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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 September 30, 2017
 
Or
 
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 ☐  No x
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 ☐  No x

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

 
Accelerated filer
x
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller Reporting Company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐  No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No x
 
Class
 
Outstanding at June 30, 2018
Common stock, $0.0001 par value
 
42,168,400


Table of Contents

SYNCHRONOSS TECHNOLOGIES, INC.
FORM 10-Q INDEX
 
 
 
PAGE NO.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I.  FINANCIAL INFORMATION
 
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
 
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
 
September 30, 2017
 
December 31, 2016
 
 
 
(Restated)
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
210,070

 
$
169,801

Restricted cash**
6,164

 
41,632

Marketable securities
4,167

 
12,506

Accounts receivable, net of allowances of $5,114 and $1,761 at September 30, 2017 and December 31, 2016, respectively
85,508

 
107,474

Prepaid and other current assets
67,282

 
38,277

Assets held for sale, current*
63,094

 

Total current assets
436,285

 
369,690

Marketable securities
487

 
2,974

Property and equipment, net
125,179

 
158,205

Goodwill
235,857

 
224,651

Intangible assets, net
140,464

 
162,968

Deferred tax assets
32,355

 
13,286

Other assets
8,469

 
8,658

Note receivable from related party
85,261


70,269

Equity method investment
44,668

 
43,650

Assets held for sale, non-current*
892,955

 

Total assets
$
2,001,980

 
$
1,054,351

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
15,855

 
$
17,057

Accrued expenses
60,760

 
76,882

Deferred revenues
97,267

 
57,430

Contingent consideration obligation
2,831

 
2,833

Short-term debt
869,011

 
29,000

Liabilities held for sale, current*
75,162

 

Total current liabilities
1,120,886

 
183,202

Lease financing obligation
11,558

 
12,450

Convertible debt, net of debt issuance costs
227,351

 
226,291

Deferred tax liabilities
16,577

 
3,508

Deferred revenues
32,025

 
65,630

Other liabilities
8,906

 
8,193

Liabilities held for sale, non-current*
111,743

 

Commitments and contingencies (Note 13)
 
 
 
Redeemable noncontrolling interest
25,280

 
25,280

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized, 52,452 and 50,388 shares issued; 47,393 and 45,292 outstanding at September 30, 2017 and December 31, 2016, respectively
5

 
5

Treasury stock, at cost (5,059 and 5,096 shares at September 30, 2017 and December 31, 2016, respectively)
(105,584
)

(106,631
)
Additional paid-in capital
592,550

 
571,153

Accumulated other comprehensive loss
(23,387
)
 
(42,350
)
Retained earnings (accumulated deficit)
(15,930
)
 
107,620

Total stockholders’ equity
447,654

 
529,797

Total liabilities and stockholders’ equity
$
2,001,980

 
$
1,054,351

* See Note 4 - Acquisitions and Divestitures for transactions classified as held for sale.
** See Note 6 - Investments in Affiliates and Related Transactions for related party transactions reflected in this account
 
See accompanying notes to condensed consolidated financial statements.

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Table of Contents

SYNCHRONOSS TECHNOLOGIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
(Restated)
 
 
 
(Restated)
Net revenues
 
$
91,015

 
$
119,936

 
$
296,102

 
$
319,283

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of revenues**
 
45,576

 
49,138

 
139,386

 
143,469

Research and development
 
20,926

 
31,030

 
67,234

 
84,904

Selling, general and administrative
 
34,881

 
28,827

 
103,049

 
84,621

Net change in contingent consideration obligation
 

 
(1,349
)
 

 
1,766

Restructuring charges
 
2,312

 
924

 
11,715

 
4,973

Depreciation and amortization
 
23,459

 
23,592

 
71,098

 
70,467

Total costs and expenses
 
127,154

 
132,162

 
392,482

 
390,200

Loss from continuing operations
 
(36,139
)
 
(12,226
)
 
(96,380
)
 
(70,917
)
Interest income
 
3,274

 
271

 
9,157

 
1,492

Interest expense
 
(25,555
)
 
(1,596
)
 
(48,016
)
 
(5,006
)
Other expense, net
 
(256
)
 
(151
)
 
2,374

 
136

Equity method investment income
 
645

 

 
1,626

 

Loss from continuing operations, before taxes
 
(58,031
)
 
(13,702
)
 
(131,239
)
 
