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Synchronoss Technologies Announces Third Quarter Results

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Synchronoss
Technologies Inc.
(NASDAQ:SNCR), a global leader and innovator in
digital, cloud, messaging and IoT platforms and products, today
announced financial results for the third quarter of 2018. The
highlights include:

  • Synchronoss delivers $83.3 million of revenue compared to $76.7
    million in the second quarter, up 8.5% sequentially.
  • Synchronoss drives $4.5 million of adjusted EBITDA, which includes
    a one-time expense of $4.9 million from a prior quarter. Normalized
    adjusted EBITDA for the third quarter was $9.4 million with an EBITDA
    margin of 11.2%.
  • Synchronoss cash flow provided by operations during the quarter was
    $10.7 million.
  • Synchronoss is on track to achieve $20 million of annualized cost
    savings in 2018 and another $25 million in 2019.
  • Synchronoss retires over 50% of its convertible debt, resulting in
    the dismissal of the litigation brought by those debt holders.
  • Synchronoss decides to pay in cash and not issue additional shares
    for the payment of a third-quarter dividend on its convertible
    preferred stock.
  • Synchronoss' digital platform, DXP, has received exceptional market
    reception with the integration of the honeybee acquisition, as evident
    by more than 10 customer proofs of concept currently up and running.

"Synchronoss delivered on its promise to return to growth and
profitability in the third quarter," said Glenn Lurie, President and CEO
of Synchronoss. "Our sequential quarterly revenue growth and positive
adjusted EBITDA of $4.5 million were driven by improving trends across
all parts of our business. Our adjusted EBITDA includes a one-time
expense of $4.9 million. Excluding that one-time expense from a prior
quarter, normalized adjusted EBITDA was $9.4 million with an EBITDA
margin of 11.2% for the third quarter. We also continue to take actions
to strengthen our balance sheet, including retiring over 50% of our
convertible debt, which resulted in the dismissal of the litigation
brought by those debt holders, and staying on track to deliver the
targeted cost savings initiatives."

David Clark, CFO of Synchronoss, said: "Our improved business
performance, highlighted by positive EBITDA, strengthens our confidence
in our business and has led us to take actions to de-lever our balance
sheet by purchasing just over half of our outstanding convertible notes.
Even with those actions, we still expect to end the year with a healthy
cash balance of between $170 and $180 million."

Lurie added, "We are pleased that Synchronoss delivered on its
commitments and we reaffirm our financial guidance for the year. Our
digital, cloud, messaging and IoT platforms are solving some of the most
important challenges that TMT companies are facing as they compete in an
increasingly digital and consumer-centric world. We have made
significant progress and are confident that as we execute on
opportunities we are targeting, we will continue to drive growth and
profitability in the fourth quarter this year and beyond."

Financial Highlights for the Third Quarter of 2018

GAAP

  • Total Revenue: $83.3 million compared to $76.7 million in the
    second quarter of 2018 and $91.0 million in the third quarter of 2017.
  • Gross Profit: $39.6 million compared to $37.2 million in the
    second quarter of 2018 and $45.4 million in the third quarter of 2017.
  • Operating Loss: ($34.6 million) compared to ($43.1 million) in
    the second quarter 2018 and ($36.1 million) in the third quarter of
    2017.
  • Net Loss Attributable to Synchronoss: ($54.5 million) compared
    to ($47.3 million) in the second quarter of 2018 and ($35.1 million)
    in the third quarter of 2017.
  • Loss per Diluted Share: ($1.38) compared to ($1.20) in the
    second quarter of 2018 and ($0.78) in the third quarter of 2017.

Non-GAAP

  • Gross Profit: $40.6 million, or $45.5 million adjusting for the
    one-time expense of $4.9 million, compared to $38.5 million in the
    second quarter of 2018 and $46.9 million in the third quarter of 2017.
  • Operating Income/Loss: ($10.7 million), or ($5.8 million)
    adjusting for the one-time expense of $4.9 million, compared to ($15.0
    million) in the second quarter of 2018 and ($10.9 million) in the
    third quarter of 2017.
  • Adjusted EBITDA: $4.5 million, or $9.4 million adjusting for
    the one-time expense of $4.9 million, compared to $0.0 million in the
    second quarter of 2018 and $4.3 million in the third quarter of 2017.
  • Net Income/Loss Attributable to Synchronoss: ($33.5 million),
    or ($28.6 million) adjusting for the one-time expense of $4.9 million,
    compared to ($19.0 million) in the second quarter of 2018 and ($32.0
    million) in the third quarter of 2017.
  • Earnings/Loss per Diluted Share: ($0.84), or ($0.72) adjusting
    for the one-time expense of $4.9 million, compared to ($0.48) in the
    second quarter of 2018 and ($0.71) in the third quarter of 2017.

