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Syniverse Holdings 10-K 2013
SVR-12.31.12-10K (WORD)
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-K
 _________________________
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
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)
________________
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
_________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o    No  x
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  x    No  o
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer  o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company  o       
 
 
        (Do not check if a smaller reporting company)
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 aggregate market value of the common stock of the registrant held by non-affiliates of the registrant as of June 30, 2012 was $0. The number of shares of common stock of the registrant outstanding at March 6, 2013 was 1,000.
Documents Incorporated by Reference
None
 
 
 
 
 


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SYNIVERSE HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
TABLE OF CONTENTS

 
 
Page
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
Item 15.

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STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Certain of the statements in this Annual Report on Form 10-K, including, without limitation, those related to our future operations or results under the caption entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute “forward-looking statements” for purposes of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and which may cause our actual results, performance or achievements, or the performance of the global telecommunications industry or economy generally, to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that may be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “target,” “point to,” “project,” “predict,” “could,” “intend,” “potential,” and other similar words and expressions of the future or otherwise regarding the outlook for our future business and financial performance and/or the performance of the global telecommunications industry and economy generally. Such forward looking statements include, without limitation, statements regarding:
expectations of growth of the global wireless telecommunications industry, including increases in new wireless technologies such as smartphones and other connected devices, wireless subscribers, wireless usage, roaming, mobile data, number portability and text and multimedia messaging;
increases in demand for our services due to growth of the global wireless telecommunications industry, greater technology complexity and the introduction of new and incompatible wireless technologies;
expectations of changes in our revenues from prior periods to future periods;
our beliefs concerning the effects that the current economic conditions will have on our business;
the cost and difficulties of acquiring and integrating complementary businesses and technologies;
capital expenditures in future periods; and
the sufficiency of our cash on hand, cash available from operations and cash available from the revolving portion of our New Senior Credit Facility (as defined under Item 1 of this Annual Report on Form 10-K) to fund our operations, debt service and capital expenditures.
These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. As you read and consider this Annual Report on Form 10-K, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Many factors could affect our actual financial results and could cause actual results to differ materially from those expressed in the forward-looking statements.
The forward-looking statements may not be realized due to a variety of factors, including, without limitation:
system failures, security breaches, delays and other problems;
the loss of major customers and the resulting decrease in revenue;
future consolidation among our customers that may cause decreased transaction volume and/or a reduction in our pricing;
the failure to adapt to rapid technological changes in the telecommunications industry;
intense competition in our market for services and the advantages that many of our competitors have or may develop over us, through acquisitions or technological innovations;
customer migrations from our services to in-house solutions;
the failure to achieve or sustain desired pricing levels or transaction volumes;
certain risks with our continued expansion into international markets;
the costs and difficulties of acquiring and integrating complementary businesses and technologies;

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the inability of our customers to successfully implement our services;
the risk exposure related to our reliance on third-party providers for communications software, hardware and infrastructure;
our inability to develop or maintain relationships with material vendors;
fluctuations in currency exchange rates;
the failure to obtain additional capital on acceptable terms, or at all;
the impairment of our intangible assets or goodwill;
regulations affecting our customers and us and future regulations to which they or we become subject;
the capacity limits on our network and application platforms and inabilities to expand and upgrade our systems to meet demand;
the inability to obtain or retain licenses or authorizations that may be required to sell our services internationally;
the failure to protect our intellectual property rights;
claims that we are in violation of intellectual property rights of others and any indemnities to our customers that may result therefrom;
the loss of key personnel and the potential inability to successfully attract and retain personnel;
unfavorable general economic conditions in the U.S. or in other major global markets;
our exposure to, and the expense of defending and resolving, lawsuits that arise in the ordinary course of business;
other factors disclosed in this Annual Report on Form 10-K; and
other factors beyond our control.
In light of these risks, uncertainties and assumptions, the forward-looking statements contained in this Annual Report on Form 10-K for the year ended December 31, 2012 might not prove to be accurate and you should not place undue reliance upon them. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as otherwise may be required by law.
MARKET, RANKING AND INDUSTRY DATA
The data included herein regarding markets and ranking, including the size of certain service markets and our position and the position of our competitors and customers within these markets, is based on the referenced independent industry publications, reports from government agencies or other published industry sources and our estimates are based on our management’s knowledge and experience in the markets in which we operate. When we rank our customers by size, we base those rankings on the number of subscribers our customers serve. When we describe our market position, we base those descriptions on the number of subscribers serviced by our customers. Our estimates have been based on information obtained from our customers, suppliers, trade and business organizations and other contacts in the markets in which we operate. We believe these estimates to be accurate as of the date of this Annual Report on Form 10-K. However, this information may prove to be inaccurate because of the methods by which we obtain certain data for our estimates, because this information cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in a survey of market size. In addition, the provided market data is not a guarantee of future market characteristics because consumption patterns and consumer preferences can and do change. See also “Statements Regarding Forward-Looking Information.”
OTHER DATA
Numerical figures included in this Annual Report on Form 10-K have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

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PART I

ITEM   1.    BUSINESS
Overview
Founded in 1987, we are a leading global provider of technology solutions for mobile operators and the broader wireless ecosystem. Our integrated solutions enable wireless services across disparate networks, technologies and geographies. For nearly 25 years, we have served as an integral third-party intermediary to stakeholders across the global telecommunications industry including mobile operators and enterprise customers, among others. Our product offerings include roaming clearing house and financial settlement services between operators; networks and applications which facilitate connectivity across the wireless ecosystem; and text and multimedia message delivery services.
    We clear, process, route, translate and transport over two billion transactions on average each day. A “transaction” is generated by, among other things, an individual phone call, a text or a multimedia message that is sent or received, or the initiation of a mobile data session between different operators’ networks or while roaming. We also operate a secure physical network infrastructure, consisting of 18 data centers and 14 network points-of-presence worldwide, that provides the connections required to complete these transactions. Our Network services provide connectivity to mobile service operators ("MSOs") and other telecommunications providers, allow subscribers to keep (or “port”) their phone numbers when switching mobile operators, and allow subscribers to utilize caller identification (“caller ID”) services. Our Messaging services allow mobile operators’ subscribers to send text and multimedia messages to other mobile operators’ subscribers and also facilitate text and multimedia messaging between enterprises and their customers. Through the use of our Roaming services, mobile operators enable their subscribers to make phone calls, send and receive text messages, multimedia messages, and email and browse the web or use applications while roaming on another mobile operator’s network.
We generate the majority of our revenues on a per-transaction basis, often generating multiple transactions from a single subscriber call, text message or data session. Growing demand for transactions is driven primarily by the volume of wireless voice calls and data sessions, the frequency of subscriber roaming activity, the amount of data downloaded while roaming, the number of text and multimedia messages exchanged, subscriber adoption of new wireless data services and evolving wireless technology.
We currently provide services to over 740 mobile operators, including Verizon Wireless, Telefónica, Vodafone and China Unicom, and to more than 150 enterprise customers across nearly 160 countries. We have maintained a customer service agreement renewal rate of 98% since 2006.
On January 13, 2011, pursuant to the Merger Agreement, dated as of October 28, 2010, we consummated a merger with Buccaneer Holdings, Inc. (“Holdings”) and Buccaneer Merger Sub, Inc. (“Merger Sub”), affiliates of The Carlyle Group (“Carlyle”), under which Holdings acquired 100% of our equity and Merger Sub merged with and into Syniverse Holdings, Inc. ("Syniverse" or the "Company") with Syniverse as the surviving corporation (also referred to herein as the “Merger”). As a result of the Merger, the common stock of Syniverse Holdings, Inc. is no longer listed on the New York Stock Exchange ("NYSE").
Our principal executive offices are located at 8125 Highwoods Palm Way, Tampa, Florida 33647. Our telephone number is +1 (813) 637-5000, and our website is www.syniverse.com. The information on or linked to our website is not part of this Annual Report on Form 10-K, nor is such content incorporated by reference here.
The following sections of our Annual Report on Form 10-K excluding Item 6 and Item 8 represent information about our financial condition and results of operations and cover periods before and after the Merger and the related Transactions (as defined in Note 4 to our Consolidated Financial Statements). Accordingly, the financial information of periods prior to January 13, 2011 do not reflect the significant impact that the Transactions have had on us, including increased levels of indebtedness and the impact of purchase accounting. However, the general nature of our operations was not impacted by the Transactions. As such, for comparative purposes we will discuss changes between the periods presented without reference to the effects of the Predecessor and Successor periods, which is consistent with the manner in which management evaluates the results of operations. Effects of the Transactions will be discussed where applicable. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31.

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Executive Overview
Financial Highlights
For the year ended December 31, 2012, revenues decreased $24.1 million, or 3.1% to $743.9 million from $768.0 million for the year ended December 31, 2011. The decrease was primarily driven by the Verizon Wireless contract renewal executed at lower pricing and the impact of lower pricing for other customer contract renewals during the second quarter of 2012. The pricing impact was partially offset by transaction volume increases in our Network service offering, specifically Mobile Data Roaming ("MDR"), our interstandard roaming solution and interworking packet exchange ("IPX") products and our enterprise messaging product. For the year ended December 31, 2012, cost of operations increased $6.5 million due primarily to higher data processing and hosting costs and message termination fees, partially offset by lower revenue share cost resulting from a contractual rate reduction. Sales, marketing, general and administrative expenses increased $15.8 million, driven by higher professional services costs associated with business development activities including our pending acquisition (as further discussed below). Depreciation and amortization expenses decreased $21.6 million to $177.3 million for the year ended December 31, 2012 from $198.9 million for the same period in 2011 primarily due to our pattern of consumption amortization method for customer relationships valued in the Merger. Operating income increased $66.8 million to $102.3 million for the year ended December 31, 2012 from $35.6 million for the same period in 2011 due to $87.8 million of Merger expenses recorded in 2011 relating to the Merger, offset by the factors discussed above.
Business Developments
Business Acquisition Agreement
On June 30, 2012, we entered into an agreement (the “Purchase Agreement”) with WP Roaming S.à r.l., a Luxembourg limited liability company (the “Seller”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Purchase Agreement, we will acquire from the Seller all the shares and preferred equity certificates (whether convertible or not) in WP Roaming III S.à r.l. (“WP Roaming”) (the “Acquisition”). WP Roaming is a holding company which conducts the business of MACH S.à r.l. (“MACH”). MACH connects and monetizes the telecom world with its comprehensive and growing portfolio of cloud-based communication services, providing its 650 operator customers with solutions to monetize mobile data, simplify interoperability between networks, optimize wholesale processes and protect revenues. Headquartered in Luxembourg, MACH has offices in 12 countries.
At the closing of the Acquisition, which we expect to occur during the second quarter of 2013, we will pay to the Seller an amount equal to €172.7 million, subject to adjustment, plus €0.25 million per month from December 31, 2011 through the closing date of the Acquisition. In addition, at the closing of the Acquisition, we shall, on behalf of WP Roaming, pay all amounts outstanding to WP Roaming’s third-party lenders in order to ensure the release of all related guarantees and security interests. On July 2, 2012, we paid the Seller a deposit of €30 million.
Refer to Note 18 and Note 22 to the Consolidated Financial Statements for additional information regarding this pending business acquisition.
Delayed Draw Facility
On February 4, 2013, Syniverse Magellan Finance, LLC, our direct wholly-owned subsidiary entered into a delayed draw credit agreement (the "Delayed Draw Credit Agreement") with Barclays Bank PLC, as administrative agent, and the other lenders from time to time, providing for a new senior credit facility consisting of a $700 million delayed draw term loan facility (the “Delayed Draw Facility”). The lenders will fund the Delayed Draw Facility when certain conditions are satisfied, including the consummation of the Acquisition discussed above.

Under this facility, borrowings will bear interest at a floating rate which can be, at our 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, in the case of term loans under the Delayed Draw Facility, subject to a Eurodollar rate floor of 1.00% or a base rate floor of 2.00%, as applicable. The applicable margin for the term loans under the Facility is 3.00% per annum for Eurodollar loans and 2.00% per annum for base rate loans.

The Delayed Draw Facility will mature the earliest of (i) April 23, 2019, (ii) if there are no term loans outstanding, the date of termination in whole of the commitments under the Delayed Draw Facility and (iii) the date the loans under the Delayed Draw Facility are declared due and payable in connection with an event of default; provided that (a) in the event that more than $50 million of our 9.125% Senior Notes due 2019 (the “Senior Notes”) remain outstanding on the date that is 91 days prior to the stated maturity of the Senior Notes (the “First Springing Maturity Date”), the maturity date for the Delayed Draw Facility will be the First Springing Maturity Date and (b) in the event that more than $50 million in aggregate principal amount of any

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refinancing indebtedness in respect of the Senior Notes remains outstanding on the date that is 91 days prior to the stated maturity of such refinancing indebtedness (the “Second Springing Maturity Date”), the maturity date for the Delayed Draw Facility will be the earlier of the Second Springing Maturity Date and April 23, 2019.
Refer to Note 21 to our Consolidated Financial Statements for additional detail regarding the Delayed Draw Facility.
Verizon Wireless Renewal
In September 2011, contracts with Verizon Wireless, our largest customer, expired. Verizon Wireless uses a large suite of our services for its data clearing and roaming operations – products such as interstandard roaming solutions, MDR, data clearing house, Real-Time Intelligence ("RTI") tools and a number of other services. During the second quarter of the year ending December 31, 2012, the renewal with Verizon Wireless was completed at substantially similar terms and reduced pricing effective May 1, 2012 for a four year term.
Senior Credit Facility Refinancing
On April 23, 2012, we refinanced our Old Senior Credit Facility (as defined in Note 9 of this Annual Report on Form 10-K) and entered into a credit agreement (the “New Credit Agreement”) with 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 new senior credit facility (the “New Senior Credit Facility”) consisting of (i) a $950.0 million term loan facility (the “Term Loan Facility”); and (ii) a $150.0 million revolving credit facility (the “Revolving Credit Facility”) for the making of revolving loans, swing line loans and issuance of letters of credit. In conjunction with this refinancing, we utilized $81.2 million of cash to pay down the principal balance of the term loan under the Old Senior Credit Facility of approximately $62.2 million, pay the original issue discount on the New Senior Credit Facility of $9.5 million, $9.0 million in financing costs and $0.5 million of accrued interest and fees for the Old Senior Credit Facility.
Please see Note 9 to our Consolidated Financial Statements for additional detail regarding the New Senior Credit Facility.
Business Description
We provide an integrated suite of Network, Messaging and Roaming services for our customers, which are primarily utilized when mobile operators need to interact with one another. We also provide technology turnkey solutions to customers primarily in the Asia Pacific Region. Most of our customers utilize two or more of our service offerings.
Our primary service offerings are as follows:
Network services. We offer Network services which primarily consist of our intelligent network products such as Signaling System 7 (“SS7”) solutions, interstandard roaming solutions, MDR, call setup and tear down, internet protocol (“IP”) platform solutions, RTI tools, database solutions and number portability services.
Signaling solutions provide cost effective connectivity to other networks, thereby avoiding the cost and complexity of managing individual network connections with multiple operators, and facilitate the signaling requirements for call delivery and Short Messaging Service ("SMS") delivery when roaming on Global System for Mobile Communication (“GSM”) and Code Division Multiple Access (“CDMA”) Networks around the world. We have recently enhanced this platform to address interoperability for 4G devices to enable effective, real-time communication between devices on 4G networks and devices on networks that utilize other technology. For example, this platform now supports communication between 4G and 3G networks.
Interstandard roaming solutions and MDR services enable CDMA roaming. Interstandard roaming solutions allow certain CDMA handsets to roam on GSM networks. MDR services allow CDMA data devices to roam on other CDMA operator networks.
Call setup and tear down involves the process of retrieving, processing and routing information in order for a call to transpire.
IP platform solutions enable operators a means of secure transport of roaming, messaging, IPX and signaling traffic to consolidate global network connections via one network for all traffic types. These services optimize streams of data delivered to mobile devices accelerating download speeds and relieving network load by reducing the volume of data being exchanged between our customer’s networks.
RTI tools analyze the real and near real time traffic data being processed through our platforms and networks to provide multiple use cases that enable our customers to more effectively manage their subscriber’s quality of experience (“QoE”) and satisfaction.

