10-K 1 svr-123113x10kword.htm 10-K SVR-12.31.13-10K (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, 2013
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 is $0 as the registrant is a privately held corporation and its common stock is not publicly traded. The number of shares of common stock of the registrant outstanding at March 25, 2014 was 1,000.
Documents Incorporated by Reference
None
 
 
 
 
 


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SYNIVERSE HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2013
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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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
Certain of the statements in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K, 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 the networks of others in the mobile ecosystem;
our ability to acquire and integrate complementary business and technologies;
our ability to realize the expected benefit of the MACH acquisition;
our ability to adapt quickly to technological change;
our newly offered products may not be as widely adopted as anticipated;
the loss of any of our significant customers;
the failure to achieve or sustain desired pricing levels;
consolidation among customers could cause us to lose transaction volume and affect pricing;
the reduction of services by existing customers;
increased competition, including competition from our customers who develop in-house solutions;
the success of our international expansion is uncertain;
changes in the regulatory landscape affecting us and our customers;
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;
our compliance with international tax regulations;
unfavorable general economic conditions;
security breaches which could result in significant liabilities;
additional costs and liabilities for maintaining customer privacy;
failure to generate the capital necessary to expand our operations and invest in new solutions;
failure to protect our intellectual property rights or claims by others that we infringe upon their rights;
fluctuations in currency exchange rates;
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 Annual Report on Form 10-K 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 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.
                
MARKET, RANKING AND INDUSTRY DATA


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The data included herein regarding markets and ranking, including the size of certain markets and our position and the position of our competitors and customers within these markets, is based on 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 transactions processed and other market-specific factors. 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 “Special Note Regarding Forward-Looking Statements.”

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

We are the leading global provider of transaction processing and intelligence solutions enabling seamless mobile communication, regardless of network, device or application, across the mobile ecosystem. We believe our global and operational scale is unmatched in our industry. Our market-leading proprietary technology applications and network reach enable the secure, real-time processing of nearly 3 billion billable transactions daily and the settlement of approximately $17 billion annually between our customers in over 200 countries and territories. These transactions allow for a complex set of information exchanges, authorization of end-users, facilitation of traffic, and clearing of transactions and settlement of payments between participants in the mobile ecosystem. We process a large and unique portfolio of real-time data that we analyze to deliver a wide range of intelligence solutions to our customers. Our mission-critical solutions connect the fragmented, expanding and rapidly evolving mobile industry and enable the seamless experience that end-users demand as they increasingly conduct their daily activities over smartphones, tablets and other connected devices. We serve a diverse and growing customer base, including over 1,000 mobile network operators (“MNOs”), and over 500 over-the-top providers (“OTTs”) and enterprises. With over 25 years of experience as a trusted partner and a history of on-going innovation, we believe we continue to be well positioned to solve technical, operational and financial complexities encountered by our customers operating in the mobile ecosystem.
 
The mobile experience once referred simply to the use of cellular phones to make voice calls and only required coordination between MNOs to complete those calls. Today, the mobile experience is a critical and pervasive component of modern life and has become increasingly more complex. End-users now rely on a variety of mobile technologies and connected devices, such as smartphones, tablets, wearables and automobiles, to conduct a broad range of communication, entertainment and information activities that require coordination across multiple parties, including MNOs, OTTs and enterprises. As a result, today’s mobile experience requires seamless and ubiquitous connectivity and a complex set of information exchanges between MNOs, OTTs, and enterprises across geographies, technologies, applications and devices. The failure of any of these elements can disrupt service, resulting in frustrated end-users, erosion of our customers’ brands and loss of revenue by our customers.

As a trusted intermediary with global scale, Syniverse Holdings, Inc. (“Syniverse” or “the Company”) provides approximately 60 mission-critical products and 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, operating with 99.999% reliability. Our comprehensive suite of Mobile Transaction Services and Enterprise & Intelligence Solutions provide the services listed below.

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

Process, clear 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 SMS, MMS and next generation messaging.
Provide data transport services over our global IP data network regardless of technology protocol.
Provide business intelligence and real-time policy management applications to optimize performance and enhance the end-user experience.

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

Bridge OTTs to the mobile ecosystem allowing OTT end-users to interact with traditional mobile messaging.
Connect enterprises to the mobile ecosystem for enhanced customer and employee engagement.
Enable enterprises to rapidly execute and optimize their mobile initiatives.
Provide data analytics and business intelligence designed to enhance and secure the end-user experience for our enterprise and OTT customers.
Provide solutions to enable MNOs to proactively resolve challenges across their networks and service delivery environments.

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We believe our business model is highly attractive and scalable. We derive revenues primarily from the fees paid to us by our customers on various types of mobile transactions and intelligence solutions transactions. Approximately 83% of our revenue is earned on a per transaction basis, and any single end-user call, data session or message often generates multiple transactions. We have long-standing customer relationships, with an average tenure of 17 years among our top 10 customers and a 98% customer renewal rate. Our transaction-based revenue model coupled with our long-term service agreements and customer relationships provides us with a revenue stream that is growing, highly predictable and recurring in nature, with approximately 90% of our annual revenue earned under contracts in place at the beginning of each of the last 5 years. Our scalable infrastructure provides significant operating leverage allowing us to benefit from volume growth and rapidly scale our products and services across customers, markets, and geographies with relatively low marginal costs. From 2009 through 2013, our revenue grew from $483 million to $859 million at a compound annual growth rate (“CAGR”) of over 15% while we maintained Adjusted EBITDA margins of over 40% during the same period.
    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 herein.

Executive Overview

Financial Highlights
    
Revenues increased $115.1 million, or 15.5%, to $859.0 million for the year ended December 31, 2013, from $743.9 million for the same period in 2012. Mobile Transaction Services revenue increased $85.9 million, or 13.0%, to $748.9 million for the year ended December 31, 2013, from $663.0 million for the same period in 2012. Enterprise & Intelligence Solutions revenue increased $29.2 million, or 36.1%, to $110.1 million for the year ended December 31, 2013, from $80.9 million for the same period in 2012. The Acquisition contributed $74.1 million to the increase in revenues for the year ended December 31, 2013. Operating income decreased $12.8 million to $89.6 million for the year ended December 31, 2013 from $102.3 million for the same period in 2012. Net loss from continuing operations decreased $40.1 million to $40.3 million for the year ended December 31, 2013 from $0.2 million for the same period in 2012. Operating income and net loss from continuing operations for the year ended December 31, 2013 include an increase in Restructuring and employee termination benefits and Acquisition and Merger costs and expenses of $4.1 million and $6.9 million, respectively. Adjusted EBITDA increased $44.7 million, or 14.3%, to $358.2 million for the year ended December 31, 2013 from $313.5 million for the same period in 2012. See “Management’s Discussion and Analysis of Financial Condition and Results of operations - Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to Net loss from continuing operations.

Business Developments

Refinancing of Initial Term Loans

On September 23, 2013, Syniverse entered into a second amendment (the “Second Amendment”) to the Credit Agreement. Under the Second Amendment, the rate at which the initial term loans (the “Initial Term Loans”) under the Credit Agreement bear interest was amended to reduce (i) the margin for Eurodollar rate loans from 3.75% to 3.00%, (ii) the margin for base rate loans from 2.75% to 2.00%, (iii) the Eurodollar rate floor from 1.25% to 1.00% and (iv) the base rate floor from 2.25% to 2.00%. Syniverse recorded $2.8 million of debt extinguishment costs and $1.7 million of debt modification costs associated with the refinancing. See Note 11 to our audited consolidated financial statements for additional information regarding the Second Amendment.

Principal Prepayment on Term Facilities

On September 23, 2013, prior to the refinancing of the Initial Term Loans, Syniverse made a prepayment of $50.0 million on the Initial Term Loans and Tranche B Term Loans (defined below) (collectively the "Term Loan Facilities"), of which $28.7 million was applied to the Initial Term Loans and $21.3 million was applied to the Tranche B Term Loans. In relation to the prepayment, we accelerated the amortization of $0.4 million of original issue discount and $0.6 million of deferred financing costs. See Note 11 to our audited consolidated financial statements for additional information regarding the prepayment of the Term Loan Facilities.




7


MACH Acquisition

On June 28, 2013 (the “Acquisition Date”), we completed our acquisition of WP Roaming III S.à r.l. (“WP Roaming”), for a total purchase price of approximately $712.0 million. 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 “Acquisition”). The purchase price was funded through a portion of the net proceeds from a new $700.0 million senior secured credit facility and the Deposit of €30.0 million.

WP Roaming is a holding company which conducted the business of MACH. The Acquisition added to our global customer base and geographic scale due to MACH’s strong presence in the EMEA and Asia Pacific regions. In addition, the Acquisition enhanced our product portfolios, allowing us to leverage complementary technology platforms and increase our reach with more direct connections to support Mobile Transaction Services and Enterprise & Intelligence Solutions that enable our acquired and existing customers to deliver superior experiences to their end-users.

At the closing of the Acquisition, we paid to the Seller an amount equal to approximately €140.0 million. In addition, on the Acquisition Date, Syniverse, on behalf of WP Roaming, paid €313.0 million and $81.5 million, respectively, for amounts outstanding to WP Roaming's third-party lenders. On July 2, 2012, we paid the Seller the Deposit of €30.0 million which was applied to the purchase price at the Acquisition Date. For purposes of the purchase price allocation, the Deposit and amounts paid in Euros at the Acquisition Date were converted to U.S. dollars using an exchange rate of 1.3058.

See Note 5 to our audited consolidated financial statements for additional information regarding the Acquisition.

Assets and Liabilities Related to Assets Held for Sale

The approval of the Acquisition granted by the European Commission was conditioned upon the Company’s commitment to divest certain assets supporting MACH’s data clearing and near real-time roaming data exchange business in the European Economic Area, which includes the European Union countries plus Iceland, Liechtenstein and Norway, including technology platforms, necessary employees, customer contracts and the MACH brand, referred to here as the “Divestment Business”. On October 1, 2013, the Company completed the sale of the Divestment Business for €9.9 million, subject to purchase price adjustments to be completed in the first half of 2014. During the year ended December 31, 2013, the Company re-measured the related net assets held for sale at fair value, less cost to sell and recorded a loss of approximately $2.8 million, which is included in Loss from discontinued operations, net of tax.

See Note 6 to our audited consolidated financial statements for additional information regarding assets and liabilities that were classified as held for sale.

Tranche B Term Loans

On June 28, 2013, we received net proceeds of $696.5 million under the Tranche B Term Loans (defined below), the proceeds of which were used to refinance the Escrow Term Loans in full. Borrowings under the Tranche B Term Loans bear interest at a floating rate which can be, at our option, either (i) a Eurodollar base rate for a specified interest period plus 3.00% or, (ii) an alternative base rate plus 2.00%, subject to a Eurodollar rate floor of 1.00% or a base rate floor of 2.00%, as applicable. Commencing on September 30, 2016, our Tranche B Term Loans will begin amortizing in quarterly installments in an amount equal to 0.25% per quarter of the original principal amount thereof, with the remaining balance due at final maturity. See Note 11 to our audited consolidated financial statements for additional details regarding the Tranche B Term Loans.

Business Description

Syniverse provides mission-critical technology and business services that enable the seamless provision of the mobile experience to end-users regardless of network, device or application. Our comprehensive suite of products and services includes Mobile Transaction Services and Enterprise & Intelligence Solutions.

