  Accumulated Other
Comprehensive 
(Loss) Income
 
Nonredeemable Noncontrolling Interest
 
Total
Balance, December 31, 2016
1

 
$

 
$
1,265,752

 
$
(237,021
)
 
$
(120,042
)
 
$
7,513

 
$
916,202

Net (loss) income

 

 

 
(66,790
)
 

 
2,199

 
(64,591
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment

 

 

 

 
48,635

 
148

 
48,783

Amortization of unrecognized loss included in net periodic pension cost, net of tax expense of $79

 

 

 

 
177

 

 
177

Stock-based compensation

 

 
11,209

 

 

 

 
11,209

Distribution to noncontrolling interest

 

 

 

 

 
(2,311
)
 
(2,311
)
Distribution to Syniverse Corporation

 

 
(3,079
)
 

 

 

 
(3,079
)
Balance, September 30, 2017 (Unaudited)
1
 
$

 
$
1,273,882

 
$
(303,811
)
 
$
(71,230
)
 
$
7,549

 
$
906,390

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
1
 
$

 
$
1,275,944

 
$
(261,615
)
 
$
(63,226
)
 
$
9,304

 
$
960,407

Cumulative effect of accounting change, net of tax of $36

 

 

 
(2,132
)
 

 

 
(2,132
)
Net (loss) income

 

 

 
(81,284
)
 

 
460

 
(80,824
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment

 

 

 

 
(20,715
)
 
(370
)
 
(21,085
)
Changes related to cash flow derivative hedges

 

 

 

 
4,112

 

 
4,112

Amortization of unrecognized loss included in net periodic pension cost, net of tax expense of $67

 

 

 

 
152

 

 
152

Stock-based compensation

 

 
12,417

 

 

 

 
12,417

Distribution to noncontrolling interest

 

 

 

 

 
(3,588
)
 
(3,588
)
Distribution to Syniverse Corporation

 

 
(3,989
)
 

 

 

 
(3,989
)
Balance, September 30, 2018 (Unaudited)
1

 
$

 
$
1,284,372

 
$
(345,031
)
 
$
(79,677
)
 
$
5,806

 
$
865,470


See accompanying notes to unaudited condensed consolidated financial statements.


8


SYNIVERSE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
 
Nine Months Ended September 30,
 
2018
 
2017
 
(Unaudited)
Cash flows from operating activities
 
 
 
Net loss
$
(80,824
)
 
$
(64,591
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
115,114

 
145,271

Amortization of original issue discount and deferred financing costs
6,728

 
9,859

Allowance for credit memos and uncollectible accounts
8,906

 
8,837

Deferred income tax expense
3,032

 
5,648

Debt modification costs
9,646

 
9,780

Loss (gain) on early extinguishment of debt, net
4,868

 
(306
)
Stock-based compensation
12,417

 
11,209

Other, net
2,958

 
1,328

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(10,218
)
 
(11,336
)
Income taxes receivable or payable
(3,529
)
 
(2,001
)
Prepaid and other current assets
(10,220
)
 
(3,679
)
Accounts payable
18,563

 
(4,539
)
Accrued liabilities and deferred revenues
(10,735
)
 
(22,045
)
Other assets and other long-term liabilities
(5,534
)
 
3,043

Net cash provided by operating activities
61,172


86,478

Cash flows from investing activities
 
 
 
Capital expenditures
(46,648
)
 
(50,167
)
Net cash used in investing activities
(46,648
)
 
(50,167
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of long-term debt
1,922,000

 

Principal payments on long-term debt
(1,930,510
)
 
(25,032
)
Debt issuance costs paid

 
(1,143
)
Debt modification costs paid
(40,446
)
 
(9,768
)
Payments on capital lease and financing obligations
(6,859
)
 
(14,464
)
Distribution to Syniverse Corporation
(3,989
)
 
(3,079
)
Distribution to noncontrolling interest
(3,588
)
 
(2,311
)
Net cash used in financing activities
(63,392
)
 
(55,797
)
Effect of exchange rate changes on cash
(2,834
)
 
4,050

Net decrease in cash, cash equivalents and restricted cash
(51,702
)
 
(15,436
)
Cash, cash equivalents and restricted cash at beginning of period
128,677

 
137,690

Cash, cash equivalents and restricted cash at end of period
$
76,975

 
$
122,254

 
 
 
 
Supplemental noncash investing and financing activities
 
 
 
Assets acquired under capital lease and non-cash financing obligations
$
9,229

 
$
5,929

Supplemental cash flow information
 
 
 
Interest paid
$
115,516

 
$
92,516

Income taxes paid
$
7,900

 
$
2,809


See accompanying notes to unaudited condensed consolidated financial statements.

9


SYNIVERSE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business
Syniverse is the leading global transaction processor that connects MNOs and enterprises in nearly 200 countries enabling seamless mobile communications across disparate and rapidly evolving networks, devices and applications. We process transactions that include the authorization and delivery of end user traffic, clearing of billing records and settlement of payments. We also offer a unique portfolio of intelligent policy and charging tools that enable our customers to use the real-time data generated by these transactions to deliver customized services and choices to their end-users. Our portfolio of mission-critical services enables our customers to connect to the mobile ecosystem, optimize their businesses and enhance and personalize the mobile experience for their end-users. We process over 4 billion billable transactions daily and settle approximately $15 billion annually between our customers.
We are the leader in LTE roaming and interconnect, offering superior connectivity critical for delivering the advanced mobile experiences end-users have come to expect from 4G and other advanced mobile network technologies, including VoLTE. Our IPX network currently directly connects to nearly half of the global mobile population. We believe our global footprint and operational scale are unmatched in our industry. As a trusted partner with 30 years of experience and a history of innovation, we believe we are well positioned to solve the technical, operational and financial complexities of the mobile ecosystem.
Our diverse customer base includes a broad range of participants in the mobile ecosystem, including approximately 900 MNOs and 450 OTTs and enterprises. Our customers include 97 of the top 100 MNOs globally, such as Verizon Wireless, América Móvil, Vodafone, Telefónica, China Unicom and Reliance Communications; OTTs, including 3 of the 5 largest social networking sites in the U.S. and one of the largest social networking sites in China; and blue-chip enterprise customers, including the top 3 credit card networks worldwide and a multinational hotel brand.
The mobile experience is a critical and pervasive component of modern life and has become increasingly complex. Mobile devices have evolved from basic cellular phones to include smartphones, tablets, wearables and other connected devices that people now use to conduct an expanding set of activities in real-time, such as streaming videos, posting social media updates, working and shopping. As a result, today’s mobile experience requires seamless and ubiquitous connectivity and coordination between MNOs, OTTs and enterprises across disparate and rapidly evolving networks, devices and applications. The failure to integrate any of these elements can disrupt service, resulting in frustrated end-users, erosion of our customers’ brands and loss of revenue by our customers. Our proprietary services bridge these technological and operational complexities.
Syniverse provides approximately 60 mission-critical services to manage the real-time exchange of information and traffic across the mobile ecosystem, enhance our customers’ brands and provide valuable intelligence about end-users. Our customers demand, and we deliver, high quality service as evidenced by our over 99.999% network availability. Our comprehensive suite of Mobile Transaction Services and Enterprise & Intelligence Solutions includes the services described below.