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Database solutions enable caller ID on various technology platforms provided to subscriber devices and intelligent network-based queries to support accurate call routing.
Number portability services allow subscribers to retain their phone numbers when changing mobile service providers.
In addition to the services described above, we provide our customers with the ability to connect to various third-party intelligent network database providers (“Off-Network Database Queries”).
Messaging services. We provide mobile operators with routing, translation and delivery services for SMS and Multimedia Messaging Service ("MMS") messages sent from one operator’s network to another. While mobile operators have routing and delivery capabilities for subscribers within their own networks, they do not generally have an efficient way to directly route and deliver messages to other operators’ networks as this would require a direct connection with each of over a thousand mobile operators throughout the world, as well as sophisticated translation capabilities between numerous mobile standards. Once one of our customers has determined that an SMS or an MMS message needs to be delivered outside of its network, the message is sent to us. From there, we determine where the message is going, translate the message so it can be read by the receiving network and deliver it. This is known as Peer-to-Peer (“P2P”) messaging. As part of our enterprise messaging business, known as Application-to-Peer (“A2P”) messaging, we provide enterprise customers with routing, translation and delivery services for direct communication with their customers and employees via SMS and MMS alerts.
Roaming services. We operate the largest roaming clearing house in the world and process hundreds of billions of roaming transactions each year. A roaming transaction is generated when a subscriber from one mobile operator makes or receives a call, sends or receives an SMS or MMS message, or initiates a data session, in each case, while roaming on another operator’s network. Subscribers typically roam in places where their home operator’s network coverage is relatively limited or non-existent. In order to provide seamless global coverage, mobile operators enter into roaming agreements with one another to provide access for their subscribers to other operators’ networks in a given geography. When its subscribers roam, the home operator must pay the visited operator for use of the network. Through our clearing house, we clear and settle these roaming transactions. The information we provide determines the amount of roaming charges owed by one mobile operator to another and enables the home operator to issue retail bills to its subscribers for their usage while roaming. Fees are paid to us by the visited operator who ultimately bills the home operator for use of its network. In addition to this core service, we provide mobile operators a number of other value-added services, including roaming data analytics, roaming agreement management, fraud prevention and financial settlement services.
Other services. We provide technology turnkey solutions, including operator solutions for number portability readiness, prepaid applications, interactive video, value-added roaming services and mobile broadband solutions. Our turnkey solutions business provides software services to customers primarily in the Asia Pacific region.
Generally, there is a seasonal increase in wireless roaming usage and corresponding revenues in the high-travel months of our second and third fiscal quarters. Products primarily affected by this seasonality include signaling solutions, interstandard roaming, MDR and roaming clearing house.
Segments
We currently operate as a single operating segment, as our Chief Executive Officer reviews financial information on the basis of our consolidated financial results for the purposes of making resource allocation decisions.
Revenues by service offering are as follows:

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Successor
 
Combined Predecessor & Successor
 
Successor
 
 
Predecessor
 
 
 
 
 
 Period from
 
 
   Period from
 
 
 
 
 
 
 
 January 13 to
 
  January 1 to
 
Year Ended
 
Year Ended December 31,
 
 December 31,
 
    January 12,
 
December 31,
 
2012
 
2011
 
    2011
 
2010
 
(in thousands)
   Network services
$
347,651

 
$
327,847

 
$
318,666

 
 
$
9,181

 
$
254,118

   Messaging services
180,471

 
194,029

 
187,831

 
 
6,198

 
190,949

   Roaming services
195,409

 
225,577

 
219,209

 
 
6,368

 
188,549

   Other
20,343

 
20,539

 
20,272

 
 
267

 
16,583

   Revenues
$
743,874

 
$
767,992

 
$
745,978

 
 
$
22,014

 
$
650,199

Revenues by geographic region based on the “bill to” location on the invoice, are as follows:
 
Successor
 
Combined Predecessor & Successor
 
Successor
 
 
Predecessor
 
 
 
 
 
 Period from
 
 
   Period from
 
 
 
 
 
 
 January 13 to
 
  January 1 to
 
Year Ended
Year Ended December 31,

 December 31,
 
 
    January 12,
 
December 31,
 
2012
 
2011
 
    2011
 
2010
 
(in thousands)
North America
$
557,238

 
$
598,434

 
$
581,140

 
 
$
17,294

 
$
513,449

Asia Pacific
71,525

 
60,323

 
59,028

 
 
1,295

 
43,263

Caribbean and Latin America
55,070

 
44,841

 
43,413

 
 
1,428

 
38,604

Europe, Middle East and Africa
60,041

 
64,394

 
62,397

 
 
1,997

 
54,883

Revenues
$
743,874

 
$
767,992

 
$
745,978

 
 
$
22,014

 
$
650,199

For the years ended December 31, 2012, 2011 and 2010, we derived 69.6%, 72.2% and 71.9% , respectively, of our revenues from customers in the United States. During the years ended December 31, 2012, 2011 and 2010, we did not generate revenues in excess of 10% of revenues in any other individual country.
Long-lived assets, which consist of property and equipment, net and capitalized software, net, by geographic location were as follows:
 
December 31, 2012
 
December 31, 2011
 
(in thousands)
North America
$
273,880

 
$
279,931

Asia Pacific
6,307

 
5,164

Caribbean and Latin America
219

 
293

Europe, Middle East and Africa
6,860

 
5,925

Total long-lived assets, net
$
287,266

 
$
291,313


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Industry Summary
In today's evolving and highly competitive wireless industry, a key priority is the need to provide a seamless user experience to mobile subscribers across varied networks, devices, standards, and content types. When subscribers communicate on their own mobile operator's network or with other subscribers of the same mobile operator, this objective is easily achieved. However, when subscribers roam on other networks or communicate with subscribers of a different mobile operator, new layers of complexity are introduced as a result of varying and incompatible technologies, networks and devices. The latter scenario requires inter-carrier roaming agreements and physical access by the mobile operator to other mobile operators' networks. It is often preferable to have a neutral and trusted third-party intermediary, such as Syniverse, sit between mobile operators.
The global wireless industry has grown rapidly as consumer preferences shift toward faster, more convenient means of communication and wireless services become increasingly available and affordable. We believe that robust consumer demand will continue to drive transaction volume growth due to increased global mobile penetration; smartphone proliferation; deployment and expansion of existing 3G, 4G and LTE networks; and economic growth globally and in high-growth developing markets particularly. One of the more substantial growth opportunities for us has stemmed from the growth of mobile data traffic driven by continued smartphone proliferation and growing usage of data-rich applications, trends that we expect to continue going forward. Cisco estimates mobile data traffic will increase nearly 13-fold by 2017 representing a compound annual growth rate ("CAGR") of 66% from 2012 to 2017.
  Network. Network services connect calls and messages between subscribers of different operators and support roaming for smartphones and other mobile data devices. Many operators look to outsourced network providers like Syniverse to arrange for cost effective connectivity to other networks via our SS7 infrastructure, thereby avoiding the cost and complexity of managing individual network connections with multiple operators. SS7 is an industry standard signaling protocol used by most telecommunications operators in North America. The SS7 network’s core function is to relay the routing information for a phone number so that wireless calls can connect and messages can be delivered. SS7 and C7, a similar standard used outside of North America, support many other telecommunications functions, such as call setup and tear down, text message delivery, toll-free calling services, prepaid billing mechanisms, caller ID and number portability services. Signaling networks are evolving through emerging IP protocols, such as Signaling Transport (“SIGTRAN”), Session Initiation Protocol (“SIP”) and Diameter, to replace the legacy SS7 standard. This evolution is necessary as global mobility services transition from existing 2G and 3G mobile networks to 4G. Growth in Network services is driven by global wireless subscriber growth, the emergence of non-traditional providers of wireless services (such as wireline operators and cable operators), increasing government-mandated number portability, consumer adoption of smartphones and other data devices and the standardization of additional operator service offerings, such as caller ID.
 Messaging. Growth in messaging transaction volumes is driven by favorable consumer preferences for sending text messages versus calling, regulator-mandated reductions in SMS rates, enhanced device capabilities for MMS and the proliferation of smartphones. In many emerging markets, where data capabilities are limited by network quality (second generation or “2G” networks) and less sophisticated devices (basic feature phones), subscribers are increasingly using less expensive SMS rather than voice services to communicate for business and social purposes. In developed markets, SMS growth has been further enhanced with the introduction of smartphones, which drive higher messaging volumes because of the availability of the full keyboard and more user-friendly display. As a result of these trends, subscribers are increasingly likely to communicate via SMS rather than make a phone call. In addition, enterprises are utilizing SMS and MMS as a means to reach consumers for notification and marketing purposes. Growth in SMS and MMS is being tempered in part by the proliferation of closed community messaging applications that utilize the data channel for transport. Over the next several years, Portio Research expects worldwide SMS traffic to grow at a 4% CAGR from 7.8 trillion messages in 2011 to 9.5 trillion messages in 2016, while global MMS traffic should increase at a 6% CAGR during that same period.
Roaming. Roaming transaction volume growth is driven by travel trends; subscriber growth; voice, messaging and data roaming traffic; increases in wireless penetration and economic growth in high-growth developing markets; and regulator-mandated reductions in roaming rates for subscribers. Global voice, messaging and data roaming traffic, which drive growth in roaming transaction volume, are forecasted to grow at CAGRs of 16%, 20% and 34%, respectively, from 2011 to 2016. In emerging markets, we expect that increasing mobile penetration, economic growth, fragmented network coverage and reduced prices for devices and plans will drive strong roaming growth. Retail roaming rates are increasingly subjected to heightened scrutiny, as regulators become more concerned with “bill shock”, which results when consumers receive unexpectedly high bills for roaming and other services. We expect that declining retail roaming rates resulting from regulator-mandated tariff reductions and other market pressures will further increase roaming activity as we anticipate subscribers will become more inclined to roam as retail roaming rates decrease. This trend should generate greater transaction volume and revenues for providers like Syniverse.

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We expect the technological complexities and operational challenges faced by communications providers to continue to grow as the industry evolves. These complexities and challenges are driven by a variety of wireless industry trends, including the growing number of mobile subscribers, wireless roaming calls, SMS and MMS messages and wireless data transactions. In addition, we believe the emergence of next-generation wireless communication services, such as Long Term Evolution (“LTE”) and Voice over Internet Protocol (“VoIP”) and the potential for future regulator-mandated changes within the industry (in particular, with respect to roaming), as well as the adoption of new applications for existing communications services, will further drive the need for our Network, Messaging and Roaming services.
Competition
Although we do not have an individual competitor that competes with us across all of our service offerings, we have a number of competitors for each specific service we offer.
Network. Our competitors for SS7 network connectivity and intelligent network services include BICS, iBasis, TNS, Inc., AT&T, Tata Communications and local exchange carriers. Wireless and fixed-line operators may also choose to deploy and manage their own in-house SS7 networks. Syniverse competes with Neustar and Ericsson for global number portability implementations.
Messaging. Our primary competitors include Sybase, Inc., an affiliate of SAP, Aicent, Inc., and BICS.
Roaming. Our primary competitors for our clearing solutions include MACH, TNS, Inc., Comfone S.A., Emirates Data Clearing House, Nextgen Clearing, Ltd and Advanced Roaming and Clearing House, Ltd. Additionally, several mobile operator groups have aggregated all roaming related services across their multiple operator companies in the form of “hubs”. These roaming hubs provide a centralized organizational point to select solutions and service providers, thereby concentrating competitive offers to one location within a mobile operator group. Further, the competitive landscape incorporates services that operators perform on a turnkey or in-house methodology rather than outsource to a third party managed service provider. These services include data and financial clearing, and other services such as steering of roaming.
Strategy
 As we continuously evaluate strategies to strengthen our market leadership position, enhance growth and maximize profitability, we intend to:
Continue growth generation. We continue to build our business both geographically and by serving new entrants to the mobile ecosystem, where we serve MSOs, internet service providers, and enterprises. With a focus on both these newer entrants as well as established mobile network operators, we currently serve the top 10 global operators and eight of the top 10 U.S. banks. We are also focusing on key markets such as China and India where the demand for mobile services continues to outpace the rest of the world. These markets represent growth opportunities, and as we pursue contract wins with major mobile operators in these key markets, we believe our local presence will provide a platform for expanded product offerings and access to the local customers that we target for new business opportunities. For example, in 2009, we were awarded a number portability contract in the fast-growing and highly attractive Indian wireless market, which continues to provide a platform through which we offer other Roaming and Messaging services in the Indian market. In addition, we are providing services to China Unicom to deploy a wide range of Syniverse solutions that will enhance the end-user experience for its subscribers both at home and abroad while preparing the customer to make the transition from 3G to 4G and beyond. Since 2005, we have grown our employee base from 797 employees primarily based in the U.S. to a global workforce of 1,931 full-time equivalent employees as of December 31, 2012, with most of that growth consisting of technology, operations and sales employees outside the U.S. Over the coming years, we expect to continue to diversify our customer base beyond North America by utilizing our established global technology and sales infrastructure to secure customer wins and sell incremental services while growing our per-customer revenues across other key geographies, as well as through potential strategic international acquisitions.
Deliver operational excellence. We continue to seek opportunities to manage our business more efficiently and maximize our competitiveness and profitability. Our first priority is to continue delivering high quality, reliable services to our existing customer base and newly acquired customers through our global infrastructure and mobile expertise. Our ability to deliver on this strategy is evidenced by our customer service agreement renewal rate of 98% since 2006 and longstanding relationships with our core customers. We continue to focus on improving customer satisfaction through investment in on-the-ground regional support. We have also been successful in using our customer service platform to identify additional services to be sold to existing customers. Over the last five years, revenues from our current top 10 customers have more than doubled as a result of volume growth, the sale of additional services and strategic acquisitions. We plan to continue to provide high quality services to our customers and develop technologies in collaboration with these customers through process and platform optimization.