(74,295
)
Benefit for income taxes
 
12,825

 
3,610

 
17,973

 
18,760

Net loss from continuing operations
 
(45,206
)
 
(10,092
)
 
(113,266
)

(55,535
)
Net income (loss) from discontinued operations, net of tax*
 
8,842

 
9,307

 
(14,067
)
 
27,106

Net loss
 
(36,364
)
 
(785
)
 
(127,333
)
 
(28,429
)
Net loss attributable to redeemable noncontrolling interests
 
(1,276
)
 
(3,347
)
 
(6,980
)
 
(9,494
)
Net loss attributable to Synchronoss
 
$
(35,088
)
 
$
2,562

 
$
(120,353
)
 
$
(18,935
)
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.98
)
 
$
(0.15
)
 
$
(2.38
)
 
$
(1.06
)
Discontinued operations*
 
0.20

 
0.21

 
(0.32
)
 
0.62

 
 
$
(0.78
)
 
$
0.06

 
$
(2.70
)
 
$
(0.44
)
Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.98
)
 
$
(0.15
)
 
$
(2.38
)
 
$
(1.06
)
Discontinued operations*
 
0.20

 
0.21

 
(0.32
)
 
0.62

 
 
$
(0.78
)
 
$
0.06

 
$
(2.70
)
 
$
(0.44
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
44,893

 
43,560

 
44,576

 
43,469

Diluted
 
44,893

 
43,560

 
44,576

 
43,469

 
 
 
 
 
 
 
 
 
* See Note 4 - Acquisitions and Divestitures for transactions classified as discontinued operations.
**Cost of revenues excludes depreciation and amortization which is shown separately.


See accompanying notes to condensed consolidated financial statements.







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Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) (In thousands)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30, 2017
 
2017
 
2016
 
2017
 
2016
 
 
 
(Restated)
 
 
 
(Restated)
Net loss
$
(36,364
)
 
$
(785
)
 
$
(127,333
)
 
$
(28,429
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
4,631

 
2,614

 
17,003

 
5,962

Unrealized (loss) income on available for sale securities
(7
)
 
147

 
20

 
145

Net income on intra-entity foreign currency transactions
932

 
300

 
1,940

 
662

Total other comprehensive income, net of tax
5,556

 
3,061

 
18,963

 
6,769

Comprehensive loss
(30,808
)
 
2,276

 
(108,370
)
 
(21,660
)
Comprehensive loss attributable to redeemable noncontrolling interests
(1,276
)
 
(3,347
)
 
(6,980
)
 
(9,494
)
Comprehensive (loss) income attributable to Synchronoss
$
(29,532
)
 
$
5,623

 
$
(101,390
)
 
$
(12,166
)


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Table of Contents

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
 
 
(Restated)
Operating activities: 
 
 
 
 
Net loss continuing operations
 
$
(113,266
)
 
$
(55,535
)
Net (loss) income from discontinued operations*
 
(14,067
)
 
27,106

 
 
 
 
 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
Depreciation and amortization expense
 
71,098

 
70,467

Discontinued operations non-cash and working capital adjustments*
 
68,377

 
1,253

Stock-based compensation
 
14,427

 
24,033

Amortization of debt issuance costs
 
12,523

 
1,197

Accrued PIK interest
 
(8,805
)
 

Earnings loss from equity method investments
 
(1,626
)
 

Gain on disposals
 
(4,947
)
 
(70
)
Amortization of bond premium
 
219

 
1,214

Deferred income taxes
 
(8,937
)
 
(12,801
)
Non-cash interest on leased facility
 
920

 
763

Contingent consideration obligation
 
(2
)
 
1,766

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net of allowance for doubtful accounts
 
24,029

 
(62,109
)
Prepaid expenses and other current assets
 
(29,143
)
 
27,277

Other assets
 
2,770

 
4,586

Accounts payable
 
(2,294
)
 
(5,679
)
Accrued expenses
 
(16,775
)
 
(20,218
)
Other liabilities
 
(326
)
 
(26,911
)
Deferred revenues
 
4,732

 
55,807

Net cash (used in) provided by operating activities
 
(1,093
)
 
32,146

 
 
 
 
 
Investing activities:
 
 
 
 
Purchases of fixed assets
 
(10,315
)
 
(33,377
)
Purchases of intangible assets and capitalized software
 
(7,848
)
 
