Synchronoss Technologies, Inc. Announces Third Quarter 2011 Financial Results

PDF Version
November 1, 2011
  • Non-GAAP total revenue of $59.4 million increases 27% year-over-year
  • Non-GAAP operating income of $13.1 million increases 36% year-over-year
  • Non-GAAP EPS of $0.23 increases 15% year-over-year

BRIDGEWATER, N.J., Nov 01, 2011 (BUSINESS WIRE) -- Synchronoss Technologies, Inc. (NASDAQ: SNCR), the world's leading provider of transaction management, cloud enablement and connectivity services for connected devices, today announced financial results for the third quarter of 2011.

Stephen G. Waldis, President and Chief Executive Officer of Synchronoss, said "We continue to make excellent progress scaling our relationships with a number of new strategic, tier one service providers. Our continued progress with Verizon and Vodafone helped us achieve solid growth in our business during the quarter. We also moved into production with a new significant channel at AT&T, which contributed to the best quarter in our 10 year relationship with AT&T."

Waldis added, "The growing adoption of our ConvergenceNow(R) Plus+ platform, as evidenced by our partnership announced with Verizon and our new expansion at Vodafone, will help drive a truly unique experience for subscribers around the world. With the rapid growth of connected devices, we believe our "connect-sync-activate" approach to this market will help position Synchronoss as the market leader."

For the third quarter of 2011, Synchronoss reported net revenues of $59.2 million on a GAAP basis, representing an increase of 33% compared to the third quarter of 2010. Gross profit was $31.5 million and income from operations was $5.0 million in the third quarter of 2011. GAAP net income applicable to common stock was $3.6 million, leading to GAAP diluted earnings per share of $0.09, compared to $0.05 for the third quarter of 2010.

Synchronoss reported non-GAAP net revenues for the third quarter of 2011, which adds back the purchase accounting adjustment related to FusionOne's revenues, of $59.4 million, an increase of 27% compared to the third quarter of 2010. Non-GAAP gross profit for the third quarter of 2011 was $33.1 million, representing a non-GAAP gross margin of 56%. Non-GAAP income from operations was $13.1 million in the third quarter of 2011, representing a year-over-year increase of 36% and a non-GAAP operating margin of 22%. Non-GAAP net income was $8.8 million in the third quarter of 2011, leading to non-GAAP diluted earnings per share of $0.23, an increase of 15% compared with $0.20 for the third quarter of 2010.

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 also included below under the heading "Non-GAAP Financial Measures."

"Solid execution and ramping customer initiatives drove strong third quarter revenue and profitability that were both above the high-end of our guidance," said Lawrence R. Irving, Chief Financial Officer and Treasurer. "The investments that Synchronoss has made in R&D are paying off, evidenced by the early traction of our SmartMobility product, our ConvergenceNow(R) Plus+ win at Vodafone that was driven by our content synchronization capabilities and expansion into on-device and retail store upgrade activations with AT&T as part of the iPhone 4S launch. We plan to continue investing in our business to solidify Synchronoss' leadership position and long-term growth opportunity."

Other Third Quarter and Recent Business Highlights:

  • Business outside of the AT&T relationship accounted for approximately $29.9 million of non-GAAP revenue, representing approximately 50% of total non-GAAP revenue. Verizon remained the largest contributor to Synchronoss' business outside of AT&T, representing over 10% of Synchronoss' revenue for the quarter. Business related to AT&T accounted for approximately $29.5 million of non-GAAP revenue, representing the other 50% of total non-GAAP revenue.
  • During the third quarter, Synchronoss hosted a user summit with leading OEM's on its new connect-sync-activate platform. Verizon was a keynote speaker at this event where it communicated the need for a strong connection management solution as well as the benefits of Synchronoss' connect-synch-activate strategy.

Conference Call Details

In conjunction with this announcement, Synchronoss will host a conference call on Tuesday, November 1, 2011, at 4:30 p.m. (ET) to discuss the company's financial results. To access this call, dial 866-362-4829 (domestic) or 617-597-5346 (international). The pass code for the call is 74713975. Additionally, a live web cast of the conference call will be available on the "Investor Relations" page on the company's web site, http://www.synchronoss.com.

Following the conference call, a replay will be available at 888-286-8010 (domestic) or 617-801-6888 (international). The replay pass code is 86725247. An archived web cast of this conference call will also be available on the "Investor Relations" page of the company's web site, http://www.synchronoss.com.

