Home » Telecom Stocks » Transcripts

Syniverse Holdings Inc. Q3 2008 Earnings Call Transcript

November 20, 2008 | about stocks: SVR

Font Size:
Print
Email
- Single Page View

Syniverse Holdings Inc. (SVR)

Q3 2008 Earnings Call

November 5, 2008 4:30 pm ET

Executives

Jim Huseby – Vice President, Investor Relations

Tony G. Holcombe - President and Chief Executive Officer

David W. Hitchcock – Chief Financial Officer

Analysts

Scott Sutherland – Wedbush Morgan Securities

Katherine Egbert - Jefferies & Co.

William Power - Robert W. Baird & Co., Inc.

Peter Jacobson - Brean Murray, Carret & Co.

Amir Rozwadowski - Barclays Capital

John Bright - Avondale Partners

Lauren Ye – JP Morgan

Presentation

Operator

Good day ladies and gentlemen and welcome to the third quarter Syniverse Technologies Earnings Call. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would like now to turn the presentation over to your host for today’s call Mr. Jim Huseby, Vice President of Investor Relations. Please proceed.

Jim Huseby

Thank you and good afternoon everyone. On behalf of Syniverse I want to thank you for joining us today. On the call with us today are Syniverse’s President and Chief Executive Officer, Tony Holcombe, and Chief Financial Officer, David Hitchcock. During the call today Tony will provide an overview of the quarter, update you on the BSG integration, speak about some of our products and provide a regional review. He will then discuss our guidance, including a discussion of some current dynamics that we are seeing in our business. David will follow with additional detail on the company’s financial performance during the quarter and review our current balance sheet position. He will then turn the call back over to Tony for some concluding remarks.

We issued a press release this afternoon and also have prepared some slides that David will be speaking to on this call. Both of these items are 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 haven’t already done so.

Today’s call is also being webcast over the internet. It, too, is available on our website and will be archived and available for replay shortly after we conclude. In our press release and on today’s call we have included a discussion of certain non-GAAP measures, including adjusted EBITDA, adjusted net income, cash net income, and operating free cash flow. You will find a reconciliation of each of these items, as well as other information about our use of these measures in our earnings press release and on the website.

Before I turn things over to Tony I would like to caution all participants that today’s call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This may include statements about business outlook, strategy, net revenue, adjusted EBITDA, net income, cash net income, operating free cash flow outlooks for 2008, expected synergies related to BSG Wireless, and statements about historical results in the wireless communication industry that may suggest trends for our business. These statements are based on assumptions, estimates and other inherently subjective information available to us at the time of this presentation and are not guarantees of future performance. Actual results could differ materially from our current expectations as a result of many factors including unpredictable quarterly fluctuations in our business, macroeconomic factors, the effects of competition on our customers’ use of our services, any adverse change in our agreements with our vendors or partners, the impact of international expansion efforts on our business, our ability to integrate the operation of BSG wireless and changes in our tax status. These and other risks and uncertainties associated with our business are described in our filings with Securities and Exchange Commission. We assume no obligation to update any forward-looking information.

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

Tony G. Holcombe

Welcome, everyone, to Syniverse’s third quarter earnings conference call. I am pleased to report that Syniverse has had another strong quarter, extending the success we have seen over the last 18 months. Once again, the organic growth of data in our industry continues to drive Syniverse’s performance. Data revenues continue to grow in triple digits, up 121$ year-over-year.

Let’s now look at some specific numbers. As I already indicated, we had a strong third quarter. Net revenue came in at $135.8 million, up 37% year-over-year with an almost 8% sequential increase Q2 versus Q3 2008.

BSG contributed $15.8 million to that number in third quarter of 2008. If we exclude BSG our organic growth rate was 21% year-over-year. This is the seventh quarter in a row in which we achieved positive organic growth.

We experienced strong double- or triple-digit growth in three of our four global regions this quarter. These positive numbers range from just over 27% in North America to 332% in EMEA. With BSG revenues excluded, the same three regions were all positive year-over-year. The exception this quarter was Asia Pacific, where we saw a slight revenue decrease.

Again, our growth continues to be led by technology interoperability. Overall, technology interoperability is up almost 74% year-over-year. Even when we exclude BSG and compare the numbers to third quarter 2007 we realized an organic growth increase of about 43% year-over-year.