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 Focus on customer needs. As mobile technologies evolve and the complexities of interoperability issues increase, we believe our ability to develop innovative technical solutions will put us in a position to not only address our existing customers’ evolving needs but those of future market participants as well. We intend to work closely with our customers to identify and evaluate their business issues and to develop and implement solutions that have potentially broader application in the marketplace. For example, subscriber demand for high QoE is based on the need for immediacy, accuracy, ubiquity and personalization of their service. To address this, we offer our customers RTI solutions that proactively monitor and improve end user QoE resulting in fewer billing disputes, increased customer loyalty, brand protection and additional revenue opportunities for our customers. As networks evolve from 3G to 4G, our experienced technology and sales teams work in collaboration with a number of our customers to address the local and global interoperability issues associated with the development of 4G and LTE technologies. We also are currently assessing roaming and interoperability opportunities for emerging services, such as mobile video, flexible charging services, and location-based services, driven by subscriber and operator trends. By cultivating relationships with new entrants in the mobile ecosystem, we continue to broaden our customer base and increase awareness of our service offerings.
Focus on Free Cash Flow generation. We intend to focus on maximizing Free Cash Flow through continued revenue growth and cost management in order to expand Adjusted EBITDA margins and reduce leverage, as we have done historically. We have a largely fixed cost structure, allowing us to benefit from volume growth with low marginal costs. Our gross margins have exceeded 60% every year since 2005. Adjusted EBITDA margins have ranged from approximately 41% to 45% over the last three fiscal years, and we have consistently converted a substantial portion of Adjusted EBITDA into Free Cash Flow as a result of our low capital expenditures and working capital needs. See “Non-GAAP Financial Measures” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing in Item 7 of this Annual Report on Form 10-K for the reconciliation of net income to Adjusted EBITDA and the reconciliation of net cash provided by operating activities to Free Cash Flow. A significant portion of our capital expenditures in the year ended December 31, 2012 was spent on new product development, as opposed to ongoing maintenance. We plan to continue implementing continuous improvement programs such as automation to increase operational efficiencies within our service offerings and technology platforms in order to maximize our Free Cash Flow.
 Pursue a disciplined acquisition strategy. Throughout our history, we have been successful in making and integrating a number of accretive acquisitions, including the acquisitions of BSG Wireless in 2007 and the messaging business of VeriSign ("VM3") in 2009. The BSG Wireless acquisition enhanced our data clearing house capabilities by consolidating technical and operational platforms, resulting in significant cost savings. Through the VM3 acquisition, we expanded our Messaging operations, enhanced our technical capabilities and increased scale in order to better meet customers’ growing demand for Messaging services. We are currently proposing to acquire MACH for added global scale and increased reach with more direct connections to support roaming, messaging and network solutions that will help enable our customers to deliver superior experiences to their end users. See “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report on Form 10-K for additional details regarding the MACH Acquisition. We intend to continue to selectively explore opportunities for strategic acquisitions. While we would not expect to alter our core business, future acquisitions may present opportunities to expand our range of services, customer base and cross-selling opportunities, as well as increase economies of scale or expand and deepen our geographic footprint.
 Customers
We provide our services to over 740 telecommunications operators, many of whom are the world’s leading mobile operators, and to more than 150 enterprise customers in nearly 160 countries. Our customers include mobile operators, telecommunications service providers, MSOs, internet service providers, social networking portals, cable companies and other nontraditional and enterprise clients, such as financial institutions, airlines, logistics companies and others. We serve most of the largest global mobile providers including America Movil, AT&T Wireless, China Mobile, China Unicom, Reliance Communications, Sprint Nextel, T-Mobile, Telefónica, Verizon Wireless and Vodafone. We believe that maintaining strong relationships with our customers is one of our core competencies and is critical to our success.
Our two largest customers, Verizon Wireless and Sprint Nextel, generated 36%, 39% and 37% of total revenues for the years ended December 31, 2012, 2011 and 2010, respectively. No other customer generated more than 10% of total revenues during those periods.
Our 10 largest customers for the year ended December 31, 2012, 2011 and 2010 represented approximately 60%, 61% and 60% of our revenues in the aggregate, respectively.

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Employees
As of December 31, 2012, we had 1,931 full-time equivalent employees, with approximately 46% located outside the United States. Certain of our employees in various countries outside the United States are subject to laws providing representation rights to employees under collective bargaining agreements and/or on workers’ councils. Management believes that employee relations are positive.
Sales and Marketing
As of December 31, 2012, our sales and marketing organizations included 267 people who identify and address customer needs and concerns, deliver comprehensive services and offer a comprehensive customer support system.
Sales. Our sales team is geographically diverse and regionally focused. Sales directors are organized geographically with regional offices responsible for North America, Caribbean and Latin America, Asia Pacific and Europe/Middle East/Africa. Account managers are product specialists and work as a team to respond to customer needs.
Marketing. Our marketing organization is comprised of marketing and communications employees. This organization is responsible for consistent communications and global brand management as well as market planning and analysis and industry relations. This includes strategic plan development, product marketing and competitive analysis, media relations, event planning, web marketing and marketing communications.
Technology and Operations
Technology
As of December 31, 2012, our technology group was comprised of 694 professionals. This group performs all functions associated with the design, development, testing, implementation and operational support of our services. The primary functions of the technology group include Product Management, Product Development and Life Cycle, Operational Support Services, Technology Services and Research and Development.
Product Management. Working with the sales organization, product managers are responsible for managing the product’s positioning throughout the life cycle as well as managing costs and pricing. These responsibilities include developing strategic product and market plans, specifying product requirements, planning development resources and managing product launches.
Product Development and Life Cycle. Delivers new product developments, enhancements and maintenance releases and develops integrated solutions that address customer needs across multiple areas including billing, messaging, decision support and reporting.
Operational Support Services. Provides 24 hours per day, seven days per week, 365 days per year operational product support to ensure a high level of service and system availability.
Technology Services. Responsible for maintaining the high quality of customer service through centralized testing, system/data base administration and configuration management.
Research & Development. Responsible for researching new telecommunications technologies and identifying solutions which facilitate technology migration and interoperability functionality for operators.
Research and development costs are charged to expense as incurred. Research and development costs, which are included in general and administrative expense in the consolidated statements of operations, were $22.3 million, $23.5 million and $18.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Operations
As of December 31, 2012, we had 588 employees dedicated to managing internal operations and customer support functions. Key functions include:
Customer Service, Documentation and Training. Provides “front-line” support for our global customers. Documentation and Training group publishes the technical documentation accompanying portfolio of services in multiple languages and also travels nationally and globally to provide strategic customer training.

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Operator Business Process Outsourcing. Provides flexible services and solutions designed with features for planning, reporting, monitoring and analyzing customer roaming agreements.
Internal Operations Support. Manages internal hardware and software technology programs as well as the Local Area Network, internet, email and departmental servers for our employees. Other internal operations functions include information security, facilities management and disaster recovery.
As of December 31, 2012, we had 106 employees dedicated to network provisioning, monitoring and support.
Network Operations Center. We maintain a state-of-the-art Network Operations Center that actively monitors applications, network and connections to customers. The Network Operations Center provides support both domestically and globally 24 hours per day, seven days per week, 365 days per year. The Network Operations Center proactively identifies potential issues with our applications, operating system, network, switch connectivity and call processing. These issues are managed through resolution with customers in conjunction with Inter-Exchange Operators, Local Exchange Operators, field engineering, our internal product support and development teams and vendors.
Network Services. Designs, develops and supports our SS7 and Internet Protocol-based Intelligent Network Service offerings. Employees within Network Services work closely with other functional departments and vendors to ensure that we are engineering and monitoring cost effective and reliable network solutions that meet customers’ needs.
Governmental Regulation
Certain services we offer are subject to regulation by the United States Federal Communications Commission (“FCC”). These regulations could have an indirect effect on our business. In particular, end-user revenues from selected services are used to determine our contribution to the FCC’s Universal Service Fund. Some of our customers may also be subject to federal or state regulation that could have an indirect effect on our business. We do not currently offer services that are deemed to be common carrier telecommunications services.
Certain services we offer are also subject to regulation outside of the United States. In particular, we hold government issued licenses to provide number portability services in India and Singapore.
Intellectual Property Rights
We attempt to protect our intellectual property rights in the United States and in foreign countries through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and agreements preventing the unauthorized disclosure and use of our intellectual property. We currently maintain approximately 237 registrations and 59 applications in 32 countries covering our marks; approximately 46 patents and 25 patent applications, 11 jointly-owned with Verizon Communications in the United States and in foreign countries; and over 60 U.S. Copyright Registrations covering numerous software applications. In addition, we have attempted to protect certain of our technologies as trade secrets. In order to maintain the confidentiality of such trade secrets, we have not sought patent protection.
 
ITEM 1A.       RISK FACTORS
Any of the following risks could materially and adversely affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or results of operations. If these events occur, we may not be able to pay all or part of the interest or principal on the Senior Notes (as defined below). Information contained in this section may be considered “forward-looking statements.” See “Disclosure Regarding Forward-Looking Statements” for a discussion of certain qualifications regarding such statements.
Risks Relating to the Senior Notes
The right of holders of our $475,000 senior unsecured notes bearing interest at 9.125% (the "Senior Notes") to receive payments on the Senior Notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of the Senior Notes are effectively subordinated to all our guarantors’ existing and future secured indebtedness.
Holders of our secured indebtedness and the secured indebtedness of the guarantors could have claims that are prior to the claims of holders of the Senior Notes to the extent of the value of the assets securing that other indebtedness. Notably, we and certain of our subsidiaries, including the guarantors, are parties to our New Senior Credit Facility, which is secured by liens

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on substantially all of our assets and the assets of the guarantors and, following the initial borrowing thereunder, our Delayed Draw Facility will be secured by liens on substantially all of our assets and the assets of the guarantors. The Senior Notes are effectively subordinated to all of our secured indebtedness to the extent of the value of the assets securing such indebtedness. In the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of secured indebtedness will have a prior claim to those of our assets that constitute their collateral. Holders of the Senior Notes will participate ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as the Senior Notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor, in our remaining assets. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the Senior Notes. As a result, holders of the Senior Notes may receive less, ratably, than holders of secured indebtedness.
 As of December 31, 2012, the aggregate amount of our secured indebtedness, net of original issue discount was approximately $930.2 million, and $148.1 million of unused commitments were available for additional borrowings under the revolving portion of our New Senior Credit Facility, including an outstanding Euro letter of credit of $1.9 million at December 31, 2012, which is considered a reduction against our revolving credit facility under the credit agreement. On February 4, 2013, we entered into a new delayed draw credit agreement providing us with commitments to borrow up to $700.0 million of additional secured debt, subject to the satisfaction of certain conditions. We are permitted to incur substantial additional indebtedness, including secured debt, in the future under the terms of the indenture governing the Senior Notes.
Restrictive covenants in the indenture governing the Senior Notes, the credit agreement governing our New Senior Credit Facility and the credit agreement governing our Delayed Draw Facility may restrict our ability to pursue our business strategies.
The indenture governing the Senior Notes, the credit agreement governing our New Senior Credit Facility and the credit agreement governing our Delayed Draw Facility limit our ability, and the terms of any future indebtedness may limit our ability, among other things, to:
incur or guarantee additional indebtedness;
issue disqualified and preferred stock;
make certain investments;
pay dividends or make distributions on our capital stock;
sell assets, including capital stock of restricted subsidiaries;
agree to payment restrictions affecting our restricted subsidiaries;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into transactions with our affiliates;
incur liens; and
designate any of our subsidiaries as unrestricted subsidiaries.
 The restrictions contained in the indenture governing the Senior Notes, the credit agreement governing our New Senior Credit Facility and the credit agreement governing our Delayed Draw Facility could also limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans.
 A breach of any of these restrictive covenants or our inability to comply with financial ratios, if required to be tested, could result in a default under the credit agreement governing our New Senior Credit Facility and the credit agreement governing our Delayed Draw Facility, as applicable. If a default occurs, the lenders under our New Senior Credit Facility and, following the initial borrowing thereunder and the transactions taking place in connection therewith, our Delayed Draw Facility, as applicable may elect to declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable, which would result in an event of default under the indenture governing the Senior Notes. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are unable to repay outstanding borrowings when due, the lenders under our New Senior Credit Facility and, following the initial borrowing thereunder and the transactions taking place in connection therewith, our Delayed Draw Facility, as applicable, will also have the right to proceed against the collateral that secures those borrowings. If the indebtedness under our New Senior Credit Facility, following the initial borrowing thereunder and the transactions taking place in connection therewith, our Delayed Draw Facility

