Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2014

 

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 000-52049

 

SYNCHRONOSS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

06-1594540

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

200 Crossing Boulevard, 8th Floor

Bridgewater, New Jersey

 

08807

(Address of principal executive offices)

 

(Zip Code)

 

(866) 620-3940

(Registrant’s telephone number, including area code)

 

 

(Former name, former address, and former fiscal year, if changed since last report)

 

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 preceding 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 Regulation S-T 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller Reporting Company o

 

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

 

Shares outstanding of the Registrant’s common stock:

 

Class

 

Outstanding at April 28, 2014

Common stock, $0.0001 par value

 

4,169,027

 

 

 



Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

FORM 10-Q INDEX

 

 

 

PAGE NO.

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements and Notes

 

 

 

 

 

Consolidated Balance Sheets (unaudited)

2

 

 

 

 

Consolidated Statements of Income and Comprehensive Income (unaudited)

3

 

 

 

 

Consolidated Statements of Cash Flows (unaudited)

4

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

Item 4.

Controls and Procedures

20

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

21

 

 

 

Item 1A.

Risk Factors

21

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

 

 

 

Item 3.

Defaults Upon Senior Securities

22

 

 

 

Item 4.

Mine Safety Disclosures

22

 

 

 

Item 5.

Other Information

22

 

 

 

Item 6.

Exhibits

22

 

 

 

SIGNATURES

 

 

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Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

 

March 31, 2014

 

December 31, 2013

 

 

 

 

 

 

 

ASSETS

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

47,271

 

$

63,512

 

Marketable securities

 

11,122

 

9,105

 

Accounts receivable, net of allowance for doubtful accounts of $329 and $237 at March 31, 2014 and December 31, 2013, respectively

 

93,911

 

64,933

 

Prepaid expenses and other assets

 

19,042

 

19,451

 

Deferred tax assets

 

3,752

 

4,626

 

Total current assets

 

175,098

 

161,627

 

Marketable securities

 

3,833

 

4,988

 

Property and equipment, net

 

104,165

 

106,106

 

Goodwill

 

137,373

 

137,743

 

Intangible assets, net

 

99,997

 

101,963

 

Deferred tax assets

 

3,175

 

4,210

 

Other assets

 

9,899

 

10,382

 

Total assets

 

$

533,540

 

$

527,019

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

6,145

 

$

9,528

 

Accrued expenses

 

29,717

 

37,919

 

Deferred revenues

 

12,182

 

15,372

 

Contingent consideration obligation

 

22

 

22

 

Total current liabilities

 

48,066

 

62,841

 

Lease financing obligation - long term

 

9,247

 

9,252

 

Contingent consideration obligation - long-term

 

6,079

 

4,468

 

Other liabilities

 

3,686

 

2,819

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding at March 31, 2014 and December 31, 2013

 

 

 

Common stock, $0.0001 par value; 100,000 shares authorized, 44,913 and 44,456 shares issued; 41,146 and 40,663 outstanding at March 31, 2014 and December 31, 2013, respectively

 

4

 

4

 

Treasury stock, at cost (3,767 and 3,793 shares at March 31, 2014 and December 31, 2013, respectively)

 

(66,770

)

(67,104

)

Additional paid-in capital

 

403,550

 

393,644

 

Accumulated other comprehensive income (loss)

 

276

 

(723

)

Retained earnings

 

129,402

 

121,818

 

Total stockholders’ equity

 

466,462

 

447,639

 

Total liabilities and stockholders’ equity

 

$

533,540

 

$

527,019

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Net revenues

 

$

98,477

 

$

78,276

 

Costs and expenses:

 

 

 

 

 

Cost of services*

 

39,979

 

32,131

 

Research and development

 

15,541

 

16,718

 

Selling, general and administrative

 

17,125

 

14,652

 

Net change in contingent consideration obligation

 

1,211

 

433

 

Restructuring charges

 

 

5,172

 

Depreciation and amortization

 

12,266

 

8,969

 

Total costs and expenses

 

86,122

 

78,075

 

Income from operations

 

12,355

 

201

 

Interest income

 

49

 

86

 

Interest expense

 

(420

)

(232

)

Other income (expense)

 

796

 

(258

)

Income before income tax expense

 

12,780

 

(203

)

Income tax (expense) benefit

 

(5,196

)

679

 

Net income

 

$

7,584

 

$

476

 

Net income per common share:

 

 

 

 

 

Basic

 

$

0.19

 

$

0.01

 

Diluted

 

$

0.19

 

$

0.01

 

Weighted-average common shares outstanding:

 

 

 

 

 

Basic

 

39,769

 

38,121

 

Diluted

 

40,655

 

39,089

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

8,583

 

$

(2,001

)

 


*         Cost of services excludes depreciation and amortization which is shown separately.

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Operating activities:

 

 

 

 

 

Net income

 

$

7,584

 

$

476

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation and amortization expense

 

12,266

 

8,969

 

Amortization of bond premium

 

74

 

86

 

Deferred income taxes

 

3,112

 

(118

)

Non-cash interest on leased facility

 

230

 

229

 

Stock-based compensation

 

5,842

 

4,910

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts

 

(28,935

)

5,519

 

Prepaid expenses and other current assets

 

816

 

4,499

 

Other assets

 

465

 

(384

)

Accounts payable

 

(3,388

)

(2,639

)

Accrued expenses

 

(8,743

)

(11,126

)

Contingent consideration obligation

 

1,611

 

241

 

Excess tax benefit from the exercise of stock options

 

(385

)

 

Other liabilities

 

1,249

 

1,247

 

Deferred revenues

 

(3,204

)

3,325

 

Net cash (used in) provided by operating activities

 

(11,406

)

15,234

 

Investing activities:

 

 

 

 

 

Purchases of fixed assets

 

(8,044

)

(10,964

)

Purchases of marketable securities available-for-sale

 

(1,244

)

(13

)

Maturities of marketable securities available-for-sale

 

315

 

4,791

 

Net cash used in investing activities

 

(8,973

)

(6,186

)

Financing activities:

 

 

 

 

 

Proceeds from the exercise of stock options

 

3,273

 

6,212

 

Excess tax benefit from the exercise of stock options

 

385

 

 

Proceeds from the sale of treasury stock in connection with an employee stock purchase plan

 

740

 

670

 

Repayments of capital obligations

 

(324

)

(760

)

Net cash provided by financing activities

 

4,074

 

6,122

 

Effect of exchange rate changes on cash

 

64

 

(82

)

Net (decrease) increase in cash and cash equivalents

 

(16,241

)

15,088

 

Cash and cash equivalents at beginning of period

 

63,512

 

36,028

 

Cash and cash equivalents at end of period

 

$

47,271

 

$

51,116

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

717

 

$

337

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

(in thousands, except per share data unless otherwise noted)

 

The consolidated financial statements as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements and should be read in conjunction with the consolidated financial statements and notes in the Annual Report of Synchronoss Technologies, Inc. incorporated by reference in the Company’s annual report on Form 10-K for the year ended December 31, 2013.  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method. The results reported in these consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts from the prior year’s financial statements have been reclassified to conform to the current year’s presentation.