Mobile Transaction Services: Transaction-based services that are designed to support the long-term success of our MNO customers. Through Mobile Transaction Services, we:

Clear, process and exchange end-user billing records.
Process and settle payments between participants in the mobile ecosystem.
Activate, authenticate and authorize end-user mobile activities.
Manage the worldwide routing and delivery of text (SMS), multimedia (MMS) and next generation messaging.
Provide data transport services over our global IP data network regardless of technology protocol.
Provide intelligent policy and charging tools that enable our customers to use real-time data for improved end-user experience.
Provide risk management tools to prevent fraudulent activity on operator networks and identify problem areas in the end to end billing cycle.

10



Enterprise & Intelligence Solutions: Services that bridge OTTs and enterprises with MNOs and incorporate our real-time intelligence capabilities to enable all of our customers to serve their end-users. Through Enterprise & Intelligence Solutions, we:

Connect enterprises to the mobile ecosystem to allow them to reliably reach and interact with their customers and employees via mobile devices.
Bridge OTTs to the mobile ecosystem allowing OTT end-users to seamlessly interact with traditional mobile end-users.
Enable enterprises to rapidly execute and optimize their mobile communications initiatives.
Provide data analytics and business intelligence solutions designed to measure, enhance and secure the end-user experience for our enterprise customers.
Provide solutions to enable MNOs to measure and manage the subscriber experience across networks.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of Syniverse Holdings, Inc. have been prepared in accordance with U.S. GAAP for interim financial information and on a basis that is consistent with the accounting principles applied in our audited financial statements for the fiscal year ended December 31, 2017 (the “2017 financial statements”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and footnotes included in our annual report on Form 10-K filed with the SEC on March 14, 2018. Operating results for the interim periods noted herein are not necessarily indicative of the results that may be achieved for a full year.

The unaudited condensed consolidated financial statements include the accounts of Syniverse Holdings, Inc. and all of its wholly owned subsidiaries and a VIE for which Syniverse is deemed to be the primary beneficiary. References to “Syniverse,” “the Company,” “us,” or “we” include all of the consolidated companies. Noncontrolling interest is recognized for the portion of consolidated joint ventures not owned by us. All significant intercompany balances and transactions have been eliminated.

In May 2016, we acquired a noncontrolling interest in Vibes Media LLC (“Vibes”) for $45 million. The investment consisted of $40 million in cash and common shares of Syniverse Corporation valued at $5 million. The carrying amount of the investment in the equity method investee as of September 30, 2018 and December 31, 2017 was $40.9 million and $42.7 million, respectively, and is included in Investment in unconsolidated subsidiaries in the unaudited condensed consolidated balance sheets. In addition to our investment in Vibes, Syniverse and Vibes have partnered to distribute Vibes’ cloud-based mobile marketing software platform. Expenses incurred from commercial transactions with Vibes, which is a related party to the Company, were $2.9 million and $8.6 million during the three and nine months ended September 30, 2018, respectively, and $2.2 million and $3.2 million during the three and nine months ended September 30, 2017, respectively.

Use of Estimates

We have prepared our financial statements in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the period. Actual results could differ from those estimates.
        
Revenue Recognition

Our revenues are generated through the sale of Mobile Transaction Services and Enterprise & Intelligence Solutions to MNOs and enterprise customers throughout the world.  Revenues are recognized when control of our promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our contracts with customers generally contain one or more performance obligations to stand-ready to process an unknown quantity of transactions as and when they are presented. We recognize revenue related to our stand-ready performance obligations satisfied over time as the customer simultaneously receives and consumes the benefits provided by our

11


performance. We consider these performance obligations a series of distinct services that are substantially the same and have the same pattern of transfer to the customer.

The transaction price of each contract includes the amount to which we expect to be entitled which is comprised of both fixed and variable consideration. Variable consideration includes transaction-based fees that are invoiced each month according to the number of records or transactions processed, the size of data records processed or both, and may include a fixed price per unit, a tier-based price per unit or fee, or a fixed amount plus additional fees for volume overages above a contractual threshold. For services with transaction-based fees, we allocate variable consideration to each distinct month in which our service is performed as the variable consideration relates specifically to our efforts to transfer each distinct monthly service during that period. The variability is driven by the number of transactions presented by the customer or end-user for the Company to process. The uncertainty related to the variable consideration is resolved on a monthly basis as the Company satisfies its obligation to perform services each month. For services performed under contracts with exclusively fixed monthly recurring fees, we generally record revenue on a straight-line basis over the contractual term. Less commonly, we enter into contracts with monthly recurring fees which are fixed over the course of each year under the contract, but which change at the completion of each twelve month period of the contract. In such cases, we apply judgment to determine whether a time-based measure or another output-based measure, such as volume, is the most appropriate measure of the pattern of our performance to satisfy the performance obligation. For contracts with significant customer implementations and development services that are highly interrelated with the ongoing services, we generally defer revenues and the associated direct costs and recognize them on a straight-line basis over the contractual term.

Revenues are recognized net of allowances and any taxes collected from customers and subsequently remitted to governmental authorities. We maintain an allowance for credit memos based upon an assessment of customer creditworthiness, historical payment experience and specific known matters. These allowances are recorded primarily as the result of service level penalties, price concessions, billing and service disputes and other customer specific matters. Allowances for credit memos are recorded as reductions of accounts receivable and revenues. If our billing discrepancies are not resolved satisfactorily or our customers’ disputes over billing are not resolved satisfactorily, increases to the allowance may be required.

Our payment terms vary by the type and location of our customers and the products or services offered. The term between invoicing and payment due date is not significant. For certain services, we require payment shortly before the services are delivered. For contracts containing significant implementation and development activities, we typically invoice the customer near the completion of such activities and record the revenues over time as the ongoing services to which the significant implementation and development services relate are performed.

Refer to Note 4 for further discussion of Revenues.

Customer Accounts

We provide financial settlement services to wireless operators to support the payment of roaming related charges to their roaming network partners. In accordance with our customer contracts, funds are held by us as an agent on behalf of our customers to settle their roaming related charges to other operators. These funds and the corresponding liability are not reflected in our condensed consolidated balance sheets. The off-balance sheet amounts totaled approximately $281.8 million and $372.3 million as of September 30, 2018 and December 31, 2017, respectively.

Cash, Cash Equivalents and Restricted Cash

We consider all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents consists primarily of deposit accounts that are stated at cost, which approximates fair value.

Amounts included in restricted cash represent certificates of deposits and time deposits with original maturities greater than three months and cash that is restricted as to withdrawal or usage. These amounts are classified in prepaid and other current assets and other assets in the accompanying balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash in our condensed consolidated statements of cash flows:

12


 
September 30, 2018
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
(in thousands)
(Unaudited)
 
 
 
(Unaudited)
 
 
Cash and cash equivalents
$
75,684

 
$
127,677

 
$
121,267

 
$
136,174

Restricted cash included in prepaid and other current assets
596

 
413

 
400

 
1,121

Restricted cash included in other assets
695

 
587

 
587

 
395

Total cash, cash equivalents and restricted cash
$
76,975

 
$
128,677

 
$
122,254

 
$
137,690


Capitalized Software Costs             

We capitalize the cost of externally purchased software and certain software licenses, internal-use software and developed technology that has a useful life of one year or greater. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they enable the software to perform a task it previously was unable to perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized software and developed technology are amortized using the straight-line method over a period of 3 to 5 years and 3 to 8 years, respectively.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired. Goodwill is not amortized, but is instead tested for impairment, at least annually on October 1, or more frequently if indicators of impairment arise. Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment, referred to as a component. We have not identified any components within our single operating segment and, hence, have a single reporting unit for purposes of our goodwill impairment analysis.
    