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and the Senior Notes were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness.
Claims of noteholders are effectively subordinated to claims of creditors of all of our non-guarantor subsidiaries.
The Senior Notes are guaranteed on a senior basis by our current and future wholly owned domestic subsidiaries that are guarantors of our New Senior Credit Facility and, following the initial borrowing thereunder and the transactions taking place in connection therewith, will become guarantors of our Delayed Draw Facility. Our non-guarantor subsidiaries held approximately $100.2 million, or 3.4%, of our total assets and $52.6 million, or 3.0%, of our total liabilities as of December 31, 2012 and accounted for approximately $101.7 million, or 13.7%, of our revenues for the year ended December 31, 2012 (all amounts presented exclude intercompany balances). In addition, we have the ability to designate certain of our subsidiaries as unrestricted subsidiaries pursuant to the terms of the indenture and each credit agreement, and any subsidiary so designated will not be a guarantor of the Senior Notes, the New Senior Credit Facility or the Delayed Draw Facility.
Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Senior Notes, or to make any funds available therefore, whether by dividends, loans, distributions or other payments. Any right that we or the subsidiary guarantors have to receive any assets of any of the non-guarantor subsidiaries upon the liquidation or reorganization of those subsidiaries, and the consequent rights of noteholders to realize proceeds from the sale of any of those subsidiaries’ assets, are effectively subordinated to the claims of those subsidiaries’ creditors, including trade creditors and holders of debt of those subsidiaries. In addition, the indenture governing the Senior Notes permits non-guarantor subsidiaries to incur significant additional indebtedness.
The trading price of the Senior Notes may be volatile and can be directly affected by many factors, including our credit rating.
The trading price of the Senior Notes could be subject to significant fluctuation in response to, among other factors, changes in our operating results, interest rates, the market for non-investment grade securities, general economic conditions and securities analysts’ recommendations, if any, regarding our securities.
Credit rating agencies continually revise their ratings for companies they follow, including us. Any ratings downgrade could adversely affect the trading price of the Senior Notes, or the trading market for the Senior Notes, to the extent a trading market for the Senior Notes develops. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future and any fluctuation may impact the trading price of the Senior Notes.
We are a holding company with no operations and may not have access to sufficient cash to make payments on the Senior Notes.
We are a holding company and have limited direct operations. Our most significant assets are the equity interests we hold in our subsidiaries. As a result, we are dependent upon dividends and other payments from our subsidiaries to generate the funds necessary to meet our outstanding debt service and other obligations and such dividends may be restricted by law, the instruments governing our indebtedness, including the indenture governing the Senior Notes, the credit agreement governing our New Senior Credit Facility and the credit agreement governing our Delayed Draw Facility, or other agreements of our subsidiaries. Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness, including the Senior Notes. In addition, our subsidiaries are separate and distinct legal entities and, except for our existing and future subsidiaries that are guarantors of the Senior Notes, any payments of dividends, distributions, loans or advances to us by our subsidiaries could be subject to legal and contractual restrictions on dividends. In addition, payments to us by our subsidiaries are contingent upon our subsidiaries’ earnings. Additionally, we may be limited in our ability to cause our existing and any future joint ventures to distribute their earnings to us. Subject to certain qualifications, our subsidiaries are permitted under the terms of our indebtedness, including the indenture governing the Senior Notes, to incur additional indebtedness that may restrict payments from those subsidiaries to us. We cannot assure you that agreements governing the current and future indebtedness of our subsidiaries will permit those subsidiaries to provide us with sufficient cash to fund payments of principal, premiums, if any, and interest on the notes when due. In addition, any guarantee of the notes is subordinated to any secured indebtedness of a subsidiary guarantor to the extent of the value of the collateral securing such indebtedness.
Federal and state statutes may allow courts, under specific circumstances, to void the guarantees and require noteholders to return payments received from guarantors.

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Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be deemed a fraudulent transfer if the guarantor received less than a reasonably equivalent value in exchange for giving the guarantee and
was insolvent on the date that it gave the guarantee or became insolvent as a result of giving the guarantee, or
was engaged in business or a transaction, or was about to engage in business or a transaction, for which property remaining with the guarantor was an unreasonably small capital, or
intended to incur, or believed that it would incur, debts that would be beyond the guarantor’s ability to pay as those debts matured.
A guarantee could also be deemed a fraudulent transfer if it was given with actual intent to hinder, delay or defraud any entity to which the guarantor was or became, on or after the date the guarantee was given, indebted.
The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, a guarantor would be considered insolvent if:
the sum of its debts, including contingent liabilities, is greater than all its assets, at a fair valuation, or
the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or
it could not pay its debts as they become due.
We cannot predict:
what standard a court would apply in order to determine whether a guarantor was insolvent as of the date it issued the guarantee or whether, regardless of the method of valuation, a court would determine that the guarantor was insolvent on that date; or
whether a court would determine that the payments under the guarantee constituted fraudulent transfers or conveyances on other grounds.
The indenture contains a “savings clause” intended to limit each subsidiary guarantor’s liability under its guarantee to the maximum amount that it could incur without causing the guarantee to be a fraudulent transfer under applicable law. We cannot assure you that this provision will be upheld as intended. In 2009, the U.S. Bankruptcy Court in the Southern District of Florida in Official Committee of Unsecured Creditors of TOUSA, Inc. v. Citicorp N. Am., Inc. found this kind of provision in that case to be ineffective, and held the subsidiary guarantees to be fraudulent transfers and voided them in their entirety.
If a guarantee is deemed to be a fraudulent transfer, it could be voided altogether, or it could be subordinated to all other debts of the guarantor. In such case, any payment by the guarantor pursuant to its guarantee could be required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor. If a guarantee is voided or held unenforceable for any other reason, holders of the Senior Notes would cease to have a claim against the subsidiary based on the guarantee and would be creditors only of the Company and any guarantor whose guarantee was not similarly voided or otherwise held unenforceable.
The lenders under our New Senior Credit Facility have the discretion to release the guarantors under our New Senior Credit Facility in a variety of circumstances, which will cause those guarantors to be released from their guarantees of the Senior Notes.
While any obligations under our New Senior Credit Facility remain outstanding, any guarantee of the Senior Notes may be released without action by, or consent of, any holder of the Senior Notes or the trustee under the indenture governing the Senior Notes offered hereby, at the discretion of lenders under our New Senior Credit Facility, if such guarantor is no longer a guarantor of obligations under our New Senior Credit Facility or any other indebtedness. The lenders under our New Senior Credit Facility will have the discretion to release the guarantees under our New Senior Credit Facility in a variety of circumstances. You will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the Senior Notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to claims of noteholders.
We may not be able to satisfy our obligations to holders of the Senior Notes upon a change of control.
Upon the occurrence of a “change of control,” as defined in the indenture, each holder of the Senior Notes has the right to require us to purchase the notes at a price equal to 101% of the principal amount, together with any accrued and unpaid interest

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and additional interest, if any. Our failure to purchase, or give notice of purchase of, the Senior Notes would be a default under the indenture, which would in turn be a default under our New Senior Credit Facility and our Delayed Draw Facility. In addition, a change of control may constitute an event of default under our New Senior Credit Facility and our Delayed Draw Facility. A default under our New Senior Credit Facility and, following the initial borrowing thereunder and the transactions taking place in connection therewith, our Delayed Draw Facility, would result in an event of default under the indenture if the lenders accelerate the debt under our New Senior Credit Facility or our Delayed Draw Facility, as applicable.
If a change of control occurs, we may not have enough assets to satisfy all obligations under our New Senior Credit Facility and, following the initial borrowing thereunder and the transactions taking place in connection therewith, our Delayed Draw Facility, and the indenture related to our Senior Notes. Upon the occurrence of a change of control we could seek to refinance the indebtedness under our New Senior Credit Facility and, following the initial borrowing thereunder and the transactions taking place in connection therewith, our Delayed Draw Facility, and the Senior Notes or obtain a waiver from the lenders or you as a holder of the Senior Notes. There is no assurance, however, that we would be able to obtain a waiver or refinance our indebtedness on commercially reasonable terms, if at all. No assurances can be given that any court would enforce the change of control provisions in the indenture governing the Senior Notes as written for the benefit of the holders, or as to how these change of control provisions would be impacted were we to become a debtor in a bankruptcy case.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed. The Sarbanes-Oxley Act of 2002, as well as related rules and regulations implemented by the SEC, have required changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, have increased our legal and financial compliance costs and made many activities more time-consuming and more burdensome. The costs of compliance with these laws, rules and regulations may adversely affect our financial results. Moreover, we run the risk of non-compliance, which could adversely affect our financial condition or results of operations.
In the past we have discovered, and in the future we may discover, areas of our internal control over financial reporting that need improvement. We have devoted significant resources to remediate any deficiencies we discovered and to improve our internal control over financial reporting. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information.
Certain private equity investment funds affiliated with Carlyle own substantially all of our equity and their interests may not be aligned with those of the holders of the Senior Notes.
Carlyle and certain co-investors own substantially all of the fully diluted equity of our parent company, and, therefore, have the power to control our affairs and policies. Carlyle also controls the election of directors, the appointment of management, the entry into mergers, sales of substantially all of our assets and other extraordinary transactions. The directors so elected have authority, subject to the terms of our debt, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. The interests of Carlyle could conflict with those of the holders of our Senior Notes. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Carlyle and certain of its affiliates and co-investors, as equity holders, might conflict with those of the holders of our Senior Notes. Carlyle may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to the holders of our Senior Notes. Additionally, Carlyle is in the business of making investments in companies, and may from time to time in the future acquire interests in businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours.
Risks Relating to Our Indebtedness
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the Senior Notes.

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We have a significant amount of indebtedness. At December 31, 2012, we had $1,405.2 million of indebtedness, net of original issue discount on a consolidated basis, of which approximately $930.2 million was secured. In addition, we had $148.1 million of unused commitments under our Revolving Credit Facility, including an outstanding Euro letter of credit of $1.9 million at December 31, 2012, which is considered a reduction against our Revolving Credit Facility under the agreement. Further, on February 4, 2013, we entered into a new delayed draw credit agreement providing us with commitments to borrow up to $700.0 million of additional secured debt, subject to the satisfaction of certain conditions.
Our substantial indebtedness could have important consequences to our investors. For example, it could:
make it more difficult for us to satisfy our obligations with respect to the Senior Notes;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund acquisitions, working capital, capital expenditures, research and development efforts and other general corporate purposes;
increase our vulnerability to and limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
expose us to the risk of increased interest rates, as borrowings under our New Senior Credit Facility are subject to variable rates of interest;
expose us to additional risks related to currency exchange rates and repatriation of funds;
place us at a competitive disadvantage compared to our competitors that have less debt; and
limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, business development, debt service requirements, acquisitions and general corporate or other purposes.
     In addition, the indenture governing the Senior Notes and the credit agreement governing our New Senior Credit Facility contain affirmative and negative covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts.
Despite current indebtedness levels and restrictive covenants, we and our subsidiaries may incur significant additional indebtedness in the future. This could further exacerbate the risks associated with our substantial financial leverage.
The terms of the indenture governing the Senior Notes, our New Senior Credit Facility and the credit agreement governing our Delayed Draw Facility permit us to incur a substantial amount of additional debt, including secured debt. Any additional borrowings under our New Senior Credit Facility, the anticipated borrowing under our Delayed Draw Facility and any other secured debt, would be effectively senior to the Senior Notes and any guarantees thereof to the extent of the value of the assets securing such indebtedness. If new debt is added to our and our subsidiaries’ current debt levels, the risks that we now face as a result of our leverage would intensify. See Note 9 to our Consolidated Financial Statements “Debt and Credit Facilities” for more covenant disclosure related to the New Senior Credit Facility, the Delayed Draw Facility and the Senior Notes.
To service our indebtedness, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
Our ability to make cash payments on and to refinance our indebtedness, including the Senior Notes, and to fund planned capital expenditures will depend on our ability to generate significant operating cash flow in the future. This, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not generate sufficient cash flow from operations and future borrowings may not be available under our Revolving Credit Facility in an amount sufficient to enable us to pay our indebtedness, including the Senior Notes, or to fund our other liquidity needs. In such circumstances, we may need to refinance all or a portion of our indebtedness, including the Senior Notes, on or before maturity. We may not be able to refinance any of our indebtedness, including our New Senior Credit Facility and, following the initial borrowing thereunder and the transactions taking place in connection therewith, our Delayed Draw Facility and the Senior Notes, on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Such actions, if necessary, may not be effected on commercially reasonable terms or at all. The credit agreement governing the New Senior Credit Facility, the credit agreement governing the Delayed

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Draw Facility and the indenture governing the Senior Notes restrict our ability to sell assets and use the proceeds from such sales.
If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness (including covenants in our New Senior Credit Facility, our Delayed Draw Facility and the indenture governing the Senior Notes), we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest and additional interest, if any, the lenders under our New Senior Credit Facility could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our Revolving Credit Facility to avoid being in default. If we breach our covenants under our New Senior Credit Facility and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our New Senior Credit Facility or our Delayed Draw Facility, as applicable, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could negatively impact our business.
There is risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum permitted by our New Senior Credit Facility and our Delayed Draw Facility, as applicable, and otherwise accessing capital and/or honoring loan commitments. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could be difficult to replace our New Senior Credit Facility on similar terms.
Risks Relating to Our Business
System failures, delays and other problems could harm our reputation and business, cause us to lose customers and expose us to customer liability.
Our success depends on our ability to provide reliable services to our customers. Our operations could be interrupted by any damage to or failure of:
our computer software or hardware, or our customers’ or suppliers’ computer software or hardware;
our networks, our customers’ networks or our suppliers’ networks; and
our connections and outsourced service arrangements with third parties.
Our systems and operations are also vulnerable to damage or interruption from:
power loss, transmission cable cuts and other telecommunications failures;
hurricanes, fires, earthquakes, floods and other natural disasters;
a terrorist attack in the United States or in another country in which we operate;
interruption of service arising from facility migrations, resulting from changes in business operations including acquisitions;
computer viruses or software defects;
loss or misuse of proprietary information or customer data that compromises security, confidentiality or integrity; and
errors by our employees or third-party service providers.
From time to time in the ordinary course of our business, our network nodes and other systems experience temporary outages. As a means of ensuring continuity in the services we provide to customers, we have invested in system redundancies and other back-up infrastructure, though we cannot assure you that we will be able to re-route our services over our back-up facilities and provide continuous service to customers in all circumstances. Because many of our services play a mission-critical role for our customers, any damage to or failure of the infrastructure we rely on, including that of our customers and vendors,

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could disrupt the operation of our network and the provision of our services, result in the loss of current and potential customers and expose us to potential customer liability.
Security breaches could damage our reputation and harm our operating results.
            We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks. The services we offer involve the storage and transmission of proprietary information and customer and subscriber data. The risk that a security breach could seriously harm our business is likely to increase as we expand our technology and network footprint. Security breaches, such as physical or electronic break-ins, sabotage, intentional acts of vandalism and other cyber related attacks, can occur that could compromise the security of our infrastructure, thereby exposing such information to unauthorized access by third parties. Techniques used to obtain unauthorized access to, or to sabotage systems, change frequently and generally are not recognized until launched against a target. We may be required to expend significant capital and other resources to remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Any security breaches that occur could damage our reputation, increase our security costs, expose us to litigation and lead to the loss of existing or potential customers. If our services are perceived as not being secure, our strategy to be a leading provider of technology solutions to the wireless ecosystem may be adversely impacted.
We depend on a small number of customers for a significant portion of our revenues and the loss of any of our major customers would harm us.
Our 10 largest customers for the year ended December 31, 2012 and for the year ended December 31, 2011 represented approximately 60% and 61% of our revenues in the aggregate, respectively. We expect to continue to depend upon a small number of customers for a significant percentage of our revenues. Because our major customers represent such a large part of our business, the loss of any of our major customers or any services provided to these customers would negatively impact our business. Any non-renewal of contracts with these customers could materially reduce our revenues.
Most of our customer contracts do not provide for minimum payments at or near our historical levels of revenues from these customers.
Although some of our customer contracts require our customers to make minimum payments to us, these minimum payments are substantially less than the revenues that we have historically earned from these customers. While our contracts generally run for three years, the amount of revenue produced by the contract is not guaranteed. If our customers decide for any reason not to continue to purchase services from us at current levels or at current prices, or not to renew their contracts with us, our revenues would decline.
Future consolidation among our customers may cause us to lose transaction volume and reduce our prices, which would negatively impact our financial performance.
In the past, consolidation among our customers has caused us to lose transaction volume and to reduce prices. In the future, our transaction volume and pricing may decline for similar reasons. Such consolidation activities may take the form of business combinations, strategic partnerships, or other business arrangements between the operators.
We may not be able to expand our customer base to make up for any revenue declines if we lose customers or if our transaction volumes decline as a result of consolidation activities. Our attempts to diversify our customer base and reduce our reliance on particular customers may not be successful.
If we do not adapt to rapid technological change in the telecommunications industry, we could lose customers or market share.
Our industry is characterized by rapid technological change, frequent new service introductions and changing customer demands. Significant technological changes could make our technology and services obsolete. Our success depends in part on our ability to adapt to our rapidly changing market by continually improving the features, functionality, reliability and responsiveness of our existing services and by successfully developing, introducing and marketing new features, services and applications to meet changing customer needs. We cannot assure you that we will be able to adapt to these challenges or respond successfully or in a cost-effective way to adequately meet them. Our failure to do so would impair our ability to compete, retain customers or maintain our financial performance. We sell our services primarily to telecommunications companies. Our future revenues and profits will depend, in part, on our ability to sell to new market participants.
 The market for our services is intensely competitive and many of our competitors have advantages over us.