 

1. Description of Business

 

Synchronoss Technologies, Inc. (the “Company” or “Synchronoss”) is a mobile innovation company that provides cloud solutions and software-based activation for connected devices globally.  Such services include intelligent connectivity management and content synchronization, backup and sharing, as well as device and service procurement, provisioning, activation, support, that enable communications service providers (CSPs), cable operators/multi-services operators (MSOs), original equipment manufacturers (OEMs) with embedded connectivity (e.g. smartphones, laptops, tablets and mobile Internet devices, such as automobiles, wearables for personal health and wellness, and connected homes), multi-channel retailers and other customers to accelerate and monetize their go-to-market strategies for connected devices. This includes automating subscriber activation, order management, upgrades, service provisioning and connectivity and content management from any sales channel to any communication service (wireless or wireline), across any connected device type and managing the content transfer, synchronization and share.  The Company’s global solutions touch all aspects of connected devices on the mobile Internet.

 

The Company’s Synchronoss Personal Cloud™ solution targets individual consumers while the Synchronoss WorkSpace™ solution focuses on providing a secure, integrated file sharing and collaboration solution for small and medium businesses.  In addition, the Company’s Integrated Life™ platform is specifically designed to power the activation of the devices and technologies that seamlessly connect today’s consumer and leverage the Company’s cloud assets to manage these devices and contents associated with them. The Integrated Life™ platform enables Synchronoss to drive a natural extension of their mobile activations and cloud services with leading wireless networks around the world to link other non-traditional devices — (i.e., automobiles, wearables for personal health and wellness, and connected homes).

 

The Company’s Activation Services, Synchronoss Personal Cloud™, Synchronoss WorkSpace™, and Synchronoss Integrated Life™ platforms provide end-to-end seamless integration between customer-facing channels/applications, communication services, or devices and “back-office” infrastructure-related systems and processes. The Company’s customers rely on Synchronoss’ solutions and technology to automate the process of activation and content and settings management for their customers’ devices while delivering additional communication services. The Synchronoss Integrated Life™ platform brings together the capabilities of device/service activation with content and settings management to provide a seamless experience of activating and managing non-traditional devices. The Company’s platforms also support automated customer care processes through use of accurate and effective speech processing technology and enable the Company’s customers to offer their subscribers the ability to store in and retrieve from the Cloud their personal and work content and data which resides on their connected mobile devices, such as personal computers, smartphones and tablets.  The Company’s platforms are designed to be carrier-grade, high availability, flexible and scalable to enable multiple converged communication services to be managed across multiple distribution channels, including e-commerce, m-commerce, telesales, customer stores, indirect and other retail outlets, allowing Synchronoss to meet the rapidly changing and converging services and connected devices offered by the Company’s customers. The Company enables its customers to acquire, retain and service subscribers quickly, reliably and cost-effectively by enabling backup, restore, synchronization and sharing of subscriber

 

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Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

(in thousands, except per share data unless otherwise noted)

 

content.  Through the use of the Company’s platforms, customers can simplify the processes associated with managing the customer experience for procuring, activating, connecting, backing-up, synchronizing and social media and enterprise-wide sharing/collaboration connected devices and contents from these devices and associated services.  The extensibility, scalability, reliability and relevance of the Company’s platforms enable new revenue streams and retention opportunities for customers through new subscriber acquisitions, sale of new devices, accessories and new value-added service offerings in the Cloud, while optimizing their cost of operations and enhancing customer experience.

 

The Company currently operates in and markets its solutions and services directly through its sales organizations in North America, Europe and Asia-Pacific.

 

The Company’s industry-leading customers include Tier 1 mobile service providers such as AT&T Inc., Verizon Wireless, Vodafone, Orange, Sprint, Telstra and U.S. Cellular, Tier 1 cable operators/MSOs and wireline operators like AT&T Inc., Comcast, Cablevision, Charter, CenturyLink, Mediacom and Level 3 Communications and large OEMs such as Apple and Ericsson. These customers utilize the Company’s platforms, technology and services to service both consumer and business customers.

 

2. Basis of Presentation and Consolidation

 

For further information about the Company’s basis of presentation and consolidation or its significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

 

Impact of Recently Issued Accounting Standards

 

In March 2013, the FASB issued ASU 2013-05, which permits an entity to release cumulative translation adjustments into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity.  Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, or, if a controlling financial interest is no longer held. The revised standard is effective for fiscal years beginning after December 15, 2013. The Company adopted this standard effective January 1, 2014.  The Company’s adoption of this standard did not have a significant impact on its consolidated financial statements.

 

In July 2013, the FASB issued ASU 2013-11, which provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset instead of presented gross for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed.  This new standard is effective for fiscal years beginning after December 15, 2013.  The Company adopted this standard effective January 1, 2014.  The Company’s adoption of this standard did not have a significant impact on its consolidated financial statements.

 

3. Earnings per Common Share

 

The Company calculates basic and diluted per share amounts based on net earnings adjusted for the effects to earnings that would result if contingently issuable shares related to contingent consideration to be settled in the Company’s stock were reported as equity for the periods presented.  Basic earnings per share is calculated by using the weighted-average number of common shares outstanding during the period. The diluted earnings per share calculation is based on the weighted-average number of shares of common stock outstanding adjusted for the number of additional shares that would have been outstanding had all potentially dilutive common shares been issued. Potentially dilutive shares of common stock include stock options and non-vested share awards.  The dilutive effects of stock options and restricted stock awards are based on the treasury stock method.  The dilutive effects of the contingent consideration to be settled in stock are calculated as if the contingently issuable shares were outstanding as of the beginning of the period.  The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income

 

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Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

(in thousands, except per share data unless otherwise noted)

 

attributable to common stockholders per common share. Stock options that are anti-dilutive and excluded from the following table totaled 1,642 and 1,841 for the three months ended March 31, 2014 and 2013, respectively.

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Numerator:

 

 

 

 

 

Net income attributable to common stockholders

 

$

7,584

 

$

476

 

Denominator:

 

 

 

 

 

Weighted average common shares outstanding — basic

 

39,769

 

38,121

 

Dilutive effect of:

 

 

 

 

 

Options and unvested restricted shares

 

886

 

968

 

Weighted average common shares outstanding — diluted

 

40,655

 

39,089

 

 

4. Fair Value Measurements of Assets and Liabilities

 

The Company classifies marketable securities as available-for-sale.  The fair value hierarchy established in the guidance adopted by the Company prioritizes the inputs used in valuation techniques into three levels as follows:

 

·                  Level 1 — Observable inputs — quoted prices in active markets for identical assets and liabilities;

·                  Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets; and

·                  Level 3 Unobservable inputs includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.

 

The following is a summary of assets and liabilities held by the Company and their related classifications under the fair value hierarchy:

 

 

 

March 31, 2014

 

December 31, 2013

 

Level 1 (A)

 

$

52,675

 

$

68,911

 

Level 2 (B)

 

9,551

 

8,694

 

Level 3 (C)

 

(6,101

)

(4,490

)

Total

 

$

56,125

 

$

73,115

 

 


(A)      Level 1 assets include money market funds and enhanced income money market funds which are classified as cash equivalents and marketable securities, respectively.

 

(B)      Level 2 assets include certificates of deposit, municipal bonds and corporate bonds which are classified as marketable securities.

 

(C)      Level 3 liabilities include the contingent consideration obligation.

