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TMCNet:  SYNIVERSE HOLDINGS INC - 10-Q - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[August 12, 2014]

SYNIVERSE HOLDINGS INC - 10-Q - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements Certain of the statements in this Quarterly Report on Form 10-Q, including, without limitation, those 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. Some of the forward-looking statements can be identified by the use of terms such as "believes," "expects," "may," "will," "should," "could," "seeks," "intends," "plans," "estimates," "anticipates" or other comparable terms. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects and growth strategies and the industries in which we operate and including, without limitation, statements relating to our future performance.


Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our consolidated results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties described in "Risk Factors." Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include: • system failures or delays which could harm our reputation; • our reliance on third-party providers for communications software, hardware and infrastructure; • our ability to acquire and integrate complementary business and technologies and realize the expected benefits from those acquisitions; • our ability to realize the expected benefits of the MACH and Aicent acquisitions; • our ability to adapt quickly to technological change; • our newly offered services may not perform as anticipated; • the loss of any of our significant customers; • the failure to achieve or sustain desired pricing levels; • consolidation among, or network build-outs by, customers could cause us to lose transaction volume and affect pricing; • the reduction of services by existing customers; • our customers may develop in-house solutions and no longer use our services; • the success of our international expansion is uncertain, including our ability to receive or retain the required licenses or authorizations; • political instability in certain countries where we operate; • our compliance with anti-corruption laws and regulations; • our ability to receive and retain licenses or authorizations required to conduct our business internationally, including in countries targeted by economic sanctions; • security breaches which could result in significant liabilities; • changes in the regulatory landscape affecting us and our customers; • additional costs and liabilities for maintaining customer privacy; • failure to protect our intellectual property rights or claims by third parties that we infringe on their intellectual property rights; • our ability to achieve desired organic growth • our ability to service our debt; and • the significant influence Carlyle has over corporate decisions.

All forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect 32-------------------------------------------------------------------------------- Table of Contents future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Business Syniverse is the leading global transaction processor that connects mobile network operators ("MNOs") and enterprises in nearly 200 countries enabling seamless mobile communications across disparate and rapidly evolving networks, devices and applications. We process transactions that include the authorization and delivery of end-user traffic, clearing of billing records and settlement of payments. We also analyze a unique portfolio of real-time data generated by these transactions to deliver a wide range of intelligence tools to our customers. Our portfolio of mission-critical services enables our customers to connect to the mobile ecosystem, optimize their businesses and enhance and personalize the mobile experience for their end-users. We process nearly 3 billion billable transactions daily and settle approximately $17 billion annually between our customers. We believe our global footprint and operational scale are unmatched in our industry. As a trusted partner with over 25 years of experience and a history of innovation, we believe we are well positioned to solve the technical, operational and financial complexities of the mobile ecosystem.

Our diverse and growing customer base includes a broad range of participants in the mobile ecosystem, including over 1,000 MNOs, and over 550 over-the-top providers ("OTTs") and enterprises. Our customers include 97 of the top 100 MNOs globally, such as Verizon Wireless, América Móvil, Vodafone, Telefónica, China Unicom and Reliance Communications; OTTs, including 3 of the 4 largest social networking sites in the United States and one of the largest social networking sites in China; and blue-chip enterprise customers, including 7 of the 10 largest U.S. banks, 3 major banks in Asia and the top 3 credit card networks worldwide.

Founded in 1987, Syniverse now provides approximately 60 mission-critical services to manage the real-time exchange of information and traffic across the mobile ecosystem, enhance our customers' brands and provide valuable intelligence about end-users. Our customers demand, and we deliver, a high quality of service as evidenced by our over 99.999% network availability. Our comprehensive suite of Mobile Transaction Services and Enterprise & Intelligence Solutions includes the services described below.

Mobile Transaction Services: Transaction-based services that are designed to support the long-term success of our MNO customers. Through Mobile Transaction Services, we: • Clear, process, and exchange end-user billing records between MNOs.

• Process and settle payments between participants in the mobile ecosystem.

• Activate, authenticate and authorize end-user mobile activities.

• Manage the routing and delivery of text (SMS), multimedia (MMS) and next generation messaging.

• Provide data transport services over our global IP data network regardless of technology protocol.

• Enable real-time policy management for improved end-user experience.

• Provide business intelligence tools to MNOs for fraud control.

Enterprise & Intelligence Solutions: Solutions that bridge OTTs and enterprises with MNOs and incorporate our real-time intelligence capabilities to enable all of our customers to serve their end-users. Through Enterprise & Intelligence Solutions, we: • Connect enterprises to the mobile ecosystem to allow them to reliably reach and interact with their customers and employees via mobile devices.

• Bridge OTTs to the mobile ecosystem allowing OTT end-users to seamlessly interact with traditional mobile end-users.

• Provide mobile campaign management services that enable enterprises to optimize their mobile communications strategies through the delivery of customized offers and information to end-users.

• Provide data analytics and business intelligence services designed to measure, enhance and secure the end-user experience for our enterprise and OTT customers.

• Provide data collection and analysis services to enable MNOs to measure and manage the subscriber experience across networks.