A reconciliation of GAAP to non-GAAP results has been provided in the
financial statement tables included in this press release. An
explanation of these measures is included below under the heading
"Non-GAAP Financial Measures."

Conference Call Details

Synchronoss will host a conference call on Wednesday, Nov. 7, 2018,
at 4:30 p.m. Eastern Time to discuss the company's financial results. To
access this call, dial 877-407-9208 in the United States or +1
201-493-6784 outside the United States. The passcode for the call is
13684255. Additionally, a live webcast of the conference call will be
available on the Investor
Relations page
of the company's website.

Following the conference call, a replay will be available for a limited
time at 844-512-2921 in the United States or +1 412-317-6671 outside the
United States. The replay passcode is 13684255. An archived webcast of
this conference call will be available on the Investor
Relations page
of the company's website.

Non-GAAP Financial Measures

Synchronoss has provided in this release selected financial information
that has not been prepared in accordance with GAAP. This information
includes historical non-GAAP revenues, gross profit, operating income
(loss), net income (loss), effective tax rate, earnings (loss) per share
and cash flows from operating activities. Synchronoss uses these
non-GAAP financial measures internally in analyzing its financial
results and believes they are useful to investors, as a supplement to
GAAP measures, in evaluating Synchronoss' ongoing operational
performance. Synchronoss believes that the use of these non-GAAP
financial measures provides an additional tool for investors to use in
evaluating ongoing operating results and trends, and in comparing its
financial results with other companies in Synchronoss' industry, many of
which present similar non-GAAP financial measures to investors. As
noted, the non-GAAP financial results discussed above add back the
deferred revenue write-down associated with acquisitions, fair value
stock-based compensation expense, acquisition-related costs which
includes integration costs, changes in the contingent consideration
obligation, deferred compensation expense related to earn outs and
amortization of intangibles associated with acquisitions.

Non-GAAP financial measures should not be considered in isolation from,
or as a substitute for, financial information prepared in accordance
with GAAP. Investors are encouraged to review the reconciliation of
these non-GAAP measures to their most directly comparable GAAP financial
measures as detailed above. As previously mentioned, a reconciliation of
GAAP to non-GAAP results has been provided in the financial statement
tables included in this press release.

About Synchronoss Technologies, Inc.

Synchronoss transforms the way companies create new revenue, reduce
costs and delight their subscribers with cloud, messaging, digital and
IoT products, supporting hundreds of millions of subscribers across the
globe. Synchronoss' secure, scalable and groundbreaking new
technologies, trusted partnerships, and talented people change the way
TMT customers grow their businesses. For more information, visit us at www.synchronoss.com.

Forward-looking Statements

This press release includes statements concerning Synchronoss and its
future expectations, plans and prospects that constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. For this purpose, any
statements contained herein that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "may," "should," "expects," "plans," "anticipates,"
"could," "intends," "believes," "potential" or "continue" or other
similar expressions are intended to identify forward-looking statements.
Synchronoss has based these forward-looking statements largely on its
current expectations and projections about future events and financial
trends that it believes may affect its business, financial condition and
results of operations. These forward-looking statements speak only as of
the date of this press release and are subject to a number of risks,
uncertainties and assumptions including, without limitation, risks
relating to the Company's ability to sustain or increase revenue from
its larger customers and generate revenue from new customers, the
Company's expectations regarding expenses and revenue, the sufficiency
of the Company's cash resources and its ability to satisfy or refinance
its existing debt obligations, the Company's growth strategies, the
anticipated trends and challenges in the business and the market in
which the Company operates, the Company's expectations regarding
federal, state and foreign regulatory requirements, the pending lawsuits
against the Company described in its most recent SEC filings, and other
risks and factors that are described in the "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" sections of the Company's Annual Report on Form 10-K/A
for the year ended December 31, 2017 and Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 2018, which are on file with the SEC and
available on the SEC's website at www.sec.gov.
The company does not undertake any obligation to update any
forward-looking statements contained in this press release as a result
of new information, future events or otherwise.