 

The Company utilizes the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The Company’s marketable securities investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three months ended March 31, 2014.

 

The aggregate fair value of available-for-sale securities and aggregate amount of unrealized gains and losses for available-for-sale securities at March 31, 2014 were as follows:

 

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Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

(in thousands, except per share data unless otherwise noted)

 

 

 

 

 

Aggregate Amount of

 

 

 

Aggregate

 

Unrealized

 

 

 

Fair Value

 

Gains

 

Losses

 

Due in one year or less

 

$

11,122

 

$

9

 

$

(32

)

Due after one year, less than five years

 

3,833

 

12

 

(1

)

 

 

$

14,955

 

$

21

 

$

(33

)

 

The aggregate fair value of available-for-sale securities and aggregate amount of unrealized gains and losses for available-for-sale securities at December 31, 2013 were as follows:

 

 

 

 

 

Aggregate Amount of

 

 

 

Aggregate

 

Unrealized

 

 

 

Fair Value

 

Gains

 

Losses

 

Due in one year or less

 

$

9,105

 

$

5

 

$

(32

)

Due after one year, less than five years

 

4,988

 

11

 

(2

)

 

 

$

14,093

 

$

16

 

$

(34

)

 

Unrealized gains and losses are reported as a component of accumulated other comprehensive loss in stockholders’ equity. The cost of securities sold is based on the specific identification method. The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses at March 31, 2014 and December 31, 2013 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available-for-sale, the Company does not currently intend to sell such investments and it is more likely than not to recover the carrying value prior to being required to sell such investments.

 

The Company determined the fair value of the contingent consideration obligation based on a probability-weighted income approach derived from quarterly revenue estimates and a probability assessment with respect to the likelihood of achieving the various performance criteria. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.  The significant unobservable inputs used in the fair value measurement of the Company’s contingent consideration obligation are the probabilities of achieving certain financial targets and contractual milestones.  Significant increases (decreases) in any of those probabilities in isolation may result in a higher (lower) fair value measurement.  No changes in valuation techniques occurred during the three months ended March 31, 2014.

 

The changes in fair value of the Company’s Level 3 contingent consideration obligation during the three months ended March 31, 2014 were as follows:

 

 

 

Level 3

 

Balance at December 31, 2013

 

$

4,490

 

Fair value adjustment to contingent consideration obligation included in net income

 

1,211

 

Earn-out compensation due to Strumsoft employees

 

400

 

Balance at March 31, 2014

 

$

6,101

 

 

8



Table of Contents

 

SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

(in thousands, except per share data unless otherwise noted)

 

5. Stockholders’ Equity

 

Stock Options

 

The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The weighted-average assumptions used in the Black-Scholes option pricing model are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Expected stock price volatility

 

63

%

66

%

Risk-free interest rate

 

1.54

%

0.85

%

Expected life of options (in years)

 

4.28

 

4.49

 

Expected dividend yield

 

0

%

0

%

 

The weighted-average fair value (as of the date of grant) of the options was $16.20 and $15.71 per share for the three months ended March 31, 2014 and 2013, respectively.  During the three months ended March 31, 2014 and 2013, the Company recorded total pre-tax stock-based compensation expense of $5.8 million ($3.8 million after tax or $ 0.09  per diluted share) and $4.9 million ($3.3  million after tax or $0.09 per diluted share), respectively, which includes the fair value for equity awards issued after January 1, 2006.  The total stock-based compensation cost related to non-vested equity awards not yet recognized as an expense as of March 31, 2014 was approximately $42.5 million. That cost is expected to be recognized over a weighted-average period of approximately 2.61 years.

 

The following table summarizes information about stock options outstanding as of March 31, 2014:

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

Aggregate

 

 

 

Number of

 

Average

 

Contractual

 

Intrinsic

 

Options

 

Options

 

Exercise Price

 

Term (Years)

 

Value

 

Outstanding at December 31, 2013

 

3,315

 

$

23.97

 

 

 

 

 

Options Granted

 

477

 

32.07

 

 

 

 

 

Options Exercised

 

(175

)

18.71

 

 

 

 

 

Options Cancelled

 

(42

)

26.73

 

 

 

 

 

Outstanding at March 31, 2014

 

3,575

 

$

25.27

 

4.46

 

$

32,823

 

Vested or expected to vest at March 31, 2014

 

3,345

 

$

24.90

 

4.33

 

$

31,992

 

Exercisable at March 31, 2014

 

2,104

 

$

22.08

 

3.46

 

$

26,238

 

 

A summary of the Company’s non-vested restricted stock at March 31, 2014, and changes during the three months ended March 31, 2014, is presented below:

 

Non-Vested Restricted Stock

 

Number of
Awards

 

Non-vested at December 31, 2013

 

1,120

 

Granted

 

319

 

Vested

 

(236

)

Forfeited

 

(37

)

Non-vested at March 31, 2014

 

1,166

 

 

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SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

(in thousands, except per share data unless otherwise noted)

 

Employee Stock Purchase Plan

 

On February 1, 2012, the Company established a ten year Employee Stock Purchase Plan (ESPP or the Plan) for certain eligible employees.  The Plan is to be administered by the Company’s Board of Directors.  The total number of shares available for purchase under the Plan is 500 shares of the Company’s Common Stock.  Employees participate over a six month period through payroll withholdings and may purchase, at the end of the six month period, the Company’s Common Stock at the lower of 85% of the fair market value on the first day of the offering period or the fair market value on the purchase date.  No participant will be granted a right to purchase Common Stock under the Plan if such participant would own more than 5% of the total combined voting power of the Company.  In addition, no participant may purchase more than a thousand shares of Common Stock within any purchase period.

 

The expected life of ESPP shares is the average of the remaining purchase period under each offering period.  The weighted-average assumptions used to value employee stock purchase rights are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Expected stock price volatility

 

64

%

67

%

Risk-free interest rate

 

0.08

%

0.14

%

Expected life (in years)

 

0.50

 

0.50

 

Expected dividend yield

 

0

%

0

%

 

During the three months ended March 31, 2014 and 2013, the Company recorded $199 and $178, respectively, of compensation expense related to the ESPP.  During the three months ended March 31, 2014 and 2013, the Company sold a total of 27 and 35 shares, respectively, of its Treasury Stock pursuant to purchases under its ESPP Plan.  Cash received from purchases through the ESPP Plan during the three months ended March 31, 2014 and 2013, was approximately $740 and $670, respectively, and is included within the financing activities section of the consolidated statements of cash flows.  The total unrecognized compensation expense related to the ESPP as of March 31, 2014 was approximately $157, which is expected to be recognized over the remainder of the offering period.

 

6. Restructuring Charges

 

In January 2013, the Company initiated a work-force reduction of approximately 10 percent as part of a corporate restructuring, with reductions occurring across all levels and departments within the Company.  This measure was intended to reduce costs and to align the Company’s resources with its key strategic priorities.  Additionally, in relation to the work-force reduction, the Company initiated a facilities consolidation, beginning the process of closing one of its leased locations in Seattle, WA.  The Company did not record any additional restructuring charges during the three months ended March 31, 2014.  At March 31, 2014, there were no unpaid restructuring charges classified under accrued expenses on the balance sheet.