When evaluating goodwill for impairment, the Company may first perform an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment is commonly referred to as a "step zero" approach. If, based on the review of the qualitative factors, the Company determines it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative impairment test. If based on this assessment an impairment exits, a charge is recorded for the excess of the reporting unit’s carrying amount over its fair value in the condensed consolidated statement of operations. We did not record any impairment loss on goodwill for the year ended December 31, 2017. In the future, our reporting unit may be at risk of impairment due to lower operating results caused by declines in our CDMA portfolio. In addition, pricing pressure across many of our services and other market factors can result in the loss of any of our major customers or any services provided to these customers which would negatively impact our business. Any non-renewal of contracts with these customers could materially reduce our revenues. We continue to monitor goodwill for potential impairment and will perform impairment testing as part of our annual goodwill assessment. A goodwill impairment charge would not affect our adjusted EBITDA or free cash flows.

Indefinite-lived intangible assets are comprised of tradenames and trademarks. Indefinite-lived intangible assets are not amortized, but instead are tested for impairment, at least annually, or more frequently if indicators of impairment arise. When evaluating indefinite-lived identifiable intangible assess for impairment, the Company may first perform an assessment of qualitative factors to determine whether it is more likely than not that the asset is impaired. If, based on the review of the qualitative factors, the Company determines it is more-likely-than-not that the identifiable intangible asset is impaired, the Company performs an impairment test.

Foreign Currencies

We have operations in subsidiaries in Europe (primarily the United Kingdom, Germany and Luxembourg), India, the Asia-Pacific region and Latin America, each of whose functional currency is their local currency. Gains and losses on transactions denominated in currencies other than the relevant functional currencies are included in Other, net in the unaudited condensed consolidated statements of operations. For the three and nine months ended September 30, 2018, we recorded foreign currency transaction gains of $1.2 million and $2.7 million, respectively. For the three and nine months ended September 30, 2017, we recorded foreign currency transaction losses of $0.8 million and $1.9 million, respectively.

The assets and liabilities of subsidiaries whose functional currency is other than the U.S. dollar are translated at the period-end rate of exchange. The resulting translation adjustment is recorded as a component of Accumulated other comprehensive loss and is included in Stockholder equity in the condensed consolidated balance sheets. Transaction gains and losses on intercompany balances which are deemed to be of a long-term investment nature are also recorded as a component of

13


Accumulated other comprehensive loss. Revenues and expenses within the unaudited condensed consolidated statements of operations are translated at the average rates prevailing during the period.
 
Reclassifications

On January 1, 2018, we adopted ASU 2016-18, Restricted Cash using retrospective application. As a result, we have reclassified prior period amounts in our condensed consolidated statements of cash flows to conform to current year presentation.

3. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which is included in ASC Topic 230. ASU 2016-18 requires companies to show the change in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. We adopted this update on January 1, 2018 and retrospectively applied the adjustment to all periods presented. The impact of this adoption was not material to our condensed consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is included in ASC Topic 230. ASU 2016-15 includes multiple provisions intended to simplify various treatments of certain cash receipts and cash payments in the statement of cash flows under ASC Topic 230. We adopted this update on January 1, 2018. The adoption of this update had no impact on our condensed consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which is included in ASC Topic 606. ASU 2014-09 was issued as a converged guidance with the IASB on recognizing revenue in contracts with customers and is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach to the recognition of revenue. It requires entities to recognize revenue when control of promised goods or services is transferred to customers in an amount that reflects the consideration to which entity expects to be entitled in exchange for those goods or services. We adopted ASC Topic 606 on January 1, 2018 using the modified retrospective transition method. Refer to Note 4 for further details.

In January 2016, the FASB issued ASU 2016-01, Financial instruments - Overall, which is included in ASC Topic 825. ASU 2016-01 will enhance certain aspects of the recognition, measurement, presentation and disclosure requirements for financial instruments. The amendments in this update make targeted improvements to GAAP by requiring equity securities (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. We adopted this update on July 1, 2018. The adoption of this update had no impact on our condensed consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivative and Hedging, which is included in ASC Topic 815. ASU 2017-12 was issued to simplify and align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities. In addition, the amendments in this update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. We will perform a quantitative assessment of the hedge effectiveness at inception, if the derivative is highly effective, and the facts and circumstances do not change, we will use a qualitative approach on an ongoing basis to assess the effectiveness. The earnings effect of the hedging instrument will be reported in the same period and in the same income statement line item in which the earnings effect of the hedged item is reported. We early adopted this update as of July 1, 2018 prior to entering into our interest rate swap agreements. Refer to Note 11 for more details. The impact of this adoption was not material to our condensed consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software, which is included in ASC Subtopic 350-40. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Additionally, the amendments in this update improve current GAAP by clarifying the accounting for implementation costs for hosting arrangements, regardless of whether they convey a license to the hosted software.

14


The update is effective for the Company beginning January 1, 2020 and earlier adoption is permitted. We are currently assessing the impact of implementing this guidance on our condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is included in ASC Topic 820. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. The update is effective for the Company beginning January 1, 2020 and earlier adoption is permitted for removal and modification of disclosures. We are currently assessing the impact of implementing this guidance. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which is included in ASC Topic 220. ASU 2018-02 will improve the usefulness of information reported in the financial statements by allowing reclassification from accumulated other comprehensive income to retained earnings for the income tax effects resulting from the enactment of the Tax Cuts and Jobs Act legislation. The update is effective for the Company beginning January 1, 2019 and will be applied retrospectively to all periods affected by the Tax Cuts and Jobs Act. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which is included in the ASC in Topic 326. ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The update will replace the incurred loss approach with an expected credit loss model. It also would require entities to present unrealized losses from available-for-sale debt securities as allowances rather than as a reduction in the amortized cost of the securities. The update is effective for the Company beginning January 1, 2020. We are currently assessing the impact of implementing this guidance on our condensed consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases, which is included in the ASC in Topic 842. ASU 2016-02 is intended to improve transparency and comparability of lease accounting among organizations. For leases with a term greater than 12 months, the amendments require the lease rights and obligations arising from the leasing arrangements, including operating leases, to be recognized as assets and liabilities on the balance sheet. However, the effect on the statement of operations and the statement of cash flows is largely unchanged from current GAAP. The amendments also expand the required disclosures surrounding leasing arrangements. The update is effective for the Company beginning January 1, 2019 and can be applied retrospectively to each prior reporting period presented in the financial statements or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment.

Syniverse’s lease portfolio is primarily comprised of office space, data centers and equipment. We will adopt the standard using the modified retrospective approach with a cumulative-effect adjustment, if any, to the opening balance of retained earnings at January 1, 2019. Although we have not completed our evaluation, or quantified its impact, we expect the adoption of this guidance to have a significant impact on our consolidated balance sheet due to the recognition of the right of use asset and liability for our operating leases. We expect to apply the package of practical expedients that allows companies not to reassess whether any expired or expiring contracts are or contain leases, lease classification for any expired or expiring leases and initial direct costs for any expired or expiring leases. We also expect to make an accounting policy election to keep leases with a term of 12 months or less off the balance sheet. We are in the process of evaluating our processes and internal controls to meet the accounting, reporting and disclosure requirements for the prospective accounting requirements of the guidance.

4. Revenues

Adoption of ASC Topic 606, Revenue from Contracts with Customers

On January 1, 2018, we adopted ASC Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized the cumulative effect of applying ASC Topic 606 as an adjustment to the opening balance of retained earnings at January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while results for comparable prior periods are not adjusted and continue to be reported in accordance with the historical accounting standards in effect for those periods. We do not expect the adoption of ASC Topic 606 to have a material impact to revenue or net income on an ongoing basis.