Another area of solid growth in the third quarter was number portability. David will provide details in a few minutes.

Our other service lines, network services, call processing, and enterprise solutions, were fairly flat or saw slight decreases in Q3. This is in line with the trends we have been seeing in recent quarters.

Adjusted EBITDA for the third quarter increased $22.8 million year-over-year, up 51%.

Margins were nearly 50% versus 45% last year, an increase close to 5%.

Cash net income was $34.2 million, up 55% from last year’s third quarter, while cash net income per diluted share was $0.50 compared to $0.33 last year.

Moving on to BSG, I am pleased to report that our BSG integration continues to go well. After months of careful planning and a painstaking testing by a team that has shown an amazing dedication to this project, we have successfully completed our first two customer upgrades.

The conversion process we are using is fairly unique in the industry, as it requires minimal effort on the part of the customer, making the entire upgrade virtually seamless. We are moving ahead with our upgrade schedule and have more operators scheduled to upgrade through the remainder of this quarter.

We have already realized nearly $4.0 million in run rate cost savings this year and continue to expect $12.0 million by the end of 2009.

Because we have so much news from North America I am going to go ahead and talk about it a bit earlier than I normally would during these calls.

First, let’s look at the numbers. Syniverse this year has successfully protected and expanded its North America customer base and won key renewals from major tier-1 customers. This region’s $98.3 million in net revenues accounted for about 72% of our total revenues for Q3 and about the same percentage as last quarter, but more importantly it represented a 27% increase from the same quarter last year.

As has been the case for all of 2008, this is almost all organic growth as the impact of the BSG business is minimal in North America. Messaging and mobile data have been the primary drivers for this region and we saw strong volumes with our clearing interoperability products, due in part because of the escalation in data combined with a seasonally strong summer travel season.

UniRoam also continues to post very strong results.

Equally important is our rate of contract renewals. As I mentioned during this call last quarter, we are experiencing an impressive 99% renewal rate, both globally and in North America, a clear indication of the service, quality, and value that we provide to our customers.

I am pleased to report that this quarter we completed a renewal with our largest customer. Effective September 30, 2008, we extended our contract with Verizon Wireless for three years. We were very pleased to put ink to paper and finalize the agreement to extend our 20+-year relationship.

Verizon Wireless uses a large suite of services from Syniverse and the renewal included the core Syniverse services that Verizon uses for the management of its data clearing and roaming operations; products such as mobile data roaming, data clearing house, visibility, UniRoam, and a number of other services.

As we have already said, the terms of this contract are consistent with the assumptions we made when we provided updated 2008 guidance during our last earnings call of August 4. As you know, we cannot discuss pricing for individual services or customers, however, I will add that Verizon would still represent a 10%+ customer for 2008 even if these terms were in effect for the entire year.

The impact of Verizon’s new terms is expected to be approximately $6.0 million in the fourth quarter. The business model remains transaction based so as volume grows, so will our revenue.

I would now like to take a few minutes to update you on some of our latest products. First, Syniverse DataNet continues on a successful track. The number of GSM customers who are choosing DataNet to fight roaming fraud keeps on growing. We have signed just over 150 contracts and are in negotiations with more than 100 additional unique operators. We will begin recognizing revenue in Q4 and continue to implement customers into 2009.

We are equally pleased by the recent successes seen with our financial clearinghouse service for GSM operators. Currently we have 105 live SCH customers compared to 82 at the end of third quarter last year. That number includes 21 new customers this year and an additional 13 new customer contracts not yet implemented.

Finally, I want to talk about a new product in our pipeline. In September we announced we are working with Colibria, a leading global provider of instant messaging and present solutions, to develop an advanced messaging hub solution. This hub will deliver seamless interworking between operators for IM, SMS, MMS, and presence applications.

What makes this unique in the industry is that while other vendors provide either IM or SMS or MMS solutions stand-alone, this advanced messaging hub will be the first to offer interworking and interconnection between all messaging types. This type of solution plays to our core interoperability strengths while enabling Syniverse to capitalize in the emerging mobile IM market in a cost effective manner.