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Revenues by service offerings were as follows:

 
Successor(1)
 
 
Predecessor(1)
 
 
 
 
 
 Period from
 
 
   Period from
 
Year Ended
 
Year Ended
 
 January 13 to
 
 
  January 1 to
 
December 31,
 
December 31,
 
December 31,
 
 
    January 12,
(in thousands)
2013
 
2012
 
2011
Mobile Transaction Services
$
748,907

 
$
663,011

 
$
680,266

 
 
$
20,278

Enterprise & Intelligence Solutions
110,054

 
80,863

 
65,712

 
 
1,736

Revenues
$
858,961

 
$
743,874

 
$
745,978

 
 
$
22,014

(1) See Note 2 to our consolidated financial statements for additional details regarding the Predecessor and Successor periods.

Revenues by geographic region, based on the “bill to” location on the invoice, were as follows:

 
Successor(1)
 
 
Predecessor(1)
 
 
 
 
 
 Period from
 
 
   Period from
 
Year Ended
 
Year Ended
 
 January 13 to
 
  January 1 to
 
December 31,
 
December 31,
 
December 31,
 
    January 12,
(in thousands)
2013
 
2012
 
2011
North America
$
588,493

 
$
557,238

 
$
581,140

 
 
$
17,294

Asia Pacific
84,118

 
71,525

 
59,028

 
 
1,295

Caribbean and Latin America
65,475

 
55,070

 
43,413

 
 
1,428

Europe, Middle East and Africa
120,875

 
60,041

 
62,397

 
 
1,997

Revenues
$
858,961

 
$
743,874

 
$
745,978

 
 
$
22,014

(1) See Note 2 to our consolidated financial statements for additional details regarding the Predecessor and Successor periods

For the years ended December 31, 2013 and 2012, we derived 64.2% and 69.6% of our revenues from customers in the United States, respectively. For the periods from January 13, 2011 through December 31, 2011 and January 1, 2011 through January 12, 2011, we derived 72.0% and 80.5%, respectively, of our revenues from customers in the United States.
    
Long-lived assets, which consist of property and equipment, net and capitalized software, net, by geographic location were as follows:
 
(in thousands)
December 31, 2013
 
December 31, 2012
 
December 31, 2011
North America
$
252,704

 
$
273,880

 
$
279,931

Asia Pacific
6,517

 
6,307

 
5,164

Caribbean and Latin America
998

 
219

 
293

Europe, Middle East and Africa
84,475

 
6,860

 
5,925

Total long-lived assets, net
$
344,694

 
$
287,266

 
$
291,313


Mobile Transaction Services

With the emergence of new technologies and market entrants within the mobile ecosystem, it remains critical to connect disparate networks and partners to deliver seamless and ubiquitous services to end-users. In order for an end-user to complete a call, initiate a data session, send a message, or perform numerous other functions using their mobile device, MNOs must connect with one another and exchange information. These connections and exchanges vary in complexity depending upon geography, technology, application and device.

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Our core strength is solving that complexity, bridging parties together to deliver seamless service to end-users. We provide the interconnection between over 1,000 MNOs, processing nearly 3 billion billable transactions each day between and among these MNOs. This transaction processing facilitates clearing of transaction records, settlement of transaction fees, authentication and activation of subscribers and advanced data transport services, among other mission-critical services. Any time information passes from one network to another, we can provide the connection and process the transaction that enables the exchange. Specific transaction services we provide include:

Process, Clear and Exchange End-user Billing Records between MNOs

MNOs rely on a multitude of wholesale roaming agreements among one another to provide their end-users with a seamless experience outside their end-user’s home coverage area. These agreements define the terms and wholesale rates that a visited MNO charges to the home MNO in exchange for providing service to roaming end-users. When MNOs offer nationwide coverage plans, they often fill the gaps in their home network through wholesale roaming agreements with other MNOs, even if they do not charge their end-users for such roaming. MNOs use clearinghouses to manage the complex exchange of wholesale end-user billing records and monthly settlement of fees.

We are the largest global clearinghouse providing transaction processing services to MNOs to manage their wholesale roaming agreements. Several times per day our customers send us billing detail records related to all of the roaming end-users to whom they are providing service. Our clearinghouse service verifies the accuracy and rates on these records, and routes the records to the home operator.

Process and Settle Payments between Participants in the Mobile Ecosystem

On a monthly basis we determine the wholesale fees owed between and among all of our MNO customers and their roaming partners and settle the invoicing, payment and reconciliation of these wholesale roaming fees. We provide clearinghouse services for wholesale roaming fees to approximately 750 MNOs globally and settle approximately $17 billion in transactions annually.

Activate, Authenticate and Authorize End-user Mobile Activities

Our signaling solutions and ability to interact with specialized MNO databases are used by MNOs to communicate with each other regarding the activities taking place outside their home 2G, 3G, LTE or WiFi networks. For example, MNOs use our solutions to determine network ownership of a phone number for appropriate routing, access and exchange of caller ID information, or enable third party or calling card billing. MNOs also use our signaling solutions to authenticate the identity of end-users while roaming and authorize the appropriate level of service in the visited network. Our signaling solutions help manage over 12 billion records daily while operating with 99.999% reliability. Our number portability services, active in several countries, allow end-users to keep their mobile numbers when activating service on a new network. As service providers continue to leverage their networks to introduce new services, we work with our customers to develop and manage the new signaling solutions to activate, authenticate and authorize these new services between MNOs.

Manage the Routing and Delivery of SMS, MMS and Next Generation Messaging

Our inter-carrier messaging platform handles over 30 billion messages monthly. MNOs rely on messaging gateways to provide the reach necessary to exchange messages between end-users on any network or service globally. As one of the largest messaging gateways globally, our platform verifies routing of messages to the proper destination, translates between protocols to handle incompatibility, analyzes the traffic to identify and eliminate potential fraud and spam and manages traffic volumes to accommodate each customer’s messaging platform volume limitations.

Provide Data Transport Services over Our Global IP Data Network Regardless of Technology Protocol

IP networks are used by MNOs and machine-to-machine (“M2M”) providers for the transport of end-user data and content. With the explosive growth of high speed data networks, smart phones and applications, our customers have increased their reliance on IP networks to meet the insatiable demand for bandwidth. While most MNOs maintain their own IP networks within their infrastructure to serve their end-users and access the internet, they rely on private secure IP exchange (“IPX”) gateways to provide connectivity between MNOs for simplification of roaming and the secure exchange of end-user content. M2M providers can use IPX networks to manage all internet access for their end-users.

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We run one of the largest global IPX gateways. When end-users roam outside of their home network, all of their data traffic is routed back through their home MNO to control access and ensure a consistent end-user experience, regardless of location. This data traffic is exchanged between the home and visited MNO via an IPX gateway. Additionally, LTE standards define IPX gateways as the platform to be used to securely exchange data between end-users on different home networks. IPX gateways will also allow differentiated class of service based on applications such as dynamic bandwidth provisioning and traffic prioritization. This creates opportunities to help MNOs deliver new services designed to optimize the end-user experience. Syniverse launched our IPX network in 2009 and we have a broad range of services over IPX that include roaming, signaling, and messaging solutions. We have also developed a strong LTE portfolio, with LTE roaming available since early 2012, and an end-to-end LTE test environment established to help attract customers to our IPX network as their LTE networks are launched.

Provide Business Intelligence and Real-time Policy Management Applications to Optimize Performance and Enhance the End-user Experience

Our dynamic policy management capabilities allow MNOs to proactively offer incremental services or resolve network issues in real time. For example, when a subscriber is not using data services while roaming in a foreign country, our Data Roaming Engine delivers a roaming plan customized to their individual data usage patterns. This plan can be proactively offered to the subscriber and, if accepted, we initiate and manage the service in real time.

Our business intelligence capabilities also extend to a variety of revenue assurance, fraud prevention and other mobile security services. These include the real-time exchange and analysis of roaming activity records and end-user subscription information for the development of fraud profiles to identify and prevent fraudulent activity, messaging spam and unauthorized access to MNO networks. These services enable MNOs to minimize disruption to their networks, mitigate financial losses and optimize the quality of the end-user experience.

Enterprise & Intelligence Solutions

As mobile becomes the preferred real-time communications medium for OTTs and enterprises, end-users have now demand seamless and ubiquitous access to these services. The OTTs and enterprises need an experienced partner who can provide them with global access to their customers across disparate mobile networks, each with unique attributes and specifications. MNOs require the ability to measure and manage end-user service availability in real-time. We provide the tools to manage a standardized and seamless roll-out of end-user engagement strategies and best practices to efficiently and effectively integrate their platform into the mobile ecosystem. In addition, our business intelligence tools allow MNOs, OTT and enterprises to effectively optimize the end-user experience.

Bridge OTTs to the Mobile Ecosystem Allowing OTT End-users to Interact with Traditional Mobile Messaging

OTTs continue to attract end-users with innovative services that extend beyond traditional mobile services. However, adoption of these services can be restricted by limited network reach if they remain a “closed” network. We bridge OTT messaging applications with MNOs through our IP messaging gateway allowing OTT end-users to seamlessly interact with traditional mobile messaging.

Connect Enterprises to the Mobile Ecosystem for Enhanced Customer and Employee Engagement

As expectations around the immediacy of communications have increased, enterprises have increasingly sought reliable, simple and efficient tools to manage connectivity with numerous MNOs. Through our connections and services such as our omni-channel communications solution, we provide enterprises with the ability to reliably reach all of their customers and employees regardless of geography, network, device or application. Our high-volume processing capabilities currently support in excess of 13 million messages being sent by our enterprise customers to end-users daily.

Enable Enterprises to Rapidly Execute and Optimize their Mobile Initiatives

The enterprises we serve interact with a large number of customers and employees daily, many of whom are most effectively reached in a targeted and customized fashion that accounts for their individual preferences and priorities. As a result, it has become increasingly important for enterprises to structure their mobile outreach initiatives to allow for targeting of specific audiences. We provide mobile campaign services that enable these enterprises to optimize and differentiate their mobile initiatives for these various audiences. By analyzing and processing end-user information, our services allow enterprises to intelligently

11


segment their different constituents and then selectively schedule and deliver relevant and customized content. For example, we helped our customer, a global financial institution, successfully launch an interactive campaign to accompany a televised charity. Our service allowed for rapid deployment of the mobile campaign, real-time processing of end-user communications, and, ultimately, served to reinforce our customer’s brand with its consumers.

Provide Data Analytics and Business Intelligence Solutions Designed to Enhance and Secure the End-user Experience

Our unique position at the center of the mobile ecosystem and the substantial amount of data generated by mobile transactions enables us to develop customizable services that leverage end-user trend analysis, real-time activity and profile information (or mobile context) to provide uninterrupted and personalized services for end-users. The contextual data that informs our business intelligence solutions includes current end-user network usage capabilities, geo-location and mobile identity verification such as number, device and user attributes, mobile payment information, and two-way messaging capabilities as evidenced by the following examples:

We can identify a user of a social network who has landed in a foreign country but is not using data services. We can then offer the end-user a data roaming plan paid for and branded by the social network. This strategy enables the social network to reinforce its brand with the end-user while facilitating the user’s social network engagement when traveling abroad.
We have developed and are currently conducting commercial trials of a new product offering for credit and debit card issuers allowing them to utilize the geo-location feature of a mobile device when faced with a suspicious transaction to help determine whether the cardholder is, in fact, present at the transaction.

Through these types of services, we enable our customers to provide an optimized end-user experience and realize opportunities to generate additional revenue and to minimize fraudulent activity.

Provide Solutions to Enable MNOs to Proactively Resolve Challenges across their Networks and Service Delivery Environments

We collect, correlate and analyze billions of end-user data records to provide MNOs with unique insights into subscriber behavior that allow them to identify new revenue opportunities and potential service issues in real time. Our data analysis can identify network failures or individual subscriber conditions that are causing service disruptions and enable the MNOs to resolve the issue with minimal end-user impact. Additionally, our platform identifies long-term trends and issues in network performance that assist with network planning and partnership negotiations.