15


We recorded a reduction to opening retained earnings at January 1, 2018 of $2.1 million, net of tax, for the cumulative effect of adopting ASC Topic 606, with the impact primarily related to deferring revenue associated with significant implementation and development services that are highly interrelated with the ongoing services we provide our customers. The impact to revenues as a result of applying ASC Topic 606 was not material for the three and nine months ended September 30, 2018.

Revenue Recognition

Revenues by service offerings were as follows:
 
Three Months Ended September 30,
 
2018
 
2017
(in thousands)
(Unaudited)
Mobile Transaction Services
$
147,803

 
$
164,646

Enterprise & Intelligence Solutions
54,897

 
42,363

Revenues
$
202,700

 
$
207,009

 
Nine Months Ended September 30,
 
2018
 
2017
(in thousands)
(Unaudited)
Mobile Transaction Services
$
439,229

 
$
471,196

Enterprise & Intelligence Solutions
142,970

 
116,168

Revenues
$
582,199

 
$
587,364


Revenues by geographic region, based on the “bill to” location on the invoice, were as follows:
 
Three Months Ended September 30,
 
2018
 
2017
(in thousands)
(Unaudited)
North America
$
128,209

 
$
120,593

Europe, Middle East and Africa
33,089

 
38,594

Asia Pacific
28,337

 
31,249

Caribbean and Latin America
13,065

 
16,573

Revenues
$
202,700

 
$
207,009

 
Nine Months Ended September 30,
 
2018
 
2017
(in thousands)
(Unaudited)
North America
$
355,470

 
$
347,386

Europe, Middle East and Africa
98,057

 
105,545

Asia Pacific
87,919

 
90,643

Caribbean and Latin America
40,753

 
43,790

Revenues
$
582,199

 
$
587,364


We record deferred revenues when cash payment is received or we have an unconditional right to payment in advance of revenue recognition. The increase in deferred revenues for the nine months ended September 30, 2018 is primarily driven by the adoption of ASC Topic 606 and payments received or due in advance of revenue recognition, offset by $9.7 million of revenues recognized, of which $6.6 million were included in the deferred revenue balance on January 1, 2018.

We generally enter into multi-year non-cancelable contracts with our customers. The transaction price of each contract includes the amount to which we expect to be entitled which is comprised of fixed consideration, variable consideration or a

16


combination of both. As of September 30, 2018, there was an aggregate amount of $327.0 million of revenue under these contracts to which we will be entitled upon providing services in the future. We expect to recognize revenue of approximately $92.0 million during the remainder of 2018, $158.2 million in 2019, $48.6 million in 2020 and $28.2 million thereafter under these contracts. These estimated amounts relate to the fixed consideration within the contracts and do not contain variable consideration under existing contracts related to transaction-based fee revenue. Given the transaction-based nature of our revenue, variable consideration has historically been a significant portion of the revenue recognized during each period which we expect to continue in the future. The uncertainty related to the variable consideration is resolved on a monthly basis as the Company satisfies its obligation to perform services each month.

Segment Information

We have evaluated our portfolio of service offerings, reportable segment and the financial information reviewed by our chief operating decision maker for purposes of making resource allocation decisions. We operate as a single operating segment, as our Chief Executive Officer, serving as our chief operating decision maker, reviews financial information on the basis of our consolidated financial results for purposes of making resource allocation decisions.

5. Detail of Accrued Liabilities

Accrued liabilities consisted of the following:
 
September 30, 2018
 
December 31, 2017
(in thousands)
(Unaudited)
 
 
  Accrued payroll and related benefits
$
28,229

 
$
28,043

  Accrued interest
8,280

 
18,017

  Accrued network payables
21,305

 
21,999

  Accrued revenue share expenses
2,885

 
2,228

  Other accrued liabilities
22,702

 
18,962

       Total accrued liabilities
$
83,401

 
$
89,249


17



6. Debt and Credit Facilities

Our total outstanding debt as of September 30, 2018 and December 31, 2017 was as follows:
 
September 30, 2018
 
December 31, 2017
(in thousands)
(Unaudited)
 
 
Credit Facilities:
 
 
 
Tranche C Term Loans, due March 2023
$
1,693,490

 
$

Original issue discount
(17,672
)
 

Deferred financing costs
(16,060
)
 

Second Lien Term Loans, due March 2024
220,000

 

Original issue discount
(3,386
)
 

Deferred financing costs
(2,141
)
 

Initial Term Loans, due 2019

 
889,976

Original issue discount

 
(2,607
)
Deferred financing costs

 
(6,449
)
Tranche B Term Loans, due 2019

 
662,396

Original issue discount

 
(809
)
Deferred financing costs

 
(5,833
)
Senior Notes:
 
 
 
Syniverse Notes, due January 2019
41,727

 
41,727

Deferred financing costs
(93
)
 
(322
)
SFHC Notes, due 2022

 
369,547

Deferred financing costs

 
(4,418
)
Total Debt and Credit Facilities
1,915,865

 
1,943,208

Less: Current portion
 
 
 
Long-term debt, current portion
$
(58,747
)
 
$
(2,622
)
Original issue discount, current portion
178

 
7

Deferred financing costs, current portion
254

 
20

Current portion of long-term debt, net of original issue discount and deferred financing costs
$
(58,315
)
 
$
(2,595
)
Long-term debt, net of original issue discount and deferred financing costs
$
1,857,550

 
$
1,940,613

    
Amortization of original issue discount and deferred financing costs for the three and nine months ended September 30, 2018 was $1.9 million and $6.7 million, respectively. Amortization of original issue discount and deferred financing costs for the three and nine months ended September 30, 2017 was $3.4 million and $9.9 million, respectively. Amortization was related to our Senior Credit Facility (as defined below), First Lien and Second Lien credit facilities (as defined below) and our Senior Notes (as defined below) and were recorded in interest expense in the unaudited condensed consolidated statements of operations.

Credit Facilities

Senior Credit Facilities

On April 23, 2012, we entered into a credit agreement (the “Credit Agreement”) with Buccaneer Holdings, LLC (as successor by merger to Buccaneer), Barclays Bank PLC, as administrative agent, swing line lender and letters of credit issuer, and the other financial institutions and lenders from time to time party thereto, providing for a senior credit facility consisting of (i) a $950.0 million term loan facility (the “Initial Term Loans”); and (ii) a $150.0 million revolving credit facility for the making of revolving loans, swing line loans and issuance of letters of credit.


18


On June 28, 2013, the Company borrowed $700.0 million of incremental term loans (the “Tranche B Term Loans”), pursuant to an incremental amendment to the Credit Agreement. The proceeds of the Tranche B Term Loans were used to refinance indebtedness used to fund the MACH Acquisition.

On September 23, 2013, the Company entered into the Second Amendment to the Credit Agreement. Under the Second Amendment, the rate at which the Initial Term Loans under the Credit Agreement bear interest was amended to reduce (i) the margin for Eurodollar rate loans from 3.75% to 3.00%, (ii) the margin for base rate loans from 2.75% to 2.00%, (iii) the Eurodollar rate floor from 1.25% to 1.00% and (iv) the base rate floor from 2.25% to 2.00%.