We have structured our agreement with Colibria as a joint development agreement where we each bring our core capabilities to develop a state-of-the-art solution where Syniverse will own the intellectual property. We will be contributing $4.0 million to $5.0 million in capital, in total, to this joint development effort.

The potential market for this sort of solution is impressive. According to industry analysts group, Informa, the global messaging market will grow at an average of 18% a year to 2012. Informa projects that SMS, MMS, and mobile IM messages, which are expected to hit 2.5 trillion globally in 2008, will likely rise to 4.8 trillion messages by 2012 and indications that the ability for subscribers to exchange messages across mobile operators’ networks, regardless of the message type, will be a key factor in the continued growth in messaging traffic and revenues.

Needless to say, I am excited about the possibilities of our advanced messaging hub. The experience we have been providing interoperability between mobile operators, something that is essential to the adoption and usage of SMS and MS, should serve us well as we move forward in the messaging arena.

And now I want to turn my attention to our individual regions. Because I covered North America in detail earlier, I am going to go straight to the other three others of the world, EMEA, CALA, and AP. These three regions together generated almost 28% of our revenue for Q3, up from 22% for the same period last year. Our strategy to expand our business globally is paying off and I expect that percentage will continue to increase going forward.

In EMEA, which accounts for 14% of Syniverse’s business, net revenues were $19.0 million compared to $4.0 million in third quarter of 2007. This is an increase of just over 332% in the same period last year. When we eliminate third quarter 2008 BSG revenues of $13.6 million, we still see year-over-year organic growth at a very nice 23%.

EMEA’s third quarter was defined by robust sales activity in the clearing and settlement and fraud solution areas. Syniverse has been able to effectively compete in this area largely due to the Syniverse bundling capability for DCH, SCH, and DataNet.

[inaudible] team has gained excellent traction in the emerging markets of Eastern Europe and Africa. Thus far in 2008 we have signed at least 30 contracts with almost 20 new customers in Eastern Europe. During the same time frame, we have signed just over 30 contracts with 14 new customers in Africa.

As for European Union roaming regulations, we have not seen the market elasticity for voice roaming we expected in response to EU-mandated decreases in roaming fees. Voice roaming simply has not increased as anticipated, so for Syniverse the effects of this change has been neglible. Data usage continues to grow at triple-digit rates in the region.

CALA, which represents almost 6% of our company’s revenue, had a very solid quarter. Third quarter revenue for this regions was just over $8.0 million. This represents an increase of 30% when compared to third quarter 2007. If we exclude the BSG generated revenue, organic growth year-over-year is just over 9%.

Roaming and coring products are driving our growth in the region with significant contract wins for Syniverse, including some key takeaways. For example, Intel PCS, one of Chile’s largest mobile operators, decided to move its coring business to Syniverse. We will now supply Intel with both data and financial clearing services as well as DataNet and roaming management services.

In fact, we are now the leading supplier in Chile, in terms of both financial and data clearing. We have 100% market share of that country’s operators DCH business and two-thirds of its FCH business.

We are also seeing a lot of interest in our SMS and MMS services in CALA. Data, especially in the messaging arena, is beginning to gain ground in this part of the world as it catches up with EMEA and Asia Pacific in terms of growth trends.

As I mentioned earlier, Asia Pacific was our one region that saw a decrease in year-over-year revenues with third quarter revenues at $10.4 million, down 8% from last year’s same quarter. If we exclude BSG the number was down 14% year-over-year. This decline is largely attributable to timing of project implementations for a number of ITHL products.

Technology products, the ITHL products, still drive the majority of revenues in AP. For the first three quarters of 2008 this category of products were approximately 2% year-over-year and accounted for about 60% of that regions revenue.

I also wanted to talk more about one of the key areas of Asia Pacific. India, as you know, offers quite a bit of potential for service providers such as Syniverse. Already, we have an excellent presence in that country through contracts with all CDMA operators for domestic roaming service. I am proud to report that this means that we have achieved 100% CDMA roaming market share in India.

In addition, we expect India to release its national RFP for wireless number portability in the near future.

Finally, let’s talk about our guidance. We are reconfirming our annual guidance and see the following items impacting the fourth quarter. First, and most importantly, because of explosive growth in messaging and mobile data, we are beginning to see operators looking at various ways to reduce their costs for delivering these services.