(5,749
)
Proceeds from the sale of Speechcycle
 
13,500

 

Purchases of marketable securities available-for-sale
 
(219
)
 
(12,841
)
Maturities of marketable securities available-for-sale
 
10,856

 
76,979

Equity investment
 
608

 

Investing activities in Discontinued Operations*
 
(11,429
)
 

Investment in note receivable
 
(6,187
)
 

Businesses acquired, net of cash
 
(815,008
)
 
(86,482
)
Net cash used in investing activities
 
(826,042
)
 
(61,470
)





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Table of Contents

 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
 
 
(Restated)
Financing activities:
 
 
 
 
Proceeds from the exercise of stock options
 
2,460

 
9,382

Taxes paid on withholding shares
 
(410
)
 

Debt issuance costs related to the Credit Facility and Revolving Facility
 
(3,692
)
 
(1,346
)
Debt issuance cost related to amendment
 
(16,776
)
 

Debt issuance costs related to the 2017 Credit Agreement
 
(19,887
)
 

Debt amendment costs related to long term debt
 

 

Proceeds from issuance of long term debt
 
900,000

 

Repayment of long term debt
 
(4,500
)
 

Borrowings on revolving line of credit
 

 
144,000

Repayment of revolving line of credit
 
(29,000
)
 
(106,000
)
Repurchases of common stock
 

 
(40,025
)
Proceeds from the sale of treasury stock in connection with an employee stock purchase plan
 
1,047

 
2,183

Repayments of capital lease obligations
 
(2,244
)
 
(2,933
)
Net cash provided by financing activities
 
826,998

 
5,261

Effect of exchange rate changes on cash
 
4,938

 
(490
)
Net increase (decrease) in cash and cash equivalents
 
4,801

 
(24,553
)
Cash, restricted cash and cash equivalents at beginning of period
 
211,433

 
147,872

Cash, restricted cash and cash equivalents at end of period
 
$
216,234

 
$
123,319

 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for income taxes
 
$
5,327

 
$
3,935

Cash paid for interest
 
$
48,589

 
$
1,636

 
 
 
 
 
Supplemental disclosures of non-cash investing and financing activities:
 
 
 
 
Issuance of common stock in connection with Openwave acquisition
 
$

 
$
22,000

Issuance of common stock in connection with Intralinks acquisition
 
$
4,700

 
$

 
 
 
 
 
Cash and cash equivalents per Condensed Consolidated Balance Sheets
 
$
210,070

 
$
110,344

Restricted cash
 
6,164

 
12,975

Total cash, cash equivalents and restricted cash
 
$
216,234

 
$
123,319

* See Note 4 -Acquisitions and Divestitures for transactions classified as discontinued operations.

See accompanying notes to condensed consolidated financial statements.

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Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)


1. Description of Business

General

Synchronoss Technologies, Inc. (referred to herein as “Synchronoss”, the “Company”, “we”, “our” or “us”) is a global software and services company that provides essential technologies for the mobile transformation of business. The Company’s portfolio, which is targeted at the Consumer and Enterprise markets, contains offerings such as personal cloud, secure-mobility, identity management and scalable messaging platforms, products and solutions. These essential technologies create a better way of delivering the transformative mobile experiences that service providers and enterprises need to help them stay ahead of the curve in competition, innovation, productivity, growth and operational efficiency.

Synchronoss’ products and platforms are designed to be carrier-grade, flexible and scalable, enabling multiple converged communication services to be managed across a range of distribution channels including e-commerce, m-commerce, telesales, customer stores, indirect and other retail outlets. This business model allows the Company to meet the rapidly changing converged services and connected devices offered by their customers. Synchronoss’ products, platforms and solutions enable its enterprise and service provider customers to acquire, retain and service subscribers and employees quickly, reliably and cost-effectively with white label and custom-branded solutions. Synchronoss customers can simplify the processes associated with managing the customer experience for procuring, activating, connecting, backing-up, synchronizing and sharing/collaboration with 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 their customers through new subscriber acquisitions, sale of new devices, accessories and new value-added service offerings in the Cloud. By using the Company’s technologies, Synchronoss customers can optimize their cost of operations while enhancing their customer experience.

The Company currently operates in and markets their solutions and services directly through their sales organizations in North America, Europe, the Middle East and Africa (“EMEA”), and the Asia-Pacific region. Synchronoss delivers essential technologies for mobile transformation to two primary types of customers: service provider and enterprise customers in regulated verticals and use cases.