On April 14, 2017, we entered into an amendment to the Credit Agreement to, among other things, (i) extend the scheduled maturity date of the revolving credit commitments, (ii) make certain modifications to the financial maintenance covenant, and (iii) provide for a flat commitment fee payable to each revolving credit lender of 0.50%. In addition, in connection with the Amendment, we reduced the aggregate revolving credit commitments from $150.0 million to $85.6 million and the letter of credit sublimit from $50.0 million to $40.0 million.

First Lien Credit Facility

On March 9, 2018, we completed the refinancing (the “2018 Refinancing”) of our old first lien credit facility (the “Old First Lien Credit Facility”) with the fifth amendment to the Old First Lien Credit Facility. The new first lien credit facility (the “New First Lien Credit Facility”), among other things, (i) extends the scheduled maturity date of the revolving credit facility (the “Revolving Credit Facility”), by converting the Revolving Credit Facility into a new tranche of revolving credit commitments (the “New Extended Revolving Credit Facility”), (ii) provides for a new tranche of term loans “C” in an aggregate principal amount of $1,702 million (the “Tranche C Term Loans”), (iii) amends the Old First Lien Credit Facility to, among other things, permit incurrence of the Tranche C Term Loans and the Second Lien Term Loans (as defined below) and (iv) further amends certain terms and conditions of the Old First Lien Credit Facility and the security agreement and guarantees entered into in connection therewith. The New Extended Revolving Credit Facility will mature on December 9, 2022 and the Tranche C Term Loans will mature on March 9, 2023. The Company’s obligations under the New Extended Revolving Credit Facility and the Tranche C Term Loans are guaranteed by the same guarantors, and secured by the same assets, that guaranteed and secured the Revolving Credit Facility and the Old First Lien Credit Facility.

Beginning with the end of the first full fiscal quarter commencing after March 9, 2018 (the “Closing Date”), the Tranche C Term Loans began amortizing in equal quarterly installments in an amount equal to 0.25% per quarter of the original principal amount thereof, with the remaining balance due at final maturity.

Borrowings under the New Extended Revolving Credit Facility and the Tranche C Term Loans bear interest at a floating rate which can be, at the Company’s option, either (i) a Eurodollar borrowing rate for a specified interest period plus an applicable margin or, (ii) an alternative base rate plus an applicable margin, subject to, a base rate floor of 0.00%, and in the case of the Tranche C Term Loans, a Eurodollar rate floor of 1.00%. The applicable margin for borrowings under the New Extended Revolving Credit Facility ranges from 4.50% to 5.00% per annum for Eurodollar loans and from 3.50% to 4.00% per annum for base rate loans and is determined by reference to a pricing grid based on the Company’s consolidated net first lien leverage ratio. The applicable margin for the Tranche C Term Loans is 5.00% per annum for Eurodollar loans and 4.00% per annum for base rate loans.

The New First Lien Credit Facility contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants are subject to customary exceptions and limited to the following: limitations on the incurrence of debt, liens, fundamental changes, restrictions on subsidiary distributions, transactions with affiliates, further negative pledge, asset sales, restricted equity and debt payments, investments and acquisitions, repayment of certain debt in the event of a change of control, amendments of certain debt documents and the activities of Buccaneer Holdings, LLC.

There are no financial covenants included in the New First Lien Credit Facility other than a springing maximum net first lien leverage ratio of (i) 6.50:1.00 for the fiscal quarters ended on June 30, 2018 and September 30, 2018 and (ii) 6.25:1.00 for the fiscal quarter ended on December 31, 2018 and each fiscal quarter ended thereafter, which is tested only for the benefit of the revolving lenders and only (x) commencing with the first full fiscal quarter of the Company after the Closing Date, when, at the end of any fiscal quarter, any revolving loans, any swing line loans or any letter of credit obligations (excluding undrawn letters of credit not in excess of $10.0 million in the aggregate and any letters of credit which are cash collateralized to at least 105.0% of their maximum stated amount) are outstanding and (y) upon an extension of credit under the New Extended Revolving Credit Facility in the form of the making of a revolving loan or a swing line loan, or the issuance of a letter of credit.

19



In connection with the 2018 Refinancing, we incurred debt modification costs of $9.6 million which was recorded in interest expense and loss on early extinguishment of debt, net, of $4.9 million for the period ended September 30, 2018 in the unaudited condensed consolidated statements of operations. We also recorded $23.2 million of original issue discount and $21.2 million of deferred financing costs to be amortized through interest expense over the life of the New Credit Facilities using the effective interest method.

As of September 30, 2018, there were no amounts outstanding under the New Extended Revolving Credit Facility.

Second Lien Credit Facility

On March 9, 2018, the Company also entered into a second lien credit agreement (the “Second Lien Credit Agreement”). The Second Lien Credit Agreement established the New Second Lien Credit Facility in an aggregate principal amount of $220 million. Proceeds of the term loans under the New Second Lien Credit Facility (the “Second Lien Term Loans”), together with proceeds of the Tranche C Term Loans and cash on hand, were used to fund the 2018 Refinancing. The Second Lien Term Loans will mature on March 11, 2024 and have no scheduled amortization prior to maturity. The Company’s obligations under the New Second Lien Credit Facility will be guaranteed by Buccaneer Holdings, LLC and certain subsidiary guarantors, which is junior to the lien securing facilities under the New First Lien Credit Facility.

Borrowings under the Second Lien Term Loans bear interest at a floating rate which can be, at the Company’s option, either (i) a Eurodollar borrowing rate for a specified interest period plus an applicable margin or, (ii) an alternative base rate plus an applicable margin, subject to a Eurodollar rate floor of 1.00% or a base rate floor of 0.00%, as applicable. The applicable margin for the Second Lien Term Loans is 9.00% per annum for Eurodollar loans and 8.00% per annum for base rate loans.

The Second Lien Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants are subject to customary exceptions and limited to the following: limitations on the incurrence of debt, liens, fundamental changes, restrictions on subsidiary distributions, transactions with affiliates, further negative pledge, asset sales, restricted equity and debt payments, investments and acquisitions, repayment of certain debt in the event of a change of control, amendments of certain debt documents and the activities of Buccaneer Holdings, LLC.

There are no financial covenants included in the New Second Lien Credit Facility.

Proceeds of the Tranche C Term Loans, together with proceeds of the Second Lien Term Loans and cash on hand, were used to (i) prepay in full the Initial Term Loans and the Tranche B Term Loans, in each case, under and as defined in the Old First Lien Credit Facility, (ii) redeem in full the SFHC Notes and (iii) pay interest, premiums, costs, fees and expenses in connection with the foregoing. The New Extended Revolving Credit Facility replaced the old Revolving Credit Facility in its entirety. The New Extended Revolving Credit Facility will be used to finance the working capital needs of the company and for general corporate purposes.

The Company must prepay the term loans (New First Lien Credit Facility and the Second Lien Credit Facility) with the net cash proceeds of asset sales, casualty and condemnation events, the incurrence or issuance of indebtedness (other than indebtedness permitted to be incurred under the credit agreements (“First Lien Credit Agreement” and “Second Lien Credit Agreement”)) and, for the year ended December 31, 2018 and thereafter, excess cash flow (as defined by the credit agreements). In addition, the Company may voluntarily prepay the Term Loans, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty, except for the prepayment premiums set forth below:
Credit Facility
Anniversary
Prepayment Price
Tranche C Term Loans
On or prior to six months from closing date
101.000
%
Second Lien Term Loans
Prior to twelve months from closing date
103.000
%
Second Lien Term Loans
On or after twelve months and before twenty four months from closing date
102.000
%
Second Lien Term Loans
On or after twenty four months and before thirty six months from closing date
101.000
%


20


Senior Notes

SFHC Notes

On January 11, 2017, pursuant to the Exchange Offer, SFHC, our wholly-owned subsidiary, issued $369.5 million of SFHC Notes bearing interest at 9.125% per annum with a maturity date of January 15, 2022, and a like amount of Syniverse Notes were cancelled. We incurred debt modification fees of $9.8 million in connection with the Exchange Offer in the period ended March 31, 2017 which was recorded in Interest expense in the accompanying condensed consolidated statements of operations. On March 12, 2018, the SFHC Notes were redeemed in full in connection with the 2018 Refinancing.     