   
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
September 30, 2018 December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 222,438 $ 156,299
Restricted cash 4,377 89,826
Marketable securities 6,989 3,111

Accounts receivable, net of allowances of $3,492 and $3,107 at
September
30, 2018 and December 31, 2017, respectively

52,617 78,186
Prepaid expenses 46,922 33,957
Other current assets   14,115     9,600  
Total current assets 347,458 370,979
Marketable securities 8,716 -
Property and equipment, net 80,519 111,825
Goodwill 234,480 237,303
Intangible assets, net 117,448 132,167
Other assets 8,940 5,236
Note receivable from related party 66,089 73,984
Equity method investment   30,694     33,917  
Total assets

$

894,344

  $ 965,411  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,300 $ 5,959
Accrued expenses 53,794 72,739
Deferred revenues, current 54,046 75,829
Short-term debt 228,764 -
Mandatorily redeemable financial instrument   -     37,959  
Total current liabilities 350,904 192,486
Lease financing obligation 10,006 11,183
Convertible debt, net of debt issuance costs - 227,704
Deferred tax liabilities 12,109 13,735
Deferred revenues, non-current 29,815 25,241
Other liabilities 11,329 6,195
Redeemable noncontrolling interest 12,500 25,280
Commitments and contingencies (Note 12)

Series A Convertible Participating Perpetual Preferred Stock,
$0.0001 par
value; 10,000 shares authorized; 195 shares
issued and outstanding at
September 30, 2018

176,160 -
 
Stockholders' equity:

Common stock, $0.0001 par value; 100,000 shares authorized, 49,817
and
52,024 shares issued; 42,655 and 46,965 outstanding at
September
30, 2018 and December 31, 2017, respectively

5 5

Treasury stock, at cost (7,162 and 5,059 shares at September 30,
2018
and December 31, 2017, respectively)

(82,087 ) (105,584 )
Additional paid-in capital 561,144 597,553
Accumulated other comprehensive loss (30,557 ) (23,373 )
Accumulated deficit   (156,984 )   (5,014 )
Total stockholders' equity   291,521     463,587  
Total liabilities and stockholders' equity $ 894,344   $ 965,411  
 
   
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,
2018 2017
 
Net revenues $ 83,286 $ 91,015
Costs and expenses:
Cost of revenues 43,714 45,576
Research and development 18,684 20,926
Selling, general and administrative 27,320 34,881
Restructuring charges 4,539 2,312
Depreciation and amortization   23,658     23,459  
Total costs and expenses   117,915     127,154  
Loss from continuing operations (34,629 ) (36,139 )
Interest income 203 3,274
Interest expense (1,370 ) (25,555 )
Other expense, net (13,439 ) (256 )
Equity method investment income   283     645  
Loss from continuing operations, before taxes (48,952 ) (58,031 )
Benefit for income taxes   2,308     12,825  
Net loss from continuing operations (46,644 ) (45,206 )
Net income from discontinued operations, net of tax   -     8,842  
Net loss (46,644 ) (36,364 )
Net (income) loss attributable to redeemable noncontrolling interests (422 ) 1,276
Preferred stock dividend   (7,463 )   -  
Net loss attributable to Synchronoss $ (54,529 ) $ (35,088 )
 
Basic:
Continuing operations $ (1.38 ) $ (0.98 )
Discontinued operations   -     0.20  
$ (1.38 ) $ (0.78 )
Diluted:
Continuing operations $ (1.38 ) $ (0.98 )
Discontinued operations   -     0.20  
$ (1.38 ) $ (0.78 )
Weighted-average common shares outstanding:
Basic   39,612     44,893  
Diluted   39,612     44,893  
 
   
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
2018 2017
 
Operating activities:
Net loss from continuing operations $ (125,885 ) $ (113,266 )
Net loss from discontinued operations - ( 14,067 )
 
Adjustments to reconcile Net Loss to net cash used in operating
activities:
Depreciation and amortization expense 70,330 71,098
Change in fair value of financial instruments ( 3,849 ) -
Amortization of debt issuance costs 1,060 12,523
Accrued PIK interest ( 7,037 ) ( 8,805 )
Allowance for loan losses 18,225 -
Loss (earnings) from equity method investments ( 71 ) ( 1,626 )
Loss (Gain) on disposals 277 ( 4,947 )
Discontinued operations non-cash and working capital adjustments - 68,377
Amortization of bond premium 75 219
Deferred income taxes ( 1,648 ) ( 8,937 )
Stock-based compensation 22,040 14,427
Accounts receivable, net of allowance for doubtful accounts 28,789 24,029
Prepaid expenses and other current assets ( 12,844 ) ( 29,143 )
Other assets 947 2,768
Accounts payable 8,195 ( 2,294 )
Accrued expenses ( 24,539 ) ( 16,775 )
Other liabilities ( 3,886 ) 594
Deferred revenues   ( 30,841 )   4,732  
Net cash used in operating activities ( 60,662 ) ( 1,093 )
Investing activities:
Purchases of fixed assets ( 8,565 ) ( 10,315 )
Purchases of intangible assets and capitalized software ( 11,012 ) ( 7,848 )
Proceeds from the sale of SpeechCycle - 13,500
Purchases of marketable securities available for sale ( 15,784 ) ( 219 )
Maturity of marketable securities available for sale 3,050 10,856
Equity investment distributions - 608
Investing in discontinued operations - ( 11,429 )
Investment in note receivable - ( 6,187 )
Business acquired, net of cash   ( 9,734 )   ( 815,008 )
Net cash used in investing activities ( 42,045 ) ( 826,042 )
Financing activities:
Share-based compensation-related proceeds, net of taxes paid on
withholding shares
- 2,460
Taxes paid on withholding shares - ( 410 )
Debt issuance costs related to the Credit Facility - ( 3,692 )
Debt issuance cost related to amendment - ( 16,776 )
Debt issuance costs related to long term debt - ( 19,887 )
Proceeds from issuance of long term debt - 900,000
Repayment of long term debt - ( 4,500 )
Repayment of revolving line of credit - ( 29,000 )
Proceeds from the sale of treasury stock in connection with an
employee stock purchase plan
- 1,047
Proceeds from issuance of preferred stock 86,220 -
Payments on capital obligations   ( 1,018 )   ( 2,244 )
Net cash provided by financing activities 85,202 826,998
Effect of exchange rate changes on cash   ( 1,805 )   4,938  
Net decrease in cash, restricted cash and cash equivalents ( 19,310 ) 4,801
Cash, restricted cash and cash equivalents, beginning of period   246,125     211,433  
Cash, restricted cash and cash equivalents, end of period $ 226,815   $ 216,234  
 