Industry Summary

We operate at the center of the fragmented, expanding and rapidly evolving global mobile ecosystem. We believe that we are well positioned to benefit from the following trends in our industry:

Mobile Subscribers and Traffic Continue to Grow

The global mobile ecosystem continues to grow rapidly in a number of ways. Examples include:

The number of smartphone users is expected to more than double by 2017, from 1.1 billion in 2012 to 2.5 billion in 2017, according to eMarketer.
50 billion devices are expected to be connected to the Internet by 2020, up from a projected 25 billion in 2015, according to Cisco.
A projected thirteen-fold increase in worldwide mobile data traffic from 2012 to 2017, according to Cisco.
An expected CAGR of 77%, 76% and 67% in mobile data traffic in the Middle East and Africa, Asia Pacific and Latin America regions, respectively, from 2012 to 2017, according to Cisco.
An expected 18% and 15% increase in mobile phone user penetration in India and China, respectively, from 2012 to 2017, according to eMarketer.
Mobile Becoming the Preferred Medium for Communication, Entertainment and Customer Relationship Management


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Concurrent with growth in subscribers, traffic and usage, mobile is becoming the preferred medium for customers globally. For example:

51% of email is now accessed on a mobile device rather than a desktop and 30% of consumers now read their email exclusively on mobile devices.
48% of Facebook’s total revenue for the fourth quarter 2013 was derived from mobile activity, with 73% of users accessing their Facebook account via mobile devices on a given day in December 2013, up 49% from December 2012.
38% of Netflix subscribers viewed content on mobile phones and iPads in 2013, up from 16% in 2012, according to Nielsen.
More than 80% of mobile device owners in the U.S. used their smartphone or tablets to help them shop during the 2013 holiday season, representing more than 86 million consumers (28% of the total U.S. population).
90% of executives surveyed look to maintain or increase their investments in mobile technology over the next 12 - 18 months as organizations worldwide recognize the need for a mobile strategy in order to effectively compete in the future, according to an IBM study.
Approximately 90% of enterprises plan to support corporate applications on personal mobile devices by the end of 2014, according to Gartner.
The trend of turning everyday objects into “data-spewing machines” will support the addition of an estimated $1.9 trillion to the global economy over the next six years, according to Gartner.
Increasing Mobile Complexity

The challenges associated with providing a seamless and ubiquitous end-user experience are compounded by the introduction of new and diverse technologies and services and the entrance of new and diverse market participants. Examples include:

Continued deployment of evolving network technologies, including LTE and Wi-Fi.
The need to bridge mobile traffic between multiple generations of networks and technologies, such as 4G, 3G and 2G networks.
Proliferation, increasing sophistication and diversity of mobile devices and their underlying operating systems and technologies.
Emergence of OTTs and enterprises and their rapid introduction of innovative applications and services to the mobile ecosystem.
Evolving regulatory environment in jurisdictions around the world.

Growing Demand for Intelligence and Analytics Solutions

Business intelligence solutions derived from the processing of end-user transaction data have become a key element in delivering superior business performance across a wide range of industries. The global market for advanced services that rely on insights about end-users’ mobile attributes and behaviors could be worth as much as $44 billion to MNOs annually, based on analysis by the Strategic Economic Engineering Corp commissioned by Syniverse. Driving the growth of this market is end-user demand for seamless, personalized mobile services that offer customized functionality to address their individual preferences. As a result, participants in the mobile ecosystem require business intelligence solutions that provide:

Operational Optimization. MNOs face significant pressure to deliver operational efficiencies and revenue optimization in a highly competitive market. MNOs increasingly rely upon analytical tools and insights to deliver profit improvement, such as fraud prevention and revenue assurance. According to the 2013 CFCA Global Fraud Loss Survey, telecom fraud losses are expected to exceed $46 billion in 2013 globally, greater than 2% of global telecom revenues.
End-User Personalization. MNOs and OTTs need business intelligence solutions to tailor their mobile services to optimize each end-user’s individual experience. Further, LTE is driving MNOs to differentiate their services, requiring more real-time analytics, policy management and business intelligence solutions.
Mobile End-User Engagement. As the mobile experience evolves, enterprises increasingly demand tools that enable them to capture and analyze the rich stream of information related to their customers’ mobile activity to facilitate the delivery of enhanced marketing, security, payment and engagement solutions to end-users.

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Mobile Identity. New approaches to security are emerging, many of which use the unique characteristics of mobile devices (e.g., geo-location services and other elements of mobile context) to reinforce and strengthen security protocols.

The Need for a Trusted Intermediary in the Mobile Ecosystem

The delivery of a seamless and integrated mobile experience to end-users requires significant coordination between multiple parties around the world. The challenges associated with ensuring this coordination include:

Navigating the growing complexity and proliferation of technologies, business models, standards and devices.
Establishing robust and secure connections between participants in the mobile ecosystem.
Competitive dynamics between various participants in the mobile industry that inhibit direct coordination.
Monitoring and enforcing contractual agreements between participants.
Real-time access to subscriber data and behaviors outside home networks.

These factors create a clear need for a trusted intermediary that can bridge these technological and operational challenges while leveraging economies of scale to efficiently solve for complexity and change, enable the seamless delivery of services to end-users and provide opportunities to utilize previously untapped sources of data.

Competitive Strengths

Syniverse simplifies the complexity of the mobile ecosystem through our position as a neutral and trusted third-party intermediary between all its participants. Our network reach and market-leading proprietary technology applications are capable of enabling the secure, real-time processing of the billions of transactions required each day to enable a ubiquitous and seamless mobile experience. We possess the following key attributes:

Flexibility to operate across and translate between all network technology types, including 2G, 3G, LTE and WiFi, and device types such as smartphones, tablets and PCs.
Robust global networks with a footprint in over 200 countries and territories and 99.999% reliability record.
Platform integration into and trusted deep relationships with over 1,000 MNOs and 500 OTTs and enterprises.
Ability to maintain, monitor and enforce complex contractual arrangements between our customers.
Access to a unique portfolio of real-time data and the ability to produce analytical insights from this data enabling our customers to enhance their end-user experience.

We believe the following strengths provide competitive advantages that position us well to enhance our position at the center of the mobile ecosystem and to capitalize on the growth trends in our industry.

Industry Leader with Global Scale

We are the leading provider of transaction processing and intelligence solutions across the mobile ecosystem. We are a primary connection point and a trusted neutral intermediary to over 1,500 MNOs, OTTs and enterprises, creating significant value for our customers and, ultimately, their end-users. We believe our geographic footprint, scope of operations, and established relationships with blue-chip customers make our business model and global scale difficult, time-intensive and costly to replicate. Our technology platforms are highly scalable, processing more than one trillion billable transactions annually, and can easily support new products, new customers and transaction volume growth without incurring significant additional costs.

Operational Excellence Supported by Proprietary and Secure Technology Platforms

We have a proven track record of operational excellence. We operate with 99.999% reliability as a result of our investment in our technology infrastructure and platform, system redundancy and automated recovery, and the expertise of our dedicated and skilled operational workforce. We believe that the operational reliability of our technology platform is a critical differentiator to our customers, who are expected to deliver seamless mobile experiences to their end-users at all times. Our proprietary platforms provide our customers with mission-critical functions that directly impact their operational and financial performance ensuring that we are able to quickly deploy resources to meet their demands. Our proprietary technology platforms, located across 10 countries on 3 continents, are situated in 31 data centers of which 19 are network access points, supporting our global IP backbone. Our state-of-the-art network and application monitoring centers ensure global connectivity and respond to service

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degradation notifications and other alarms, enhancing and maintaining our customers’ ability to provide a seamless and ubiquitous end-user experience.

Broad and Differentiated Product Portfolio

Our comprehensive suite of products and services is unmatched by any single competitor in the market. We provide approximately 60 mission-critical products and services that enable seamless usage across disparate networks and technologies, enable enterprises to access their customers and employees through services such as our omni-channel communications solution, manage business-to-business transaction processing between and among our customers and their partners, and provide data analytics and intelligence. Our cloud-based solutions allow our customers to bring new services to market quickly with a low cost of service. Our comprehensive portfolio allows us to function as a one-stop shop for our customers and to offer specific packaging options that are unique in the marketplace.

Real Time Data Analytics & Intelligence Capabilities

Our position at the center of the mobile ecosystem provides us with access to a unique portfolio of real-time data derived from the processing of end-user transaction information. We have developed a suite of business intelligence solutions based on this data for MNOs to optimize the quality of the mobile experience they deliver to their customers. MNOs use our business intelligence tools to proactively resolve performance issues and utilize real-time subscriber information to provide customized service to their end-users. We are further developing these intelligence solutions to provide enterprises, including OTT customers, with a foundation for their mobile enabled initiatives, utilizing contextual data to achieve relevant, personalized two-way engagement with customers and employees in the mobile environment. We believe that our unique position at the center of the mobile ecosystem as well as the substantial amount of real-time data we process on behalf of our customers positions us well to develop innovative business intelligence solutions, including identity, location and security services, to address the needs of our customers as they seek to provide seamless and personalized experiences for their end-users.

History of Innovation and Thought Leadership

We have a history of ongoing investment in and development of new products and services that anticipate and respond to our customers’ needs to address new technologies and support new entrants in the mobile ecosystem. Over the last five years, we have invested over $170 million in the development of new services and new features for our portfolio of existing services. We often develop products in collaboration with our customers, enabling us to mitigate the financial risk associated with our R&D investments. We believe our culture of innovation positions us well to capitalize on future growth opportunities. To support this effort, we have a highly talented workforce, including approximately 600 product developers and engineers who participate in, and often lead, industry groups responsible for developing new mobile technology standards. We are an active participant in the international wireless community as a member of Global System for Mobile Communications Association (“GSMA”) and have been recognized as an innovation leader having received the global telecoms business award six years in a row, including two “Business Innovation Awards” in 2013, the 2013 GSMA Global Mobile Award for “Best Mobile Safeguard and Security Service” and two “Total Telecom’s 2012 World Vendor Awards.”

Longstanding Customer Relationships and Diverse Customer Base

We have provided services to our top 10 customers for an average of 17 years. The mission-critical nature and superior quality of our services have allowed us to maintain contract renewal rates of 98% over the past eight years. We have a diverse set of over 1,500 customers in over 200 countries and territories. These customers include MNOs, such as Verizon Wireless, América Móvil, Vodafone, Telefónica, China Unicom and Reliance Communications; OTTs, including three of the four most popular social networking sites in the United States and one of the largest social networking sites in China; and blue-chip enterprise customers, including 8 of the 10 largest U.S. banks, 3 major banks in Asia, the top 3 credit card networks worldwide, and 3 of the 5 largest global airlines.

Experienced Management Team

Our executive management team has extensive customer and industry expertise, significant experience with emerging technologies and a proven track record of driving growth with an average of over 20 years of industry experience. The executive management team has fostered a strong culture focused on delivering superior value to our customers and shareholders, as demonstrated by our growth in revenues, customer base and geographical diversity since 2009. We employ a disciplined acquisition strategy, having executed over $1 billion of acquisitions since 2007, including our acquisition of WP Roaming, the

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holding company which operated the MACH business, which significantly expanded our presence in Europe, Asia and Africa, while also providing numerous cost saving and cross-selling opportunities. Our successful integration of these businesses has enhanced our market position, expanded our capabilities and geographic reach, and resulted in substantial cost savings. For example, as of December 31, 2013, we achieved $10 million of annualized, run-rate cost synergies related to the MACH acquisition through ongoing integration efforts, and management expects an additional $8-$10 million of cost savings to be achieved over the next two years.