The most significant example is that two of our CDMA customers, Alltel and Sprint, have indicated that they are planning to in-source the processing of mobile data roaming traffic between each other. We anticipate this change could occur in the near term with a potential top-line impact of $6.0 million to $8.0 million in the fourth quarter.

You should think about the impact of this in sourcing in two distinct pieces. First, the Alltel volumes that this affects were included in the $33.0 million to $36.0 million annual revenue estimate we gave you in July for the 2008 full-year pro forma impact of the Verizon acquisition of Alltel.

At that time, we indicated that given the required integration activities, we expected to see 60% of the impact in the first 12 months, post transaction close. With this change we would now expect to see an 80% impact in the first 12 months as it will accelerate the loss of the Alltel volumes.

Second, this change will also affect the mobile data roaming volumes we process for Sprint. For these volumes the estimated full-year pro forma impact on 2008, if the change had been implemented on January 1, 2008, is $16.0 million to $18.0 million. We expect these services to grow at a 20% annual rate.

While this will have a negative impact on our revenues, we continue to provide valuable services to these two customers as well as our other customers and we continue to believe mobile data growth will have a positive impact on our overall business.

Also, as expected, in the fourth quarter we will see a full-quarter impact of the new Verizon pricing as well as a return to our normal fourth quarter seasonal trending.

Finally, with the increased exposure to foreign currency that came with our acquisition of BSG wireless, the strengthening of the dollar that we have seen over the past several months, also will impact the fourth quarter.

In spite of these developments, we are reconfirming our existing annual guidance. To recap that guidance, we believe we will see results for full year 2008 fall in the following ranges: Net revenue, $485.0 million to $490.0 million; GAAP net income, $69.0 million to $74.0 million; adjusted EBITDA, $223.0 million to $230.0 million; cash net income, $105.0 million to $110.0 million; and operating free cash flow in excess of $118.0 million.

With that I would like to turn the call over to David.

David W. Hitchcock

As we have done for the past several calls, I will be speaking from the slides that are posted on our website and that Jim mentioned at the beginning of the call. I will start on Slide 2.

Syniverse delivered a quarterly record of $135.8 million in net revenues in the quarter, 37% ahead of last year’s third quarter and nearly 8% sequential growth from last quarter. Organically, revenues were $120.1 million, a 21% increase from last year’s third quarter.

As most of you know, our third quarter is historically our seasonal peak and we expect that pattern to hold once again this year.

Gross margin in the third quarter was an all-time record at just over 69%, 3% higher than last year’s quarter. Seasonality, greater scale, and a continuation of the favorable mix shift towards technology interoperability all played a role in these strong margins.

SG&A was $30.9 million, or slightly less than 23% of net revenue in the quarter, with most of the increase versus last year’s quarter due to the addition of BSG plus the incremental investments we have made in marketing and sales resources across our four regions.

Given the pressures on our top line as we move into 2009, such as the Verizon renewal, the acquisition and integration of Alltel by Verizon, and mobile data in-sourcing by Alltel and Sprint, we are taking steps to reduce our cost structure now.

While the BSG integration is part of this, we are also taking additional costs out of both our COGS and SG&A lines to become more efficient. As a result, I expect that our total costs will be 3% to 6% lower in 2009 than in 2008.

Depreciation and amortization and net interest costs were higher in this year’s quarter due to the acquisition and integration of BSG, leading to a 50% increase in pre-tax income and a 55% increase in GAAP net income with diluted GAAP EPS at $0.37.

On a year-to-date basis net revenue is up almost 39% in total and 23% on an organic basis, while diluted EPS is $0.90, up 70% versus last year’s first nine months.

Slide 3 reconciles our non-GAAP measures. Let me spend a moment on a few of these items. First, net interest expense was $8.7 million in the quarter, 40% higher than last year due to the additional debt we took on to finance BSG.

Given the current credit squeeze and the increased focus we have seen from many of you, I would like to go into a little more detail than usual. In the quarter we had $0.5 million in interest income despite very low Treasury rates due to our increase in cash balance.

We manage our cash very conservatively, typically keeping excess cash balances in Treasury funds or short-term deposits rather than reaching for yield. As a result, we have had no exposure to any of the types of securities that have experienced adverse liquidity issues.