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, operating income, net income, effective tax rate, and earnings per share. 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 FusionOne acquisition, fair value stock-based compensation expense, acquisition-related 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 Technologies (NASDAQ: SNCR) is the world's leading provider of transaction management, cloud enablement and connectivity services for connected devices. The company's technology platforms ensure a simple and seamless on-demand channel for service providers and their customers. For more information visit us at:

Web:http://www.synchronoss.com

Blog:http://blog.synchronoss.com

Twitter:http://twitter.com/synchronoss

Forward-looking Statements

This document may include certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "outlook" or words of similar meanings. These statements are based on our current beliefs or expectations and are inherently subject to various risks and uncertainties, including those set forth under the caption "Risk Factors" in Synchronoss' Annual Report on Form 10-K for the year ended December 31, 2010 and other documents filed with the U.S. Securities and Exchange Commission. Actual results may differ materially from these expectations due to changes in global political, economic, business, competitive, market and regulatory factors. Synchronoss does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

The Synchronoss logo, Synchronoss, ConvergenceNow, InterconnectNow, ConvergenceNow Plus+ and SmartMobility are trademarks of Synchronoss Technologies, Inc. All other trademarks are property of their respective owners.

SYNCHRONOSS TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
September 30,

2011

 December 31,

2010

ASSETS
Current assets:
Cash and cash equivalents $ 148,611 $ 180,367
Marketable securities 18,145 1,766

Accounts receivable, net of allowance for doubtful accounts of $310 and $558 at September 30, 2011 and
December 31, 2010, respectively

45,488 34,940
Prepaid expenses and other assets 12,566 8,606
Deferred tax assets 3,330 3,272
Total current assets 228,140 228,951
Marketable securities 22,862 7,502
Property and equipment, net 35,599 32,622
Goodwill 29,717 19,063
Intangible assets, net 31,629 33,231
Deferred tax assets 19,295 16,432
Other assets 2,228 2,598
Total assets $ 369,470 $ 340,399
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,360 $ 7,013
Accrued expenses 16,120 12,999
Deferred revenues 10,457 5,143
Contingent consideration obligation 5,434 --
Total current liabilities 38,371 25,155
Lease financing obligation - long term 9,235 9,205
Contingent consideration obligation - long-term -- 16,915
Other liabilities 821 1,101
Stockholders' equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and
outstanding at September 30, 2011 and December 31, 2010 -- --
Common stock, $0.0001 par value; 100,000 shares authorized, 40,772 and 38,863 shares
issued; 38,103 and 36,863 outstanding at September 30, 2011 and December 31, 2010, respectively 4 4
Treasury stock, at cost (2,669 and 2,000 shares at September 30, 2011 and December 31, 2010, respectively) (43,712 ) (23,713 )
Additional paid-in capital 301,924 255,656
Accumulated other comprehensive loss (349 ) (182 )
Retained earnings 63,176 56,258
Total stockholders' equity 321,043 288,023
Total liabilities and stockholders' equity $ 369,470 $ 340,399
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Net revenues $ 59,238 $ 44,456 $ 166,933 $ 116,738
Costs and expenses:
Cost of services (2)(3)(4)* 27,781 22,983 78,270 59,638
Research and development (2)(3)(4) 10,879 7,569 31,037 16,760
Selling, general and administrative (2)(3)(4) 11,118 10,465 31,913 23,310
Net change in contingent consideration obligation 480 (1,968 ) 3,311 (1,968 )
Depreciation and amortization 3,949 2,606 11,029 6,459
Total costs and expenses 54,207 41,655 155,560 104,199
Income from operations 5,031 2,801 11,373 12,539
Interest and other income 432 706 914 940
Interest and other expense (441 ) (342 ) (975 ) (909 )
Income before income tax expense 5,022 3,165 11,312 12,570
Income tax expense (1,447 ) (1,024 ) (4,394 ) (4,742 )
Net income $ 3,575 $ 2,141 $ 6,918 $ 7,828
Net income per common share:
Basic (1) $ 0.10 $ 0.05 $ 0.22 $ 0.23
Diluted (1) $ 0.09 $ 0.05 $ 0.22 $ 0.23
Weighted-average common shares outstanding:
Basic 37,573 31,586 37,285 31,276
Diluted 38,647 32,480 38,610 32,196
* Cost of services excludes depreciation which is shown separately.
(1) Adjustment to net income for equity mark-to-market on contingent consideration obligation:
Net income $ 3,575 $ 2,141 $ 6,918 $ 7,828
Income effect for equity mark-to-market on contingent consideration obligation, net of tax -- (591 ) 1,466 (544 )
Net income applicable to shares of common stock for earnings per share $ 3,575 $ 1,550 $ 8,384 $ 7,284
(2) Amounts include fair value stock-based compensation as follows:
Cost of services $ 1,416 $ 1,063 $ 3,673 $ 2,819
Research and development 1,146 562 2,931 1,330
Selling, general and administrative 3,326 1,554 8,511 4,614
Total fair value stock-based compensation expense $ 5,888 $ 3,179 $ 15,115 $ 8,763
(3) Amounts include acquisition and restructuring costs as follows:
Cost of services $ - $ - $ 15 $ -
Research and development 4 133 253 133
Selling, general and administrative 59 2,604 342 2,918
Total acquisition and restructuring costs $ 63 $ 2,737 $ 610 $ 3,051
(4) Amounts include fair value earn-out cash and stock compensation as follows:
Cost of services $ 105 $ 4 $ 350 $ 4
Research and development 326 29 759 29
Selling, general and administrative 435 22 2,145 22
Total fair value earn-out cash and stock compensation expense $ 866 $ 55 $ 3,254 $ 55
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Non-GAAP financial measures and reconciliation:
GAAP Revenue $ 59,238 $ 44,456 $ 166,933 $ 116,738
Add: Deferred Revenue Write-Down 150 2,309 1,237 2,309
Non-GAAP Revenue $ 59,388 $ 46,765 $ 168,170 $ 119,047
GAAP income from operations $ 5,031 $ 2,801 $ 11,373 $ 12,539
Add: Deferred revenue write-down 150 2,309 1,237 2,309
Add: Fair value stock-based compensation 5,888 3,179 15,115 8,763
Add: Acquisition and restructuring costs 63 2,737 610 3,051
Add: Net change in contingent consideration obligation 480 (1,968 ) 3,311 (1,968 )
Add: Deferred compensation expense - earn-out 866 55 3,254 55
Add: Amortization expense 660 525 1,980 525
Non-GAAP income from operations $ 13,138 $ 9,638 $ 36,880 $ 25,274
GAAP net income attributable to common stockholders $ 3,575 $ 2,141 $ 6,918 $ 7,828
Add: Deferred revenue write-down, net of tax 78 1,432 861 1,432
Add: Fair value stock-based compensation, net of tax 3,877 1,971 10,520 5,433
Add: Acquisition and restructuring costs, net of taxes 30 1,697 424 1,892
Add: Net change in contingent consideration obligation, net of tax 265 (1,220 ) 2,304 (1,220 )
Add: Deferred compensation expense - earn-out, net of tax 544 34 2,264 34
Add: Amortization expense, net of tax 427 326 1,378 326
Non-GAAP net income $ 8,796 $ 6,381 $ 24,669 $ 15,725
Diluted non-GAAP net income per share $ 0.23 $ 0.20 $ 0.64 $ 0.49
Weighted shares outstanding - Diluted 38,647 32,480 38,610 32,196
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended September 30,
2011 2010
Operating activities:
Net income $ 6,918 $ 7,828