Service Providers, Retailers, OEMs, Re-sellers and Service Integrators

The Company’s products and platforms provide end-to-end seamless integration between customer-facing channels/applications, communication services, or devices and “back-office” infrastructure-related systems and processes. Synchronoss’ customers rely on these solutions and technology to automate the process of activation and content and settings management for their subscribers’ devices while delivering additional communication services. Synchronoss’ portfolio includes: cloud-based sync, backup, storage and content engagement capabilities, broadband connectivity solutions, analytics, white label messaging, identity/access management that enable communications service providers (“CSPs”), cable operators/multi-services operators (“MSOs”) and original equipment manufacturers (“OEMs”) with embedded connectivity (e.g. smartphones, laptops, tablets and mobile internet devices (“MIDs”) such as automobiles, wearables for personal health and wellness, and connected homes), multi-channel retailers, as well as other customers to accelerate and monetize value-add services for secure and broadband networks and connected devices.

2. Basis of Presentation and Consolidation

The condensed consolidated financial statements as of September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016 are unaudited, but in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position, results of operations and cash flows 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 Company’s audited consolidated financial statements and related notes for 2017 and 2016 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as they have been filed prior to this quarterly report on Form 10-Q and certain prior year amounts have been restated. Refer to Note 3 - Restatement of Previously Issued Consolidated Financial Statements and Note 14 - Subsequent Events Review for background on the restatement of previously issued financial statements and Nasdaq compliance, respectively. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ended December 31, 2017.


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Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIE”) in which the Company is the primary beneficiary and entities in which the Company has a controlling interest. Investments in less than majority-owned companies in which the Company does not have a controlling interest, but does have significant influence, are accounted for as equity method investments. Investments in less than majority-owned companies in which the Company does not have the ability to exert significant influence over the operating and financial policies of the investee are accounted for using the cost method. All material intercompany transactions and accounts are eliminated in 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, 2017.

Restricted Cash

Restricted cash includes amounts to various deposits, escrows and other cash collateral that are restricted by contractual obligation. Restricted cash includes amounts to various deposits, escrows and other cash collateral that are restricted by contractual obligation. As of December 31, 2016, the Company held $30 million in escrow related to the Company’s guarantee of STIH’s Third Party Note. As of September 30, 2017, there was a zero balance related to the guarantee. $23.8 million was released upon assignment of certain customer contracts contributed in the sale of our BPO business. $6.2 million distribution was made to Goldman to fulfill the Company’s guarantee obligation to Goldman. Remaining amounts were primarily attributed to cash held in transit (see Note 6 - Investments in Affiliates and Related Transactions), and operating cash held by Zentry, which cannot be used to fulfill the obligations of the Company as a whole.

Recently Issued Accounting Standards

Recent accounting pronouncements adopted
Standard
 
Description
 
Effect on the financial statements
ASU 2017-04 Simplifying the Test for Goodwill Impairment
 
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance which eliminates Step 2 from the goodwill impairment test. Under the amendments in this Update, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Accounting Standard Update (“ASU”) 2017-04 also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
 
The Company elected to early adopt this ASU for annual and interim goodwill impairment testing dates after January 1, 2017. The adoption of this ASU had no impact on the Company’s consolidated financial statements.
Date of adoption: January 1, 2020.
 
 
 
 



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Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Standard
 
Description
 
Effect on the financial statements
ASU 2017-01 Business Combinations (Topic 805), Clarifying the Definition of a Business
 
In January 2017, FASB changed its definition of a business in an effort to help entities determine whether a set of transferred assets and activities is a business. The guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If the threshold is not met, the entity evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenue guidance. The guidance is effective for public business entities for annual periods beginning after 15 December 2017, and interim periods within those periods. For all other entities, it is effective for annual periods beginning after 15 December 2018, and interim periods within annual periods beginning after 15 December 2019. Early adoption is permitted.
 
The Company adopted this ASU on January 1, 2017 on a prospective basis. The adoption of this ASU had no impact on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-18 Statement of Cash Flows (Topic 230)
 
In November 2016, the FASB issued ASU 2016-18, which amends the guidance in ASC 230, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.
 
The Company adopted this ASU on January 1, 2017 to each period presented and applied the changes to the condensed consolidated statements of cash flows.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-17 Consolidation: Interest Held through Related Parties That Are under Common Control
 
In October 2016, the FASB issued ASU 2016-17, to amend the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in the entity held through related parties that are under common control within the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted.
 