 

A summary of the Company’s restructuring accrual at December 31, 2013, and changes during the three months ended March 31, 2014, is presented below:

 

 

 

Balance at

 

 

 

 

 

 

 

Balance at

 

 

 

December 31, 2013

 

Charges

 

Payments

 

Adjustments

 

March 31, 2014

 

Facilities consolidation

 

$

128

 

 

(128

)

 

$

 

Total

 

$

128

 

$

 

$

(128

)

$

 

$

 

 

7. Accumulated Other Comprehensive Income (Loss)

 

Comprehensive income (loss) was as follows:

 

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SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

(in thousands, except per share data unless otherwise noted)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Net income

 

$

7,584

 

$

476

 

Translation adjustments

 

995

 

(2,475

)

Unrealized gain (loss) on securities, (net of tax)

 

4

 

(2

)

Total other comprehensive income (loss)

 

$

8,583

 

$

(2,001

)

 

The changes in accumulated other comprehensive income (loss) during the three months ended March 31, 2014, are as follows, net of tax:

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Holding Gains on

 

 

 

 

 

Foreign

 

Available-for-Sale

 

 

 

 

 

Currency

 

Securities

 

Total

 

Balance at December 31, 2013

 

$

(712

)

$

(11

)

$

(723

)

Other comprehensive income before reclassifications

 

995

 

4

 

999

 

Total other comprehensive income (loss)

 

995

 

4

 

999

 

Balance at March 31, 2014

 

$

283

 

$

(7

)

$

276

 

 

8. Goodwill

 

The Company recorded Goodwill which represents the excess of the purchase price over the fair value of assets acquired, including other definite-lived intangible assets. Goodwill is not amortized, but reviewed annually for impairment or upon the occurrence of events or changes in circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

 

Goodwill changed for the three months ended March 31, 2014:

 

Balance at December 31, 2013

 

$

137,743

 

Reclassifications, adjustments and other

 

(1,247

)

Translation adjustments

 

877

 

Balance at March 31, 2014

 

$

137,373

 

 

The reclassification adjustment of $1.2 million is primarily related to an increase in the Company’s deferred taxes in connection with a foreign tax election.

 

9. Credit Facility

 

In September 2013, the Company entered into a Credit Agreement (the Credit Facility) with JP Morgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, National Association, as syndication agent and Capital One, National Association and KeyBank National Association, as co-documentation agents.  The Credit Facility, which will be used for general corporate purposes, is a $100 million unsecured revolving line of credit that matures on September 27, 2018.  Synchronoss has the right to request an increase in the aggregate principal amount of the Credit Facility to $150 million.  As of March 31, 2014, Synchronoss has not drawn down any funds under the Credit Facility.

 

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SYNCHRONOSS TECHNOLOGIES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (Continued)

(in thousands, except per share data unless otherwise noted)

 

The Credit Facility is subject to certain financial covenants.  As of March 31, 2014, the Company was in compliance with all required covenants and there were no outstanding balances on the Credit Facility.

 

10. Legal Matters

 

The Company’s 2011 acquisition agreement with Miyowa SA provided that former shareholders of Miyowa SA would be eligible for earn-out payments, to the extent specified business milestones were achieved following the acquisition.  In December 2013, Eurowebfund and Bakamar, two former shareholders of Miyowa SA filed a complaint against the Company in the Commercial Court of Paris, France claiming that they are entitled to certain earn-out payments under the acquisition agreement.  The Company was served with a copy of this complaint in January 2014.  The Company believes Miyowa SA failed to meet the criteria required for it to pay the claimed amounts and that no earn-out payments are owed.  Although the Company cannot predict the outcome of the lawsuit due to the inherent uncertainties of litigation, it believes the positions of Eurowebfund and Bakamar are without merit, and the Company intends to vigorously defend against all claims brought by them.

 

The Company is not currently subject to any legal proceedings that could have a material adverse effect on its operations; however, it may from time to time become a party to various legal proceedings arising in the ordinary course of its business. The Company is currently the plaintiff in several patent infringement cases. The defendants in several of these cases have filed counterclaims.  Although the Company cannot predict the outcome of the cases at this time due to the inherent uncertainties of litigation, the Company continues to pursue its claims and believes that the counterclaims are without merit, and the Company intends to defend all of such counterclaims.

 

11. Subsequent Events

 

The Company has evaluated all subsequent events and transactions through the filing date.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the information set forth in our consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and in our annual report Form 10-K for the year ended December 31, 2013. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management as of the date hereof based on information currently available to our management. Use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “hopes,” “should,” “continues,” “seeks,” “likely” or similar expressions, indicate a forward-looking statement. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions. Actual results may differ materially from the forward-looking statements we make. We caution investors not to place substantial reliance on the forward-looking statements included in this report. These statements speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.  All numbers are expressed in thousands unless otherwise stated.

 

Overview

 

We are a mobile innovation company that provides cloud solutions and software-based activation for connected devices globally.  Such services include intelligent connectivity management and content synchronization, backup and sharing, as well as device and service procurement, provisioning, activation, and support, that enable communications service providers (CSPs), cable operators/multi-services operators (MSOs), original equipment manufacturers (OEMs) with embedded connectivity (e.g. smartphones, laptops, tablets and mobile Internet devices, such as automobiles, wearables for personal health and wellness, and connected homes), multi-channel retailers and other customers to accelerate and monetize their go-to-market strategies for connected devices. This includes automating subscriber activation, order management, upgrades, service provisioning and connectivity and content management from any sales channel to any communication service (wireless or wireline), across any connected device type and managing the content transfer, synchronization and share.  Our global solutions touch all aspects of connected devices on the mobile Internet.

 

Our Synchronoss Personal Cloud™ solution targets individual consumers while our Synchronoss WorkSpace™ solution focuses on providing a secure, integrated file sharing and collaboration solution for small and medium businesses.  In addition, our Integrated Life™ platform is specifically designed to power the activation of the devices and technologies that seamlessly connect today’s consumer and leverage our cloud assets to manage these devices and contents associated with them. The Integrated Life™ platform enables us to drive a natural extension of our mobile activations and cloud services with leading wireless networks around the world to link other non-traditional devices — (i.e., automobiles, wearables for personal health and wellness, and connected homes).

 

Our Activation Services, Synchronoss Personal Cloud™, Synchronoss WorkSpace™, and Synchronoss Integrated Life™ platforms provide end-to-end seamless integration between customer-facing channels/applications, communication services, or devices and “back-office” infrastructure-related systems and processes. Our customers rely on our solutions and technology to automate the process of activation and content and settings management for their customers’ devices while delivering additional communication services. Our Synchronoss Integrated Life™ platform brings together the capabilities of device/service activation with content and settings management to provide a seamless experience of activating and managing non-traditional devices.  Our platforms also support automated customer care processes through use of accurate and effective speech processing technology and enable our customers to offer their subscribers the ability to store in and retrieve from the Cloud their personal and work content and data which resides on their connected mobile devices, such as personal computers, smartphones and tablets.  Our platforms are designed to be carrier-grade, high availability, flexible and scalable to enable multiple converged communication services to be managed across multiple distribution channels, including e-commerce, m-commerce, telesales, customer stores, indirect and other retail outlets, allowing us to meet the rapidly changing and converging services and connected devices offered by our customers. We enable our customers to acquire, retain and service subscribers quickly, reliably and cost-effectively by enabling backup, restore, synchronization and sharing of subscriber content.  Through the use of our platforms, our customers can simplify the processes associated with managing the customer experience for procuring, activating, connecting, backing-up, synchronizing and social media and enterprise-wide sharing/collaboration connected devices and contents from these devices and associated services.  The extensibility, scalability, reliability and relevance of our platforms enable new revenue streams and retention opportunities for our customers through new subscriber acquisitions, sale of new devices, accessories and new value-added service offerings in the Cloud, while optimizing their

 

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cost of operations and enhancing customer experience.