Business Strategy

We believe that the foregoing strengths position us well for future growth and we intend to execute the following strategies:

Grow and Globalize Our Business

We intend to leverage our existing technology and infrastructure, our portfolio of products and services and our market leading position and reputation to capitalize on robust mobile growth in markets outside of North America, particularly in emerging markets, including India, China, and other countries in Latin America and Africa. In support of our international growth initiative, we intend to:

Further develop our international operations, including our regionalized sales force, network infrastructure and operational support capabilities. Recent examples include the August 2013 establishment of a state-of-the-art global customer support center in Costa Rica that provides technical and support services to customers across Latin America. In addition, we have grown our international workforce from 601 in 2010 to 1,536 in 2013, and we expect this trend to continue.
Deepen our existing relationships with our international customers by cross-selling a more diverse set of products to our existing customers outside of North America. Revenues generated in the Asia Pacific region have grown at a 24.8% CAGR since 2010, and we recently expanded our relationship with China Unicom by combining our business intelligence, network and campaign management tools to improve their end-user experience.
Build relationships with new customers by capitalizing on our globally recognized reputation for customer service, reliability and innovation. Efforts to foster these relationships include the opening of a development center in Nanjing, China in November 2012 that was designed to drive the development of next-generation mobile solutions in the fast-growing Asia Pacific region.
Partner with our enterprise customers as they expand their businesses into developing and emerging markets and seek to realize value from customer data generated across the global mobile ecosystem.

Continue to Develop Innovative Products and Services

We will continue to invest substantial resources in the delivery of new products and services to address trends and developments affecting the mobile ecosystem. We believe we will continue to successfully develop new, innovative solutions individually and through partnerships and joint initiatives with our customers. We will continue to focus on meeting our customers’ growing needs for diverse intelligence and analytics solutions, leveraging our unique position at the center of the mobile ecosystem and the substantial amount of data which we have access to and process on behalf of our customers.

Continue to Support New Entrants to the Mobile Ecosystem

We intend to capitalize on our deep knowledge of the mobile ecosystem and our leading market position and role as a centralized gateway to be the provider of choice to support new and non-traditional entrants. For example, social networks are expanding the services they offer to subscribers via mobile. Retail, banking and travel firms increasingly rely on the mobile channel for updates and interactions with their end-users. We are focused on extending our existing capabilities within the delivery of mobile access to enterprise customers, and leverage the large volume of available end-user-related information, to enrich enterprise solutions related to their interaction with end-users.

Continue to Pursue Strategic Acquisitions

We intend to follow a disciplined strategy of pursuing strategic acquisitions focused on companies with compatible business models that we believe will be accretive. We have historically used and expect to continue to use acquisitions to expand

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our service offerings for existing customers and gain access to new geographic markets. As evidenced by our successful acquisition history, we have a strong track record as a disciplined acquirer that quickly and efficiently integrates acquired businesses. Most recently, we acquired MACH which significantly expanded our presence in Europe, Asia and Africa, while also providing numerous cost saving and cross-selling opportunities.

Continue to Focus on Operational Excellence and Efficiency

We intend to maintain our high quality of service and reputation for reliability while continuing to focus on opportunities to optimize our operating efficiency and lower our cost structure through automation and cost management initiatives. Recent operational efficiency initiatives include automation efforts designed to ensure higher customer satisfaction, improved resource management and refined product development processes. Our continued focus on operational excellence should continue to drive efficiency, effectiveness and quality of service for our customers’ end-users.

Employees

As of December 31, 2013, we had 2,589 full-time equivalent employees, with approximately 60% 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, 2013, our sales and marketing organizations included 339 people who identify and address customer needs and concerns, deliver comprehensive services and offer a complete customer support system. Earlier this year, our sales and marketing organizations were separated into dedicated teams to support our Mobile Transaction Services and Enterprise and Intelligence Solutions businesses.

Sales. Our sales team is geographically diverse and regionally focused. Sales executives, product specialists and client support personnel are organized geographically within regional offices responsible for customers in North America, Caribbean and Latin America, Asia Pacific, Europe, Middle East and Africa.
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 product marketing and competitive analysis, media relations, event planning, web marketing and marketing communications.
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.

Technology and Operations

Technology

As of December 31, 2013, our technology group was comprised of 604 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 Development and Life Cycle, Operational Support Services, Technology Services and Innovation.

Product Development and Life Cycle. Delivers new product development, enhancements and maintenance releases and develops integrated solutions that address customer needs.
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. Maintains the high quality of customer service through centralized testing, system/data base administration, configuration management, security and network engineering and operations.
Innovation. Researches new technologies to identify innovative solutions, develops proof of concepts and launches new products all in support of the evolving needs of our customers.


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Operations
As of December 31, 2013, we had 1,123 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. Our 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.
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, 2013, we had 124 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 IP-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.

Competition

There is no single company that competes across all of the services we offer in all of our markets. We believe that the breadth of our solutions, global scale, and customer relationships will enable us to continue our market leadership. We face competition from several companies that provide similar offerings to some of our services in certain geographic markets. For Mobile Transaction Services, our competitors include regional providers of specific products or services, wholesale service divisions of incumbent network providers and, in limited cases, MNOs that create in-house solutions. For Enterprise and Intelligence Solutions, our competitors include enterprise database and application companies, specialized application integration consultants and, in some cases, MNOs.

While we maintain a leading position in most of the markets in which we operate, our future success will depend on our ability to enhance and expand our suite of products and services, provide reliable connectivity and services, strengthen and expand our geographic footprint and drive innovation that anticipates and responds to emerging customer needs and the growth and evolution of the mobile ecosystem.

Customers

We have a diverse set of customers consisting of over 1,500 customers in over 200 countries and territories. Our customers include MNOs such as Verizon Wireless, América Móvil, Vodafone, Telefónica, China Unicom and Reliance Communications; OTTs, including three of the four most popular social networking sites in the United States and one of the largest social networking sites in China; and blue-chip enterprise customers including 8 of the 10 largest U.S. banks, 3 major banks in Asia, the top 3 credit card networks worldwide, and 3 of the 5 largest global airlines. Our customer base has remained stable over time, as we have been providing services to our top 10 customers for an average of 17 years. We believe these longstanding relationships, the mission-critical nature of our services and superior quality of service, have allowed us to maintain high contract renewal rates of 98% over the past eight years.

Our two largest customers, Verizon Wireless and Sprint, generated 21.6% and 10.7% of total revenues for the year ended December 31, 2013, respectively. No other customer generated more than 10% of total revenues. Following the acquisition of MACH, the percentage of total revenues generated by our two largest customers has declined. For the fiscal quarter ended December 31, 2013, Verizon Wireless and Sprint together accounted for 28.6% of total revenues as compared to 34.3% for the fiscal quarter ended December 31, 2012.


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Litigation
 
There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Company, threatened in writing, at law, in equity, in arbitration or before any Governmental Authority, by or against the Company or any of the Company’s restricted subsidiaries, or against any of their properties or revenues that either individually or in the aggregate, could reasonably be expected to have a material adverse effect on our business, results of operation and financial condition.

Government Regulations

The majority of our services are not heavily regulated. In the United States we do not offer services that are deemed to be common carrier telecommunications services. However, certain services we offer in the United States are subject to limited regulation by the FCC. In particular, end-user revenues from selected services are used to determine our contribution to the FCC’s Universal Service Fund. In addition, certain services we offer outside of the United States are also subject to regulation. Some of our financial clearing services require that we maintain a license as a money service business in the United Kingdom and follow certain “know your customer” and anti-money laundering regulations in the provision of these services. Finally, our number portability businesses in India and Singapore are provided under government issued licenses with specific terms and conditions. For example, in India our number portability license sets the price we can charge for our services. If we violate the terms of our licenses in India or Singapore we are subject to fine and could lose our ability to continue to offer these services.

ITEM 1A.       RISK FACTORS
Any of the following risks could materially and adversely affect our business, financial condition or results of operations. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this Annual Report on Form 10-K, including our audited consolidated financial statements and related notes. The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations. If these events were to 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 “Special Note Regarding Forward-Looking Statements” for a discussion of certain qualifications regarding such statements.

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;

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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, proactive alarm monitoring 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, 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 liability under our customer contracts.
We do not control the networks over which many of our services are transmitted, and a failure in the operations of such networks could adversely affect our business.
Our platform is dependent on the reliability of the sophisticated and complex networks of others in the mobile ecosystem, as well as our ability to deliver products and services across such networks at prices that enable us to realize a profit. These networks could fail for a variety of reasons, including new technology incompatibility, the degradation of network performance under the strain of too many mobile consumers using the network, a general failure from natural disaster or a political or regulatory shut-down. Individuals and groups who develop and deploy viruses, worms and other malicious software programs could also attack mobile networks and the devices that run on those networks. If a network upon which we rely should fail for any reason, we would not be able to effectively provide our services to our customers using that network. This in turn could hurt our reputation and cause us to lose significant revenue.
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. 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 to deliver our 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.
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 selective acquisitions of 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 currently and will continue to 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;

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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, business growth opportunities, cost savings and other benefits we anticipate;
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; and
unforeseen integration difficulties that may cause service disruptions.
We may not realize the expected benefit of the MACH acquisition because of integration difficulties and other challenges.
In June 2013, we completed our acquisition of MACH. 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 is 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;
our inability to achieve operating synergies anticipated in the acquisition;
unanticipated issues in integrating technology platforms, logistics, information, communications and other systems;
resolving inconsistencies in standards, controls, and compensation structures between MACH’s procedures and policies and our own;
failure to retain key customers and third-party vendors;
diversion of management attention from ongoing business concerns;
unanticipated changes in applicable laws and regulations;
failure to retain key employees;
loss of key customers as we transition existing customers among our retained platforms;
operating risks in the acquired business and our business; and
unanticipated issues, expenses and liabilities.
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 success of the MACH acquisition will depend, among other things, on successfully maintaining or improving relationship’s with MACH’s pre-existing customers.
MACH’s revenue was concentrated in a small number of customers who do not have long-term purchase orders or contracts that contain minimum purchase commitments. In addition, in connection with obtaining certain government and regulatory approvals for the MACH acquisition, we agreed to discontinue using certain of MACH’s platforms within 24 months of the closing date and discontinue use of the MACH brand within 12 months. Currently we have not yet discontinued using such platforms or transitioned customers to our retained platforms. Our customers may react negatively to our combined business and reduce or cease doing business with the combined company in favor of our competitors or take business in-house. The failure to maintain important customer relationships could have a material adverse effect on our business, financial condition or results of operations.
If we do not adapt to rapid technological change in the industries we serve, we could lose customers or market share.
Our industry is characterized by rapid technological change and changing customer demands. Our success depends 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. Significant technological changes have in the past, and are likely to continue to in the future, make certain of our technology and services obsolete. In addition, technological changes may result in a shift in end-user preferences or a decline in reliance on the mobile ecosystem, including, but not limited to, further advances in web-based personal communication. 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

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or maintain our financial performance. Our future revenues and profits will depend, in part, on our ability to sell to new market participants.
Our new products and services, such as our data analytics and business intelligence solutions, may not be widely adopted by our current or targeted customers.
In order to continue to meet the rapidly evolving needs of our customers and their end-users, we must continue to develop new products and services that are responsive to those needs. In particular, we have recently begun to expand our offerings of data analytics and business intelligence solutions to our customers. Our ability to realize the benefits of these and other new services depends, in part, on the adoption and utilization of such services and solutions by our customers, and we cannot be certain that existing or targeted customers will adopt such offerings in the near term or at all. If we are not successful in our efforts to develop and monetize new products and services, including data analytics and business intelligence solutions, our prospects, financial condition and results of operation would be materially adversely affected.
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 years ended December 31, 2013 and 2012 represented approximately 55% and 60% of our reported revenues in the aggregate, respectively. We expect to continue to depend upon a small number of customers for a significant percentage of our revenues going forward. 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.
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 in certain circumstances, 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 at the time of contract renewal or cause our customers to otherwise request pricing reductions or other concessions. 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.
Future consolidation among, or network build-outs by, 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 at times 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. In addition, our customers have, in the past, and may in the future, build-out their networks which could result in decreased transaction volumes as their home network expands.
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.
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.