33-------------------------------------------------------------------------------- Table of Contents Executive Overview Financial Highlights For the three months ended June 30, 2014, revenues increased $33.9 million, or 17.5%, to $227.1 million from $193.3 million for the comparable prior year period. Mobile Transaction Services revenue increased $24.5 million, or 14.5%, to $194.3 million for the three months ended June 30, 2014, from $169.8 million for the same period in 2013. Enterprise & Intelligence Solutions revenue increased $9.3 million, or 39.6%, to $32.8 million for the three months ended June 30, 2014, from $23.5 million for the same period in 2013. The MACH Acquisition contributed $32.9 million to the increase in revenues for the three months ended June 30, 2014. Operating income increased $15.5 million to $23.1 million for the three months ended June 30, 2014 from $7.6 million for the same period in 2013. Net loss from continuing operations decreased $15.1 million to $9.0 million for the three months ended June 30, 2014, from $24.1 million for the same period in 2013. Net loss from continuing operations for the three months ended June 30, 2014 includes an increase in benefit from income taxes of $0.3 million. Adjusted EBITDA increased $6.5 million, or 7.9%, to $88.5 million for the three months ended June 30, 2014 from $82.0 million for the same period in 2013. See "Non-GAAP Financial Measures" below for a reconciliation of Adjusted EBITDA to Net loss.

Business Developments Aicent Acquisition On August 4, 2014 (the "Closing Date"), Syniverse Technologies, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Syniverse Holdings, Inc. acquired all of the outstanding equity interests of Aicent Holdings Corporation, a Delaware corporation ("Aicent") from its existing stockholders in accordance with the terms of an agreement and plan of merger for approximately $292.2 million, after preliminary adjustments, including to reflect the parties' current estimate of working capital associated with, 2013 EBITDA of and cash held by, Aicent as of the Closing Date (the "Aicent Acquisition"). The acquisition will be subject to a final adjustment to reflect the working capital balances as of the Closing Date. The acquisition was funded with cash of approximately $192.2 million and a draw down of Syniverse's existing revolving credit facility with Barclays Bank PLC in the amount of approximately $100.0 million.

Sprint Renewal As of June 30, 2014, our service contracts with Sprint were due to expire during the fourth quarter of 2014. Effective July 1, 2014, we entered into an early renewal agreement with Sprint which provides for a broad range of products and services, including products and services covered under the existing service contracts as well as new offerings. The renewed service contract has a term of five years.

Corporate Restructuring In March 2014, our parent Buccaneer Holdings, Inc. ("Buccaneer") completed a corporate restructuring (the "Restructuring") to create a new holding company structure under Syniverse Corporation, a Delaware corporation formed on March 20, 2014. To effect the restructuring, (i) Syniverse Corporation was formed by Buccaneer and in turn, formed Buccaneer Holdings, LLC, a Delaware limited liability company ("Buccaneer LLC") and (ii) pursuant to an agreement and plan of reorganization, dated as of March 26, 2014, Buccaneer merged with and into Buccaneer LLC in a common control transaction with Buccaneer LLC surviving as a direct and wholly-owned subsidiary of Syniverse Corporation. As a result of the Restructuring, Buccaneer LLC became our direct parent.

MACH Acquisition On June 28, 2013, we completed our acquisition of WP Roaming III S.à r.l. ("WP Roaming"), for a total purchase price of approximately $712.0 million. WP Roaming is a holding company which conducted the business of MACH S.à r.l.

("MACH"). As part of the transaction, we acquired from WP Roaming S.à r.l., a Luxembourg limited liability company (the "Seller"), all the shares and preferred equity certificates (whether convertible or not) in WP Roaming (the "MACH Acquisition"). The purchase price was funded through a portion of the net proceeds from a new $700.0 million senior secured credit facility and a deposit of €30.0 million.

See Note 4 to our unaudited condensed consolidated financial statements for additional information regarding the MACH Acquisition.

34-------------------------------------------------------------------------------- Table of Contents Factors and Trends Affecting Our Results of Operations Our results of operations have been, and we expect them to continue to be, affected by the following factors, which may cause our future results of operations to differ from our historical results of operations discussed under "Results of Operations": • rapid technological change in the industries we serve, including the increasing demand for seamless and ubiquitous connectivity, personalized mobile services and the proliferation of new and increasingly complex mobile devices, which could lead to growth in our potential customer base, increased opportunities toprovide new services to our customers and increased transaction volumes. We may also increase investment in our business in order to develop new technologies and services to effectively serve our customers in light of these developments. In addition, our failure or inability to respond to these developments through the provision of new or updated services or otherwise could have a negative effect on our ability to grow or retain our customer base and on ourtransaction volumes; • the rate at which new entrants to the mobile ecosystem adopt our services in order to connect to other mobile participantswhich will affect the extent to which new entrants potentially seek to utilize our services, which will affect growth in transaction volumes and revenue; • downward pressure on the prices we charge for our servicesfrom our existing customers as we enter into contract renewals, which could have a negative impact on our revenues and margin; • the extent to which our customers build-out or expand their own networks, which could have a negative impact on transaction volume from those customers and on our revenue; • our ability to realize some or all of the anticipatedbenefits, including cost savings and synergies from our ongoingintegration of the MACH business; • costs associated with our international operations, including integration of acquired international operations, compliance with applicable foreign regulations and fluctuations in foreign currency exchange rates may differ from historical experience and our projections, which could impact our earnings; • the rate of growth associated with our expandedinternational operations and geographic reach, which may lead to an increase in our number of customer and transaction volumes and would affect our future revenue growth; • our ability to execute on currently pending and future cost savings initiatives, including efficient resource allocation, management realignment and other activities; • the extent to which current or future customers develop in-house solutions to provide analogous services or seek alternative providers of our services, which could reduce the number of services we provide their customers and our overall termination volumes which would have a negative impact on our revenue; • consolidation in the mobile industry which may result in reduced transaction volumes, and, as a result, have a negative impact on our revenue; • the extent to which increasingly complex requirements and changes in the regulatory landscape drive the need for enhancements to our existing services and infrastructure, the development of new compliance oriented services and the design and implementation of internal control procedures and processes, any of which may increase operational costs and burdens which could reduce our operating margins. Our ability to adapt to these new requirements and provide compliant services also could improve our competitive position and generally drive growth in demand for our services, which would drive growth in our revenue; and • proposed European Commission regulations that may affect our MNO customers' roaming charges and increase downward pressure on the prices we charge for our data clearing services, which could negatively affect our revenue. A decrease in roaming charges may also lead to an increase in the number of roamingtransactions, as the cost to end-users for such transactions would be reduced, and such an increase could drive growth in the number of transactions we process, which could positively affect our revenue.