 

We currently operate in and market our solutions and services directly through our sales organizations in North America, Europe and Asia-Pacific.

 

Our industry-leading customers include Tier 1 mobile service providers such as AT&T Inc., Verizon Wireless, Vodafone, Orange, Sprint, Telstra and U.S. Cellular, Tier 1 cable operators/MSOs and wireline operators like AT&T Inc., Comcast, Cablevision, Charter, CenturyLink, Mediacom and Level 3 Communications, and large OEMs such as Apple and Ericsson.  These customers utilize our platforms, technology and services to service both consumer and business customers.

 

Revenues

 

We generate a substantial portion of our revenues on a per-transaction or subscription basis, which is derived from contracts that extend up to 60 months from execution. For the three months ended March 31, 2014 and 2013, we derived approximately 70% and 65%, respectively, of our revenues from transactions processed and subscription arrangements.  The remainder of our revenues was generated from professional services and licenses.  This is a result of new subscription arrangements with our existing customers.

 

Historically, our revenues have been directly impacted by the number of transactions processed.  The future success of our business depends on the continued growth of consumer and business transactions and, as such, the volume of transactions that we process could fluctuate on a quarterly basis.  See “Current Trends Affecting Our Results of Operations” for certain matters regarding future results of operations.

 

Most of our revenues are recorded in U.S. dollars but as we continue to expand our footprint with international carriers and increase the extent of recording our international activities in local currencies we will become subject to currency translation risk that could affect our future net sales.

 

Our five largest customers accounted for 79% and 74% of net revenues for the three months ended March 31, 2014 and 2013, respectively.  Of these customers, AT&T and Verizon Wireless each accounted for more than 10% of our revenues for the three months ended March 31, 2014 and 2013.  See “Risk Factors” for certain matters bearing risks on our future results of operations.

 

Costs and Expenses

 

Our costs and expenses consist of cost of services, research and development, selling, general and administrative, depreciation and amortization, change in contingent consideration and interest and other expense.

 

Cost of services includes all direct materials, direct labor, cost of facilities and those indirect costs related to revenues such as indirect labor, materials and supplies. Our primary cost of services is related to our information technology and systems department, including network costs, data center maintenance, database management and data processing costs, as well as personnel costs associated with service implementation, customer deployment and customer care. Also included in cost of services are costs associated with our exception handling centers and the maintenance of those centers. Currently, we utilize a combination of employees and third-party providers to process transactions through these centers.

 

Research and development costs are expensed as incurred unless they meet U.S. Generally Accepted Accounting Principles (GAAP) criteria for deferral and amortization. Software development costs incurred prior to the establishment of technological feasibility do not meet these criteria, and are expensed as incurred. Research and development expense consists primarily of costs related to personnel, including salaries and other personnel-related expenses, consulting fees and the cost of facilities, computer and support services used in service technology development. We also expense costs relating to developing modifications and minor enhancements of our existing technology and services.

 

Selling, general and administrative expense consists of personnel costs including salaries, sales commissions, sales operations and other personnel-related expenses, travel and related expenses, trade shows, costs of communications equipment and support services, facilities costs, consulting fees, costs of marketing programs, such as internet and print and other overhead costs.

 

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Net change in contingent consideration obligation consists of the changes to the fair value estimate of the obligation to the former equity holders which resulted from our acquisitions. The estimate is based on the weighted probability of achieving certain financial targets and milestones. The contingent consideration obligation earn-out periods are no longer than 12 months in duration.  As such, we recognize the changes in fair value over that period.  Final determination of the payment is done up to 90 days after the earn-out period.

 

Restructuring charges consist of the costs associated with the January 2013 work-force reduction plan to reduce costs and align our resources with our key strategic priorities.  The restructuring charges include employee termination costs and facilities consolidation costs related to minimum lease payments of a leased location that will be closed.

 

Depreciation relates to our property and equipment and includes our network infrastructure and facilities. Amortization primarily relates to trademarks, customer lists and technology acquired.

 

Interest expense consists primarily of interest on our lease financing obligations.

 

Current Trends Affecting Our Results of Operations

 

Business from our Activation Platforms and Synchronoss Cloud Solutions has been driven by the unprecedented growth in mobile devices globally. Certain industry trends, such as Next programs from AT&T have resulted in faster device upgrade cycles by customers precipitating in increased device order transactions and activations. With mobile devices becoming content rich and acting as a replacement for other traditional devices like PC’s, the need to securely back up content from mobile devices, sync it with other devices and share it with others in their community of family, friends and business associates have become essential needs. The major Tier 1 carriers are also publicly discussing achieving 500% penetration (multiple connected devices per user) by enabling connectivity to non-traditional devices. Such devices include connected cars, health and wellness devices, connected home and health care. The need for these devices to be activated, managed and the contents from them to be stored in a common cloud are also expected to be drivers of our businesses in the long term.

 

Bring Your Own Technology (BYOT/BYOD) is impacting the work environment for Small and Medium Businesses, which find themselves in a position where they need to offer their employees a safe environment to share and collaborate on their work documents and files via mobile devices. Leveraging our Synchronoss Personal Cloud™ solution infrastructure and technology to build our Synchronoss WorkSpace™ solution for this purpose is enabling us to serve a completely new market, which we believe will also contribute to our growth.

 

To support our expected growth driven by the favorable industry trends mentioned above, we continue to look for opportunities to improve our operating efficiencies, such as the utilization of offshore technical and non-technical resources for our exception handling center management as well as routine software maintenance activities. We also leverage modular components from our existing software platforms to build new products.  We believe that these opportunities will continue to provide future benefits and position us to support revenue growth. In addition, we anticipate further automation of the transactions generated by our more mature customers and additional transaction types. Our cost of services can fluctuate from period to period based upon the level of automation and the on-boarding of new transaction and service types. We are also making investments in new research and development for development of products designed to enable us to grow rapidly in the mobile wireless market. Our purchase of capital assets and equipment may also increase based on aggressive deployment, subscriber growth and promotional offers for free storage by our major Tier 1 carrier customers.

 

We continue to advance our plans for the expansion of our platforms’ footprint with broadband carriers and international mobile carriers to support connected devices and multiple networks through our focus on transaction management and cloud-based services for back up, synchronization and sharing of content. Our initiatives with AT&T, Verizon Wireless, Vodafone and other CSPs continue to grow both with our current businesses as well as new products. We are also exploring additional opportunities through merger and acquisition activities to support our customer, product and geographic diversification strategies.

 

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Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements in accordance with GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during a fiscal period. The Securities and Exchange Commission (SEC) considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. We have discussed the selection and development of the critical accounting policies with the audit committee of our Board of Directors, and the audit committee has reviewed our related disclosures in this Form 10-Q.  Although we believe that our judgments and estimates are appropriate, correct and reasonable under the circumstances, actual results may differ from those estimates.  If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See “Risk Factors” for certain matters bearing risks on our future results of operations.