Syniverse Notes    

On December 22, 2010, we issued $475.0 million Syniverse Notes bearing interest at 9.125% that will mature on January 15, 2019. Interest on the notes is paid on January 15 and July 15 of each year. We incurred financing fees of $20.4 million in connection with the issuance of the Syniverse Notes which have been amortized over the term of the notes using the effective interest method.

The Syniverse Notes are guaranteed on a senior basis by the Subsidiary Guarantors. In addition, we have the ability to designate certain of our subsidiaries as unrestricted subsidiaries pursuant to the terms of the indenture governing our Syniverse Notes, and any subsidiary so designated will not be a guarantor of the notes. The right of noteholders to receive payment on the Syniverse Notes is effectively subordinated to the rights of our existing and future secured creditors. We may redeem the Syniverse Notes, at our option, in whole at any time or in part from time to time, at 100% of the principal amount of the Syniverse Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.

The Syniverse Notes contain customary negative covenants including, but not limited to, restrictions on our and our restricted subsidiaries’ ability to merge and consolidate, sell, transfer or otherwise dispose of assets, incur additional debt or issue certain preferred shares, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends on or make other distributions in respect of Syniverse’s capital stock or make other restricted payments or enter into certain transactions with affiliates, subject to certain exceptions.

On January 11, 2017 pursuant to the Exchange Offer, $369.5 million of Syniverse Notes were cancelled. Following the Exchange Offer, $105.5 million aggregate principal amount of the Syniverse Notes were outstanding. On April 25, 2017 and September 18, 2017, we repurchased $16.0 million and $7.7 million aggregate principal amount of the Syniverse Notes, respectively, and submitted them to Wilmington Trust, National Association, as trustee, for cancellation. On December 29, 2017, we redeemed an additional $40.0 million aggregate principal amount of the Syniverse Notes at 100%. Following these transactions, $41.7 million aggregate principal amount of the Syniverse Notes remains outstanding at September 30, 2018.

7. Stock-Based Compensation
    
Effective April 6, 2011, Syniverse Corporation, our indirect parent, established the 2011 Plan for the employees, consultants and directors of Syniverse Corporation and its subsidiaries. The 2011 Plan provides incentive compensation through grants of incentive or non-qualified stock options, stock purchase rights, restricted stock awards, restricted stock units or any combination of the foregoing. Syniverse Corporation will issue shares of its common stock to satisfy equity based compensation instruments.
    
Stock-based compensation expense for the three and nine months ended September 30, 2018 and 2017 was as follows:
 
Three Months Ended September 30,

2018
 
2017
(in thousands)
(Unaudited)
Cost of operations
$
132

 
$
195

Sales and marketing
970

 
850

General and administrative
2,975

 
2,518

Stock-based compensation
$
4,077

 
$
3,563


21


 
 
 
 
 
Nine Months Ended September 30,

2018
 
2017
(in thousands)
(Unaudited)
Cost of operations
$
564

 
$
615

Sales and marketing
2,274

 
2,353

General and administrative
9,579

 
8,241

Stock-based compensation
$
12,417

 
$
11,209

    
The following table summarizes our stock option activity under the 2011 Plan for the nine months ended September 30, 2018:
Stock Options
Shares
 
Weighted-
Average
Exercise
Price
Outstanding at December 31, 2017
8,249,251

 
$
10.79

Granted
3,905,001

 
12.68

Canceled or expired
(1,393,250
)
 
10.80

Outstanding at September 30, 2018
10,761,002

 
$
11.43


The fair value of options granted during the nine months ended September 30, 2018 was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
 Risk-free interest rate
2.5%
 Volatility factor
27.1%
 Dividend yield
—%
 Weighted average expected life of options (in years)
5.7
    
Restricted stock is issued and measured at fair value on the date of grant. The following table summarizes our restricted stock activity under the 2011 Plan for the nine months ended September 30, 2018:
Restricted Stock
Shares
 
Weighted-
Average
Grant-Date
Fair Value
Outstanding at December 31, 2017
1,617,759

 
$
10.27

Granted
1,905,259

 
10.00

Vested
(781,250
)
 
10.52

Forfeited
(151,250
)
 
10.18

Outstanding at September 30, 2018
2,590,518

 
$
10.00


8. Employee Termination Benefits and Restructuring

The following table summarizes the activity in our employee termination benefit liabilities for the nine months ended September 30, 2018:
(in thousands)
December 31, 2017
 
Additions
 
Payments
 
Adjustments
 
September 30, 2018
Employee termination benefits
$
1,234

 
5,735

 
(4,362
)
 
(58
)
 
$
2,549


Employee termination benefits represents non-retirement post-employment benefit costs including severance benefits and other employee related costs that are unrelated to a restructuring plan.

22



The following table summarizes the activity in our restructuring liabilities for the nine months ended September 30, 2018:
(in thousands)
December 31, 2017
 
Additions
 
Payments
 
Adjustments
 
September 30, 2018
2018 Plan
$

 
8,293

 

 

 
$
8,293

December 2016 Plan
$
937

 
40

 
(975
)
 
(1
)
 
$
1

March 2016 Plan
$
1,579

 
177

 
(1,756
)
 

 
$

October 2014 Plan
$
275

 

 
(235
)
 
15

 
$
55

 Total
$
2,791

 
$
8,510

 
$
(2,966
)
 
$
14

 
$
8,349


In 2018, we recorded severance costs related to a restructuring plan (the “2018 restructuring plan”) to realign costs and expenses with revenue trends across our portfolio. As a result of this plan, we recorded severance related costs of $8.3 million.
    
In December 2016, we implemented a restructuring plan (the “December 2016 restructuring plan”) to realign costs and expenses with revenue trends across our portfolio. As a result of this plan, we incurred severance related costs of $9.0 million. We have paid $9.1 million related to this plan as of September 30, 2018 and anticipate the remaining cash outlays to take place during 2018.

In March 2016, we implemented a restructuring plan (the “March 2016 restructuring plan”) to realign costs and expenses with revenue trends across our portfolio, reducing costs associated with certain of our legacy products and services to provide for increased investment in our growth businesses. As a result of this plan, we incurred severance related costs of $14.4 million and contract termination costs of $9.2 million related to the exit of data center leases. We have paid $23.5 million related to this plan as of September 30, 2018 and anticipate the remaining cash outlays to take place during 2018.

9. Income Taxes
    
We provide for federal, state and foreign income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date. The effective tax rate for the three and nine months ended September 30, 2018, was a benefit of 1.2% and a provision of (10.2)%, respectively. The effective tax rate for the three and nine months ended September 30, 2017, was a provision of (182.6)% and (11.2)%, respectively. The change in our effective tax rate was chiefly attributable to (i) the impact of the new U.S. base erosion and anti-abuse tax in 2018, (ii) the establishment of a valuation allowance against U.S. deferred tax assets which was first established in Q1 2017, (iii) the impact of the U.S. provisional transition tax offset by the change in valuation allowance, and (iv) the relative mix of earnings and losses in the U.S. versus foreign tax jurisdictions.