Revenues Revenue is recognized when persuasive evidence of an arrangement exists, service has been rendered or delivery has occurred, the selling price is fixed or determinable and collectability is reasonably assured. The majority of our revenues are derived from transaction-based charges under long-term contracts, typically with three-year terms. 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. A majority of the services we offer to our customers are provided through applications, connectivity, and technology platforms owned and operated by us.

35-------------------------------------------------------------------------------- Table of Contents Revenues for our services are generated primarily on transaction-based fees, such as the number of records or transactions processed or the size of data records processed. Approximately 84% of our revenues were generated by transaction-based fees during the first half of 2014. For all of our transaction-based services, we recognize revenues at the time the transactions are processed. We also recognize fixed fees as revenues on a monthly basis as the related services are performed. We defer revenues and incremental customer-specific costs related to customer implementations and recognize related fees and costs on a straight-line basis over the life of the initial customer contract.

Costs and Expenses Our costs and expenses consist of cost of operations, sales and marketing, general and administrative, depreciation and amortization, employee termination benefits expenses, restructuring and acquisitions expense.

• Cost of operations includes data processing costs, network costs, variable costs, such as revenue share service provider arrangements and 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. Variable costs are paid to third party providers and are direct costs that fluctuate either as a percentage ofrevenue or by the number of transactions processed.

• 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 anddevelopment 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 and identifiable intangibles including our Signaling System 7 network, computer equipment, infrastructure facilities related to information management, capitalized software and otherintangible assets recorded as a result of purchase accounting.

• Employee termination benefits represents non-retirement post-employment benefit costs including severance, benefits and other employee related costs.

• Restructuring represents costs related to certain exit activities such as involuntary termination costs and contract termination costs associated with the exit of a leased facility.

• Acquisitions include professional services costs, such as legal, tax, audit and transaction advisory costs related to the MACH Acquisition and the Aicent Acquisition (collectively, the "Acquisitions").

36-------------------------------------------------------------------------------- Table of Contents Results of Operations The following tables present an overview of our results of operations for the three and six months ended June 30, 2014 and 2013: Three Months Ended Three Months Ended June 30, % of June 30, % of 2014 compared to 2013 (in thousands) 2014 Revenues 2013 Revenues $ change % change Revenues: Mobile Transaction $ 169,756 Services $ 194,298 85.5 % 87.8 % $ 24,542 14.5 % Enterprise & 23,515 Intelligence Solutions 32,838 14.5 % 12.2 % 9,323 39.6 % Revenues 227,136 100.0 % 193,271 100.0 % 33,865 17.5 % Costs and expenses: Cost of operations (excluding depreciation and amortization shown separately below) 92,368 40.7 % 71,934 37.2 % 20,434 28.4 % Sales and marketing 20,038 8.8 % 16,528 8.6 % 3,510 21.2 % General and administrative 32,166 14.2 % 28,690 14.8 % 3,476 12.1 % Depreciation and amortization 56,099 24.7 % 49,500 25.6 % 6,599 13.3 % Employee termination benefits 1,888 0.8 % 2,342 1.2 % (454 ) (19.4 )% Restructuring - 0.0 % 110 0.1 % (110 ) (100.0 )% Acquisitions 1,476 0.6 % 16,553 8.6 % (15,077 ) (91.1 )% 204,035 89.8 % 185,657 96.1 % 18,378 9.9 % Operating income 23,101 10.2 % 7,614 3.9 % 15,487 203.4 % Other income (expense), net: Interest income 220 0.1 % 162 0.1 % 58 35.8 % Interest expense (30,356 ) (13.4 )% (31,117 ) (16.1 )% 761 (2.4 )% Equity loss in investee (404 ) (0.2 )% - 0.0 % (404 ) - % Other, net (1,602 ) (0.6 )% (553 ) (0.3 )% (1,049 ) 189.7 % (32,142 ) (14.2 )% (31,508 ) (16.3 )% (634 ) 2.0 % Loss before (benefit from) provision for income taxes (9,041 ) (4.0 )% (23,894 ) (12.4 )% 14,853 (62.2 )% (Benefit from) provision for income taxes (24 ) 0.0 % 250 0.1 % (274 ) (109.6 )% Net loss from continuing operations $ (9,017 ) (4.0 )% $ (24,144 ) (12.5 )% $ 15,127 (62.7 )% 37-------------------------------------------------------------------------------- Table of Contents Six Months Ended Six Months Ended June 30, % of June 30, % of 2014 compared to 2013 (in thousands) 2014 Revenues 2013 Revenues $ change % change Revenues: Mobile Transaction Services $ 381,372 85.3 % $ 331,606 87.9 % $ 49,766 15.0 % Enterprise & Intelligence Solutions 65,464 14.7 % 45,547 12.1 % 19,917 43.7 % Revenues 446,836 100.0 % 377,153 100.0 % 69,683 18.5 % Costs and expenses: Cost of operations (excluding depreciation and amortization shown separately below) 180,760 40.5 % 143,865 38.1 % 36,895 25.6 % Sales and marketing 42,591 9.5 % 36,677 9.7 % 5,914 16.1 % General and administrative 70,205 15.7 % 59,831 15.9 % 10,374 17.3 % Depreciation and amortization 111,906 25.0 % 94,587 25.1 % 17,319 18.3 % Employee termination benefits 4,855 1.1 % 3,014 0.8 % 1,841 61.1 % Restructuring 22 0.0 % 496 0.1 % (474 ) (95.6 )% Acquisitions 1,476 0.3 % 20,945 5.6 % (19,469 ) (93.0 )% 411,815 92.2 % 359,415 95.3 % 52,400 14.6 % Operating income 35,021 7.8 % 17,738 4.7 % 17,283 97.4 % Other income (expense), net: Interest income 414 0.1 % 211 0.1 % 203 96.2 % Interest expense (60,540 ) (13.5 )% (57,961 ) (15.4 )% (2,579 ) 4.4 % Equity loss in investee (97 ) - % - 0.0 % (97 ) - % Other, net (295 ) 0.0 % (1,237 ) (0.3 )% 942 (76.2 )% (60,518 ) (13.5 )% (58,987 ) (15.6 )% (1,531 ) 2.6 % Loss before benefit from income taxes (25,497 ) (5.7 )% (41,249 ) (10.9 )% 15,752 (38.2 )% Benefit from income taxes (263 ) (0.1 )% (4,058 ) (1.1 )% 3,795 (93.5 )% Net loss from continuing operations $ (25,234 ) (5.6 )% $ (37,191 ) (9.9 )% $ 11,957 (32.2 )% Revenues Revenues increased $33.9 million to $227.1 million for the three months ended June 30, 2014 from $193.3 million for the same period in 2013. Revenues increased $69.7 million to $446.8 million for the six months ended June 30, 2014 from $377.2 million for the same period in 2013. The increase in revenue was primarily driven by revenues of $32.9 million and $63.0 million for the three and six months ended June 30, 2014, respectively, from the MACH Acquisition.