Supplemental disclosures of non-cash investing and financing
activities:
Issuance of common stock in connection with Intralinks acquisition $ - $ 4,700
-
Cash and cash equivalents per the Condensed Consolidated Balance
Sheets
$ 222,438 $ 210,070
Restricted cash per the Condensed Consolidated Balance Sheets   4,377     6,164  
Total cash, cash equivalents and restricted cash $ 226,815   $ 216,234  
 
   
SYNCHRONOSS TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
(Unaudited)
   

Three Months
Ended
September 30,

Three Months
Ended
September 30,

2018 2017

Non-GAAP financial measures and
reconciliation:

GAAP Revenue 83,286 91,015
Less: Cost of revenues 43,714 45,576
GAAP Gross Profit 39,572 45,439
Add: Stock-based compensation expense 1,035 1,118
Add: Acquisition costs - -
Add: Integration - 341
Non-GAAP Gross Profit 40,607 46,898
Non-GAAP Gross Margin 49% 52%
 
GAAP (loss) income from continuing operations (34,629) (36,139)
Add: Stock-based compensation expense 7,216 3,678
Add: Acquisition costs 38 30
Add: Restructuring 4,539 2,312
Add: Amortization expense 8,472 8,222
Add: Integration - 1,569
Add: One-Time Expenses due to Restatement, etc. 3,638 9,438
Non-GAAP loss from continuing operations (10,726) (10,890)
 
GAAP Net (loss) income attributable to Synchronoss (54,529) (35,088)
Less: Net income from discontinued operations, net of taxes - 8,842
Net (loss) income from continuing operations attributable to
Synchronoss
(54,529) (43,930)
Add: Stock-based compensation expense 7,216 3,678
Add: Acquisition costs 38 30
Add: Restructuring 4,539 2,312
Add: Amortization expense 8,472 8,222
Less: Non-GAAP Expenses attributable to Non-Controlling Interest (523) (466)
Add: One-Time Expenses due to Restatement, etc. 3,638 9,438
Add: Integration - 1,569
Less: Income Tax Effect at Statutory Tax Rates (2,308) (12,825)
Non-GAAP net (loss) income from continuing operations
attributable to Synchronoss
(33,457) (31,972)
 
Diluted Non-GAAP net (loss) income from continuing operations per
share
(0.84) (0.71)
 
Weighted shares outstanding - Basic 39,612 44,893
 
   
SYNCHRONOSS TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
NON-GAAP Reconciliation
(in Thousands)
(Unaudited)
   

Nine Months
Ended September
30,

Nine Months
Ended September
30,

2018 2017
       
Net Cash (used in) provided by operating activities   (60,662) (1,093)
Add: SW Capitalization 11,012 7,848
Add: Fixed Assets   8,565 10,315
Free Cashflow   (80,239) (19,256)
Less: One-Time Restatement Expenses   19,608 15,277
Adjusted Free Cashflow   (60,631) (3,979)
 
   
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to NON-GAAP Financial Measures

(in thousands, except per share data)

(Unaudited)
   

Three Months
Ended
September 30,

Three Months
Ended
September 30,

2018 2017
   
GAAP Income from Operations (34,629) (36,139)
Add: Stock based compensation 7,216 3,678
Add: Acquisition, Restructuring & Integration 4,577 3,911
Add: Depreciation & Amortization 23,658 23,459
Add: Restatement Expenses 3,638 9,438
Adjusted EBITDA 4,460 4,347
 

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