 

We believe that of our significant accounting policies, which are described in Note 2 in our Annual Report on Form 10-K for the year ended December 31, 2013, the following accounting policies involve a greater degree of judgment and complexity.  Accordingly, these are the policies which we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations:

 

·                  Revenue Recognition and Deferred Revenue

·                  Allowance for Doubtful Accounts

·                  Income Taxes

·                  Goodwill and Impairment of Long-Lived Assets

·                  Business Combinations

·                  Stock-Based Compensation

 

There were no significant changes in our critical accounting policies and estimates discussed in our Form 10-K during the three months ended March 31, 2014.  Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013 for a more complete discussion of our critical accounting policies and estimates.

 

Results of Operations

 

Three months ended March 31, 2014 compared to the three months ended March 31, 2013

 

The following table presents an overview of our results of operations for the three months ended March 31, 2014 and 2013:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2014

 

2013

 

2014 vs 2013

 

 

 

$

 

% of Revenue

 

$

 

% of Revenue

 

$ Change

 

% Change

 

 

 

(in thousands)

 

Net revenues

 

$

98,477

 

100.0

%

$

78,276

 

100.0

%

$

20,201

 

25.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services*

 

39,979

 

40.6

%

32,131

 

41.0

%

7,848

 

24.4

%

Research and development

 

15,541

 

15.8

%

16,718

 

21.4

%

(1,177

)

(7.0

)%

Selling, general and administrative

 

17,125

 

17.4

%

14,652

 

18.7

%

2,473

 

16.9

%

Net change in contingent consideration obligation

 

1,211

 

1.2

%

433

 

0.6

%

778

 

179.7

%

Restructuring charges

 

 

0.0

%

5,172

 

6.6

%

(5,172

)

100.0

%

Depreciation and amortization

 

12,266

 

12.5

%

8,969

 

11.5

%

3,297

 

36.8

%

 

 

86,122

 

87.5

%

78,075

 

99.7

%

8,047

 

10.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

$

12,355

 

12.5

%

$

201

 

0.3

%

$

12,154

 

6,046.8

%

 


*         Cost of services excludes depreciation and amortization which is shown separately.

 

Net Revenues. Net revenues increased $20.2 million to $98.5 million for the three months ended March 31, 2014, compared to the same period in 2013.  This increase was due primarily to the expansion of our services provided to our customers.  Transaction and

 

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subscription revenues as a percentage of sales were 70% or $68.6 million for the three months ended March 31, 2014 compared to 65% or $51.0 million for the same period in 2013.  The increase in transaction and subscription revenue is primarily due to new subscription arrangements with our existing customers.  Professional service and license revenues as a percentage of sales were 30% or $29.9 million for the three months ended March 31, 2014, compared to 35% or $27.3 million for the same period in 2013.

 

Net revenues related to Activation Services remained the same at $54.8 million for the three months ended March 31, 2014 compared to the same period in 2013.  Net revenues related to Activation Services represented 56% for the three months ended March 31, 2014, compared to 70% for the same period in 2013.  Net revenues related to our Cloud Services increased by $20.2 million to $43.7 million of our revenues for the three months ended March 31, 2014 compared to the same period in 2013.  Net revenues related to our Cloud Services represented 44% for the three months ended March 31, 2014, compared to 30% for the same period in 2013.  The increase in our Cloud Service performance was a result of a strong adoption of cloud offering across our customer base.

 

Expenses

 

Cost of Services.  Cost of services increased $7.8 million to $40.0 million for the three months ended March 31, 2014, compared to the same period in 2013, due primarily to an increase of $4.3 million in co-location costs related to the increased call volume and capacity associated with our data facilities.  There was also an increase of $2.4 million in outside consulting expense, due to our increased use of third party exception handling vendors as a result of increased call volume.  Additionally, our personnel and related costs increased $1.3 million primarily as a result of our continued growth in existing and new programs with our customers.  As a result of increased revenues, cost of services as a percentage of revenues slightly decreased to 40.6% for the three months ended March 31, 2014, as compared to 41.0% for the three months ended March 31, 2013.

 

Research and Development.  Research and development expense decreased $1.2 million to $15.5 million for the three months ended March 31, 2014, compared to the same period in 2013 primarily due to the capitalization of software development costs related to the Synchronoss WorkSpaceTM solution. There were no such costs capitalized for the three months ended March 31, 2013. We also incurred higher travel expenses in the three months ended March 31, 2013 as a result of integration work performed at our acquired entities that did not repeat in the same period in 2014.  Research and development expense as a percentage of revenues decreased to 15.8% for three months ended March 31, 2014 as compared to 21.4% for the three months ended March 31, 2013.

 

Selling, General and Administrative.  Selling, general and administrative expense increased $2.5 million to $17.1 million for the three months ended March 31, 2014, compared to the same period in 2013.  There was an increase of $179 thousand in personnel and related costs and an increase of $900 thousand in stock-based compensation.  The increase in personnel and related costs primarily relates to the earn-out compensation due to the former owners and employees of Strumsoft, Inc. (“Strumsoft”).  Our marketing expense increase of $837 thousand related to our expanded marketing activities associated with rebranding and the launch of our new products.  The remaining increase of $207 thousand related to telecommunications and facility costs that were impacted by the increase of our common area maintenance costs and $404 thousand related to outside consultant costs supporting various strategic projects.  As a result of increased revenues, selling, general and administrative expense as a percentage of revenues decreased to 17.4% for the three months ended March 31, 2014, compared to 18.7% for the three months ended March 31, 2013.

 

Net change in contingent consideration obligation.  The net change in contingent consideration obligation resulted in a $1.2 million increase of the contingent consideration obligation for the three months ended March 31, 2014 driven by changes in the fair value estimates related to the weighted probability of achieving revenue milestones for the Strumsoft earn-out.  The $433 thousand increase of the fair value change in the contingent consideration liability for the three months ended March 31, 2013 was due to the change in the estimate of the fair value of the contingent consideration obligation related to the Miyowa S.A. (“Miyowa”) and SpeechCycle, Inc. (“SpeechCycle”) earn-outs, primarily due to changes in the probability of achieving revenue and product milestones.

 

Restructuring charges. There were no restructuring charges recorded for the three months ended March 31, 2014.  Restructuring charges were $5.2 million for the three months ended March 31, 2013, as a result of the January 2013 work-force reduction plan to reduce costs and align our resources with our key strategic priorities.  We recorded restructuring charges of $4.6 million and $555 thousand during the three months ended March 31, 2013 for employment termination costs and minimum lease payments, respectively.

 

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Depreciation and amortization. Depreciation and amortization expense increased $3.3 million to $12.3 million for the three months ended March 31, 2014, compared to the same period in 2013, primarily related to the increase in depreciable fixed assets necessary for the continued expansion of our platforms and amortization of our newly acquired intangible assets of Strumsoft.  Depreciation and amortization expense as a percentage of revenues increased to 12.5% for the three months ended March 31, 2014, as compared to 11.5% for the three months ended March 31, 2013.