Excluding the impact of the MACH Acquisition, revenue for the three months ended June 30, 2014 increased roughly $1.0 million, or .5%, and was impacted by volume declines in our North American code division multiple access ("CDMA") portfolio, which offset approximately 5% growth across the remaining business driven by continued momentum in our global IP network services and enterprise mobility solutions. Revenue for the six months ended June 30, 2014, increased $6.7 million excluding the impact of the MACH Acquisition, resulting from new contract wins and continued volume growth across our global IP network and enterprise connectivity services, which was partially offset by lower North American CDMA revenues.

Revenue from Mobile Transaction Services increased $24.5 million, or 14.5%, to $194.3 million for the three months ended June 30, 2014 from $169.8 million for the same period in 2013. Revenue from Mobile Transaction Services increased $49.8 million, or 15.0%, to $381.4 million for the six months ended June 30, 2014 from $331.6 million for the same period in 2013. The increase in revenue was driven primarily by revenues of $25.7 million and $48.4 million contributed by the MACH Acquisition for the three and six months ended June 30, 2014, respectively. Excluding the impact of the acquisition, revenue decreased $1.2 million for the three months ended June 30, 2014, resulting from a decline in revenue from our clearing and settlement services driven primarily by the continued impact of a network build out by a significant North American customer. The decline was partially offset by continued volume growth across our advanced network interoperability services, which included growth in our messaging business resulting from higher volumes as well as an increase in international SMS volumes which were tempered by lower North American traffic.

During the six months ended June 30, 2014, the growth in our advanced 38-------------------------------------------------------------------------------- Table of Contents network interoperability services outpaced the decline in our clearing and settlement services, resulting in an increase in revenue of $1.4 million excluding the impact of the MACH Acquisition.

Revenue from Enterprise & Intelligence Solutions increased $9.3 million, or 39.6%, to $32.8 million for the three months ended June 30, 2014 from $23.5 million for the same period in 2013. Revenue from Enterprise & Intelligence Solutions increased $19.9 million, or 43.7%, to $65.5 million for the six months ended June 30, 2014 from $45.5 million for the same period in 2013. The increase in revenue was driven by $7.2 million and $14.6 million contributed by the MACH Acquisition during the three and six months ended June 30, 2014, respectively.

In addition, organic volume growth in our enterprise connectivity services contributed revenue increases of $2.1 million and $5.3 million for the three and six months ended June 30, 2014, respectively, as our Enterprise & Intelligence Solutions offerings continue to benefit from strong adoption by new enterprise customers across various verticals, including hospitality, social media and retail.

Costs and Expenses Cost of operations increased $20.4 million to $92.4 million for the three months ended June 30, 2014 from $71.9 million for the three months ended June 30, 2013.

Cost of operations increased $36.9 million to $180.8 million for the six months ended June 30, 2014 from $143.9 million for the six months ended June 30, 2013.

The tables below summarize our cost of operations by category of spending.