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We compete in markets that are intensely competitive and rapidly changing. Increased competition could result in fewer customer orders, reduced pricing, reduced gross and operating margins and loss of market share, any of which could harm our business. We face competition from large, well-funded providers of similar services, such as MACH Solutions, Ltd., Sybase, an affiliate of SAP; TNS, Inc., Neustar, Inc., Ericsson and other existing communications, billing and technology companies. We are aware of major internet service providers, software developers and smaller entrepreneurial companies that are focusing significant resources on developing and marketing services that will compete with the services we offer. We anticipate increased competition in the telecommunications industry and the entrance of new competitors into our business.
We expect that competition will remain intense in the near term and that our primary long-term competitors may not yet have entered the market. Many of our current and potential competitors have significantly more employees and greater financial, technical, marketing and other resources than we do. Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can.
Our customers may develop in-house solutions and migrate part or all of the services that we provide them to these in-house solutions.
We believe that certain customers may choose to internally deploy certain functionality currently provided by our services. In recent years, we have experienced a loss of revenue streams from certain of our services as some of our customers have decided to meet their needs for these services in-house.
Our failure to achieve or sustain desired pricing levels or to offset price reductions with increased transaction volumes, could impact our ability to maintain profitability or positive cash flow.
Competition and industry consolidation have resulted in pricing pressure, which we expect to continue in the future and which we expect to continue to address through our volume-based pricing strategy. This pricing pressure could cause large reductions in the selling price of our services. For example, consolidation in the wireless services industry in the United States over the past several years has given some of our customers increased leverage in pricing negotiations. Our competitors or our customers’ in-house solutions may also provide services at a lower cost, significantly increasing pricing pressures on us. While historically pricing pressure has been largely offset by volume increases and the introduction of new services, in the future we may not be able to offset the effects of any price reductions.
Our continued expansion into international markets is subject to uncertainties that could adversely affect our operating results.
Our growth strategy contemplates continued expansion of our operations into foreign jurisdictions. International operations and business expansion plans are subject to numerous risks, including:
the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;
fluctuations in currency exchange rates;
foreign customers may have longer payment cycles than customers in the U.S.;
U.S. and foreign import, export and related regulatory controls on trade;
tax rates in some foreign countries may exceed those of the U.S. and foreign earnings may be subject to withholding requirements or the imposition of tariffs, exchange controls, taxes upon repatriation or other restrictions;
general economic and political conditions in the countries where we operate may have an adverse effect on our operations in those countries or not be favorable to our growth strategy;
unexpected changes in regulatory requirements;
the difficulties associated with managing a large organization spread throughout various countries, including recruiting and hiring adequate and competent personnel and maintaining our standards, controls, information systems and procedures;
the risk that foreign governments may adopt regulations or take other actions that would have a direct or indirect adverse impact on our business and market opportunities, including for example a delay we experienced in receiving regulatory confirmation for the commencement of number portability services in India; and
the potential difficulty in enforcing intellectual property rights in certain foreign countries.

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For the year ended December 31, 2012, 30.4% of total revenue was generated outside of the United States as compared to 22.6% for the year ended December 31, 2011. In addition, revenues generated by international operations are unlikely to be at entities that guarantee the Senior Notes. As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of these factors could result in higher costs or reduced revenues for our international operations.
Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various international jurisdictions.
Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and various international jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act (the “UK Act”). The FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. The UK Act prohibits us from making payments to private citizens as well as government officials. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption. As a result of the above activities, we are exposed to the risk of violating anti-corruption laws. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures. We have established policies and procedures designed to assist us and our personnel to comply with applicable U.S. and international laws and regulations. However, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, financial condition and results of operations.
We conduct business in international markets with complex and evolving tax rules, which subjects us to international tax compliance risks.
While we obtain advice from tax and legal advisors as necessary to help ensure compliance with tax and regulatory matters, some tax jurisdictions in which we operate have complex and subjective rules regarding the valuation of inter-company services, cross-border payments between affiliated companies and the related effects on the taxes to which we are subject, including income tax, value-added tax and transfer tax. From time to time, our foreign subsidiaries are subject to tax audits and may be required to pay additional taxes, interest or penalties should the taxing authority assert different interpretations, or different allocations or valuations of our services. There is a risk, if one or more taxing authorities significantly disagrees with our interpretations, allocations or valuations, that any additional taxes, interest or penalties which may result could be material and could reduce our income and cash flow from our international subsidiaries.
The costs and difficulties of acquiring and integrating complementary businesses and technologies could impede our future growth, diminish our competitiveness and harm our operations.
As part of our growth strategy, we intend to consider acquiring complementary businesses. Future acquisitions could result in the incurrence of debt and contingent liabilities, which could harm our business, financial condition and results of operations. Risks we could face with respect to acquisitions include:
greater than expected costs, management time and effort involved in identifying, completing and integrating acquisitions;
potential disruption of our ongoing business and difficulty in maintaining our standards, controls, information systems and procedures;
diversion of management’s attention from other business concerns;
entering into markets and acquiring technologies in areas in which we have little experience;
acquiring intellectual property which may be subject to various challenges from others;
the inability to successfully integrate the services, products and personnel of any acquisition into our operations;
the inability to achieve expected synergies;

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a need to incur debt, which may reduce our cash available for operations and other uses;
incurrence of liabilities and claims arising out of acquired businesses;
realizing little, if any, return on our investment; and
unforeseen integration difficulties that may cause service disruptions.
We cannot guarantee that the proposed acquisition of MACH will be consummated. Any failure to consummate the proposed acquisition could have a material adverse impact on our consolidated results of operations and financial condition.
Consummation of the proposed acquisition of MACH is subject to the receipt of certain regulatory approvals and other closing conditions set forth in the Purchase Agreement. As a result, we cannot guarantee that the proposed acquisition will be consummated. In the event that the proposed acquisition is not consummated:
Management’s attention from our day-to-day business may be diverted without any corresponding benefits from the acquisition;
Our relationships with customers and vendors may be disrupted as a result of uncertainties with regard to our business and prospects;
We may be required to pay significant transactions costs related to the proposed acquisition without any corresponding benefits from the acquisition;
We will owe a termination fee to WP Roaming of €60 million (against which the deposit of €30 million will be credited).
We will incur substantial indebtedness in order to finance the MACH acquisition, which could adversely affect our business and limit our ability to plan for or respond to changes in our business.
In the event we are able to consummate the proposed acquisition of MACH we expect to incur substantial additional debt of up to $700 million under the Delayed Draw Credit Agreement. Although we have a financing commitment from lenders for the Delayed Draw Facility, the agreement is subject to certain conditions and we cannot assure you that those conditions will be satisfied.
Upon the funding of the Delayed Draw Facility, we will have substantially more indebtedness which could adversely affect our ability to raise additional capital to fund our operations, may limit our ability to react to changes in the economy or our industry, may expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the various documents governing our indebtedness. Our ability to make cash payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate significant cash flow in the future. Our business, following the acquisition of MACH, may not generate sufficient cash flow from operations and future borrowings may not be available in an amount sufficient to enable us to pay our indebtedness on or before maturity. If we cannot service our indebtedness we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. Such actions, if necessary, may not be effective on commercially reasonable terms or be able to be consummated at all.
Under the terms of the New Senior Credit Facility and the Senior Notes, we are required to satisfy a net senior secured leverage ratio of 4.00:1.00 to borrow under the Delayed Draw Facility. The net senior secured leverage ratio is defined as consolidated debt that is secured by a lien less unrestricted cash and cash equivalents to Adjusted EBITDA (as discussed in Non-GAAP Financial Measures in Item 7). If the additional debt incurred to finance the MACH acquisition would cause our net senior secured leverage ratio to exceed 4.00:1.00, we would need to reduce the amount of borrowings under the Delayed Draw Facility and seek funding from other sources such as the issuance of additional notes.
In the event we are able to consummate the proposed acquisition of MACH, we may not realize the expected benefit of the acquisition because of integration difficulties and other challenges.
The ultimate success of the MACH acquisition will depend, in part, on our ability to realize all or some of the anticipated benefits from integrating MACH's business with our existing business. The integration process may be complex, costly and time-consuming. The potential difficulties of integrating the operations of MACH's business include, among others:
failure to implement our business plan for the combined business

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unanticipated issues in integrating technology platforms, logistics, information, communications and other systems;
resolving inconsistencies in standards, controls, procedures and policies, and compensation structures between MACH's structure and our structure;
failure to retain key customers and third-party vendors;
unanticipated changes in applicable laws and regulations;
failure to retain key employees;
operating risks in MACH's business and our business; and
unanticipated issues, expenses and liabilities.
Following the acquisition, we may not be able to maintain levels of revenue, earnings or operating efficiency that each of Syniverse and MACH had achieved or might achieve separately. In addition, we may not accomplish the integration of MACH's business smoothly, successfully or within the anticipated costs or time frame. If we experience difficulties with the integration process, the anticipated benefits of the MACH acquisition may not be realized fully, or at all, or may take longer to realize than expected.
The inability of our customers to successfully implement our services could have a material adverse impact on our operations.
Significant technical challenges can arise for our customers when they implement our services. Our customers’ ability to support the deployment of our services and integrate them successfully within their operations depends, in part, on our customers’ technological capabilities and the level of technological complexity involved. Difficulty in deploying those services could increase our customer service support costs, delay the recognition of revenues until the services are implemented and reduce our operating margins.
Our reliance on third-party providers for communications software, hardware and infrastructure exposes us to a variety of risks we cannot control.
Our success depends on software, equipment, network connectivity and infrastructure hosting services supplied by our vendors and customers such as Real Networks, which provides us with a P2P messaging software platform, and Ericsson, which provides us with software for number porting. We cannot assure you that we will be able to continue to purchase the necessary software, equipment and services from these vendors on acceptable terms or at all. If we are unable to maintain current purchasing terms or ensure service availability with these vendors and customers, we may lose customers during any disruption in services and experience an increase in costs in seeking alternative supplier services, migration of equipment or services or incur additional capital expenditure costs.
Our business also depends upon the capacity, reliability and security of the infrastructure owned and managed by third parties, including our vendors and customers, that is used by our Network, Messaging and Roaming Services. We have no control over the operation, quality or maintenance of a significant portion of that infrastructure and whether those third parties will upgrade or improve their software, equipment and services to meet our and our customers’ evolving requirements. We depend on these companies to maintain the operational integrity of our services. If one or more of these companies is unable or unwilling to supply or expand its levels of service to us in the future, our operations could be severely interrupted. In addition, rapid changes in the telecommunications industry have led to industry consolidation. This consolidation may cause the availability, pricing and quality of the services we use to vary and could lengthen the amount of time it takes to deliver the services that we use, in particular for those services for which we need access to mobile operators’ networks in order to deliver.
Inability to develop or maintain relationships with material vendors could have a material adverse impact on our operations.
Certain of our products are dependent on third-party vendors and our inability to develop or maintain relationships with these vendors could result in a significant disruption to the services we provide. If we are unable to maintain current purchasing terms or ensure service availability with these vendors, we may lose customers and experience an increase in costs in seeking alternative supplier services. The failure to develop and maintain vendor relationships and any resulting disruptions to the provision of our services could have a material adverse impact on our operations.
Fluctuations in currency exchange rates may adversely affect our results of operations.