Interest expense was $9.2 million in the quarter and this is composed of two pieces. First is the $3.4 million accrued on our 7.75% Senior Subordinated Notes, second is the $5.8 million on our credit facility.

The effective tax rate, at 37.2% for the quarter, is in line with the annual rate I discussed last quarter.

In addition, BSG transition expenses were another $3.3 million in the quarter. As I have done on previous calls, I will cover those in more detail in a few minutes.

This leads to $67.6 million of adjusted EBITDA, up 51% from last year’s third quarter and cash net income of $34.2 million, up 55% versus last year’s third quarter.

Cash EPS was $0.50 in the third quarter, on a slightly increased share count.

On a year-to-date basis adjusted EBITDA is $179.0 million, up 59% versus nine months of 2007 and cash net income is $87.5 million, up 62% with cash EPS of $1.29.

Slide four breaks down our revenues by service line and by region. As usual technology interoperability, which represented 65% of our net revenues in the quarter, is the big player with 74% growth overall and almost 43% organically.

Network was $31.0 million again this quarter, while number portability increased by $1.0 million, or 14% to $8.1 million. Call processing and enterprise solutions were both down in the quarter.

The number portability increase was split in two nearly equal pieces. First, there was an increase in wireless porting volumes, with the other piece coming from the nearly 50% increase in wire line to wireless porting, mostly centered on a single U.S. carrier.

Within call processing we saw the continued decline in our legacy fraud services, which were down another 44% compared to the prior-year quarter and a slight decline in singling solutions, mainly due to the continued CDMA-to-GSM network migrations that I mentioned last call. The headwind from these network migrations will likely stay with us for another couple of quarters, though the impact should be less from this point forward.

Looking at our revenues by region, three of our four regions showed growth. North America was up 27%, while CALA grew by 30%. EMEA benefited from the BSG acquisition and posted growth in excess of 300%, but more importantly, grew 23% organically.

Revenues in Asia Pacific were down versus the prior-year quarter, mainly due to project timing in our turnkey business, but are still up 6% on a year-to-date basis.

Revenues from outside North America accounted for nearly 28% of our revenues, both in the quarter and on a year-to-date basis.

Let’s move to Slide 5 and talk about cash flow. We generated $45.8 million in cash from operations in the third quarter as our seasonal EBITDA peak is offset by semi-annual interest payment on our subordinated notes.

Last call I mentioned that we had increased our capex budget for the year, due to the strong volume growth. This quarter we invested $9.0 million in capital expenditures, down from the second quarter and about 6.7% of net revenues.

For the full year, we expect to spend roughly 8.5% of revenue for capital expenditures, including the one-time capital required for the BSG integration effort and the roughly $2.0 million we will invest this year in the joint development agreement with Colibria.

After those items, our free cash flow in the quarter was $36.7 million and we generated $86.0 million in the first nine months of the year, 73% higher than the first nine months of last year.

Turning to the balance sheet items on Slide 6, we continue to build our cash balance in lieu of paying down our favorable credit facility. At September our cash balance stood at $126.0 million.

Our markets ration on September 30, 2008, was 2.3x and including a full LTM contribution from BSG, which is consistent with our credit agreement calculation, the ratio was 2.2x. These ratios are defined as total debt to adjusted EBITDA and do not reflect the impact of our growing cash balance.

Our debt is composed of two primary parts. First, our credit facility, noted as the Term Note B on this slide has both dollar-denominated and Euro-denominated tranches. As most of you know, that debt has a variable rate with the dollar portion of it at LIBOR + 250 and the remaining Euro-denominated portion marked to Eurobill.

Although the rate is variable, the terms of our facility allow us to chose the LIBOR term we want to pay on and our rates are fixed over the life of that term. Consequently, we were not impacted by the volatility in LIBOR during the quarter. Shortly after the quarter ended we entered into a swap to fix $100.0 million of our debt at a LIBOR rate of 2.76% + the 250 basis point margin, which leaves with $242.0 million of variable rate debt.

As a result, we now have approximately $275.0 million of debt fixed at a blended average rate of 6.85% with the balance being variable at a margin of 250 basis point. Our earliest maturity is in 2013.