Three Months Ended June 30, 2014 compared to 2013 (in thousands) 2014 2013 $ change % change Cost of Operations: Headcount and related costs $ 24,734 $ 22,453 $ 2,281 10.2 % Variable costs 25,785 16,110 9,675 60.1 % Data processing and related hosting and support costs 25,127 19,874 5,253 26.4 % Network costs 12,992 10,837 2,155 19.9 % Other operating related costs 3,730 2,660 1,070 40.2 % Cost of Operations $ 92,368 $ 71,934 $ 20,434 28.4 % Six Months Ended June 30, 2014 compared to 2013 (in thousands) 2014 2013 $ change % change Cost of Operations: Headcount and related costs $ 50,727 $ 45,788 $ 4,939 10.8 % Variable costs 51,413 31,681 19,732 62.3 % Data processing and related hosting and support costs 47,065 39,338 7,727 19.6 % Network costs 24,640 21,519 3,121 14.5 % Other operating related costs 6,915 5,539 1,376 24.8 % Cost of Operations $ 180,760 $ 143,865 $ 36,895 25.6 % The increase in headcount and related costs was driven by additional headcount resulting from the MACH Acquisition, partially offset by a decrease in performance and stock-based compensation. Variable costs increased primarily due to higher message termination fees related to volume increases in our enterprise connectivity services resulting from organic growth as well as additional volumes contributed by the MACH Acquisition. In addition, revenue share costs increased resulting from an increase in the associated revenue. As a result of these increases, variable costs as a percentage of operating costs, which management defines as cost of operations, sales and marketing and general and administrative expenses, were 17.8% and 17.5% for the three and six months ended June 30, 2014 compared to 13.8% and 13.2% for the three and six months ended June 30, 2013. The increase in data processing, hosting and support costs was primarily due to investments in data center expansion to support additional capacity related to global and service offering expansion efforts and anticipated volume increases, as well as higher software maintenance costs related to additional service needs resulting from the MACH Acquisition and organic growth. The increase in network costs was primarily driven by expansion of our network infrastructure to support global business growth. We intend to continue expanding our network infrastructure for the foreseeable future in order to support future growth opportunities.

39-------------------------------------------------------------------------------- Table of Contents As a percentage of revenues, cost of operations increased to 40.7% and 40.5% for the three and six months ended June 30, 2014 from 37.2% and 38.1% for the three and six months ended June 30, 2013. On a pro forma basis, assuming the MACH Acquisition had taken place on January 1, 2013, cost of operations was 37.7% and 38.1 % of revenues for the three and six months ended June 30, 2013, respectively.

Sales and marketing expense increased $3.5 million to $20.0 million for the three months ended June 30, 2014 from $16.5 million for the same period in 2013.

The MACH Acquisition contributed $4.2 million for the three months ended June 30, 2014, primarily due to headcount related costs for the acquired sales force employees. Excluding the impact of the MACH Acquisition, sales and marketing expense decreased $0.7 million for the three months ended June 30, 2014 compared to the same period in 2013, primarily due to a reduction in headcount related costs and performance based compensation, partially offset by an increase in sales incentive compensation. As a percentage of revenues, sales and marketing expense increased to 8.8% for the three months ended June 30, 2014 from 8.6% for the three months ended June 30, 2013.

Sales and marketing expense increased $5.9 million to $42.6 million for the six months ended June 30, 2014 from $36.7 million for the same period in 2013. The MACH Acquisition contributed $8.8 million for the six months ended June 30, 2014, respectively, primarily due to headcount related costs for the acquired sales force employees. Excluding the impact of the MACH Acquisition, sales and marketing expense decreased $2.9 million for the six months ended June 30, 2014, primarily due to a reduction in performance and stock based compensation. As a percentage of revenues, sales and marketing expense decreased to 9.5% for the six months ended June 30, 2014 from 9.7% for the three months ended June 30, 2013.

General and administrative expense increased $3.5 million to $32.2 million for the three months ended June 30, 2014 from $28.7 million for the same period in 2013. General and administrative expense increased $10.4 million to $70.2 million for the six months ended June 30, 2014 from $59.8 million for the comparable prior year period. The increase was driven primarily by headcount related costs, facilities expense and professional services costs resulting from the MACH Acquisition. Excluding the impact of the MACH Acquisition, general and administrative expense decreased $1.3 million for the three and six months ended June 30, 2014, primarily due to lower performance and stock-based compensation.

The decrease was partially offset by an increase in headcount related costs associated with additional resources to support global business growth and new product development initiatives, as well as increase in facilities costs. As a percentage of revenues, general and administrative expense decreased to 14.2% for the three months ended June 30, 2014, from 14.8% for the comparable prior year period, and decreased to 15.7% for the six months ended June 30, 2014, from 15.9% for the six months ended June 30, 2013.

Depreciation and amortization expense increased $6.6 million to $56.1 million for the three months ended June 30, 2014 from $49.5 million for the same period in 2013. Depreciation and amortization expense increased $17.3 million to $111.9 million for the six months ended June 30, 2014 from $94.6 million for the same period in 2013. The increase was driven by $4.1 million and $12.2 million of amortization of intangible assets, including capitalized software for the three and six months ended June 30, 2014, respectively, and $2.5 million and $5.1 million of depreciation of property and equipment, for the three and six months ended June 30, 2014, both of which were primarily driven by the MACH Acquisition.

Employee termination benefits expense was $1.9 million and $2.3 million for the three months ended June 30, 2014 and 2013, respectively. Employee termination benefits expense was $4.9 million and $3.0 million for the six months ended June 30, 2014 and 2013, respectively. The increase was driven primarily by severance costs related to a reduction-in-force in the current year as a result of cost saving initiatives, including synergies resulting from the integration of the MACH Acquisition.

Restructuring expense was $0.1 million for the three months ended June 30, 2013.

No Restructuring expense was recorded during the three months ended June 30, 2014. Restructuring expense was less than $0.1 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively. The decrease was driven by severance costs related to restructuring plans entered into in prior periods.

See Note 8 to the unaudited condensed consolidated financial statements included herein for additional details regarding our restructuring plans.