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The market for our services is intensely competitive, including from our customers as they look to develop in-house alternatives to our products and services.
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 and results of operations. We face competition from large, well-funded providers of similar services, including 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 one or more of the services we offer. In addition, we believe that certain of our customers may choose to internally develop and 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 or by directly connecting with others in the mobile ecosystem.
We expect that competition for our services will remain intense in the near term and that our primary long-term competitors may not yet have entered the market. Certain of our current and potential competitors, including our customers, have significant financial, technical, marketing and other resources. Our competitors may be able to respond more quickly to new or emerging technologies and changes in end-user requirements than we can.
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. These 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., including in order to comply with local currency laws;
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;
reputational harm or other adverse consequences due to our operations in jurisdictions subject to the Office of Foreign Assets Control laws and regulations. See “We currently conduct limited business operations and expect to continue such operations in countries targeted by United States and European Union (“E.U.”) economic sanctions”;
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.
For the year ended December 31, 2013, 35.8% of our total revenue was generated outside of the United States as compared to 30.4% for the year ended December 31, 2012. 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.
Political instability in certain countries in which we operate could have an adverse impact on our business and operations.
We operate in over 200 countries and territories across the globe, including in countries and regions subject to political unrest and instability. Internal unrest, acts of violence or strained relations between a foreign government and the U.S. or our company may adversely affect our operations. Such instability must be carefully considered by management when evaluating

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the level of current and future activity in such countries. These risks are beyond our control and could have a material adverse effect on our business.
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 currently conduct limited business operations and expect to continue such operations in countries targeted by United States and European Union economic sanctions
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) enforces certain laws and regulations (“OFAC Sanctions”) that impose restrictions upon U.S. nationals, U.S. permanent residents, persons located in the U.S., or entities organized under the laws of a U.S. jurisdiction (collectively, “U.S. Persons”), upon business conducted in whole or in part in the U.S., and, in some instances, upon foreign entities owned or controlled by U.S. Persons, with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of OFAC Sanctions (“U.S. Sanctions Targets”). U.S. Persons are also prohibited from facilitating such activities or transactions conducted by others. Similarly, the E.U. and its member nations enforce certain laws and regulations (“E.U. Sanctions”) that impose restrictions upon nationals of E.U. member states, persons located within E.U. member states, entities incorporated or constituted under the law of an E.U. member state, or business conducted in whole or in part in E.U. member states with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of E.U. Sanctions (“E.U. Sanctions Targets” and together with U.S. Sanctions Targets, “Sanctions Targets”). E.U. persons are also generally prohibited from activities that promote such activities or transactions conducted by others. Additionally, U.S. law authorizes the imposition of various disabilities (“U.S. Secondary Sanctions”) on non‑U.S. companies that engage in certain specified types of business involving Iran or Cuba. We engage in limited business activities in countries that are Sanctions Targets, including Iran, Syria, Sudan and Cuba. Our activities and investments in Iran, Syria, Sudan and Cuba in the aggregate accounted for approximately 0.093% of our consolidated revenues during the year ended December 31, 2013. We expect to continue to engage in these limited business activities in countries that are deemed Sanctions Targets over the foreseeable future. Although we believe that OFAC and E.U. Sanctions under their current terms do not prohibit our current activities, and that our current activities will not cause us to be subject to potential U.S. Secondary Sanctions under current U.S. law, our reputation may be adversely affected and investors may divest their investments in us as a result of internal investment policies or may decide for reputational reasons to divest such investments. In addition, the sanctions laws and regulations could be changed in ways that would require us to discontinue or limit our current activities involving Iran, Syria, Sudan or Cuba, or involving other countries, individuals or entities that are not currently designated as Sanctions Targets. We cannot assure you that the foregoing will not occur or that such occurrence will not have a material adverse effect on the value of our securities.

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We conduct business in international markets with complex and evolving tax rules, which subjects us to international tax compliance risks.
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.
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 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.
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 exist globally, or in one or more regions, due to a number of factors, including, but not limited 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. Changes in end-user 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.
Security breaches could damage our reputation, harm our operating results and result in significant liabilities.
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 end-user data. We believe 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, terrorism, and other cyber

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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, are increasingly sophisticated and generally are not recognized until launched against a target. We may be required to expend significant capital and other resources to protect against, remedy 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.
Because some of our solutions are used to collect and store personal information of our customers’ employees or customers, privacy concerns could result in additional costs and liability to us or inhibit sales of our solutions.
Personal privacy has become a significant issue in the United States and in other countries where we offer our solutions. The regulatory framework for privacy issues worldwide is currently complex and evolving, and we believe it is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information. In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission and state breach notification laws. Internationally, many of the jurisdictions in which we operate have established their own data security and privacy legal framework with which we or our customers must comply, including the Data Protection Directive established in the E.U., and the Federal Data Protection Act recently passed in Germany.
Our services require that we electronically receive, process, store and transmit business information of our customers, which includes certain sensitive consumer and end-user data. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and harm our business.
Our failure to generate the capital necessary to expand our operations and invest in new solutions could reduce our ability to compete and could harm our business.
We may need to raise additional funds in the future from debt or equity financing. 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 agreements governing our indebtedness contain financial and other restrictive covenants that limit our ability to incur indebtedness or obtain financing. See Note 11 to our audited consolidated financial statements for additional information regarding our debt and credit facilities. If adequate funds are not available on acceptable terms, or at all, 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.
If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to:
adequately fund our operations;
enhance and expand the range of services we offer;
maintain and expand our network;
respond to competitive pressures and potential strategic opportunities, such as investments, acquisitions and international expansion;
acquire or invest in complementary businesses, solutions or technologies;
hire, train and retain key employees; or
respond to unanticipated capital requirements.
Our failure to do any of these things could adversely affect our business, financial condition and operating results.
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 heavily regulated in the past, we are authorized by the United States Federal Communications Commission (“FCC”) to offer certain of our services on an interstate and international basis; we operate our number portability operations in Singapore and India pursuant to licenses granted by these governments and we are registered

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as a money service business in the United Kingdom in connection with our financial clearing business. Each of these authorizations subject us to certain regulatory obligations.
In addition, the majority of our customers are MNOs and subject to significant government regulation by various regulatory bodies, such as the FCC and European Commission. The European Commission has proposed regulations which would cap the price that carriers could charge one another for roaming minutes, which would lower the roaming revenues of our customers and could put downward pricing pressure on our data clearing service. Any change in current or future laws or regulations that negatively impact our customers could harm our business and results of operations. 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, or deregulation, might occur or the effects, adverse or otherwise, that such regulation may have on our business.
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 executive management team and other key employees that have acquired specialized knowledge and skills with respect to our business and operations. 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. Competition for key technical personnel in high-technology industries such as ours is intense. The loss of the services of any of our executive management team or other key employees or failure to attract, integrate, train, retain and motivate additional key employees could harm our business.
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:

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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
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.
Fluctuations in currency exchange rates may adversely affect our results of operations.
A significant part of our business consists of sales made to customers outside the United States. During the year ended December 31, 2013, approximately 19% 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 inter-company balances eliminated in consolidation, which can be adversely affected by fluctuations in currency exchange rates. Currently, we do not engage in currency hedging contracts.
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 identifiable intangible assets, including capitalized software, net of amortization, together accounted for approximately 80% of the total assets on our balance sheet as of December 31, 2013. 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.
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 that future litigation could arise, or developments could occur in existing litigation, that could have material adverse effects on us. See “Business-Litigation.”

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We may be unsuccessful in achieving our organic growth strategies, which could limit our revenue growth.
Our ability to generate organic growth will be affected by, among other factors, our ability to:
expand the range of services we offer to customers to address their evolving network needs;
attract new customers;
increase the number of services performed for existing customers; and
achieve expected revenue from new customer contracts.
Many of the factors affecting our ability to generate organic growth may be beyond our control, and we cannot be certain that our strategies for achieving internal growth will occur or be successful.
Risks Relating to Our Indebtedness
We have substantial indebtedness and may incur substantial additional indebtedness, which could adversely affect our financial health, reduce our profitability, limit our ability to obtain additional financing 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 reduce the value of your investment.
We have a significant amount of indebtedness. At December 31, 2013, we had $2,051.2 million of indebtedness, net of original issue discount on a consolidated basis. In addition, we had $148.1 million of unused commitments under the Revolving Credit Facility (defined below), including an outstanding Euro letter of credit of $1.9 million at December 31, 2013, which is considered a reduction against the Revolving Credit Facility under the agreement.
Our substantial indebtedness could have important consequences to our investors, including, but not limited to:
requiring 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 working capital, capital expenditures, acquisitions, research and development efforts and other purposes;
increasing our vulnerability to and limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
restricting us from making strategic acquisitions or causing us to make non‑strategic divestitures;
exposing us to the risk of increased interest rates, as borrowings under the New Senior Credit Facility (defined below) are subject to variable rates of interest;
exposing us to additional risks related to currency exchange rates and repatriation of funds;
placing us at a competitive disadvantage compared to our competitors that have less debt, including during times of adverse economic and industry conditions;
limiting 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; and
limiting our ability to refinance outstanding indebtedness on commercially reasonable terms, or at all.
Despite our current indebtedness levels, we and our subsidiaries may incur significant additional indebtedness in the future. This could further exacerbate the risks associated with our substantial financial leverage.
Although the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness, including obligations under lease arrangements that are currently recorded as operating leases even if operating leases were to be treated as debt under GAAP. In addition, as of December 31, 2013, we had $148.1 million of unused commitments under the Revolving Credit Facility. If new debt is added to our current debt levels, the related risks that we now face could intensify. See Note 11 to our audited consolidated financial statements for a discussion of the covenants contained in the Senior Notes and New Senior Credit Facility.

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Restrictive covenants in the agreements governing our indebtedness contain restrictions and limitations that could impact our ability to pursue our business strategies.
The indenture governing the Senior Notes and the credit agreement governing the New Senior Credit 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 and the credit agreement governing the New Senior Credit 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.
Our failure to comply with these covenants and restrictions could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness. Following an event of default, the lenders under the Revolving Credit Facility will also have the right to terminate any commitments they have to provide further borrowings. If we are unable to repay outstanding borrowings when due, the lenders under the New Senior Credit Facility will also have the right to proceed against the collateral that secures those borrowings. If the indebtedness under our New Senior Credit Facility and the Senior Notes were to be accelerated, it could cause us to become bankrupt or insolvent.
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 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, many of which are beyond our control.
Our business may not generate sufficient cash flow from operations and future borrowings may not be available under the Revolving Credit Facility in an amount sufficient to enable us to pay our indebtedness when due or to fund our other liquidity needs. In such circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness, including the New Senior Credit 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 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 and limitations in the instruments governing our indebtedness, 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. If we are unable to repay indebtedness, lenders having secured obligations, such as the lenders under the New Senior Credit Facility, could proceed against the collateral securing the secured obligations. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent.
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.

30


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 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, 2013, the aggregate amount of our secured indebtedness, net of original issue discount was approximately $1,576.2 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, 2013, which is considered a reduction against our revolving credit facility under the credit agreement. We are permitted to incur substantial additional indebtedness, including secured debt, in the future under the terms of the indenture governing the Senior Notes.
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. Our non-guarantor subsidiaries held approximately $833.8 million, or 22.7%, of our total assets and $111.9 million, or 4.5%, of our total liabilities as of December 31, 2013 and accounted for approximately $180.0 million, or 21.0%, of our revenues for the year ended December 31, 2013 (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 or the New Senior Credit 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

31


instruments governing our indebtedness, including the indenture governing the Senior Notes, the credit agreement governing our New Senior Credit 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.
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.