Let me also take a moment to address the impact of Lehman’s bankruptcy. First, one of the Lehman subsidiaries serves as the administrative agent for a credit facility and will likely be replaced. This has no impact on Syniverse directly.

Second, Lehman had a commitment to fund a portion of our undrawn revolver. While that commitment is no longer likely to be honored, Syniverse has no need to draw on it to fund operations as the revolver provides us as-needed collectability.

Aside from that impact on our undrawn revolver, Syniverse has been largely unaffected by the current credit crisis. Our strong cash flow has provided us with the growing cash balance that gives us flexibility and we expect the business to continue to generate strong free cash flow.

At some point we will have to choose to deploy some of our cash. We are constantly looking at acquisitions but remain very disciplined in our analysis. Otherwise, we could pay down our debt, eliminating some of the negative carry associated with our growing cash balance and gaining some earnings accretion.

Given the state of the credit markets, I don’t think we are at that point yet but we will continue to evaluate our options.

I will discuss the breakdown of our transition expenses on Slide 7. We recorded another $3.3 million in transition expenses this quarter with a split between integration-specific expenses and duplicative costs similar to last quarter.

Integration-specific expenses totaled $1.2 million, the same as last quarter but the mix included more additional temporary headcount to prepare for the initial upgrades and less of the other integration-specific items like travel expenses. Through September 30, 2008, we realized approximately $3.0 million of integration-specific costs. During the fourth quarter I expect that we will see these costs modestly increase as we will be preparing for a number of customer upgrades, but our expectations of $4.0 million to $5.0 million of these one-time costs for the full year remain unchanged.

The remaining $2.1 million of transition costs this quarter are the duplicative costs we realized this quarter but do not expect to recur upon full integration. These costs continue to trend down from the $2.5 million in the first quarter and the $2.1 million last quarter. We expect these duplicative costs to continue their gradual descent and we still expect a total of $8.0 million to $9.0 million for the full year.

Our expectation of $12.0 million of annual run rate cost synergies by the end of next year remains in place and we are on track to achieve that goal. We have largely achieved our goal in the first of the three cost saving buckets to duplicative SG&A headcount.

The balance of the savings is tied to the reductions we expect to realize as customers are upgraded to the more efficient data processing platform. With the upgrade process now underway, we are starting to fill the other two cost saving buckets, data processing savings and platform labor savings, and they will provide the bulk of the remaining cost savings as we move through 2009.

On the final slide I want to summarize the key takeaways for the quarter. First, we again saw strong revenue growth, driven by the same top-line trends that we have seen all year. Given that we have just completed our seasonal peak quarter and now have the new Verizon contract to operate under, as well as the potential impact of the mobile data roaming in sourcing between Alltel and Sprint, I expect the fourth quarter to show a sequential revenue decline.

We continue to generate significant cash flow and we continue to build our cash on our balance sheet. Over half of our debt is now in favorable fixed rates and we have enough cash to repay a significant percentage of the remaining variable portion should we elect to do so.

The BSG integration effort remains on track and we have realized most of the synergies we targeted for 2008. Customer upgrades have begun successfully and we are starting to see the initial data processing savings by offloading transactions from our variable cost planning platforms.

Finally, in anticipation of Verizon’s acquisition of Alltel, the Verizon contract renewal, and the Alltel Sprint mobile data roaming in sourcing, we are being prudent and currently taking action to lower our cost structure to ensure we continue to generate our historically strong margins.

Now let me turn it back to Tony.

Tony G. Holcombe

Before we take your questions, I have just a few closing comments.

The third quarter was a record quarter for Syniverse as we continue to benefit from the strong growth in the global wireless industry. Over the past several years we worked hard to globalize our business and we now serve over 600 customers across our four regions. We are truly a global company.

During the past six months, three significant and customer-specific impacts to our business have occurred: the Verizon Alltel consolidation, new contract terms with Verizon, and now the NDR in sourcing between Sprint and Alltel.

In spite of these events, our business remains strong due to a superior business model combined with a growing global customer base. The strength of the global wireless business combined with our leading position in the industry, global scale, and the actions we are taking on cost, will help to offset these impacts. We will manage through these items while continuing to produce strong margins and generate significant cash flows.