Acquisitions expense was $1.5 million for the three and six months ended June 30, 2014, respectively, and $16.6 million and $20.9 million for the three and six months ended June 30, 2013, respectively. Acquisitions expense consisted primarily of professional services costs including legal, tax, audit and transaction advisory costs related to the Aicent Acquisition in 2014 and the MACH Acquisition in 2013.

Other Income (Expense), net Interest expense decreased $0.8 million to $30.4 million for the three months ended June 30, 2014 from $31.1 million for the same period in 2013. Interest expense increased $2.6 million to $60.5 million for the six months ended June 30, 2014 from $58.0 million for the same period in 2013. The decrease during the three months ended June 30, 2014, was primarily due 40-------------------------------------------------------------------------------- Table of Contents to a $2.7 million decrease related to a principal pre-payment and refinancing of our Initial Term Loans in September 2013 and a $2.9 million decrease due to ticking fees related to the Delayed Draw Facility in 2013, partially offset by a $4.8 million of interest expense related to the Tranche B Term Loans entered into during June 2013. The year-to-date increase was primarily due to $12.6 million of interest expense related to the Tranche B Term Loans, partially offset by a $5.4 million decrease related to a principal pre-payment and refinancing of our Initial Term Loans in September 2013 and a $4.6 million decrease due to ticking fees related to the Delayed Draw Facility in 2013.

Equity loss in investee was $0.4 million and $0.1 million for the three and six months ended June 30, 2014 and was comprised of a loss from our equity investment in a subsidiary acquired in the MACH Acquisition.

Other, net increased $1.0 million to a $1.6 million loss for the three months ended June 30, 2014 from a $0.6 million loss for the same period in 2013. Other, net decreased $0.9 million to a $0.3 million loss for the six months ended June 30, 2014 from a $1.2 million loss for the same period in 2013. The fluctuations in our foreign exchange gains and losses are primarily driven by our expanded global operations resulting from the MACH Acquisition.

Benefit from Income Taxes We recorded an income tax benefit of $0.02 million and $0.3 million for the three and six months ended June 30, 2014, compared to a provision of $0.3 million and a benefit of $4.1 million for the three and six months ended June 30, 2013. During the three and six months ended June 30, 2014, the effective tax rate was a benefit of 0.3% and 1.0%, respectively. During the three and six months ended June 30, 2013, the effective tax rate was a provision of 1.0% and a benefit of 9.8%, respectively. The change in our effective tax rate was chiefly attributable to (i) the inclusion of a full year of the actual and forecasted earnings impact of the MACH entities in our 2014 effective tax rate; and (ii) the prior year effects of certain favorable permanent items, offset by (iii) the unfavorable effects of MACH Acquisition related costs.

Liquidity and Capital Resources Our operations are conducted almost entirely through our subsidiaries and our ability to generate cash to meet our debt service obligations or to pay dividends is highly dependent on the earnings and the receipt of funds from our subsidiaries via dividends or intercompany loans.

Our primary sources of liquidity are expected to be cash flow from operations as well as funds available under the Revolving Credit Facility. We believe that we have sufficient liquidity to meet currently anticipated growth plans, including short and long-term capital expenditures and working capital requirements. In addition, we believe that our liquidity is sufficient to fund our debt repayment obligations. Our ability to make payments on our indebtedness will depend on our ability to generate cash flow from operating activities in the future. Our indebtedness requires us to dedicate a substantial portion of our cash flow from operations to debt service, thereby reducing the availability of our cash flow to fund acquisitions, working capital, capital expenditures, research and development efforts and other general corporate purposes. Historically, we have been successful in obtaining financing, although the marketplace for such financing may become restricted depending on a variety of economic and other factors. On August 4, 2014, we completed the Aicent Acquisition for $292.0 million, which was funded with cash of approximately $192.0 million and a draw down of our Revolving Credit Facility in the amount of approximately $100.0 million.

We believe that our cash on hand, together with cash flow from operations and, if required, borrowings under the Revolving Credit Facility will be sufficient to meet our cash requirements for the next twelve months. To the extent we require supplemental funding for our operating activities, we may need access to the debt and equity markets; however, there can be no assurances such funding will be available on acceptable terms or at all.

41-------------------------------------------------------------------------------- Table of Contents Cash Flow Cash and cash equivalents were $314.2 million at June 30, 2014 as compared to $306.4 million at December 31, 2013. The following table summarizes the activity within our unaudited condensed consolidated statements of cash flows.

Six Months Ended June 30, (in thousands) 2014 2013 Net cash provided by operating activities $ 68,712 $ 54,818 Net cash used in investing activities (53,511 ) (674,549 ) Net cash (used in) provided by financing activities (7,444 ) 660,626 Effect of exchange rate changes on cash 92 705 Net increase in cash $ 7,849 $ 41,600 Net cash provided by operating activities increased $13.9 million to $68.7 million for the six months ended June 30, 2014 from $54.8 million for the same period in 2013. The increase was primarily due to: • increased net income adjusted for non-cash items of $40.4 million, primarily due to improved operating income, partially offset by higher interest payments as compared to the prior year period.

The increase was partially offset by: • increased cash used for working capital of $26.5 million due primarily to the timing of performance-based compensation payments and timing of income tax receipts and payments, partially offset by improved collections of accounts receivable and timing of payments to vendors.

Net cash used in investing activities was $53.5 million for the six months ended June 30, 2014, as compared to $674.5 million for the six months ended June 30, 2013. The decrease was driven by: • cash used of $628.2 million in the prior year period related to the MACH Acquisition; • the redemption of a $3.7 million certificate of deposit during the six months ended June 30, 2014; and • proceeds of $0.7 million from the sale of the Divestment Business during the six months ended June 30, 2014; partially offset by • increased capital expenditures of $11.6 million, primarily due to higher costs associated with capitalized software for new services, data center capacity increases, investments in our internal infrastructure and capital spend related to the integration of MACH .