The Company adopted this ASU on January 1, 2017 on a prospective basis. The adoption of this ASU had no significant impact on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-16 Intra-Entity Transfers of Assets Other Than Inventory
 
In October 2016, the FASB issued ASU 2016-16, which requires entities to recognize at the transaction date the income tax effects for intra-entity transfers of assets other than inventory. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted.
 
The Company adopted this ASU on January 1, 2017 on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings of $3.2 million as of January 1, 2017.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-15 Statement of Cash Flows
 
In August 2016, the FASB issued ASU 2016-15 which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. ASU 2016-15 will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable.
 
The Company adopted this ASU on January 1, 2017 using a retrospective transition method. The adoption of this ASU had no impact on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2017.
 
 
 
 


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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Standards issued not yet adopted
Standard
 
Description
 
Effect on the financial statements
ASU 2017-09 Stock Compensation (Topic 718), Scope of Modification Accounting
 
In May 2017, FASB issued guidance which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. The guidance also clarifies that a modification to an award could be significant and therefore require disclosure, even if modification accounting is not required. ASU 2017-09 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued. ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date.
 
The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.
Date of adoption: January 1, 2018.
 
 
 
 
ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
In June 2016, the FASB issued ASU 2016-13 which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The ASU is effective for public companies in annual periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018 and interim periods within those years.
 
The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.
Date of adoption: January 1, 2020.
 
 
 
 
ASU 2016-02 Leases (Topic 842)
 
In February 2016, the FASB issued ASU 2016-02 which requires lessees to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted using a modified retrospective approach.
 
The Company is in the process of evaluating the effect of the new guidance on its condensed consolidated financial statements and disclosures.
Date of adoption: January 1, 2019.
 
 
 
 

In May 2014, the FASB issued a new accounting standard related to revenue recognition, ASU 2014-09, “Revenue from Contracts with Customers,” (“ASC 606” or “Topic 606”). The new standard supersedes the existing revenue recognition requirements under U.S. GAAP and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. It also requires increased disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers.  

On January 1, 2018, we adopted Topic 606 applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. We recorded a net reduction to opening retained earnings of approximately $10.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606.

The impact of adoption primarily relates to (1) the delayed pattern of recognition under Topic 606 for certain professional services revenue when such professional services involve the customization of features and functionality for subscription services customers and (2) the earlier pattern of recognition under Topic 606 for license revenue when the Company provides hosting services for on-premise license customers.  In the case of professional services that involve the customization of features and functionality for subscription services, under historic accounting policies the professional services were considered to have standalone value, and as a result were recognized as the services were performed.  Under Topic 606, such professional services are not considered to be a distinct performance obligation within the context of the subscription services contract, and as such customization services revenue is recognized over the shorter of the estimated remaining life of the subscription software (typically three years) or the remaining term of the subscription services contract. In the case of license contracts sold in association with hosting, under historic accounting policies the license revenue was recognized over the hosting term due to the lack of vendor specific objective evidence (“VSOE”) of fair value for the hosting services.  Under Topic 606, VSOE is no longer required in order to allocate revenue between the license and the hosting services, and the license revenue is generally recognized upon delivery of the software based on the relative allocation of the contract price based on the established standalone selling price (“SSP”)

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)


Additional impacts of adoption include (1) in certain cases changes in the amount allocated to the various performance obligation in accordance with the relative standalone selling price method required by Topic 606 compared to the amount allocated to the various elements in accordance with the residual method or the relative selling price method, as applicable, under historic accounting policies, (2) the capitalization and subsequent amortization of certain sales commissions as costs to obtain a contract under ASC 340-40, whereas under historic accounting policies all such amounts were expensed as incurred (3) the timing and amount of revenue recognition for certain sales contracts that are considered to involve variable consideration under Topic 606, but were considered to either not be fixed or determinable or to involve contingent revenue features under historic accounting policies, (4) in certain limited cases, the accounting for discounted customer options to purchase future software or services as material rights under Topic 606, as well as (5) the income tax impact of the above items, as applicable.

In connection with the adoption of Topic 606 and the related cost accounting guidance under ASC 340, we are required to capitalize certain contract acquisition costs consisting primarily of commissions and bonuses paid when contracts are signed. As of January 1, 2018, the date we adopted Topic 606, we capitalized $0.7 million in contract acquisition costs related to contracts that were not completed.