In conclusion, I would like to thank our customers who rely on us to provide products and services to their business. I also want to thank our Syniverse employees for their fine work this quarter and all of this year.

As I continually say, we have the best employees in the industry, employees who are dedicated to providing excellent service to our customers and to advancing our leadership position worldwide with outstanding products and services.

This concludes our formal remarks and we will be happy to take your questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Scott Sutherland – Wedbush Morgan Securities.

Scott Sutherland – Wedbush Morgan Securities

On this in-sourcing trend, at least with Sprint and Alltel, this has been a nice part of the business, so what do you see, this as being a trend or kind of a one-op incident here? And why don’t they do with other services like the voice side and other things that have even more scale, why do they continue to out-source that?

Tony G. Holcombe

I do think we believe this is a one-op issue. There is significant traffic between Sprint and Alltel because of the nature of their business model. So we do believe fundamentally it is a one-op.

If you look at the broad base of the services we have, how we do it, our concept of one to many, and the value proposition we offer the customers, we don’t see this as a trend. We think it’s a fairly unique event.

Although substantively it is substantial for us, it is still in our belief a one-op issue and certainly not something we would see on a global basis.

Scott Sutherland – Wedbush Morgan Securities

You mentioned the number portability in India. I think they are going live or they want to go live in May. I’m not sure if they have changed that date. What do you think Syniverse’s opportunity is there and what other countries are you seeing opportunities right now?

Tony G. Holcombe

Relative to the date, we’re still waiting to receive the RFPs so I would be a little cautious about dates at this point. They still have yet to select a vendor and we know from our previous experience the amount of time it takes to get an operation like this up and operational.

We are competing very aggressively for the Indian market. We certainly want that business and so we are doing our level best to win. I think significantly outside of India the other opportunity we are watching very closely is China and although China I don’t think is as far along as India, our indications are China is very committed to open number portability. And obviously given the size of the subscriber market in China, we consider that a significant opportunity and would definitely significantly chase that.

Scott Sutherland – Wedbush Morgan Securities

I just wanted to recap the Alltel Sprint impact. I think you said $6.0 million to $8.0 million from Alltel but that would be dealt with in the overall Verizon merger. And so that gets it accelerating faster and it sounds like the Sprint impact is about $4.0 million to $4.5 million a quarter if it would happen in 2008, is that correct?

Tony G. Holcombe

You’ve got it.

Operator

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

Katherine Egbert - Jefferies & Co.

Can you talk to any metrics on 2009? I know you gave us revenue numbers and growth rates for some of these three headwinds but can you give any clue about 2009?

Tony G. Holcombe

We are not prepared to give guidance on 2009 today. We will put guidance out at our traditional time at the beginning of 2009. We are still looking at what 2009 means. I hope you understand we are giving you as much clarity based on what we know about the Verizon contract and what we know about the Spring Alltel. We are certainly giving you a very clear signal on what you can expect from us on costs in 2009. But we still have work to do to sophisticate the rest of those numbers.

Katherine Egbert - Jefferies & Co.

So if your revenue growth slows a bit in 2009 do you think you can still product the same levels of EBITDA margins?

Tony G. Holcombe

I think what I would say, we’re not going to get into specific EBITDA numbers at this point, but I would say is both David and I said is that we believe we will maintain the margins that we have traditionally had in this business.

Katherine Egbert - Jefferies & Co.

This mobile [inaudible] is an area, you know, one of your competitors has struggled with mightily. Can you talk a bit about why you are entering that market? What do you use there?

Tony G. Holcombe

I think what is unique is combination of Colibria and Syniverse and I think it’s real important that we understand the distinction that we’re drawing here. What we are getting from Colibria is not an instant message platform to sell to carriers. That’s what Colibria does today.

What we are getting Colibria is their intellectual knowledge to help us put together with our advanced messaging hub a hub solution. I think the simplest way to understand that, and this really falls right into what we know how to do in the global market place, is that if I am on IM and you’re on SMS, I can IM you a message, it’s going to show up on your devise as an SMS, you’re going to respond to me as SMS, and I’m going to get it back as an IM.

That’s not a service that exists today. And if you think about what Syniverse does, that’s interoperability and providing expanded reach for the subscribers, it helps subscribers protect an SMS revenue base, which we think is important, particularly in North America. And conversely, enables reach for the carriers to now get their subscribers to access a variety of other services.