Net cash (used in) provided by financing activities was $(7.4) million for the six months ended June 30, 2014 as compared to $660.6 million for the six months ended June 30, 2013. The decrease was due to: • net proceeds in the prior year period of $696.5 million related to the Tranche B Term loans, partially offset by debt issuance costs of $25.2 million and principal payments of $4.8 million related to the Initial Term Loans; • increased distribution to our parent of $0.6 million; • the purchase of our redeemable noncontrolling interest of $0.5 million; and • increased payments on capital lease obligations of $0.5 million 42-------------------------------------------------------------------------------- Table of Contents Debt and Credit Facilities Senior Credit Facility On April 23, 2012, we entered into a Credit Agreement with Buccaneer LLC (as successor by merger to Buccaneer), Barclays Bank PLC, as administrative agent, swing line lender and letters of credit issuer, and the other financial institutions and lenders from time to time party thereto, providing for the Senior Credit Facility consisting of (i) the Initial Term Loans; and (ii) the Revolving Credit Facility for the making of revolving loans, swing line loans and issuance of letters of credit.

On June 28, 2013 the Company borrowed $700.0 million of Tranche B Term Loans, pursuant to the Incremental Amendment to its Credit Agreement. The proceeds of the Tranche B Term Loans were used to refinance, in full, the Escrow Term Loans (as defined below), a portion of which were used to fund the MACH Acquisition.

As of June 30, 2014, we had a carrying amount of $911.8 million and $678.7 million, excluding original issue discount, of outstanding indebtedness under the Initial Term Loans and Tranche B Term Loans, respectively. At June 30, 2014, the applicable interest rate was 4.00% on these Term Loan Facilities based on the Eurodollar rate loan option.

The Revolving Credit Facility had an outstanding Euro letter of credit of $1.9 million at June 30, 2014, which reduced availability under the Revolving Credit Facility. The unused commitment under the Revolving Credit Facility was $148.1 million at June 30, 2014.

Delayed Draw Credit Agreement On February 4, 2013, Syniverse Magellan Finance, LLC (the "Finance Sub"), Syniverse Holdings' direct wholly-owned subsidiary entered into the Delayed Draw Credit Agreement with Barclays Bank PLC, as administrative agent, and the other financial institutions and lenders from time to time party thereto, providing for the $700.0 million Delayed Draw Facility. On May 28, 2013, Finance Sub entered into an amendment to the Delayed Draw Credit Agreement. Upon the closing of this amendment, the lenders funded the Delayed Draw Facility into an escrow account ("Escrow Term Loans") and the Company pre-funded the interest, upfront fees and ticking fees of $7.2 million, $3.5 million and $3.6 million, respectively. The Escrowed Funds were released to Finance Sub on June 28, 2013.

Non-GAAP Financial Measures Adjusted EBITDA and Free Cash Flow are not presentations made in accordance with U.S. GAAP. Adjusted EBITDA should not be considered as alternatives to net loss, operating income, revenues or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or operating cash flows or liquidity. We believe that Adjusted EBITDA and Free Cash Flow are measures commonly used by investors to evaluate our performance and that of our competitors. We further believe that the disclosure of Adjusted EBITDA and Free Cash Flow is useful to investors, as these non­GAAP measures form the basis of how our executive team and Board of Directors evaluate our performance. By disclosing these non­GAAP measures, we believe that we create for investors a greater understanding of, and an enhanced level of transparency into, some of the means by which our management team operates and evaluates our Company and facilitates comparisons of current period's results with prior periods.

In addition, these non­GAAP measures may not be comparable to other similarly titled measures of other companies in our industry or otherwise. Because of these limitations, Adjusted EBITDA and Free Cash Flow should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We attempt to compensate for these limitations by relying primarily upon our U.S. GAAP results and using Adjusted EBITDA and Free Cash Flow as supplemental information only.

Adjusted EBITDA and Free Cash Flow have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. For example, some of the limitations of Adjusted EBITDA are as follows: • excludes certain tax payments or the cash requirements necessary to service interest or principal payments on our debt that mayrepresent a reduction in cash available to us; • does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to bereplaced in the future; 43-------------------------------------------------------------------------------- Table of Contents • does not reflect cash outlays for future contractual commitments; • does not reflect changes in, or cash requirements for, our working capital needs; and • does not reflect the significant interest expense on our debt.

Adjusted EBITDA is determined by adding the following items to net loss from continuing operations: other income (expense), net, excluding the impact of equity loss in investee, (benefit from) provision for income taxes, depreciation and amortization, employee termination benefits, restructuring, non-cash stock compensation, Acquisitions expense, business development, integration and other related expenses including transition and integration costs generally and the Carlyle annual management fee including related expenses.

We believe that Adjusted EBITDA is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our ongoing business operations. We rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our management team in connection with our executive compensation and bonus plans. We also review Adjusted EBITDA to compare our current operating results with prior periods and with the operating results of other companies in our industry. In addition, we utilize Adjusted EBITDA as an assessment of our overall liquidity and our ability to meet our debt service obligations. Adjusted EBITDA is also a measure used under the indenture for our Senior Notes.