On December 22, 2017, the United States enacted comprehensive tax legislation called the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code including reducing the US federal corporate tax rate from 35% to 21%, requiring a mandatory transition tax on unremitted foreign earnings, a move from a worldwide to a territorial tax system and placing potential limits on the deductibility of interest expense. In 2017, we recorded a provisional deferred income tax benefit of $36.8 million related to the revaluation of the Company’s net deferred tax assets and liabilities at the December 22, 2017 enactment date using the new 21% statutory rate. The calculation of the one-time transition tax is based on our total post-1986 deferred foreign income held in cash and other assets. We have recorded a provisional non-cash charge of $6.9 million for the transition tax on previously deferred foreign earnings. In addition, we continue to assess the other provisions of the Tax Act.

We, and our eligible subsidiaries, file a consolidated U.S. federal income tax return under Syniverse Corporation, our parent company. All subsidiaries incorporated outside of the U.S. are consolidated for financial reporting purposes; however, they are not eligible to be included in our consolidated U.S. federal income tax return. Separate provisions for income taxes have been recorded for these entities. We intend to reinvest substantially all of the unremitted earnings of our non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes, outside of the transition tax mentioned

23


above, for these non-U.S. subsidiaries was recorded in the accompanying unaudited condensed consolidated statements of operations.

10. Commitments and Contingencies

We are currently a party to various claims and legal actions that arise in the ordinary course of business. We believe such claims and legal actions, individually and in the aggregate, will not have a material adverse effect on our business, financial condition, results of operations or cash flows. As of September 30, 2018, we have considered all of the claims and disputes of which we are aware and have provided for probable losses, which are not material to the unaudited condensed consolidated financial statements.

11. Fair Value Measurements and Derivative Instruments

Fair Value Measurements

The accounting standards for fair value require disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1—Quoted prices for identical assets and liabilities in active markets.

Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs for the asset or liability.

Transfers between levels are determined at the end of the reporting period. No transfers between levels have been recognized for the nine months ended September 30, 2018 and 2017.

Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the condensed consolidated balance sheets at their carrying value, which approximate their fair value due to their short maturity.

From time to time, we measure certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment. We estimate the fair value of our long-lived assets using company-specific assumptions which would be categorized within Level 3 of the fair value hierarchy.

The fair values of our long-term debt, which is not measured at fair value in our financial statements, were based upon quoted market prices in inactive markets for similar instruments (Level 2). The principal amount and fair value of our long-term debt, as of September 30, 2018 and December 31, 2017 were as follows:
 
September 30, 2018
 
December 31, 2017
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
(in thousands)
(Unaudited)
 
 
 
 
Tranche C Term Loans
$
1,693,490

 
$
1,700,899

 
$

 
$

Second Lien Term Loans
$
220,000

 
$
215,600

 
$

 
$

Syniverse Notes
$
41,727

 
$
41,310

 
$
41,727

 
$
41,414

Initial Term Loans
$

 
$

 
$
889,976

 
$
874,401

Tranche B Term Loans
$

 
$

 
$
662,396

 
$
650,804

SFHC Notes
$

 
$

 
$
369,547

 
$
378,786

    
The fair values of our interest rate swaps have been categorized based upon the fair value hierarchy. The following table presents the line item captions and information about our derivative instruments recorded at fair value on a recurring basis:

24


 
Fair Value Measurements Level 2(1)
 
Location
 
September 30, 2018
 
December 31, 2017
(in thousands)
 
 
(Unaudited)
 
 
Assets:
 
 
 
 
 
Interest Rate Swaps
Other assets
 
$
6,748

 
$

 
 
 
$
6,748

 
$

Liabilities:
 
 
 
 
 
Interest Rate Swaps
Accrued liabilities
 
$
2,636

 
$

 
 
 
$
2,636

 
$


(1)
Fair value is derived using valuation models that take into account the contract terms, such as maturity, as well as other inputs, such as interest rate yield curves. In addition, the derivative instrument fair values take into account the creditworthiness of the counterparty and the Company.

The credit risk associated with counterparty nonperformance for our derivative instruments is not considered significant as we primarily conduct business with large, well-established financial institutions. We do not anticipate nonperformance by any of the counterparties.

Derivative Instruments

Interest Rate Risk
 
The risk associated with our exposure to changes in interest rates relates to our long-term debt obligations and the potential increase in interest payments resulting from an increase in floating rates. We use interest rate swap agreements to reduce our exposure to interest rate movements by effectively converting a portion of our floating-rate debt to a fixed-rate basis. As of September 30, 2018, interest on approximately 62.7% of our long-term debt was effectively capped. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the notional amount, term and conditions of the derivative instruments with the underlying risk being hedged. 

Interest Rate Swaps

During the quarter ended September 30, 2018, we entered into three interest rate swaps with a total notional amount of $1.2 billion to manage our exposure to variable rates on our Tranche C terms loans. Our interest rate swaps are recorded on the consolidated balance sheet at their fair value and are designated as cash flow hedges. At inception of the hedge relationship, a derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability is designated as a cash flow hedge. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive loss (AOCI) until the underlying hedged transactions are recognized in earnings. 

At inception, we assessed whether the derivatives used in hedging transactions were “highly effective” in offsetting changes in the cash flow of the hedged items. We assessed hedge effectiveness using a regression analysis over an observation period of three years for each hedge relationship under our interest rate swap program. High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. We consider the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. Cash flows from derivative instruments that are designated as cash flow hedges are classified in the same category as the cash flows from the underlying hedged items.

As of September 30, 2018, we maintained interest rate swap agreements with the following terms:
Hedged Item
 
Swap Notional(1)
 
Swap Maturity
 
Long-Term Debt Floating Rate
 
Swap Fixed Rate
Tranche C Term Loans
 
$1,200,000,000
 
August 2022
 
1-Month LIBOR (1.0% Floor)
 
2.83%


25


(1)
We have three interest rate swap agreements with notional amounts of $600.0 million, $400.0 million and $200.0 million for a total notional of $1.2 billion.

We have master International Swaps and Derivatives Association (“ISDA”) agreements in place with our derivative instrument counterparties. These ISDA agreements provide for final close out netting with our counterparties for all positions in the case of default or termination of the ISDA agreement. We have determined that our ISDA agreements provide us with rights of setoff on the fair value of derivative instruments in a gain position and those in a loss position with the same counterparty. As of September 30, 2018, we have elected not to offset such derivative instrument fair values in our consolidated balance sheets which nets to a $4.1 million interest rate swap asset.
    
The effect of derivative instruments qualifying and designated as cash flow hedging instruments on accumulated other comprehensive income was as follows:
 
 
Gain (Loss) Recognized in AOCI
 
Location
 
Gain (Loss) Reclassified from AOCI
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
2018
 
2017
 
2018
 
2017
(in thousands)
 
(Unaudited)
 
 
 
(Unaudited)
Interest rate swaps
 
$
3,346

 
$

 
$
3,346

 
$

 
Interest expense, net
 
$
766

 
$

 
$
766

 
$

 
 
$
3,346

 
$

 
$
3,346

 
$

 
 
 
$
766

 
$

 
$
766

 
$


Credit Related Contingent Features

We have agreements with each of our derivative counterparties that contain provisions where a failure by any of the parties to comply with or perform any of the obligations to be complied with or performed in accordance with the master agreements, if such failure is continuing after any applicable grace period has elapsed, then the party could be declared in default on its derivative obligations. Our interest rate swaps do not require us to post collateral.