3. Restatement of Previously Issued Consolidated Financial Statements

The Company has restated its audited consolidated financial statements for the years ended December 31, 2016 and 2015 for the matters described below.  The effects of these restatement adjustments on (i) the Company’s Consolidated Balance Sheet at December 31, 2016, (ii) the Company’s Consolidated Statement of Operations for the years ended December 31, 2016 and 2015, (iii) the Company’s Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2015,  (iv) the Company’s Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016 and 2015  and (v) the Company’s Consolidated Statement of Cash Flows for the years ended December 31, 2016 and 2015 are presented in the Company’s 2017 Form 10-K.

The effects of the restatement adjustments on the Company’s unaudited Condensed Consolidated financial statements as of September 30, 2016 and for the three and nine month periods ended are reflected in the tables below.

The individual restatement matters that underlie the restatement adjustments are described below.

Revenue Recognition Adjustments Related to Hosting Services

The Company typically sells hosting services to its subscription services customers, as well as to certain software license customers. As part of the Company’s review of its historical accounting, it has determined that adjustments are required related to certain transactions in each of these two categories of customers that purchase hosting services.

It was observed that in certain instances, the Company has historically entered into hosting arrangements that included various components to the fee structure with certain fees accelerated during the initial years of the arrangement. Historically, the Company recognized the accelerated fees as billed and maintenance and support fees were recognized on a straight-line basis through the term of the arrangement. However, the Company has determined to revise its accounting treatment for certain hosting services to reflect revenue recognition on a straight-line basis for such fees over the appropriate period of time during which (i) the benefits of hosting services were provided to the customer or (ii) the customer benefited from the set-up fees. The revised accounting treatment for the revenue recognition is reflected in the restated consolidated financial statements, whereby there has been a deferral of a portion of the accelerated fees out of the initial period of the arrangement, and recognition of those deferred amounts in the later periods of the hosting services arrangement.

In the case of certain perpetual software license customers, the Company historically recognized the perpetual software license fee revenue on an upfront basis. The Company has determined to revise its accounting treatment of that software license fee revenue to recognize it ratably over a period of time due to the inclusion of hosting services, as part of the same multiple element arrangement. In certain of these cases, the Company had entered into a separate hosting services contract with the customer that the Company has now determined should have been combined with the software license agreement and treated as part of a larger multiple element arrangement.

In accordance with the software revenue recognition rules, since the Company cannot establish vendor specific objective evidence of fair value of the hosting services, the software license element cannot be separated from the hosting services. The

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

revised accounting treatment for the revenue recognition is reflected in the restated consolidated financial statements, whereby the bundled arrangement fees have been recognized ratably over the economic life of the hosting services.

Revenue Recognition Adjustments Related to Establishing Persuasive Evidence of an Arrangement and Other Revenue Adjustments

The Company historically has had, and continues to have, contractual arrangements with certain customers whereby there is an established master services agreement that includes general terms and conditions. Such master services agreements contemplate the delivery by the customer of purchasing documentation for purposes of completing orders, indicating the nature, price and quantity of products and services ordered.   In certain cases, the Company historically formed a view that persuasive evidence of an arrangement existed relating to such orders based upon its receipt from a customer of written confirmation of the order and commitment to pay the agreed price, such as a quote approval sent by the customer in response to a quote issued by the Company, but prior to that customer’s subsequent delivery to the Company an executed statement of work or, in some instances, a purchase order, pursuant to a master services agreement.

The Company has determined, in certain situations, to revise the timing of revenue recognition to when it received final formal contract documentation, which occurred in a future period. In those cases where the adjustment to defer revenue has been recorded prior to when cash payment was received from the customer, the balance sheet impact has been to reduce the related accounts receivable balance, whereas the balance sheet impact of these adjustments after the receipt of cash payment from the customer has been to increase accrued liabilities.

The Company also adjusted revenue recognition in connection with certain other transactions, including (i) where the payment obligation on the date of sale was found not to have been fixed and determinable; (ii) where collectability was not reasonably assured; (iii) where the software delivered to the customer was ultimately deemed not to have met acceptance criteria; or (iv) where formal acceptance was not obtained.