 

Income from Operations.  Income from operations increased $12.2 million to $12.4 million for the three months ended March 31, 2014, compared to the same period in 2013.  This was due primarily to increased revenues and no restructuring activities offset by increased charges related to the net change in contingent consideration obligation, increases in depreciable fixed assets, intangible amortization and the additional costs associated with our acquired operations.  Income from operations as a percentage of revenues increased to 12.5% for the three months ended March 31, 2014, as compared to 0.3% for the three months ended March 31, 2013.

 

Interest income.  Interest income decreased $37 thousand to $49 thousand for the three months ended March 31, 2014, compared to the same period in 2013.

 

Interest expense.  Interest expense increased $188 thousand to $420 thousand for the three months ended March 31, 2014, compared to the same period in 2013.

 

Other income (expense).  Other income (expense) increased $1.1 million to $796 thousand for the three months ended March 31, 2014, compared to the same period in 2013.  Other income (expense) increased primarily due to an increase in New York state refundable research and development tax credits domestically, upon the state’s completion of its audit, and changes in foreign currency exchange rate fluctuations.

 

Income Tax.  We recognized approximately ($5.2) million and $679 thousand in related tax (expense) benefit during the three months ended March 31, 2014 and 2013, respectively.  Our effective tax rate was approximately 40.7% for the three months ended March 31, 2014, which was higher than our U.S. federal statutory rate primarily due to the unfavorable impact of the fair market value adjustment for the contingent consideration obligation related to the Strumsoft earn-out.  Our effective tax rate was not meaningful for the three months ended March 31, 2013 due to a small pre-tax loss and due to recognizing the 2012 tax credit for research and experimentation expenses as a discrete benefit in the quarter, in accordance with the date of enactment of the American Taxpayer Relief Act of 2012.  We review the expected annual effective income tax rate and make changes on a quarterly basis as necessary based on certain factors such as changes in forecasted annual operating income, changes to the actual and forecasted permanent book-to-tax differences, and changes resulting from the impact of tax law changes.

 

Liquidity and Capital Resources

 

Our principal source of liquidity has been cash provided by operations. Our cash, cash equivalents and marketable securities balance was $62.2 million at March 31, 2014, a decrease of $15.4 million as compared to the balance at December 31, 2013.  During the three months ended March 31, 2014, cash was used in operations due to increased days sales outstanding, as a result of the timing of collections of our receivables in addition to the payment of our annual bonus and related payroll obligations.  We anticipate that our principal uses of cash in the future will be to fund the expansion of our business through both organic growth as well as possible acquisition activities and the expansion of our customer base internationally.  Uses of cash will also include facility and technology expansion, capital expenditures, and working capital.

 

In September 2013, we entered into a Credit Agreement (the Credit Facility) with JP Morgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, National Association, as syndication agent and Capital One, National Association and KeyBank National Association, as co-documentation agents.  The Credit Facility, which will be used for general corporate purposes, is a $100 million unsecured revolving line of credit that matures on September 27, 2018.  We have the right to request an increase in the aggregate principal amount of the Credit Facility to $150 million.  We have not drawn down any funds under the Credit Facility.

 

The Credit Facility is subject to certain financial covenants.  As of March 31, 2014, we were in compliance with all required covenants and there were no outstanding balances on the Credit Facility.

 

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At March 31, 2014, our non-U.S. subsidiaries held approximately $15.9 million of cash and cash equivalents that are available for use by all of our operations around the world.  At this time, we believe these funds are permanently reinvested.  However, if these funds were repatriated to the U.S. or used for U.S. operations, certain amounts could be subject to U.S. tax for the incremental amount in excess of the foreign tax paid.

 

Discussion of Cash Flows

 

Cash flows from operations. Net cash used in operating activities for the three months ended March 31, 2014 was $11.4 million, as compared to $15.2 million provided for the same period in 2013.  Cash flows from operations decreased by approximately $26.6 million.  Among the changes in working capital, the increase in days of sales outstanding, caused by the timing of our receivable collections, accounted for most of the decrease.  Additionally, our cash from operations was impacted by the payment of our annual bonus and related payroll obligations.

 

Cash flows from investing.  Net cash used in investing activities for the three months ended March 31, 2014 was $9.0 million, as compared to $6.2 million used for the same period in 2013.  The increase in net cash used in investing activities for the three months ended March 31, 2014 of $2.8 million as compared to 2013 is primarily due to the timing of our purchases and the maturity of our investments.

 

Cash flows from financing.  Net cash provided by financing activities for the three months ended March 31, 2014 was $4.1 million, as compared to $6.1 million provided by financing activities for the same period in 2013.  The decrease in net cash provided by financing activities for the three months ended March 31, 2014 of $2.0 million as compared to 2013 is primarily due to a decrease in proceeds from the exercise of stock options.

 

We believe that our existing cash and cash equivalents, cash generated from our existing operations and our available credit facilities will be sufficient to fund our operations for the next twelve months based on our current business plan.

 

Effect of Inflation

 

Although inflation generally affects us by increasing our cost of labor and equipment, we do not believe that inflation has had any material effect on our results of operations for the three months ended March 31, 2014 and 2013.

 

Impact of Recently Issued Accounting Standards

 

In March 2013, the FASB issued ASU 2013-05, which permits an entity to release cumulative translation adjustments into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity.  Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, or, if a controlling financial interest is no longer held.  The revised standard is effective for fiscal years beginning after December 15, 2013.  Our adoption of this standard did not have a significant impact on our consolidated financial statements.

 

In July 2013, the FASB issued ASU 2013-11, which provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset instead of presented gross for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed.  This new standard is effective for fiscal years beginning after December 15, 2013.  Our adoption of this standard did not have a significant impact on our consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements as of March 31, 2014 and December 31, 2013 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part II, “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results.  We believe our exposure associated with these market risks has not changed materially since December 31, 2013.

 

Foreign Currency Exchange Risk

 

We conduct business outside of the U.S. in several currencies including the British Pound Sterling, Euro, Australian Dollar, and Indian Rupee. Prior to the third quarter of 2013, several of our subsidiaries that operate outside of the U.S. used the U.S. dollar as the functional currency. Effective July 1, 2013, we changed the functional currencies of those subsidiaries that operate outside of the U.S. to their local currency. The functional currency is translated into U.S. dollars for balance sheet accounts using the month end rates in effect as of the balance sheet date and average exchange rate for revenue and expense accounts for each respective period. The translation adjustments are deferred as a separate component of stockholders’ equity within accumulated other comprehensive income. Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the consolidated statements of income. The effects of the change in functional currency were not material to our consolidated financial statements.

 

We do not hold any derivative instruments and do not engage in any hedging activities. Although our reporting currency is the U.S. dollar, we may conduct business and incur costs in the local currencies of other countries in which we may operate, make sales and buy materials. As a result, we are subject to currency translation risk. Further, changes in exchange rates between foreign currencies and the U.S. dollar could affect our future net sales and cost of sales and could result in exchange losses.

 

We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and financial condition. To the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase and hedging activities may be considered if appropriate.