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A significant part of our business consists of sales made to customers outside the United States. During the year ended December 31, 2012, approximately 13% of the revenues we received from such sales were denominated in currencies other than the U.S. dollar. Additionally, portions of our operating expenses are incurred by our international operations and denominated in local currencies. While fluctuations in the value of these revenues and expenses as measured in U.S. dollars have not materially affected our results of operations historically, we cannot assure you that adverse currency exchange rate fluctuations will not have a material impact in the future. In addition, our balance sheet reflects non-U.S. dollar denominated assets and liabilities, including intercompany balances eliminated in consolidation, which can be adversely affected by fluctuations in currency exchange rates. Currently, we do not engage in currency hedging contracts.
We may need additional capital in the future and it may not be available on acceptable terms, or at all.
We may require more capital in the future to:
fund our operations;
enhance and expand the range of services we offer;
maintain and expand our network; and
respond to competitive pressures and potential strategic opportunities, such as investments, acquisitions and international expansion.
We cannot assure you that additional financing will be available on terms favorable to us or at all. The terms of available financing may place limits on our financial and operating flexibility. In addition, the credit agreement governing the New Senior Credit Facility and the indenture governing the Senior Notes contain financial and other restrictive covenants that limit our ability to incur indebtedness or obtain financing. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or abandon expansion opportunities. Moreover, even if we are able to continue our operations, our failure to obtain additional financing could reduce our competitiveness as our competitors may provide better-maintained networks or offer an expanded range of services.
Our financial results may be adversely affected if we have to impair our intangible assets or goodwill.
As a result of our acquisitions, a significant portion of our total assets consist of intangible assets (including goodwill). Goodwill and intangible assets, net of amortization, together accounted for approximately 73% of the total assets on our balance sheet as of December 31, 2012. We may not realize the full fair value of our intangible assets and goodwill. We expect to engage in additional acquisitions, which may result in our recognition of additional intangible assets and goodwill. Under current accounting standards, we are able to amortize certain intangible assets over the useful life of the asset, while goodwill is not amortized. We currently evaluate, and will continue to evaluate, on a regular basis whether all or a portion of our goodwill or other intangible assets may be impaired. Under current accounting standards, any determination that impairment has occurred would require us to write-off the impaired portion of goodwill and such intangible assets, resulting in a charge to our earnings. Such a write-off could adversely affect our results of operations.
Regulations affecting our customers and us and future regulations to which they or we may become subject may harm our business.
Although our services have not been deemed to be common carrier telecommunication services, we are authorized by the FCC to offer certain of our services on an interstate and international basis, and such authorization alone may subject us to certain regulatory obligations at the federal level. Moreover, certain telecommunications services that we offer on a non-common carrier basis are subject to regulatory requirements of the FCC and foreign regulatory bodies.
Several services that we offer also may be indirectly affected by regulations imposed upon the customers and end users of those services. These regulations may increase our costs of operations and affect whether and in what form we are able to provide a given service at all.
We cannot predict when, or upon what terms and conditions, further regulation—including reregulation or deregulation - might occur or the effects, adverse or otherwise, that such regulation may have on our business.
Capacity limits on our network and application platforms may be difficult to project and we may not be able to expand and upgrade our systems to meet increased use.
As customers’ usage of our services increases, we will need to expand and upgrade our network and application platforms. We may not be able to accurately project the rate of increase in usage of our services. In addition, we may not be able to expand

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and upgrade, in a timely manner, our systems, networks and application platforms to accommodate increased usage of our services. If we do not appropriately expand and upgrade our systems and networks and application platforms, we may lose customers and our operating performance may suffer.
We may not be able to receive or retain licenses or authorizations that may be required for us to sell our services internationally.
The sales and marketing of our services and related products internationally are subject to the U.S. Export Control regime and similar regulations in other countries. In the United States, items of a commercial nature are generally subject to regulatory control by the U.S. Department of Commerce’s Bureau of Industry and Security and to Export Administration Regulations, and other international trade regulations may apply as well. In the future, regulatory authorities may require us to obtain export licenses or other export authorizations to export our services or related products abroad, depending upon the nature of items being exported, as well as the country to which the export is to be made. We cannot assure you that any of our applications for export licenses or other authorizations will be granted or approved. Furthermore, the export license/export authorization process is often time-consuming. Violation of export control regulations could subject us to fines and other penalties, such as losing the ability to export for a period of years, which would limit our revenue growth opportunities and significantly hinder our attempts to expand our business internationally.
Failure to protect our intellectual property rights adequately may have a material adverse effect on our results of operations or our ability to compete.
We attempt to protect our intellectual property rights in the United States and in foreign countries through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and agreements preventing the unauthorized disclosure and use of our intellectual property. We cannot assure you that these protections will be adequate to prevent competitors from copying or reverse engineering our services, or independently developing and marketing services that are substantially equivalent to or superior to our own. Moreover, third parties may be able to successfully challenge, oppose, invalidate or circumvent our patents, trademarks, copyrights and other intellectual property rights. We may fail or be unable to obtain or maintain adequate protections for certain of our intellectual property in the United States or certain foreign countries. Further, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States because of the differences in foreign trademark, patent and other laws concerning proprietary rights. Such failure or inability to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
Monitoring and protecting our intellectual property rights can be challenging and costly. From time to time, we may be required to initiate litigation or other action to enforce our intellectual property rights or to establish their validity. Such action could result in substantial cost and diversion of resources and management attention, and we cannot assure you that any such action will be successful.
 If third parties claim that we are in violation of their intellectual property rights, it could have a negative impact on our results of operations and ability to compete.
We face the risk of claims that we have infringed the intellectual property rights of third parties. For example, significant litigation regarding patent rights exists in our industry. Our competitors in both the U.S. and foreign countries, many of which have substantially greater resources than we have and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make and sell our products and services. We have not conducted an independent review of patents issued to third parties. The large number of patents, the rapid rate of new patent issuances, the complexities of the technology involved and uncertainty of litigation increase the risk of business assets and management’s attention being diverted to patent litigation.
It is possible that third parties will make claims of infringement against us, or against our licensees or other customers, in connection with their use of our technology. Any claims, even those without merit, could:
be expensive and time-consuming to defend;
cause us to cease making, licensing, using or selling equipment, services or products that incorporate the challenged intellectual property;
require us to redesign our equipment, services or products, if feasible;
divert management’s attention and resources; and

28


require us to enter into royalty or licensing agreements in order to obtain the right to use necessary intellectual property.
Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us or one of our licensees or customers in connection with the use of our technology could result in our being required to pay significant damages, enter into costly license or royalty agreements or stop the sale of certain products, any of which could have a negative impact on our operating profits and harm our future prospects.
If third parties claim that our products or services infringe on their intellectual property rights, we may be required to indemnify our customers for any damages or costs they incur in connection with such claims.
We generally indemnify our customers with respect to claims that our products or services infringe upon the proprietary rights of third parties. Third parties may assert infringement claims against our customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products.
We depend on key personnel to manage our business effectively and may not be successful in attracting and retaining such personnel.
We depend on the performance of our senior management team and other key employees. Our success also depends on our ability to attract, integrate, train, retain and motivate these individuals and additional highly skilled technical and sales and marketing personnel, both in the United States and abroad. The loss of the services of any of our senior management team or other key employees or failure to attract, integrate, train, retain and motivate additional key employees could harm our business.
Unfavorable general economic conditions in the United States or in other major global markets could negatively impact our financial performance.
Unfavorable general economic conditions may continue globally, or in one or more regions, due to the decreased availability of credit resulting from slower economic activity, concerns about inflation and deflation, volatility in energy costs, decreased consumer confidence, reduced corporate profits and capital spending. Adverse business conditions and liquidity concerns in the United States, Europe, including the ongoing European economic and financial turmoil related to sovereign debt issues in certain European countries and to the overall Eurozone, or in one or more of our other major markets, could adversely affect our customers in the wireless communications markets and thus impact our financial performance. These conditions make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they could cause further slow spending on our services. Furthermore, during challenging economic times such as recession or economic slowdown, our customers or vendors may face issues gaining timely access to sufficient credit, which could impair their ability to make timely payments or provide services to us. If that were to occur, we may be required to increase our allowance for doubtful accounts and our accounts receivable outstanding would be negatively impacted. The current economic downturn and any future downturn may reduce our revenues or our percentage of revenue growth on a quarter-to-quarter basis. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, world-wide, or in the telecommunications industry. If the economy or the markets in which we operate do not improve from their current condition or if they deteriorate, our customers or potential customers could reduce or further delay their use of our services, which would adversely impact our revenues and ultimately our profitability. In addition, we may record additional charges related to the restructuring of our business and the impairment of our goodwill and other long-lived assets, and our business, financial condition and results of operations will likely be materially and adversely affected.
Demand for our services is driven primarily by wireless voice and data traffic, subscriber roaming activity, SMS and MMS messaging, number porting and next generation IP applications. Changes in subscriber usage patterns could be affected in any recession or economic downturn in the United States or any other country where we do business and could negatively impact the number of transactions processed and adversely affect our revenues and earnings.
We are party to a number of lawsuits that arise in the ordinary course of business and may become party to others in the future.
We are party to a number of lawsuits that arise in the ordinary course of business and may become party to others in the future. The possibility of such litigation, and its timing, is in large part outside our control. While none of the current lawsuits in which we are involved are reasonably estimated to be material as of the date of this Annual Report on Form 10-K, it is possible

29


that future litigation could arise, or developments could occur in existing litigation, that could have material adverse effects on us.

ITEM  1B.      UNRESOLVED STAFF COMMENTS
None.

ITEM 2.    PROPERTIES
Our headquarters is located in a 198,750 square foot leased office space in Tampa, Florida. The lease term for the headquarters facility is eleven years and commenced on November 1, 2005. At our option, we have the right to renew the lease for two additional periods of five years each. The headquarters facility is a multi-purpose facility that supports our corporate administrative, North American sales, technology and operations functions. We lease 35,130 square feet of office space in Campbell, California, which supports our messaging technology and operations functions.
We lease several offices for our Asia Pacific operations including 14,404 square feet in Hong Kong, 9,370 square feet in Nanjing and 40,835 square feet in Bangalore, India. The Bangalore, India facility primarily supports our technology and operations functions.
In Europe, we have leases for office space as follows: 20,782 square feet in Russelsheim, Germany and 7,942 square feet in London, England. These facilities comprise technology and operations functions.
In addition, we have a secure physical network infrastructure, consisting of 18 data centers and 14 network points-of-presence worldwide which are primarily facilitated through co-location leases.
We consider our facilities and equipment suitable and adequate for our business as currently conducted.

ITEM 3.    LEGAL PROCEEDINGS
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.

ITEM 4.     MINE SAFETY DISCLOSURES
Not applicable.

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PART II
 
ITEM  5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
Our common stock was traded on the NYSE under the trading symbol “SVR” until January 12, 2011. Trading of our common stock on the NYSE was suspended upon the consummation of the Merger (see Note 4 to our Consolidated Financial Statements) and the registration of our common stock under Section 12 of the Exchange Act was terminated. As of the date of this Annual Report on Form 10-K, there is one record holder of our common stock, and there is no public market for our common stock.
Dividend Policy
We have not paid any cash dividends on our common stock since our incorporation. Future determination as to the payment of cash or stock dividends on our common stock to our only stockholder, Holdings, will depend upon our results of operations, financial condition, capital requirements, restrictions contained in our senior credit facility, limitations contained in the indenture governing the Senior Notes, and such other factors as our Board of Directors considers appropriate.
For additional information regarding these lending arrangements and securities, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources,” Note 9, “Debt and Credit Facilities,” and Note 11, “Stock-Based Compensation,” to our Consolidated Financial Statements in this Annual Report on Form 10-K.
Equity Compensation Plan Information
As of December 31, 2012, we did not have any compensation plans under which our equity securities were authorized for issuance. See Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding the compensation plans under which equity securities of our parent company, Holdings, are authorized for issuance.
Recent Sales of Unregistered Securities
Not applicable.
Issuer Purchases of Equity Securities
The Company has been a wholly-owned subsidiary of Holdings since January 13, 2011, and therefore does not have any class of equity securities registered under Section 12 of the Exchange Act.

ITEM 6.     SELECTED FINANCIAL DATA
The following table sets forth our selected historical consolidated financial information. The selected historical consolidated balance sheet data as of December 31, 2012, 2011, 2010, 2009, and 2008 and the selected historical consolidated statements of operations data for the year ended December 31, 2012, the periods January 13, 2011 through December 31, 2011 and January 1, 2011 through January 12, 2011 and for the years ended December 31, 2010, 2009, and 2008, have been derived from our audited Consolidated Financial Statements.
The selected financial data set forth below is not necessarily indicative of the results of our future operations and should be read in conjunction with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements and accompanying Notes included elsewhere herein.

31


 
Successor 
 
 
Predecessor 
 
Year Ended
 
Period from
 
 
Period from
 
 
 
 
 
 
 
December 31,
 
January 13 to
 
 
January  1 to
 
Year Ended December 31, 
 
2012
 
December 31, 2011 
 
 
January 12, 2011 
 
2010
 
2009
 
2008
 
(in thousands)
Statement of Operations Data (1):
 
 
 
 
 
 
 
 
 
 
 
 
 Revenues
$
743,874

 
$
745,978

 
 
$
22,014

 
$
650,199

 
$
482,991

 
$
506,356

 Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of operations (excluding depreciation and amortization shown separately below)
275,301

 
259,549

 
 
9,274

 
245,673

 
172,950

 
165,236

Sales and marketing
68,549

 
63,708

 
 
2,376

 
58,929

 
38,789

 
45,549

General and administrative
117,995

 
100,993

 
 
3,664

 
93,855

 
74,502

 
79,241

Depreciation and amortization (2)
177,320

 
196,161

 
 
2,720

 
75,869

 
60,397

 
55,344

Restructuring and management termination benefits (3)
2,361

 
6,207

 
 

 
1,962

 
2,583

 
(29
)
Merger expenses (4)

 
40,549

 
 
47,203

 
4,313

 

 

 
641,526

 
667,167

 
 
65,237

 
480,601

 
349,221

 
345,341

 Operating income (loss)
102,348

 
78,811

 
 
(43,223
)
 
169,598

 
133,770

 
161,015

 Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
790

 
583

 
 

 
99

 
323

 
1,894

Interest expense
(108,704
)
 
(112,996
)
 
 
(859
)
 
(27,137
)
 
(28,890
)
 
(37,246
)
Debt extinguishment costs
(6,458
)
 

 
 

 

 

 

Other, net
3,940

 
(2,993
)
 
 
(349
)
 
2,787

 
939

 
(402
)
 
(110,432
)
 
(115,406
)
 
 
(1,208
)
 
(24,251
)
 
(27,628
)
 
(35,754
)
 (Loss) income before provision for (benefit from) income taxes
(8,084
)
 
(36,595
)
 
 
(44,431
)
 
145,347

 
106,142

 
125,261

(Benefit from) provision for income taxes
(7,889
)
 
(16,926
)
 
 
(13,664
)
 
52,728

 
40,465

 
46,797

 Net (loss) income
(195
)
 
(19,669
)
 
 
(30,767
)
 
92,619

 
65,677

 
78,464

 Net income (loss) attributable to noncontrolling interest
3,046

 
1,803

 
 
(3
)
 
(1,573
)
 
(590
)
 

 Net (loss) income attributable to Syniverse Holdings, Inc.
$
(3,241
)
 
$
(21,472
)
 
 
$
(30,764
)
 
$
94,192

 
$
66,267

 
$
78,464

Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
2,959,039

 
3,030,742

 
 
 
 
1,420,826

 
1,309,724

 
1,199,834

Total debt and capital leases
1,413,481

 
1,479,373

 
 
 
 
499,581

 
512,464

 
513,813


 _____________________
 
(1)
Results include the following acquisitions in the respective periods subsequent to the acquisition date: VM3 acquisition completed in October 2009 and the Merger in January 2011.
(2)
Depreciation and amortization amounts exclude accretion of debt discount and amortization of deferred finance costs, which are both included in interest expense within the Statement of Operations Data.
(3)
Restructuring and management termination benefits is comprised primarily of severance benefits associated with our cost rationalization initiatives, which were implemented as follows:
In December 2009, we completed a restructuring plan to reduce our workforce in Asia Pacific to better align our operating costs to the economic environment and eliminated certain redundant positions in Europe and North America. As a result of this plan, we incurred severance related costs of $2.6 million.
In December 2010, we completed a restructuring plan primarily to realign certain senior management functions. As a result of this plan, we incurred severance related costs of $2.0 million in 2010 and an additional $0.3 million in 2011 for supplemental charges related to certain employee terminations.
In June 2011, we implemented a restructuring plan primarily to realign certain sales management positions. As a result of this plan, we incurred severance related costs of $1.3 million. In addition, effective July 1, 2011, our former Chief Executive Officer and President, Tony G. Holcombe, retired from the Company. In conjunction with his retirement, we incurred employee termination benefits of $1.1 million.