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation and amortization expense 11,029 6,459
Loss on disposal of fixed assets -- 31
Proceeds from insurance claim -- (418 )
Amortization of bond premium 326 --
Deferred income taxes (2,920 ) 818
Non-cash interest on leased facility 688 684
Stock-based compensation 16,173 8,763
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts (10,291 ) (12,604 )
Prepaid expenses and other current assets 3,376 (1,780 )
Other assets (26 ) (1,695 )
Accounts payable (698 ) 1,248
Accrued expenses 2,973 888
Contingent consideration obligation 2,640 (1,913 )
Excess tax benefit from the exercise of stock options (7,335 ) (755 )
Other liabilities (281 ) (285 )
Lease obligation -- 3
Deferred revenues 5,314 2,451
Net cash provided by operating activities 27,886 9,723
Investing activities:
Purchases of fixed assets (12,042 ) (7,310 )
Proceeds from insurance claim -- 418
Purchases of marketable securities available-for-sale (35,757 ) (4,296 )
Maturity of marketable securities available-for-sale 3,670 2,659
Business acquired, net of cash (7,913 ) (30,779 )
Net cash used in investing activities (52,042 ) (39,308 )
Financing activities:
Proceeds from the exercise of stock options 14,163 2,663
Payments on contingent consideration (8,286 ) --
Excess tax benefit from the exercise of stock options 7,335 755
Repurchase of common stock (19,999 ) --
Payments on capital obligations (721 ) (684 )
Net cash (used in) provided by financing activities (7,508 ) 2,734
Effect of exchange rate changes on cash (92 ) 43
Net decrease in cash and cash equivalents (31,756 ) (26,808 )
Cash and cash equivalents at beginning of year 180,367 89,924
Cash and cash equivalents at end of period $ 148,611 $ 63,116
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Cash Provided by Operating Activities
(in thousands)
(Unaudited)
Nine Months Ended September 30,
2011 2010
Non-GAAP cash provided by operating activities and reconciliation:
Net cash provided by operating activities (GAAP) $ 27,886 $ 9,723
Add: Tax benefits from stock options exercised 7,335 755
Add: Cash payments on settlement of Earn-out 2,578 --
Adjusted cash flow provided by operating activities (Non-GAAP) $ 37,799 $ 10,478

SOURCE: Synchronoss Technologies, Inc.

Synchronoss Technologies, Inc.
Investor:
Tim Dolan, 617-956-6727
investor@synchronoss.com
or
Media:
Stacie Hiras, 908-547-1260
Stacie.hiras@synchronoss.com