 

Interest Rate Risk

 

We are exposed to the risk of interest rate fluctuations on the interest income earned on our cash and cash equivalents. A hypothetical 100 basis point movement in interest rates applicable to our cash and cash equivalents outstanding at March 31, 2014 would increase interest income by less than $34 thousand on an annual basis. We are subject to foreign currency exchange risk with respect to cash balances maintained in foreign currencies.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2014.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of March 31, 2014, the end of the period covered by this quarterly report, to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

 

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Changes in internal controls over financial reporting

 

We have implemented new financial systems that will continue in phases over the remainder of the year. In connection with this initiative and the resulting changes in our financial systems, the Company continues to enhance the design and documentation of our internal control processes to ensure that controls over our financial reporting remain effective. Except as noted, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

On August 26, 2011, we filed a complaint in the United States District Court for the District of New Jersey (Civ Act. No. 11-4947 (FLW/LHG) against Newbay Software, Inc. and Newbay Software, Ltd. (collectively, “Newbay”), claiming that Newbay has infringed, and continues to infringe, several of our patents.  On November 28, 2011, Newbay filed an answer to our complaint and asserted certain counterclaims that our patents at issue were invalid.  In December 2012, we entered into a patent license and settlement agreement with Newbay and its parent corporation Research in Motion, Ltd. (“RIM”) (now called BlackBerry) whereby we granted each of RIM and Newbay a limited license to our patents.  As part of the business combination accounting rules we calculated the fair value of the affective settlement using an income approach derived from historical and estimated future cash flow information.  As a result of entering into the patent license and settlement agreement, the parties dismissed the above complaints.

 

On November 21, 2011, we filed an amended complaint in the United States District Court for the District of New Jersey (Civ Act. No. 3:11-cv-06713) against OnMobile Global Limited, VoxMobili, Inc. and VoxMobili, S.A. (“collectively, VoxMobili”), claiming that VoxMobili has infringed, and continues to infringe, several of our patents. On April 2, 2012, VoxMobili filed an answer to our complaint and asserted certain counterclaims that our patents at issue are invalid.  In March 2013, we entered into a patent license and settlement agreement with OnMobile Global Limited, VoxMobili, Inc. and VoxMobili, S.A. whereby we granted each of these companies (but not their subsidiaries or affiliates) a limited license to our patents.  As a result of entering into the patent license and settlement agreement, the parties filed a joint stipulation to dismiss the above complaint.

 

Our 2011 acquisition agreement with Miyowa SA provided that former shareholders of Miyowa SA would be eligible for earn-out payments to the extent specified business milestones were achieved following the acquisition.  In December 2013, Eurowebfund and Bakamar, two former shareholders of Miyowa SA filed a complaint against us in the Commercial Court of Paris, France claiming that they are entitled to certain earn-out payments under the acquisition agreement.  We were served with a copy of this complaint in January 2014.  We believe Miyowa SA failed to meet the criteria required for us to pay the claimed amounts and that no earn-out payments are owed.  Although we cannot predict the outcome of the lawsuit due to the inherent uncertainties of litigation, we believe the positions of Eurowebfund and Bakamar are without merit, and we intend to vigorously defend against all claims brought by them.

 

We are not currently subject to any legal proceedings that could have a material adverse effect on our operations; however, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business.  For instance, on October 4, 2011, we filed a complaint in the United States District Court for the District of New Jersey (Civ Act. No. 3:11-cv-05811 FLW-TJB) against Assurion, Inc. (“Assurion”), claiming that Assurion has infringed, and continues to infringe, several of our patents.  On February 3, 2012, Assurion filed an answer to our complaint and asserted certain counterclaims that our patents at issue are invalid.  On March 23, 2013, the Court stayed this action pending reexamination of several asserted patents in the United States Patent and Trademark Office.  Although due to the inherent uncertainties of litigation, we cannot predict the outcome of the action at this time, we continue to pursue our claims and believe that any counterclaims are without merit, and we intend to defend against all such counterclaims.

 

ITEM 1A.  RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business,

 

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financial condition and/or operating results.  If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our stock could decline, and our stockholders may lose part or all of their investment.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5.  OTHER INFORMATION

 

None.

 

ITEM 6.  EXHIBITS

 

Exhibit No.

 

Description

3.2

 

Restated Certificate of Incorporation of the Registrant, incorporated by reference to Registrant’s Registration Statement on Form S-1 (Commission File No. 333-132080).

3.4

 

Amended and Restated Bylaws of the Registrant, incorporated by reference to Registrant’s Registration Statement on Form S-1 (Commission File No. 333-132080).

4.2

 

Form of the Registrant’s Common Stock certificate, incorporated by reference to Registrant’s Registration Statement on Form S-1 (Commission File No. 333-132080).

10.8

 

Credit Agreement dated as of September 27, 2013 between the Registrant and JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013.

10.9

 

Cingular Mater Services Agreement, effective September 1, 2005 by and between the Registrant and Cingular Wireless LLC, incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008.

10.9.1

 

Subordinate Material and Services Agreement No. SG021306.S.025 by and between the Registrant and AT&T Services, Inc. dated as of August 1, 2013, including order numbers SG021306.S.025.S.001, SG021306.S.025.S.002, SG021306.S.025.S.003 and SG021306.S.025.S.004, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

32.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and section 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and section 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Schema Document

101.CAL

 

XBRL Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

XBRL Labels Linkbase Document

101.PRE

 

XBRL Presentation Linkbase Document

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Synchronoss Technologies, Inc.

 

 

 

 

 

/s/ Stephen G. Waldis

 

Stephen G. Waldis

 

Chairman of the Board of Directors and

 

Chief Executive Officer

 

(Principal executive officer)

 

 

 

 

 

/s/ Karen L. Rosenberger

 

Karen L. Rosenberger

 

Executive Vice President, Chief Financial Officer and Treasurer

 

 

May 2, 2014

 

 

23


Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 13a-14(a)

 

I, Stephen G. Waldis, certify that:

 

1.                                      I have reviewed this Quarterly Report on Form 10-Q of Synchronoss Technologies, Inc. for the quarter ended March 31, 2014;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                                      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.              Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.               Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

a.              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.              Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: May 2, 2014

/s/ Stephen G. Waldis

 

Stephen G. Waldis

 

Chairman of the Board of Directors &

 

Chief Executive Officer

 


Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 13a-14(a)

 

I, Karen L. Rosenberger, certify that:

 

1.                                      I have reviewed this Quarterly Report on Form 10-Q of Synchronoss Technologies, Inc. for the quarter ended March 31, 2014;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                                      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.              Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.               Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

a.              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.              Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: May 2, 2014

/s/ Karen L. Rosenberger

 

Karen L. Rosenberger

 

Executive Vice President, Chief Financial Officer &

 

Treasurer

 


Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Synchronoss Technologies, Inc. (the “Company”) for the quarter ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen G. Waldis, the Chairman of the Board of Directors, President & Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief that:

 

(1)                                                   the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and

 

(2)                                                   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.

 

 

Date: May 2, 2014

 

 

/s/ Stephen G. Waldis

 

Stephen G. Waldis

 

Chairman of the Board of Directors &

 

Chief Executive Officer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 


Exhibit 32.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Synchronoss Technologies, Inc. (the “Company”) for the quarter ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Karen L. Rosenberger, the Chief Financial Officer & Treasurer of the Company, hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief that:

 

(1)                                                   the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and

 

(2)                                                   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.

 

 

Date: May 2, 2014

 

 

/s/ Karen L. Rosenberger

 

Karen L. Rosenberger

 

Executive Vice President, Chief Financial Officer &

 

Treasurer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.