12. Related Party Transactions

Arrangements with Carlyle
    
On January 13, 2011, we entered into a ten-year consulting agreement with Carlyle under which we pay Carlyle a fee for consulting services Carlyle provides to us and our subsidiaries. During the three and nine months ended September 30, 2018, we recorded $0.8 million and $2.4 million, respectively, of expenses associated with the consulting fee and the reimbursement of out-of-pocket expenses. During the three and nine months ended September 30, 2017, we recorded $0.8 million and $2.4 million, respectively, of expenses associated with the consulting fee and the reimbursement of out-of-pocket expenses.

Carlyle, from time to time, participates as a debt holder within the syndicate under our Term Loans. As of September 30, 2018, Carlyle held $52.7 million of our Tranche C Term Loans. As of December 31, 2017, Carlyle held $19.4 million and $24.4 million of our Initial Term Loans and Tranche B Term Loans, respectively.

From time to time, and in the ordinary course of business we may engage other Carlyle portfolio companies as service providers and other Carlyle portfolio companies may engage us as a service provider. Revenues and expenses associated with these related parties were not material during the three and nine months ended September 30, 2018 and 2017.

13. Supplemental Consolidating Financial Information
    
On December 22, 2010, Syniverse issued $475.0 million of Syniverse Notes guaranteed on a joint and several basis by each of its existing and future domestic restricted subsidiaries that guarantee the Senior Credit Facility (collectively, the “Subsidiary Guarantors”). Such guarantees are irrevocable, full, unconditional and joint and several.

We have presented supplemental consolidating balance sheets, statements of operations, statements of comprehensive income (loss) and statements of cash flows for Syniverse Holdings, Inc., which we refer to in this footnote only as Syniverse, Inc., the subsidiary guarantors and the subsidiary non-guarantors for all periods presented to reflect the guarantor structure under

26


the Senior Notes. The supplemental financial information reflects the investment of Syniverse, Inc. using the equity method of accounting.

The Company is presenting the tables below in order to comply with the covenant contained in the indenture of the Syniverse Notes.


    

 

27


CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF SEPTEMBER 30, 2018
(IN THOUSANDS)
 
Syniverse
 
Subsidiary
Guarantors
 
Subsidiary Non-Guarantors 
 
Adjustments 
 
Consolidated 
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
44,582

 
$
31,102

 
$

 
$
75,684

Accounts receivable, net of allowances

 
128,377

 
39,954

 

 
168,331

Accounts receivable - affiliates
1,998,845

 
1,829,870

 
99,193

 
(3,927,908
)
 

Income taxes receivable

 
282

 
4,363

 

 
4,645

Prepaid and other current assets
240

 
20,907

 
9,460

 

 
30,607

Total current assets
1,999,085

 
2,024,018

 
184,072

 
(3,927,908
)
 
279,267

Property and equipment, net

 
63,268

 
21,161

 

 
84,429

Capitalized software, net

 
72,911

 
18,107

 

 
91,018

Goodwill

 
1,924,005

 
377,315

 

 
2,301,320

Identifiable intangibles, net

 
185,679

 
30,302

 

 
215,981

Deferred tax assets

 

 
3,242

 

 
3,242

Investment in unconsolidated subsidiaries

 
40,852

 
4,407

 

 
45,259

Other assets
7,514

 
5,617

 
3,770

 

 
16,901

Investment in subsidiaries
2,493,664

 
501,964

 

 
(2,995,628
)
 

Total assets
$
4,500,263

 
$
4,818,314

 
$
642,376

 
$
(6,923,536
)
 
$
3,037,417

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDER EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
27,898

 
$
11,327

 
$

 
$
39,225

Accounts payable - affiliates
1,735,665

 
2,144,876

 
47,367

 
(3,927,908
)
 

Income taxes payable

 
818

 
1,552

 

 
2,370

Accrued liabilities
10,818

 
40,003

 
32,580

 

 
83,401

Deferred revenues

 
5,838

 
2,444

 

 
8,282

Current portion of capital lease obligation

 
4,442

 
868

 

 
5,310

Current portion of long-term debt, net of original issue discount and deferred financing costs
58,315

 

 

 

 
58,315

Total current liabilities
1,804,798

 
2,223,875

 
96,138

 
(3,927,908
)
 
196,903

Long-term liabilities:
 
 
 
 
 
 
 
 
 
Deferred tax liabilities
(21,749
)
 
86,119

 
11,354

 

 
75,724

Deferred revenues

 
1,205

 
703

 

 
1,908

Long-term capital lease obligation, net of current portion

 
1,288

 
62

 

 
1,350

Long-term debt, net of current portion, original issue discount and deferred financing costs
1,857,550

 

 

 

 
1,857,550

Other long-term liabilities

 
12,163

 
26,349

 

 
38,512

Total liabilities
3,640,599

 
2,324,650

 
134,606

 
(3,927,908
)
 
2,171,947

Commitments and contingencies:
 
 
 
 
 
 
 
 
 
Stockholder equity:
 
 
 
 
 
 
 
 


Common stock

 

 

 

 

Additional paid-in capital
1,207,531

 
2,243,496

 
752,265

 
(2,918,920
)
 
1,284,372

(Accumulated deficit) retained earnings
(344,137
)
 
251,309

 
(174,372
)
 
(77,831
)
 
(345,031
)
Accumulated other comprehensive (loss) income
(3,730
)
 
(1,141
)
 
(75,929
)
 
1,123

 
(79,677
)
Total Syniverse, Inc. stockholder equity
859,664

 
2,493,664

 
501,964

 
(2,995,628
)
 
859,664

Noncontrolling interest

 

 
5,806

 

 
5,806

Total equity
859,664

 
2,493,664

 
507,770

 
(2,995,628
)
 
865,470

Total liabilities and stockholder equity
$
4,500,263

 
$
4,818,314

 
$
642,376

 
$
(6,923,536
)
 
$
3,037,417

 

28


CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018
(IN THOUSANDS)
 
Syniverse
 
Subsidiary
Guarantors
 
Subsidiary Non-Guarantors 
 
Adjustments 
 
Consolidated 
Revenues
$

 
$
163,224

 
$
39,476

 
$

 
$
202,700

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of operations (excluding depreciation and amortization shown separately below)

 
82,277

 
8,303

 

 
90,580

Sales and marketing

 
12,641

 
5,432

 

 
18,073

General and administrative

 
18,212

 
8,177

 

 
26,389

Depreciation and amortization

 
28,435

 
8,762

 

 
37,197

Employee termination benefits

 
277

 
138

 

 
415

Restructuring

 

 
8,294

 

 
8,294

 

 
141,842

 
39,106

 

 
180,948

Operating income

 
21,382

 
370

 

 
21,752

Other income (expense), net:
 
 
 
 
 
 
 
 
 
Income (loss) from equity investment
19,488

 
1,366

 

 
(20,854
)
 

Interest expense, net
(40,763
)
 
(77
)
 
(15
)
 

 
(40,855
)
Equity (loss) income in investee

 
(895
)
 
(125
)
 

 
(1,020
)
Other, net
2,315

 
(1,565
)
 
374

 

 
1,124

 
(18,960
)
 
(1,171
)
 
234

 
(20,854
)
 
(40,751
)
(Loss) income before (benefit from) provision for income taxes
(18,960
)
 
20,211

 
604

 
(20,854
)