And that’s what we’re talking about here. So it’s a very specific application that has true global impact and could be used by all carriers today and that’s one of the reasons we’re excited about this new development activity.

Operator

Your next question comes from William Power - Robert W. Baird & Co., Inc.

William Power - Robert W. Baird & Co., Inc.

Maybe just a couple of other clarifications on the MDR change. Is it expected to occur at the beginning of 2009 or will that also impact Q4?

Tony G. Holcombe

We will tell you what we know. We think it will happen in Q4 although that time line is a little fuzzy right now. So our expectation based on our numbers and guidance is we are planning for it to happen in Q4 but I would caution that it is a little loose.

William Power - Robert W. Baird & Co., Inc.

And what would keep Verizon from in sourcing that once they combine with Alltel, for traffic between , say, they and Sprint ?

Tony G. Holcombe

That’s a great question and I’m glad you asked it. Really, what would be impacted here if you would think about it. This is a CDMA product in North America is primarily what we are talking about. So if you think about Sprint, Alltel, and Verizon as the big three, you know, Alltel’s has already been accounted for in the consolidation, which we have talked about. Now we have talked about Sprint. That only leaves Verizon.

Interestingly enough, the Verizon traffic here between themselves and Sprint is a very low number, much smaller than what we’ve been talking about on the other two. So even if it were to happen it is very small. But I would tell you the truth of the matter is we have no indication from Verizon that they have an interest in doing this at this point.

William Power - Robert W. Baird & Co., Inc.

And I guess the reason why you wouldn’t see that perhaps among some of the Asian carriers is just on that traffic between them? Is that fair?

Tony G. Holcombe

I think that is exactly right. You see a much more diversified traffic pattern. I think it’s just a real function of the Alltel Sprint roaming relationship they had put in place.

William Power - Robert W. Baird & Co., Inc.

And is there a reason why, if you looked at Sprint Alltel, just on the traditional voice roaming side, that they couldn’t potentially in-source some of that? Do you see that as a risk, too?

Tony G. Holcombe

I don’t see it as a risk. We talked about it in one of our disclosure documents. Obviously that is a big potential risk in the market but again, I think from a clearinghouse service standpoint we really do believe that there is a lot more diversification of traffic and the value of the service really supports that. So, no, I don’t see that at this point.

William Power - Robert W. Baird & Co., Inc.

Can you talk a little about the process for that negotiation for that change? Did you have a chance to improve your pricing with them? Can you give us any color as to how that change took place, or that agreement took place?

Tony G. Holcombe

I can’t get into individual customer negotiations. I will tell you that we did negotiate very hard on this and right up to literally the first part of this week we were still in the process of putting some alternative proposals on the table. For a variety of reasons, which I really can’t go into, I just don’t think that is going to happen at this point.

William Power - Robert W. Baird & Co., Inc.

As you look at the economy generally, have you seen much in the way of changes in either customer usage or traffic? I understand the data trends generally continually to be very strong, but if you were to look on a per subscriber basis, either on the voice side or data side, any meaningful changes on that front?

Tony G. Holcombe

Another good question. I think that our general reaction right now is no. We haven’t seen anything meaningful. We are obviously watching it very close. We are talking to our customers all over the world about what they may or may not. We have seen a few places where there might be some trends in a month but it is difficult to see whether that’s more than a month at this point.

I mean, let’s step back from what we know. So that’s what we know and if you think broadly about it for a moment, our business is generated primarily by roaming and roaming is going to be people doing it on a personal basis or people doing it on a commercial basis.

You would logically have to think with the recession people will pull back on personal travel and pull back on corporate travel. And so I think there probably could be some impact to that. I think we can’t quantify that at this point. We will watch it closely.

But clearly the other part of that is that the triple-digit growth that we see in data on a global basis tens to offset to a certain extent. So we certainly don’t see any decreased usage, per se, of the data devices right now. But I think, as the year ends as we get into the first part of 2009, we will certainly track that and provide color on that when we see it. But right now, the bottom line is I don’t see a clear trend.

Operator

Your next question comes from Peter Jacobson - Brean Murray, Carret & Co.