32


In December 2011, we implemented a restructuring plan primarily to regionalize our customer support workforce for better alignment with our customers’ needs. As a result of this plan, we incurred severance related costs of $3.7 million and contract termination costs of $0.4 million, as of December 31, 2012, related to the exit of a leased facility.
In December 2012, we implemented a restructuring plan primarily to align certain functions and address our cost structure in the messaging business. As a result of this plan, we incurred severance related costs of $1.8 million as of December 31, 2012.
(4)
Reflects costs associated with the Transactions, such as legal, advisory and investment banker fees and accelerated stock-based compensation expense.



33


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations covers periods before and after the Merger (as defined in Note 4 to our Consolidated Financial Statements) and the related Transactions (as defined in Note 4 to our Consolidated Financial Statements). Accordingly, the discussion and analysis of periods prior to January 13, 2011 do not reflect the significant impact that the Transactions have had on us, including increased levels of indebtedness and the impact of purchase accounting. However, the general nature of our operations was not impacted by the Transactions. As such, for comparative purposes we will discuss changes between the periods presented without reference to the effects of the Predecessor and Successor periods, which is consistent with the manner in which management evaluates our results of operations. Effects of the Transactions will be discussed where applicable. In addition, the statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and other forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described elsewhere in this Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled “Risk Factors,” “Selected Financial Data” and the historical audited consolidated financial statements, including the related Notes, appearing elsewhere in this Annual Report on Form 10-K. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31.
Carlyle Merger
On January 13, 2011, we consummated a Merger with an affiliate of Carlyle under which the Carlyle affiliate acquired 100% of our equity for a net purchase price of $2,493.8 million. The purchase price was funded through the net proceeds of our Old Senior Credit Facility of $1,025.0 million, the issuance of $475.0 million of senior unsecured notes bearing interest at 9.125% due 2019 ("Senior Notes") and a cash equity contribution of $1,200.0 million from an affiliate of Carlyle. For additional discussion of the Transactions, see Note 4 to our Consolidated Financial Statements.
As a result of the Merger and the application of purchase accounting, our assets and liabilities were adjusted to their fair market values as of January 13, 2011, the closing date of the Merger. The excess of the total purchase price over the fair value of our assets and liabilities at closing was allocated to goodwill. The assessment of the fair value of our assets indicated that the value of our intangible assets and goodwill increased significantly. Amounts allocated to finite-lived intangible assets are subject to amortization over the useful life of the asset. The indefinite-lived intangible assets and goodwill are subject to impairment testing. Additionally, we had an increase in our depreciation and amortization primarily resulting from the increased carrying value of our intangible assets.
In connection with the Merger and as discussed below in “Liquidity and Capital Resources”, we incurred significant indebtedness, and our total indebtedness and related interest expense will be significantly higher than prior to the Merger. In addition, we incurred certain Merger related expenses during the years ended December 31, 2011 and 2010.
Business
    
In today's evolving and highly competitive wireless industry, a key priority is the need to provide a seamless user experience to mobile subscribers across varied networks, devices, standards, and content types. When subscribers communicate on their own mobile operator's network or with other subscribers of the same mobile operator, this objective is easily achieved. However, when subscribers roam on other networks or communicate with subscribers of a different mobile operator, new layers of complexity are introduced as a result of varying and incompatible technologies, networks and devices. The latter scenario requires inter-carrier roaming agreements and physical access by the mobile operator to other mobile operators' networks. It is often preferable to have a neutral and trusted third-party intermediary, such as Syniverse, sit between mobile operators.
We clear, process, route, translate and transport over two billion transactions on average each day. A “transaction” is generated by, among other things, an individual phone call, a text or a multimedia message that is sent or received, or the initiation of a mobile data session between different operators’ networks or while roaming. We also operate a secure physical network infrastructure, consisting of 18 data centers and 14 network points-of-presence worldwide, that provides the connections required to complete these transactions. Such connections can be between mobile operators or between mobile operators and enterprises, multiple service operators (“MSOs”) or others. Our Network services provide connectivity to mobile operators and other telecommunications providers, allow subscribers to keep (or “port”) their phone numbers when switching mobile operators, and allow subscribers to utilize caller identification (“caller ID”) services. Our Messaging services allow mobile operators’ subscribers to send text and multimedia messages to other mobile operators’ subscribers and also facilitate text and multimedia messaging between enterprises and their customers. Through the use of our Roaming services, mobile operators enable their subscribers

34


to make phone calls, send and receive text messages, multimedia messages, and email and browse the web or use applications while roaming on another mobile operator’s network.
We generate the majority of our revenues on a per-transaction basis, often generating multiple transactions from a single subscriber call, text message or data session. Growing demand for transactions is driven primarily by the volume of wireless voice calls and data sessions, the frequency of subscriber roaming activity, the amount of data downloaded while roaming, the number of text and multimedia messages exchanged, subscriber adoption of new wireless data services and evolving wireless technology.
Services
We provide an integrated suite of Network, Messaging and Roaming services for our customers, which are primarily utilized when mobile operators need to interact with one another. We also provide technology turnkey solutions to customers primarily in the Asia Pacific region. Most of our customers utilize two or more of our service offerings.
See Item 1 "Business" and Note 2 to our Consolidated Financial Statements for a detailed description of our service offerings.
Executive Overview
Financial Highlights
For the year ended December 31, 2012, revenues decreased $24.1 million, or 3.1% to $743.9 million from $768.0 million for the year ended December 31, 2011. The decrease was primarily driven by the Verizon Wireless contract renewal executed at lower pricing and the impact of lower pricing for other customer contract renewals during the second quarter of 2012. The pricing impact was partially offset by transaction volume increases in our Network service offering, specifically Mobile Data Roaming ("MDR"), our interstandard roaming solution and interworking packet exchange ("IPX") products and our enterprise messaging product. For the year ended December 31, 2012, cost of operations increased $6.5 million due primarily to higher data processing and hosting costs and message termination fees, partially offset by lower revenue share cost resulting from a contractual rate reduction. Sales, marketing, general and administrative expenses increased $15.8 million, driven by higher professional services costs associated with business development activities including our pending acquisition (as further discussed below). Depreciation and amortization expenses decreased $21.6 million to $177.3 million for the year ended December 31, 2012 from $198.9 million for the same period in 2011 primarily due to our pattern of consumption amortization method for customer relationships valued in the Merger. Operating income increased $66.8 million to $102.3 million for the year ended December 31, 2012 from $35.6 million for the same period in 2011 due to $87.8 million of Merger expenses recorded in 2011 relating to the Merger, offset by the factors discussed above.
Business Developments
Business Acquisition Agreement
On June 30, 2012, we entered into an agreement (the “Purchase Agreement”) with WP Roaming S.à r.l., a Luxembourg limited liability company (the “Seller”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Purchase Agreement, we will acquire from the Seller all the shares and preferred equity certificates (whether convertible or not) in WP Roaming III S.à r.l. (“WP Roaming”) (the “Acquisition”). WP Roaming is a holding company which conducts the business of MACH S.à r.l. (“MACH”). MACH connects and monetizes the telecom world with its comprehensive and growing portfolio of cloud-based communication services, providing its 650 operator customers with solutions to monetize mobile data, simplify interoperability between networks, optimize wholesale processes and protect revenues. Headquartered in Luxembourg, MACH has offices in 12 countries.
At the closing of the Acquisition, we will pay to the Seller an amount equal to €172.7 million, subject to adjustment, plus €0.25 million per month from December 31, 2011 through the closing date of the Acquisition. In addition, at the closing of the Acquisition, we shall, on behalf of WP Roaming, pay all amounts outstanding to WP Roaming’s third-party lenders in order to ensure the release of all related guarantees and security interests. On July 2, 2012, Syniverse Holdings, Inc. paid the Seller a deposit of €30 million.
Refer to Note 18 and Note 22 to the Consolidated Financial Statements for additional information regarding this pending business acquisition.
Delayed Draw Facility

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On February 4, 2013, Syniverse Magellan Finance, LLC, our direct wholly-owned subsidiary entered into a delayed draw credit agreement (the "Delayed Draw Credit Agreement") with Barclays Bank PLC, as administrative agent, and the other lenders from time to time, providing for a new senior credit facility consisting of a $700 million delayed draw term loan facility (the “Delayed Draw Facility”). The lenders will fund the term loans under the Delayed Draw Facility when certain conditions are satisfied, including the consummation of the Acquisition discussed above.

Under this facility, borrowings will 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 2.00%, as applicable. The applicable margin under the Delayed Draw Facility is 3.00% per annum for Eurodollar loans and 2.00% per annum for base rate loans.

The Delayed Draw Facility will mature the earliest of (i) April 23, 2019, (ii) the date of termination in whole of the commitments under the Delayed Draw Facility and (iii) the date the loans under the Delayed Draw Facility are declared due and payable in connection with an event of default; provided that (a) in the event that more than $50 million of our Senior Notes remain outstanding on the date that is 91 days prior to the stated maturity of the Senior Notes (the “First Springing Maturity Date”), the maturity date for the Delayed Draw Facility will be the First Springing Maturity Date and (b) in the event that more than $50 million in aggregate principal amount of any refinancing indebtedness in respect of the Senior Notes remains outstanding on the date that is 91 days prior to the stated maturity of such refinancing indebtedness (the “Second Springing Maturity Date”), the maturity date for the Delayed Draw Facility will be the earlier of the Second Springing Maturity Date and April 23, 2019.
 
Refer to Note 21 to our Consolidated Financial Statements for additional detail regarding the Delayed Draw Facility.
Verizon Wireless Renewal
In September 2011, contracts with Verizon Wireless, our largest customer, expired. Verizon Wireless uses a large suite of our services for its data clearing and roaming operations – products such as inter-standard roaming solutions, MDR, data clearing house, RTI tools and a number of other services. During the second quarter of the year ending December 31, 2012, the renewal was completed at substantially similar terms and reduced pricing effective May 1, 2012 for a four year term.
Senior Credit Facility Refinancing
On April 23, 2012, we refinanced our Old Senior Credit Facility (as defined in Note 9 to our Consolidated Financial Statements) and entered into a credit agreement (the “New Credit Agreement”) with 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 new senior credit facility (the “New Senior Credit Facility”) consisting of (i) a $950.0 million term loan facility (the “Term Loan Facility”); and (ii) a $150.0 million revolving credit facility (the “Revolving Credit Facility”) for the making of revolving loans, swing line loans and issuance of letters of credit. In conjunction with this refinancing, we utilized $81.2 million of cash to pay down the principal balance of the term loan under the Old Senior Credit Facility of approximately $62.2 million, pay the original issue discount on the New Senior Credit Facility of $9.5 million, $9.0 million in financing costs and $0.5 million of accrued interest and fees for the Old Senior Credit Facility.
Please see Note 9 to our Consolidated Financial Statements for additional detail regarding the New Senior Credit Facility.
Revenues
The majority of our revenues are derived from transaction-based charges under long-term contracts, typically with terms averaging three years in duration. From time to time, if a contract expires and we have not previously negotiated a new contract or renewal with the customer, we continue to provide services under the terms of the expired contract as we negotiate new agreements or renewals. Most of the services and solutions we offer to our customers are based on applications, network connectivity and technology platforms owned and operated by us. We generate our revenues through the sale of our Network, Messaging, Roaming and Other services to telecommunications operators and enterprise customers throughout the world. Generally, there is a seasonal increase in wireless roaming usage and corresponding revenues in the high-travel months of our second and third fiscal quarters. Products primarily affected by this seasonality include signaling solutions, interstandard roaming, MDR and roaming clearing house.
Future increases or decreases in revenues are dependent on many factors, such as industry subscriber growth, subscriber habits, and volume and pricing trends, with few of these factors known in advance. From time to time, specific events such as a customer contract renewal at different terms, a customer contract termination, a customer’s decision to change technologies

36


or to provide solutions in-house, or a consolidation of operators will be known to us and we can then estimate their impact on our revenues.
Costs and Expenses
Our costs and expenses consist of cost of operations, sales and marketing, general and administrative, depreciation and amortization, restructuring and management termination benefits and Merger expenses.
Cost of operations includes data processing costs, network costs, revenue share service provider arrangements, message termination fees, facilities costs, hardware costs, licensing fees, personnel costs associated with service implementation, training and customer care and off-network database query charges.
Sales and marketing includes personnel costs, advertising and website costs, trade show costs and related marketing costs.
General and administrative includes research and development expenses, a portion of the expenses associated with our facilities, business development expenses, and expenses for executive, finance, legal, human resources and other administrative departments and professional service fees relating to those functions. Our research and development expenses, consisting primarily of personnel costs, relate to technology creation, enhancement and maintenance of new and existing services.
Depreciation and amortization relate primarily to our property and equipment including our SS7 network, computer equipment, infrastructure facilities related to information management, capitalized software and other intangible assets recorded as a result of purchase accounting.
Restructuring and management termination benefits represents termination costs including severance, benefits and other employee related costs as well as facilities costs.
Merger expenses includes stock-based compensation related to the acceleration of equity awards in connection with the Merger, advisory costs, professional services costs including legal, tax and audit services, insurance costs and transaction fees and expenses paid to Carlyle incurred in connection with the Transactions.

37


Results of Operations
Comparison of 2012 and 2011
 
Successor
 
 
 
Combined
Predecessor & Successor
 
 
 
Successor
 
 
 
 
Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period from
 
 
 
 
Period from
 
 
 
Year ended
 
Year ended
 
Year ended
 
 
 
Year ended
 
 
 
January 13 to
 
 
 
 
January 1 to
 
 
 
December 31,
 
December 31,
 
December 31,
 
% of
 
December 31,
 
% of
 
December 31,
 
% of
 
 
January 12,
 
% of
 
2012 vs.
 
2012 vs.
 