32


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 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. In addition, a change of control may constitute an event of default under our New Senior Credit Facility. A default under our New Senior Credit Facility would result in an event of default under the indenture if the lenders accelerate the debt under our New Senior Credit Facility.
If a change of control occurs, we may not have enough assets to satisfy all obligations under our New Senior Credit 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 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

33


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.

ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.

ITEM 2.    PROPERTIES
Our corporate headquarters are 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

34



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 occupy 29,573 square feet of office space in Campbell, California, which supports our messaging technology and operations functions. In November 2013, we entered into a ten-year lease for 17,793 square feet of office space in Tampa, Florida. This facility will primarily support administrative and operations functions. We intend to occupy this space beginning in the second quarter of 2014.
We lease several offices for our Asia Pacific operations including 14,404 square feet in Hong Kong, China, 9,370 square feet in Nanjing, China and two facilities totaling 67,435 square feet in Bangalore, India. We intend to exit the two existing leases in Bangalore and consolidate those facilities into one space to integrate our recent acquisition of MACH and support growth. In January 2014, we entered into a lease for an 80,784 square foot facility. The Bangalore, India facilities primarily support our technology and operations functions.
In Europe, we have leases for office space as follows: 30,989 square feet in Contern, Luxembourg, two facilities comprising 23,742 square feet in Russelsheim, Germany and two facilities comprising 12,198 square feet in London, England. These facilities support technology, operations, administrative and customer service functions.
In addition to three sales offices in the Caribbean and Latin America region, we lease 28,966 square feet in San Jose, Costa Rica, which serves as a customer service center supporting our global operations.
In addition, we have a secure physical network infrastructure, consisting of 31 data centers and 19 network access points 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.

35


PART II
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
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
Future determination as to the payment of cash or stock dividends on our common stock to our only stockholder, Buccaneer Holdings, Inc., 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 11 “Debt and Credit Facilities,” and Note 13 “Stock-Based Compensation,” to the audited consolidated financial statements included herein.
Equity Compensation Plan Information
As of December 31, 2013, 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, Buccaneer Holdings, Inc., are authorized for issuance.
Recent Sales of Unregistered Securities
Not applicable.
Issuer Purchases of Equity Securities
The Company 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, 2013, 2012, 2011, 2010, and 2009 and the selected historical consolidated statements of operations data for the years ended December 31, 2013 and 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 and 2009, 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 audited consolidated financial statements and related notes included elsewhere herein.

On January 13, 2011, Syniverse Holdings was merged with and into a wholly-owned subsidiary of Buccaneer Holdings, Inc. pursuant a merger agreement, dated as of October 28, 2010. As a result of the Merger, Syniverse Holdings became a wholly-owned subsidiary of Buccaneer Holdings, Inc. The Merger was accounted for using the acquisition method of accounting in accordance with the accounting guidance for business combinations. Accordingly, the purchase price of the Merger was allocated to the acquired assets and liabilities based upon their estimated fair values at the acquisition date. The Predecessor periods reflect the financial position, results of operations, and changes in financial position of Syniverse Holdings prior to the Merger and the Successor periods reflect the financial position, results of operations, and changes in financial position of the Company after the Merger.


36


 
Successor 
 
 
Predecessor 
 
 
 
 
 
Period from
 
 
Period from
 
 
 
 
 
Year Ended
 
Year Ended
 
January 13 to
 
 
January  1 to
 
Year Ended
 
Year Ended
 
December 31,
 
December 31,
 
December 31,
 
 
January 12,
 
December 31,
 
December 31,
(in thousands)
2013
 
2012
 
2011
 
 
2011
 
2010
 
2009
Statement of Operations Data (1):
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
858,961

 
$
743,874

 
$
745,978

 
 
$
22,014

 
$
650,199

 
$
482,991

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of operations (excluding depreciation and amortization shown separately below)
320,796

 
275,301

 
259,549

 
 
9,274

 
245,673

 
172,950

Sales and marketing
74,995

 
68,549

 
63,708

 
 
2,376

 
58,929

 
38,789

General and administrative
129,354

 
103,311

 
100,993

 
 
3,664

 
93,855

 
74,502

Depreciation and amortization (2)
216,198

 
177,320

 
196,161

 
 
2,720

 
75,869

 
60,397

Restructuring and employee termination benefits (3)
6,422

 
2,361

 
6,207

 
 

 
1,962

 
2,583

Acquisition and Merger expenses (4)(5)
21,632

 
14,684

 
40,549

 
 
47,203

 
4,313

 

 
769,397

 
641,526

 
667,167

 
 
65,237

 
480,601

 
349,221

Operating income (loss)
89,564

 
102,348

 
78,811

 
 
(43,223
)
 
169,598

 
133,770

Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
686

 
790

 
583

 
 

 
99

 
323

Interest expense
(125,656
)
 
(108,704
)
 
(112,996
)
 
 
(859
)
 
(27,137
)
 
(28,890
)
Debt extinguishment costs
(2,802
)
 
(6,458
)
 

 
 

 

 

Equity income in investee
422

 

 

 
 

 

 

Other, net
(6,837
)
 
3,940

 
(2,993
)
 
 
(349
)
 
2,787

 
939

 
(134,187
)
 
(110,432
)
 
(115,406
)
 
 
(1,208
)
 
(24,251
)
 
(27,628
)
(Loss) income before provision for (benefit from) income taxes
(44,623
)
 
(8,084
)
 
(36,595
)
 
 
(44,431
)
 
145,347

 
106,142

(Benefit from) provision for income taxes
(4,328
)
 
(7,889
)
 
(16,926
)
 
 
(13,664
)
 
52,728

 
40,465

Net (loss) income from continuing operations
(40,295
)
 
(195
)
 
(19,669
)
 
 
(30,767
)
 
92,619

 
65,677

Loss from discontinued operations, net of tax
(5,092
)
 

 

 
 

 

 

Net (loss) income
(45,387
)
 
(195
)
 
(19,669
)
 
 
(30,767
)
 
92,619

 
65,677

Net income (loss) attributable to noncontrolling interest
1,144

 
3,046

 
1,803

 
 
(3
)
 
(1,573
)
 
(590
)
Net (loss) income attributable to Syniverse Holdings, Inc.
$
(46,531
)
 
$
(3,241
)
 
$
(21,472
)
 
 
$
(30,764
)
 
$
94,192

 
$
66,267

Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
3,669,018

 
2,959,039

 
3,030,742

 
 
 
 
1,420,826

 
1,309,724

Total debt and capital leases
2,058,228

 
1,413,481

 
1,479,373

 
 
 
 
499,581

 
512,464


 _____________________
 
(1)
Results include the following acquisitions in the respective periods subsequent to the acquisition date: MACH acquisition completed in June 2013, the Merger in January 2011 and the VeriSign (“VM3”) acquisition completed in October 2009.
(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 employee termination benefits is comprised primarily of severance benefits associated with our cost rationalization initiatives, which were implemented as follows:
In December 2013, as part of our continued integration of MACH into our operations, we implemented a restructuring plan to eliminate redundant positions. As a result of this plan, we incurred severance related costs of $1.5 million.
In September 2013, we implemented a restructuring plan primarily to eliminate redundant positions as part of the MACH integration. As a result of this plan, we incurred severance related costs of $1.3 million.
In June 2013, we implemented a restructuring plan primarily to allocate proper resources to key positions within the company. As a result of this plan, we incurred severance related costs of $2.3 million.



In March 2013, we implemented a restructuring plan primarily to realign certain senior management functions. As a result of this plan, we incurred severance related costs of $0.9 million.
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 $1.9 million.
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 $3.5 million in 2011 and an additional $0.6 million in 2012 for supplemental charges, of which $0.4 million was due to contract termination charges related to the exit of a leased facility and $0.2 million 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 retired from the Company. In conjunction with his retirement, we incurred employee termination benefits of $1.1 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 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.
(4)
The years ended December 31, 2013 and 2012 reflect costs associated with the acquisition of MACH and include professional services costs, such as legal, tax, audit and transaction advisory costs.
(5)
The period from January 13 to December 31, 2011 and the period from January 1 to January 12, 2011 reflects costs associated with the Merger and related financing transactions, such as legal, advisory and investment banker fees and accelerated stock-based compensation expense.






ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. It should be read in conjunction with “Selected Financial Data,” and our audited consolidated financial statements and related notes beginning on page 86 of this Annual Report on form 10-K. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Risk Factors” and elsewhere in this Annual Report on form 10-K. See “Special Note Regarding Forward-Looking Statements.”
The following discussion and analysis of our financial condition and results of operations covers periods before and after the Merger and the related financing transactions. Accordingly, the discussion and analysis of periods prior to January 13, 2011 do not reflect the significant impact that the Merger and the related financing transactions have had on us, including increased levels of indebtedness and the impact of purchase accounting. See “Business Developments-Carlyle Merger” below and Note 4 to our audited consolidated financial statements for additional details regarding the Merger and the related financing transactions. However, the general nature of our operations was not impacted by the Merger and related financing transactions. As such, for comparative purposes we discuss below 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 Merger and the related financing transactions will be discussed where applicable. The results of operations presented for the combined Predecessor and Successor periods do not comply with accounting principles generally accepted in the United States (“U.S. GAAP”), are unaudited and do not purport either to represent actual historical results or to be indicative of results we might achieve in future periods. It does not include the pro forma effects of the Merger and the related financing transactions as if they had occurred on January 1, 2011.
Business
    
We are the leading global provider of transaction processing and intelligence solutions enabling seamless mobile communication, regardless of network, device or application, across the mobile ecosystem. We believe our global and operational scale is unmatched in our industry. Our market-leading proprietary technology applications and network reach enable the secure, real-time processing of nearly 3 billion billable transactions daily and the settlement of approximately $17 billion annually between our customers in over 200 countries and territories. These transactions allow for a complex set of information exchanges, authorization of end-users, facilitation of traffic, and clearing of transactions and settlement of payments between participants in the mobile ecosystem. We process a large and unique portfolio of real-time data that we analyze to deliver a wide range of intelligence solutions to our customers. Our mission-critical solutions connect the fragmented, expanding and rapidly evolving mobile industry and enable the seamless experience that end-users demand as they increasingly conduct their daily activities over smartphones, tablets and other connected devices. We serve a diverse and growing customer base, including over 1,000 mobile network operators (“MNOs”), and over 500 over-the-top providers (“OTTs”) and enterprises. With over 25 years of experience as a trusted partner and a history of on-going innovation, we believe we continue to be well positioned to solve technical, operational and financial complexities encountered by our customers operating in the mobile ecosystem.

Today’s mobile experience requires seamless and ubiquitous connectivity and a complex set of information exchanges between MNOs, OTTs, and enterprises across geographies, technologies, applications and devices. The failure of any of these elements can disrupt service, resulting in frustrated end-users, erosion of our customers’ brands and loss of revenue by our customers.

As a trusted intermediary with global scale, Syniverse provides approximately 60 mission-critical products and 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, operating with 99.999% reliability. Our comprehensive suite of Mobile Transaction Services and Enterprise & Intelligence Solutions provide the services listed below.

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

Process, clear 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.

39


Manage the routing and delivery of SMS, MMS and next generation messaging.
Provide data transport services over our global IP data network regardless of technology protocol.
Provide business intelligence and real-time policy management applications to optimize performance and enhance the end-user experience.
Enterprise & Intelligence Solutions: Solutions that bridge OTTs and enterprises with MNOs, incorporating our real-time intelligence capabilities to enable all of our customers to serve their end-users. Through Enterprise & Intelligence Solutions, we:
Bridge OTTs to the mobile ecosystem allowing OTT end-users to interact with traditional mobile messaging.
Connect enterprises to the mobile ecosystem for enhanced customer and employee engagement.
Enable enterprises to rapidly execute and optimize their mobile initiatives.
Provide data analytics and business intelligence designed to enhance and secure the end-user experience for our enterprise and OTT customers.
Provide solutions to enable MNOs to proactively resolve challenges across their networks and service delivery environments.
 