In certain situations, these adjustments represent issues related to the timing of revenue recognition, while in other cases, these adjustments represent amounts that had subsequently been written-off to bad debt expense (whereby now both the revenue and the related bad debt expense has been reversed).

Adjustments Related to Accounting for Acquisitions and Divestiture

The Company has identified and corrected errors related to fees received under license agreements entered into with parties of certain historical acquisitions and a divestiture. In each case, the Company had originally treated the license agreement as a separate transaction and recorded the license fees on a gross basis as revenue. The Company has determined to revise its accounting treatment of the license arrangements, to record the license fees as part of the accounting for the acquisition or divestiture, as follows:

In certain cases, the Company entered into a license agreement as part of settling prior intellectual property infringement claims against an acquired entity and/or its selling parent company and affiliates. Historically, the Company had recognized these license fees separately as revenue. However, the Company has determined to net these license fees against the consideration paid as part of the acquisitions, resulting in a reduction of the goodwill and/or intangible assets recorded in purchase accounting.
The Company’s consolidated joint venture Zentry LLC (“Zentry”) and the Company’s partner in that joint venture entered into a license agreement in December 2015 at the same time as the formation of the joint venture. Historically, the Company recorded the license fees as revenue separately from the Zentry formation. The Company has determined to net these license fees against the cash contributions paid as part of the joint venture formation, resulting in a reduction of the goodwill and intangible assets recorded in purchase accounting.
The Company entered into a licensing agreement in December 2016 with Sequential Technology International, LLC (“STIN”) shortly after closing the divestiture of its activation business to Sequential Technology International Holdings, LLC (“STIH”). Historically, the Company recorded the license fees as revenue separately from the accounting for the divestiture. The Company has determined to classify these license fees as additional gain on sale of the activation exception handling business.
The Company made adjustments to reduce the contingent consideration payable to shareholders of Razorsight Corporation (“Razorsight”), which was acquired by the Company in August 2015, and the related losses previously recorded to adjust that liability to fair value, as a result of the determination that many of the sales of Razorsight software that had originally been included in the earn-out calculation have now been adjusted as part of the restatement.

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The Company made adjustments to record the fair value of the Company’s guarantee of certain of STIN’s debt as part of the divestiture of its activation exception handling business to STIH in December 2016, to record the sellers note extended in the transaction at fair value, and to adjust certain receivables and other assets sold in the transaction.
The Company made certain adjustments to the opening balances of Openwave Messaging, Inc. (“Openwave”) and SNCR, LLC (“SNCR, LLC”); impacting deferred revenue, goodwill and intangibles. Adjustments in deferred revenue and intangibles resulted were reported post-acquisition as revenues and costs were realized.

Other Adjustments and Capitalized Software

The Company also identified and corrected certain errors in the amounts reported as capitalized software development. These adjustments were primarily around (i) the recognition of impairment or immediate expensing of certain previously capitalized software development costs and (ii) revisions of amounts capitalized and the timing of when such capitalized costs are amortized. Adjustments pertaining to capitalized software development were driven primarily due to misalignment on the unit of account being measured in tracking project progress and ultimately general release as well as the appropriateness of the capitalization of certain administrative costs.

The Company also identified and corrected certain other errors, primarily due to timing of recognition of (i) stock-based compensation arrangements, (ii) accruals and reserves, (iii) noncontrolling interests and (iv) impairment charges. Impairment charges were primarily due to long-lived asset impairments realized on SNCR, LLC assets, due to continued delays in product development and sales. Additionally, the Company identified certain prior year balance sheet classification adjustments requiring, the most significant of which, a reclassification between cash and restricted cash due to certain contractual restrictions on cash balances, and reclassifications between treasury stock and additional paid-in-capital due to share issuances from the Company’s common stock pool, rather than its treasury stock.

Income Taxes

The Company recorded adjustments to income taxes to reflect the impact of the restatement adjustments, as well as a discrete tax adjustment to record a valuation allowance at a specific foreign jurisdiction in an earlier year than originally recorded. See Note 11 - Income Taxes for discussion of the related impact to the Company’s effective tax rate.