2012
 
Revenues
 
2011
 
Revenues
 
2011
 
Revenues
 
 
2011
 
Revenues
 
2011
 
2011
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Network services
$
347,651

 
46.7
 %
 
$
327,847

 
42.7
 %
 
$
318,666

 
42.7
 %
 
 
$
9,181

 
41.7
 %
 
$
19,804

 
6.0
 %
Messaging services
180,471

 
24.3
 %
 
194,029

 
25.3
 %
 
187,831

 
25.2
 %
 
 
6,198

 
28.2
 %
 
(13,558
)
 
(7.0
)%
Roaming services
195,409

 
26.3
 %
 
225,577

 
29.4
 %
 
219,209

 
29.4
 %
 
 
6,368

 
28.9
 %
 
(30,168
)
 
(13.4
)%
Other
20,343

 
2.7
 %
 
20,539

 
2.6
 %
 
20,272

 
2.7
 %
 
 
267

 
1.2
 %
 
(196
)
 
(1.0
)%
Revenues
743,874

 
100.0
 %
 
767,992

 
100.0
 %
 
745,978

 
100.0
 %
 
 
22,014

 
100.0
 %
 
(24,118
)
 
(3.1
)%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of operations
275,301

 
37.0
 %
 
268,823

 
35.0
 %
 
259,549

 
34.8
 %
 
 
9,274

 
42.1
 %
 
6,478

 
2.4
 %
Sales and marketing
68,549

 
9.2
 %
 
66,084

 
8.6
 %
 
63,708

 
8.5
 %
 
 
2,376

 
10.8
 %
 
2,465

 
3.7
 %
General and administrative
117,995

 
15.9
 %
 
104,657

 
13.6
 %
 
100,993

 
13.5
 %
 
 
3,664

 
16.6
 %
 
13,338

 
12.7
 %
Depreciation and amortization
177,320

 
23.8
 %
 
198,881

 
25.9
 %
 
196,161

 
26.3
 %
 
 
2,720

 
12.4
 %
 
(21,561
)
 
(10.8
)%
Restructuring and management termination benefits
2,361

 
0.3
 %
 
6,207

 
0.8
 %
 
6,207

 
0.8
 %
 
 

 
0.0
 %
 
(3,846
)
 
(62.0
)%
Merger expenses

 
0.0
 %
 
87,752

 
11.4
 %
 
40,549

 
5.4
 %
 
 
47,203

 
214.4
 %
 
(87,752
)
 
(100.0
)%
 
641,526

 
86.2
 %
 
732,404

 
95.3
 %
 
667,167

 
89.3
 %
 
 
65,237

 
296.3
 %
 
(90,878
)
 
(12.4
)%
Operating income (loss)
102,348

 
13.8
 %
 
35,588

 
4.7
 %
 
78,811

 
10.7
 %
 
 
(43,223
)
 
(196.3
)%
 
66,760

 
187.6
 %
Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
790

 
0.1
 %
 
583

 
0.1
 %
 
583

 
0.1
 %
 
 

 
0.0
 %
 
207

 
35.5
 %
Interest expense
(108,704
)
 
(14.6
)%
 
(113,855
)
 
(14.8
)%
 
(112,996
)
 
(15.1
)%
 
 
(859
)
 
(3.9
)%
 
5,151

 
(4.5
)%
Debt extinguishment costs
(6,458
)
 
(0.9
)%
 

 
0.0
 %
 

 
0.0
 %
 
 
 
 
0.0
 %
 
(6,458
)
 
0.0
 %
Other, net
3,940

 
0.5
 %
 
(3,342
)
 
(0.4
)%
 
(2,993
)
 
(0.4
)%
 
 
(349
)
 
(1.6
)%
 
7,282

 
(217.9
)%
 
(110,432
)
 
(14.8
)%
 
(116,614
)
 
(15.1
)%
 
(115,406
)
 
(15.4
)%
 
 
(1,208
)
 
(5.5
)%
 
6,182

 
(5.3
)%
(Loss) income before provision for (benefit from) income taxes
(8,084
)
 
(1.1
)%
 
(81,026
)
 
(10.4
)%
 
(36,595
)
 
(4.7
)%
 
 
(44,431
)
 
(201.8
)%
 
72,942

 
(90.0
)%
Benefit from income taxes
(7,889
)
 
(1.1
)%
 
(30,590
)
 
(4.0
)%
 
(16,926
)
 
(2.3
)%
 
 
(13,664
)
 
(62.1
)%
 
22,701

 
(74.2
)%
Net (loss) income
(195
)
 
0.0
 %
 
(50,436
)
 
(6.4
)%
 
(19,669
)
 
(2.4
)%
 
 
(30,767
)
 
(139.7
)%
 
50,241

 
(99.6
)%
Net income (loss) attributable to noncontrolling interests
3,046

 
0.4
 %
 
1,800

 
0.2
 %
 
1,803

 
0.2
 %
 
 
(3
)
 
0.0
 %
 
1,246

 
69.2
 %
Net (loss) income attributable to Syniverse Holdings, Inc.
$
(3,241
)
 
(0.4
)%
 
$
(52,236
)
 
(6.6
)%
 
$
(21,472
)
 
(2.6
)%
 
 
$
(30,764
)
 
(139.7
)%
 
$
48,995

 
(93.8
)%
Revenues
Revenues decreased $24.1 million to $743.9 million for the year ended December 31, 2012 from $768.0 million for the same period in 2011. The decline in revenues was primarily due to the impact of the Verizon Wireless contract renewal at lower pricing and the impact of lower pricing for other customer contract renewals during the second quarter of 2012.
Network services revenue increased $19.8 million, or 6.0%, to $347.7 million for the year ended December 31, 2012 from $327.8 million for the same period in 2011. While continued volume increases contributed a $19.4 million increase in MDR revenue, volume growth was tempered by a Sprint network build-out which resulted in fewer Sprint customers roaming while in Sprint's home network. The increase in MDR revenue was offset in part by the pricing impact of customer contract renewals.

38


In addition, volume growth in our interstandard roaming solution and our IPX solutions contributed a revenue increase of $4.7 million and $3.4 million, respectively. These increases were partially offset by declines in other Network products driven primarily by customer contract renewals.
Messaging services revenue decreased $13.6 million, or 7.0%, to $180.5 million for the year ended December 31, 2012 from $194.0 million for the same period in 2011. The decrease is primarily due to the impact of lower pricing for customer contract renewals on SMS/MMS transactions and slower volume growth, in addition to a decline in Picturemail revenue resulting from contractual price reductions that were implemented in 2010 and include progressive rate reductions through the end of the contract term. These decreases are partially offset by volume growth in our enterprise messaging product of $13.2 million for the year ended December 31, 2012.
Roaming services revenue decreased $30.2 million, or 13.4%, to $195.4 million for the year ended December 31, 2012 from $225.6 million for the same period in 2011. The decrease was primarily driven by the pricing impact of the Verizon Wireless contract renewal and Sprint network build-out. Volume in our data clearing house continues to grow and is predominantly driven by data sessions, while SMS growth continues at a slower pace compared to the prior year.
Other services revenue decreased $0.2 million, or 1.0%, to $20.3 million for the year ended December 31, 2012 from $20.5 million for the same period in 2011.
Costs and Expenses
Cost of operations increased $6.5 million to $275.3 million for the year ended December 31, 2012 from $268.8 million for the year ended December 31, 2011. The tables below summarize our cost of operations by category of spending.
 
Successor
 
Combined
Predecessor
& Successor
 
Increase/
(Decrease) $
 
Increase/
(Decrease) %
 
Year ended
December 31, 2012
 
Year ended
December 31, 2011  
 
 
(in thousands)
Cost of Operations:
 
 
 
 
 
 
 
Headcount and related costs
$
91,347

 
$
88,030

 
$
3,317

 
3.8
 %
Variable costs
57,447

 
63,204

 
(5,757
)
 
(9.1
)%
Data processing and related hosting and support costs
77,431

 
69,083

 
8,348

 
12.1
 %
Network costs
37,674

 
39,470

 
(1,796
)
 
(4.6
)%
Other operating related costs
11,402

 
9,036

 
2,366

 
26.2
 %
Cost of Operations
$
275,301

 
$
268,823

 
$
6,478

 
2.4
 %
The increase in headcount and related costs is primarily due to higher headcount year over year. Variable costs decreased due primarily to a decline in revenue share cost resulting from a contractual rate reduction, partially offset by increased volumes in our mobile enterprise services resulting in higher messaging termination fees. The increase in data processing and related hosting and support costs is primarily due to investments in data center expansion to support additional capacity, as well as higher processing costs resulting from transactional volume growth. We intend to continue investing in our network infrastructure in the foreseeable future in order to support future growth opportunities. As a percentage of revenues, cost of operations increased to 37.0% for the year ended December 31, 2012, from 35.0% for the year ended December 31, 2011.
Sales and marketing expense increased $2.5 million to $68.5 million for the year ended December 31, 2012 from $66.1 million for the same period in 2011. The increase is primarily due to higher headcount related costs of $3.1 million associated with the expansion of our global sales force to support growth in developing markets. This increase is partially offset by lower stock-based and performance-based compensation of $2.0 million primarily driven by lower annual incentive plan payments. As a percentage of revenues, sales and marketing expense increased to 9.2% for the year ended December 31, 2012 from 8.6% for the year ended December 31, 2011.
General and administrative expense increased $13.3 million to $118.0 million for the year ended December 31, 2012 from $104.7 million for the same period in 2011. The increase was primarily due to higher professional service costs of $21.2 million, or 2.6% of revenue, of which $20.0 million related to business development activities including our pending acquisition. This increase was partially offset by an increase in capitalizable product development costs of $5.2 million. As a percentage of revenues, general and administrative expense increased to 15.9% for the year ended December 31, 2012, from 13.6% for the year ended December 31, 2011.

39


Depreciation and amortization expense decreased $21.6 million to $177.3 million for the year ended December 31, 2012 from $198.9 million for the same period in 2011. The decrease was driven by lower intangible asset amortization resulting from our pattern of consumption amortization method for customer related intangibles valued in the Merger which results in higher amortization expense earlier in the assets' useful lives.
Restructuring and management termination benefits expense was $2.4 million for the year ended December 31, 2012, driven by severance costs resulting from our December 2012 restructuring plan, and the exit of a leased facility related to our December 2011 restructuring plan. See Note 13 to our Consolidated Financial Statements for additional details regarding our restructuring plans.
Other Income (Expense), net
Interest expense decreased $5.2 million to $108.7 million for the year ended December 31, 2012 from $113.9 million for the same period in 2011. The decrease is primarily due to the impact of a lower interest rate and lower outstanding debt balance resulting from the refinancing of our Old Senior Credit Facility. In addition, the prior year period included $7.1 million of financing costs associated with an unused bridge loan related to pre-Merger interest expense in the Successor period of 2011. Considering the impact of the refinance of our Old Senior Credit Facility, we expect to incur approximately $25.0 million of interest expense and $2.0 million of amortization of financing fees on a quarterly basis.
Debt extinguishment costs were $6.5 million for the year ended December 31, 2012 and were associated with the write-off of a portion of the original issue discount and deferred financing fees associated with the Old Senior Credit Facility.
Other, net increased $7.3 million to a $3.9 million gain for the year ended December 31, 2012 from a $3.3 million loss for the same period in 2011. The increase in 2012 was primarily due to a $4.3 million out-of-period gain for foreign currency transaction gains and foreign currency transactions in foreign denominated cash balances and intercompany accounts as a result of our global presence.
Benefit from Income Taxes
We recorded an income tax benefit of $7.9 million for the year ended December 31, 2012 compared to a benefit of $30.6 million for the same period in 2011. During the years ended December 31, 2012 and 2011, the effective tax rate was a benefit of 97.6% and a benefit of 37.8%, respectively. The change in our effective tax rate is chiefly attributable to (i) costs related to the Merger in 2011, some of which were non-deductible for income tax purposes, (ii) state and local effective income tax rate changes, including certain discrete adjustments recorded in 2011 related to state and local income tax positions and changes in deferred tax liabilities, (iii) the release of reserves on uncertain tax positions where statutes of limitations have expired in 2012, and (vii) return to provision true-ups related to returns filed in 2012.

40


Results of Operations
Comparison of 2011 and 2010
 
Combined
Predecessor
& Successor
 
 
 
Successor 
 
 
 
 
Predecessor 
 
 
 
 
 
Year ended
December 31,
2011 
 
% of
Revenues
 
Period from
January 13 to 
December 31,
2011
 
% of
Revenues
 
 
Period from
January 1 to
January 12,
2011 
 
% of
Revenues 
 
Year ended
December 31, 2010 
 
% of
Revenues 
 
Year ended
December 31,
2011 vs. 2010
 
Year ended
December 31,
2011 vs. 2010
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Network services
$
327,847

 
42.7
 %
 
$
318,666

 
42.7
 %
 
 
$
9,181

 
41.7
 %
 
$
254,118

 
39.1
 %
 
$
73,729

 
29.0
 %
Messaging services
194,029

 
25.3
 %
 
187,831

 
25.2
 %
 
 
6,198

 
28.2
 %
 
190,949

 
29.4
 %
 
3,080

 
1.6
 %
Roaming services
225,577

 
29.4
 %
 
219,209

 
29.4
 %
 
 
6,368

 
28.9
 %
 
188,549

 
29.0
 %
 
37,028

 
19.6
 %
Other
20,539

 
2.7
 %
 
20,272

 
2.7
 %
 
 
267

 
1.2
 %
 
16,583

 
2.6
 %
 
3,956

 
23.9
 %
Revenues
767,992

 
100.0
 %
 
745,978

 
100.0
 %
 
 
22,014

 
100.0
 %
 
650,199

 
100.0
 %
 
117,793

 
18.1
 %
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of operations
268,823

 
35.0
 %
 
259,549

 
34.8
 %
 
 
9,274

 
42.1
 %
 
245,673

 
37.8
 %
 
23,150

 
9.4
 %
Sales and marketing
66,084

 
8.6
 %
 
63,708

 
8.5
 %
 
 
2,376

 
10.8
 %
 
58,929

 
9.1
 %
 
7,155

 
12.1
 %
General and administrative
104,657

 
13.6
 %
 
100,993

 
13.5
 %
 
 
3,664

 
16.6
 %
 
93,855

 
14.4
 %
 
10,802

 
11.5
 %
Depreciation and amortization
198,881

 
25.9
 %
 
196,161

 
26.3
 %
 
 
2,720

 
12.4
 %
 
75,869

 
11.7
 %
 
123,012

 
162.1
 %
Restructuring and management termination benefits
6,207

 
0.8
 %
 
6,207

 
0.8
 %
 
 

 
0.0
 %
 
1,962

 
0.3
 %
 
4,245

 
216.4
 %
Merger expenses
87,752

 
11.4
 %
 
40,549

 
5.4
 %
 
 
47,203

 
214.4
 %
 
4,313

 
0.7
 %
 
83,439

 

 
732,404

 
95.3
 %
 
667,167

 
89.4
 %
 
 
65,237

 
296.3
 %
 
480,601

 
73.9
 %
 
251,803

 
52.4
 %
Operating income (loss)
35,588

 
4.6
 %
 
78,811

 
10.6
 %
 
 
(43,223
)
 
(196.3
)%
 
169,598

 
26.1
 %
 
(134,010
)
 
(79.0
)%
Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
583