Executive Overview
 
Financial Highlights
    
Revenues increased $115.1 million, or 15.5%, to $859.0 million for the year ended December 31, 2013, from $743.9 million for the same period in 2012. Mobile Transaction Services revenue increased $85.9 million, or 13.0%, to $748.9 million for the year ended December 31, 2013, from $663.0 million for the same period in 2012. Enterprise & Intelligence Solutions revenue increased $29.2 million, or 36.1%, to $110.1 million for the year ended December 31, 2013, from $80.9 million for the same period in 2012. The Acquisition contributed $74.1 million to the increase in revenues for the year ended December 31, 2013. Operating income decreased $12.8 million to $89.6 million for the year ended December 31, 2013 from $102.3 million for the same period in 2012. Net loss from continuing operations decreased $40.1 million to $40.3 million for the year ended December 31, 2013 from $0.2 million for the same period in 2012. Operating income and net loss from continuing operations for the year ended December 31, 2013 include an increase in Restructuring and employee termination benefits and Acquisition and Merger costs and expenses of $4.1 million and $6.9 million, respectively. Adjusted EBITDA increased $44.7 million, or 14.3%, to $358.2 million for the year ended December 31, 2013 from $313.5 million for the same period in 2012. See “Non-GAAP Financial Measures” below for a reconciliation of Adjusted EBITDA to Net loss from continuing operations.

Business Developments

Refinancing of Initial Term Loans
On September 23, 2013, Syniverse Holdings entered into a second amendment (the “Second Amendment”) to the Credit Agreement. Under the Second Amendment, the rate at which the initial term loans (the “Initial Term Loans”) under the Credit Agreement bear interest was amended to reduce (i) the margin for Eurodollar rate loans from 3.75% to 3.00%, (ii) the margin for base rate loans from 2.75% to 2.00%, (iii) the Eurodollar rate floor from 1.25% to 1.00% and (iv) the base rate floor from 2.25% to 2.00%. Syniverse Holdings recorded $2.8 million of debt extinguishment costs and $1.7 million of debt modification costs associated with the refinancing. See Note 11 to our audited consolidated financial statements for additional information regarding the Second Amendment.
Principal Prepayment on Term Facilities
On September 23, 2013, prior to the refinancing of the Initial Term Loans, Syniverse Holdings made a prepayment of $50.0 million on the Term Loan Facilities, of which $28.7 million was applied to the Initial Term Loans and $21.3 million was applied to the million Tranche B Term Loans. In relation to the prepayment, we accelerated the amortization of $0.4 million of original issue discount and $0.6 million of deferred financing costs. See Note 11 to our audited consolidated financial statements for additional information regarding the prepayment of the Term Loan Facilities.

40


MACH Acquisition
On the Acquisition Date, we completed our acquisition of WP Roaming, for a total purchase price of approximately $712.0 million. As part of the transaction, we acquired from the Seller, all the shares and preferred equity certificates (whether convertible or not) in WP Roaming. The purchase price was funded through a portion of the net proceeds from a new $700.0 million senior secured credit facility and the Deposit of €30.0 million.
WP Roaming is a holding company which conducted the business of MACH. The Acquisition added to our global customer base and geographic scale due to MACH’s strong presence in the EMEA and Asia Pacific regions. In addition, the Acquisition enhanced our product portfolios, allowing us to leverage complementary technology platforms and increase our reach with more direct connections to support Mobile Transaction Services and Enterprise & Intelligence Solutions that enable our acquired and existing customers to deliver superior experiences to their end-users.
At the closing of the Acquisition, we paid to the Seller an amount equal to approximately €140.0 million. In addition, on the Acquisition Date, Syniverse Holdings, on behalf of WP Roaming, paid €313.0 million and $81.5 million, respectively, for amounts outstanding to WP Roaming's third-party lenders. On July 2, 2012, we paid the Seller the Deposit of €30.0 million which was applied to the purchase price at the Acquisition Date. For purposes of the purchase price allocation, the Deposit and amounts paid in Euros at the Acquisition Date were converted to U.S. dollars using an exchange rate of 1.3058.
See Note 5 to our audited consolidated financial statements for additional information regarding the Acquisition.
Assets and Liabilities Related to Assets Held for Sale
The approval of the Acquisition granted by the European Commission was conditioned upon the Company’s commitment to divest the Divestment Business. On October 1, 2013, Syniverse completed the sale of the Divestment Business for €9.9 million, subject to purchase price adjustments to be completed in the first half of 2014. During the year ended December 31, 2013, Syniverse remeasured the related net assets held for sale at fair value, less cost to sell and recorded a loss of approximately $2.8 million, which is included in Loss from discontinued operations, net of tax.
See Note 6 to our audited consolidated financial statements for additional information regarding assets classified as held for sale.
Tranche B Term Loans
On June 28, 2013, we received net proceeds of $696.5 million under the Tranche B Term Loans, the proceeds of which were used to refinance the Escrow Term Loans in full. Borrowings under the Tranche B Term Loans bear interest at a floating rate which can be, at our option, either (i) a Eurodollar base rate for a specified interest period plus 3.00% or, (ii) an alternative base rate plus 2.00%, subject to a Eurodollar rate floor of 1.00% or a base rate floor of 2.00%, as applicable. Commencing on September 30, 2016, our Tranche B Term Loans will begin amortizing in quarterly installments in an amount equal to 0.25% per quarter of the original principal amount thereof, with the remaining balance due at final maturity. See Note 11 to our audited consolidated financial statements for additional details regarding the Tranche B Term Loans.
Verizon Wireless Renewal
In September 2011, contracts with Verizon Wireless, our largest customer, expired, although service continued to be provided under the terms of the agreement pending the renewal. Verizon Wireless uses a broad range of our products and 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.
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 (as defined in Note 11 to our audited consolidated financial statements) of $1,025.0 million, the Senior Notes and a cash equity contribution of $1,200.0 million from an affiliate of Carlyle. See Note 4 to our audited consolidated financial statements for additional discussion of the Merger and related financing transactions.

41


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 and solutions we offer to our customers are provided through applications, connectivity and technology platforms owned and operated by us.
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 83% of our revenues were generated by transaction-based fees in 2013. 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, restructuring and employee termination benefits expenses and Acquisition 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 Signaling System 7 (“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 employee termination benefits represents termination costs including severance, benefits and other employee related costs as well as contract termination costs.
Acquisition and Merger expenses include professional services costs, such as legal, tax, audit and transaction advisory costs related to the Acquisition on June 28, 2013 and the Merger on January 13, 2011.
Operating 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.

42


Results of Operations

Comparison of results of continuing operations for the year ended December 31, 2013 with the year ended December 31, 2012
 
Year ended December 31,
 
 
 
Year ended December 31,
 
 
 
2013 compared to 2012
 
 
% of
 
 
% of
 
(in thousands)
2013
 
Revenues
 
2012
 
Revenues
 
$ change
 
% change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Mobile Transaction Services
$
748,907

 
87.2
 %
 
$
663,011

 
89.1
 %
 
$
85,896

 
13.0
 %
Enterprise & Intelligence Solutions
110,054

 
12.8
 %
 
80,863

 
10.9
 %
 
29,191

 
36.1
 %
Revenues
858,961

 
100.0
 %
 
743,874

 
100.0
 %
 
115,087

 
15.5
 %
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of operations (excluding depreciation and amortization shown separately below)
320,796

 
37.3
 %
 
275,301

 
37.0
 %
 
45,495

 
16.5
 %
Sales and marketing
74,995

 
8.7
 %
 
68,549

 
9.2
 %
 
6,446

 
9.4
 %
General and administrative
129,354

 
15.1
 %
 
103,311

 
13.9
 %
 
26,043

 
25.2
 %
Depreciation and amortization
216,198

 
25.2
 %
 
177,320

 
23.8
 %
 
38,878

 
21.9
 %
Restructuring and employee termination benefits
6,422

 
0.7
 %
 
2,361

 
0.3
 %
 
4,061

 
172.0
 %
Acquisition and Merger expenses
21,632

 
2.5
 %
 
14,684

 
2.0
 %
 
6,948

 
47.3
 %
 
769,397

 
89.6
 %
 
641,526

 
86.2
 %
 
127,871

 
19.9
 %
Operating income
89,564

 
10.4
 %
 
102,348

 
13.8
 %
 
(12,784
)
 
(12.5
)%
Other income (expense), net:
 
 
 
 
 
 
 
 
 
 
 
Interest income
686

 
0.1
 %
 
790

 
0.1
 %
 
(104
)
 
(13.2
)%
Interest expense
(125,656
)
 
(14.6
)%
 
(108,704
)
 
(14.6
)%
 
(16,952
)
 
15.6
 %
Debt extinguishment costs
(2,802
)
 
(0.3
)%
 
(6,458
)
 
(0.9
)%
 
3,656

 
(56.6
)%
Equity income in investee
422

 
 %
 

 
0.0
 %
 
422

 
100.0
 %
Other, net
(6,837
)
 
(0.8
)%
 
3,940

 
0.5
 %
 
(10,777
)
 
(273.5
)%
 
(134,187
)
 
(15.6
)%
 
(110,432
)
 
(14.8
)%
 
(23,755
)
 
21.5
 %
Loss before benefit from income taxes
(44,623
)
 
(5.2
)%
 
(8,084
)
 
(1.1
)%
 
(36,539
)
 
452.0
 %
Benefit from income taxes
(4,328
)
 
(0.5
)%
 
(7,889
)
 
(1.1
)%
 
3,561

 
(45.1
)%
Net loss from continuing operations
$
(40,295
)
 
(4.7
)%
 
$
(195
)
 
0.0
 %
 
$
(40,100
)
 
20,564.1
 %
    
Revenues

Revenues increased $115.1 million, or 15.5%, to $859.0 million for the year ended December 31, 2013 from $743.9 million for the same period in 2012. The increase in revenue was primarily driven by revenues of $74.1 million from the Acquisition in addition to revenues of $41.0 million from new contract wins and continued volume growth across our data processing platforms, global IP network and enterprise connectivity services.

Revenue from Mobile Transaction Services increased $85.9 million, or 13.0%, to $748.9 million for the year ended December 31, 2013 from $663.0 million for the same period in 2012. The increase in revenue was primarily driven by revenues of $59.4 million from the Acquisition in addition to organic revenue growth of $26.5 million, or 4.0%, from new contract wins and continued volume growth across our data processing platforms and our global IP data network, as well as the introduction of a new product which helps MNOs to detect, remediate and prevent fraudulent messaging activities. While we experienced volume growth in our data processing services, this growth was partially offset by the impact of lower pricing for customer contract renewals completed in the year ended December 31, 2012, primarily the Verizon Wireless contract renewal in May 2012. Our revenue growth was also offset by volume declines from our messaging services resulting from increased use of OTT and other alternative messaging platforms and from number portability services in India declining to a rate more consistent with historical trends in other developing markets.

43



Revenue from Enterprise & Intelligence Solutions increased $29.2 million, or 36.1%, to $110.1 million for the year ended December 31, 2013 from $80.9 million for the same period in 2012. The increase in revenue was driven by organic growth of $14.5 million, or 17.9% from new contract wins and volume growth in our enterprise connectivity services and Real-Time Intelligence solutions 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. In addition, the Acquisition contributed $14.7 million of enterprise connectivity services revenue.