44-------------------------------------------------------------------------------- Table of Contents Reconciliation of Non-GAAP Measures to GAAP A reconciliation of net loss, the closest GAAP measure, to Adjusted EBITDA is presented in the following tables: Three Months Ended June 30, (in thousands) 2014 2013 Reconciliation to Adjusted EBITDA Net loss from continuing operations $ (9,017 ) $ (24,144 ) Equity loss in investee (404 ) - Other expense, net 32,142 31,508 (Benefit from) provision for income taxes (24 ) 250 Depreciation and amortization 56,099 49,500 Employee termination benefits (a) 1,888 2,342 Restructuring (b) - 110 Non-cash stock-based compensation (c) 1,894 1,482 Acquisitions (d) 1,476 16,553 Business development, integration and other expenses (e) 3,667 3,597 Management fee and related expenses (f) 793 798 Adjusted EBITDA $ 88,514 $ 81,996 Six Months Ended June 30, (in thousands) 2014 2013 Reconciliation to Adjusted EBITDA Net loss from continuing operations $ (25,234 ) $ (37,191 ) Equity loss in investee (97 ) - Other expense, net 60,518 58,987 Benefit from income taxes (263 ) (4,058 ) Depreciation and amortization 111,906 94,587 Employee termination benefits (a) 4,855 3,014 Restructuring (b) 22 496 Non-cash stock-based compensation (c) 3,913 5,180 Acquisitions (d) 1,476 20,945 Business development, integration and other expenses (e) 8,071 4,392 Management fee and related expenses (f) 1,591 1,829 Adjusted EBITDA $ 166,758 $ 148,181 (a) Reflects employee termination benefits expense which is comprised primarily of severance benefits associated with our cost rationalization initiatives.

(b) Reflects restructuring expense which is comprised primarily of contract termination costs associated with the exit of a leased facility.

(c) Reflects non-cash expenses related to equity compensation awards.

(d) Reflects expenses associated with the Acquisitions, including professional services costs, such as legal, tax, audit and transaction advisory costs.

(e) Reflects items associated with business development activities, integration expenses, such as incremental contractor, travel and marketing costs and certain advisory services and employee retention costs.

(f) Reflects management fees paid to Carlyle and related expenses pursuant to a consulting agreement with Carlyle.

Free Cash Flow is determined by adding the result of net cash provided by operating activities, adjusted for loss from discontinued operations, net of tax, working capital changes related to discontinued operations and Acquisitions expense less capital expenditures.

We believe that Free Cash Flow is a useful financial metric to assess our ability to pursue opportunities to enhance our growth. We also use Free Cash Flow as a measure to review and evaluate the operating performance of our management team 45-------------------------------------------------------------------------------- Table of Contents in connection with our executive compensation and bonus plans. Additionally, we believe this is a useful metric for investors to assess our ability to repay debt.

A reconciliation of net cash provided by operating activities, the closest GAAP measure, to Free Cash Flow is presented in the following tables: Three Months Ended June 30, (in thousands) 2014 2013 Reconciliation to Free Cash Flow Net cash provided by operating activities $ 50,572 $ 34,467 Loss from discontinued operations, net of tax 560 - Working capital changes related to discontinued operations (560 ) - Acquisitions 1,476 16,553 Capital expenditures (27,008 ) (22,658 ) Free Cash Flow $ 25,040 $ 28,362 Six Months Ended June 30, (in thousands) 2014 2013 Reconciliation to Free Cash Flow Net cash provided by operating activities $ 68,712 $ 54,818 Loss from discontinued operations, net of tax 560 - Working capital changes related to discontinued operations (560 ) - Acquisitions 1,476 20,945 Capital expenditures (57,929 ) (41,743 ) Free Cash Flow $ 12,259 $ 34,020 Off-Balance Sheet Arrangements We provide financial settlement services to MNOs to support the payment of roaming related charges to their roaming network partners. In accordance with our customer contracts, funds are held by us as an agent on behalf of our customers to settle their roaming related charges to other MNOs. These funds and the corresponding liability are not reflected in our unaudited condensed consolidated balance sheets. The off-balance sheet amounts totaled approximately $602.8 million and $492.9 million as of June 30, 2014 and December 31, 2013, respectively.

We have also used off-balance sheet financing in recent years primarily in the form of operating leases for facility space and equipment and we expect to continue these practices. We do not use any other type of joint venture or special purpose entities that would create off-balance sheet financing. We believe that our decision to lease office space is similar to that used by many other companies of our size and does not have a material impact on our financial statements. We intend to continue to enter into operating leases for facilities and equipment as these leases expire or additional capacity is required.

Related Party Transactions Consulting Agreement with Carlyle On January 13, 2011, we entered into a ten-year consulting agreement with Carlyle under which we pay Carlyle a management fee for consulting services Carlyle provides to us and our subsidiaries. Under this agreement, subject to certain conditions, we pay an annual management fee to Carlyle of $3.0 million and reimburse their out-of-pocket expenses. During the three and six months ended June 30, 2014 and 2013, we recorded $0.8 million and $1.6 million, respectively, associated with the management fee and the reimbursement of out-of-pocket expenses. During the three and six months ended June 30, 2013, we recorded $0.8 million and $1.8 million, respectively.

Carlyle, from time to time, participates as a debt holder within the syndicate under our Initial Term Loans and Tranche B Term loans. As of June 30, 2014 and December 31, 2013, Carlyle held $49.0 million and $17.5 million of our Initial Term Loans and Tranche B Term loans, respectively.

46 --------------------------------------------------------------------------------Critical Accounting Policies and Estimates The preparation of our unaudited condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses. We consider an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances.

There have been no material changes to our Critical Accounting Policies and Estimates disclosure as filed in our Annual Report on Form 10-K for the year ended December 31, 2013.

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