Costs and Expenses

Cost of operations increased $45.5 million to $320.8 million for the year ended December 31, 2013 from $275.3 million for the same period in 2012. The table below summarizes our cost of operations by category:

 
Year ended December 31,
 
2013 compared to 2012
(in thousands)
2013
 
2012
 
$ change
 
% change
Cost of operations:
 
 
 
 
 
 
 
Headcount and related costs
$
98,904

 
$
91,347

 
$
7,557

 
8.3
%
Variable costs
82,825

 
57,447

 
25,378

 
44.2
%
Data processing, hosting and support costs
82,415

 
77,431

 
4,984

 
6.4
%
Network costs
44,051

 
37,674

 
6,377

 
16.9
%
Other operating related costs
12,601

 
11,402

 
1,199

 
10.5
%
Cost of operations
$
320,796

 
$
275,301

 
$
45,495

 
16.5
%

The increase in headcount and related costs was driven primarily by additional headcount resulting from the Acquisition. Variable costs increased during the year ended December 31, 2013 primarily due to higher volumes in our enterprise connectivity services resulting from organic growth as well as additional volumes contributed by the Acquisition. As a result, variable costs as a percentage of operating costs, which management defines as cost of operations, sales and marketing and general and administrative expenses, were 15.8% for the year ended December 31, 2013 compared to 12.8% for the same period in 2012. 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 processing costs associated with higher transaction volumes. 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. The increase in other operating related costs was driven primarily by the Acquisition.

As a percentage of revenues, cost of operations increased to 37.3% for the year ended December 31, 2013 from 37.0% during the same period in 2012. The increase in cost of operations as a percentage of revenue was driven primarily by the data center and network expansion to support future growth as discussed above. On a pro forma basis, assuming the Acquisition had taken place on January 1, 2012, cost of operations would have been 37.4% and 36.2% of revenues for the years ended December 31, 2013 and 2012, respectively.

Sales and marketing expense increased $6.4 million to $75.0 million for the year ended December 31, 2013 from $68.5 million for the same period in 2012. The Acquisition contributed $6.2 million of this increase primarily due to headcount related costs for the acquired sales force employees. Excluding the impact of the Acquisition, sales and marketing expense increased $0.3 million, primarily driven by an increase in headcount and related costs, including stock-based compensation of $1.0 million and performance-based compensation of $0.5 million. These increases were mostly offset by lower travel expenses resulting from a cost savings initiative. As a percentage of revenues, sales and marketing expense decreased to 8.7% for the year ended December 31, 2013 from 9.2% for the same period in 2012.

General and administrative expense increased $26.0 million to $129.4 million for the year ended December 31, 2013 from $103.3 million for the same period in 2012. The Acquisition contributed $15.3 million of this increase, primarily due to headcount related and facilities costs. Excluding the impact of the Acquisition, general and administrative expense increased $10.7 million driven primarily by higher headcount related costs of $6.6 million and an increase in Acquisition integration planning costs of $7.4 million. The increase in headcount related costs is associated with additional resources to support global business growth and new product development initiatives. The increase in general and administrative expense was partially offset by a $3.8 million reduction in business development activities unrelated to the Acquisition. As a percentage of revenues, general and

44


administrative expense increased to 15.1% for the year ended December 31, 2013, from 13.9% for the same period in 2012 primarily due to the Acquisition integration planning costs.

Depreciation and amortization expense increased $38.9 million to $216.2 million for the year ended December 31, 2013 from $177.3 million for the same period in 2012. The increase was driven by $26.6 million of amortization of intangible assets, including capitalized software, and $1.7 million of depreciation of property and equipment, all acquired in the Acquisition, and higher capital expenditures in 2013 compared to 2012, including internally developed capitalized software.

Restructuring and employee termination benefits expense was $6.4 million for the year ended December 31, 2013 driven by severance costs related to restructuring plans entered into in 2013 primarily related to the integration of the Acquisition. See Note 15 to our audited consolidated financial statements for additional details regarding our restructuring plans.

Acquisition and Merger expenses were $21.6 million for the year ended December 31, 2013 and consisted primarily of professional services costs including legal, tax, audit and transaction advisory costs related to the Acquisition.

Other Income (Expense), net

Interest expense increased $17.0 million to $125.7 million for the year ended December 31, 2013 from $108.7 million for the same period in 2012. The increase was primarily due to $20.1 million of interest expense related to the Tranche B Term Loans and ticking fees of $4.6 million in respect of the period between the commitment allocation and the actual funding date of the Delayed Draw Facility. See “Debt and Credit Facilities” below for additional details regarding the Delayed Draw Credit Agreement.
The increase in interest expense was partially offset by $6.1 million of debt modification costs incurred in the prior year period associated with our debt refinancing on April 23, 2012 as compared to $1.7 million of debt modification costs incurred in 2013 associated with our debt refinancing on September 23, 2013. Going forward, we expect to incur approximately $27.5 million of interest expense and $3.0 million of amortization of deferred financing fees and original issue discount on a quarterly basis.
Debt extinguishment costs were $2.8 million for the year ended December 31, 2013 as compared to $6.5 million for the same period in 2012. These costs were associated with our refinancing of the Initial Term Loans on September 23, 2013 and with the refinancing of our old senior secured credit facility (the “Old Senior Credit Facility”) in April 2012.

Equity income in investee was $0.4 million for the year ended December 31, 2013 and was comprised of income from our equity investment in a subsidiary acquired in the Acquisition.

Other, net decreased $10.8 million to a $6.8 million loss for the year ended December 31, 2013 from a $3.9 million gain for the same period in 2012. The decrease was primarily due to foreign exchange losses driven by our expanded global operations resulting from the Acquisition.

Benefit from Income Taxes

We recorded an income tax benefit of $4.3 million for the year ended December 31, 2013 compared to a benefit of $7.9 million for the same period in 2012. During the years ended December 31, 2013 and 2012, the effective tax rate was a benefit of 9.7% and 97.6%, respectively. The change in our effective tax rate was chiefly attributable to (i) the release of uncertain tax positions where statutes of limitations had expired, (ii) certain return to provision true-ups recorded in 2012 and 2013, (iii) costs related to the Acquisition, some of which are non-deductible for income tax purposes, (iv) the inclusion of the forecasted earnings impact of the Acquisition in calculating the effective tax rate, and (v) state and local related effective income tax rate changes.

45



Results of Operations
Comparison of results of operations for the twelve months ended December 31, 2012 with the twelve months ended December 31, 2011 (Combined Predecessor and Successor)
 
Successor
 
 
 
Combined
Predecessor & Successor
 
 
 
Successor
 
 
 
 
Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period from
 
 
 
 
Period from
 
 
 
 
 
 
 
Year ended
 
 
 
Year ended
 
 
 
January 13 to
 
 
 
 
January 1 to
 
 
 
 
 
 
 
December 31,
 
% of
 
December 31,
 
% of
 
December 31,
 
% of
 
 
January 12,
 
% of
 
2012 compared to combined 2011
(in thousands)
2012
 
Revenues
 
2011
 
Revenues
 
2011
 
Revenues
 
 
2011
 
Revenues
 
$ change
 
% change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mobile Transaction Services
$
663,011

 
89.1
 %
 
$
700,544

 
91.2
 %
 
$
680,266

 
91.2
 %
 
 
$
20,278

 
92.1
 %
 
$
(37,533
)
 
(5.4
)%
Enterprise & Intelligence Solutions
80,863

 
10.9
 %
 
67,448

 
8.8
 %
 
65,712

 
8.8
 %
 
 
1,736

 
7.9
 %
 
13,415

 
19.9
 %
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
103,311

 
13.9
 %
 
104,657

 
13.6
 %
 
100,993

 
13.5
 %
 
 
3,664

 
16.6
 %
 
(1,346
)
 
(1.3
)%
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 employee termination benefits
2,361

 
0.3
 %
 
6,207

 
0.8
 %
 
6,207

 
0.8
 %
 
 

 
0.0
 %
 
(3,846
)
 
(62.0
)%
Acquisition and Merger expenses
14,684

 
2.0
 %
 
87,752

 
11.4
 %
 
40,549

 
5.4
 %
 
 
47,203

 
214.4
 %
 
(73,068
)
 
(83.3
)%
 
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 before 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 from continuing operations
$
(195
)
 
0.0
 %
 
$
(50,436
)
 
(6.4
)%
 
$
(19,669
)
 
(2.4
)%
 
 
$
(30,767
)
 
(139.7
)%
 
$
50,241

 
(99.6
)%
Revenues
Revenues decreased $24.1 million, or 3.1% 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.

Revenue from Mobile Transaction Services decreased $37.5 million, or 5.4%, to $663.0 million for the year ended December 31, 2012 from $700.5 million for the same period in 2011. The revenue decline was driven by decreases in data processing services primarily due to the pricing impact of customer contract renewals, primarily the Verizon Wireless renewal. These declines were partially offset by increases in volume growth across data processing platforms and our global IP data network. While continued volume increases contributed to higher transactions on our data processing platforms compared to the prior year, volume growth was tempered by the Sprint network build-out which resulted in fewer Sprint end-users roaming off of the Sprint home network. Revenue from our messaging services also declined compared to the prior year primarily due to the impact of lower pricing for customer contract renewals and slower volume growth.

46



Revenue from Enterprise & Intelligence Solutions increased $13.4 million, or 19.9%, to $80.9 million for the year ended December 31, 2012 from $67.4 million for the same period in 2011. The increase in revenue was driven by new contract wins and volume growth in our enterprise connectivity services.
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 comparable prior year period. The table below summarizes our cost of operations by category:
 
Successor
 
Combined
Predecessor
& Successor
 
 
 
 
 
Year ended December 31,
 
2012 compared to 2011
(in thousands)
2012
 
2011
 
$ change
 
% change
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 was primarily due to higher headcount to support global expansion and an increase in product support costs as we implemented new products and features during 2012. Variable costs decreased due primarily to a decline in revenue share costs resulting from a contractual rate reduction, partially offset by increased volumes in our enterprise connectivity services resulting in higher messaging termination fees. As a result, variable costs as a percentage of operating costs, which management defines as cost of operations, sales and marketing and general and administrative expenses, were 12.8% for the year ended December 31, 2012 compared to 14.4% for the same combined period in 2011. The increase in data processing and related 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 processing costs associated with higher transaction volumes. As a percentage of revenues, cost of operations increased to 37.0% for the year ended December 31, 2012, from 35.0% for the same period in 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 was 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 was 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 same period in 2011.
General and administrative expense decreased $1.3 million to $103.3 million for the year ended December 31, 2012 from $104.7 million for the same period in 2011. The decrease was primarily due to higher capitalized product development activities in 2012 compared to 2011. As a percentage of revenues, general and administrative expense increased to 13.9% for the year ended December 31, 2012, from 13.6% for the same period in 2011.
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 employee 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 15 to our audited consolidated financial statements for additional details regarding our restructuring plans.


47


Acquisition and Merger expenses were $14.7 million for the year ended December 31, 2012 and consisted primarily of professional services costs including legal, tax, audit and transaction advisory costs related to the Acquisition. For the year ended December 31, 2011, these expenses were $87.8 million and consisted of professional services costs including legal, tax, audit, transaction advisory costs relating to the Merger and stock-based compensation costs related to the acceleration of the equity awards existing prior to the Merger.

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 was 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.

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 (iv) return to provision true-ups related to returns filed in 2012.


 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. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future; however, to the extent that our Board of Directors determines in the future to pay dividends on our common stock, our New Senior Credit Facility and the indenture governing the Senior Notes significantly restrict the ability of our operating subsidiaries to pay dividends or otherwise transfer assets to us.

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 June 28, 2013, we completed the Acquisition. The Acquisition was funded primarily through proceeds from the Escrow Term Loans, which were refinanced through the Tranche B Term Loans, as described in “Debt and Credit Facilities” below.

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 me