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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Table of Contents

The following table presents the Condensed Consolidated Balance Sheet as previously reported, restatement adjustments and the Condensed Consolidated Balance Sheet as restated at December 31, 2016:
 
 
 
Adjustments
 
 
(Unaudited)
As Previously Reported **
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
          Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
181,018

 
$

 
$

 
$

 
$
(11,217
)
 
$

 
$
169,801

Restricted cash

 

 

 

 
41,632

 

 
41,632

Marketable securities
12,506

 

 

 

 

 

 
12,506

Accounts receivable, net
137,233

 
(344
)
 
(36,509
)
 
7,896

 
(802
)
 

 
107,474

Prepaid expenses and other assets
33,696

 

 

 
1,408

 
(1,166
)
 
4,339

 
38,277

          Total current assets                                
364,453

 
(344
)
 
(36,509
)
 
9,304

 
28,447

 
4,339

 
369,690

Restricted cash
30,000

 

 

 

 
(30,000
)
 

 

Marketable securities
2,974

 

 

 

 

 

 
2,974

Property and equipment, net
155,599

 

 

 
(823
)
 
3,429

 

 
158,205

Goodwill
269,905

 

 

 
(41,358
)
 

 
(3,896
)
 
224,651

Intangible assets, net
203,864

 

 

 
(19,830
)
 
(21,066
)
 

 
162,968

Deferred tax assets
1,503

 

 

 

 

 
11,783

 
13,286

Other assets
7,541

 

 

 
(70
)
 
1,187

 

 
8,658

Note receivable from related party
83,000

 

 

 
(12,731
)
 

 

 
70,269

Equity method investment
45,890

 

 

 
(2,240
)
 

 

 
43,650

          Total Assets                                        
$
1,164,729

 
$
(344
)
 
$
(36,509
)
 
$
(67,748
)
 
$
(18,003
)
 
$
12,226

 
$
1,054,351


** Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.


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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

 
 
 
Adjustments
 
 
(Unaudited)
As Previously Reported **
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
          Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
15,770

 
$

 
$

 
$

 
$
1,287

 
$

 
$
17,057

Accrued expenses
69,435

 

 
5,274

 
971

 
246

 
956

 
76,882

Deferred revenues
27,542

 
33,398

 
(151
)
 
(3,360
)
 
1

 

 
57,430

Contingent consideration obligation
11,860

 

 

 
(9,027
)
 

 

 
2,833

Short-term debt
29,000

 

 

 

 

 

 
29,000

          Total current liabilities                           
153,607

 
33,398

 
5,123

 
(11,416
)
 
1,534

 
956

 
183,202

Lease financing obligation - long term
12,121

 

 

 
41

 
288

 

 
12,450

Long-term debt
226,291

 

 

 

 

 

 
226,291

Deferred tax liability
49,822

 

 

 

 

 
(46,314
)
 
3,508

Deferred revenues
12,134

 
52,965

 
531

 

 

 

 
65,630

Other liabilities
3,783

 

 

 

 
1,679

 
2,731

 
8,193

Redeemable noncontrolling interests
49,856

 

 

 
(28,813
)
 
4,237

 

 
25,280

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
          Stockholder's equity
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
5

 

 

 

 

 

 
5

Treasury stock
(95,183
)
 

 

 

 
(11,448
)
 

 
(106,631
)
Additional paid-in capital
575,093

 

 

 
(7,667
)
 
3,727

 

 
571,153

Accumulated other comprehensive loss
(43,253
)
 

 
658

 

 
138

 
107

 
(42,350
)
Retained earnings
220,453

 
(86,707
)
 
(42,821
)
 
(19,893
)
 
(18,158
)
 
54,746

 
107,620

          Total stockholders' equity                          
657,115

 
(86,707
)
 
(42,163
)
 
(27,560
)
 
(25,741
)
 
54,853

 
529,797

          Total liabilities & stockholders' equity            
$
1,164,729

 
$
(344
)
 
$
(36,509
)
 
$
(67,748
)
 
$
(18,003
)
 
$
12,226

 
$
1,054,351


** Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.



16

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The following table presents the Condensed Consolidated Statement of Operations as previously reported, restatement adjustments and the Condensed Consolidated Statement of Operations as restated for the three months ended September 30, 2016.
 
 
 
 
 
Adjustments
 
 
 
 
 
As Previously Reported**
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
Net revenues
 
 
$
132,480

 
$
(6,440
)
 
$
(7,648
)
 
$
1,544

 
$

 
$

 
$
119,936

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues*
 
 
49,073

 

 

 
65

 

 

 
49,138

Research and development
 
 
28,141

 

 

 

 
2,889

 

 
31,030

Selling, general and administrative
 
 
30,934

 
2

 
(2,246
)
 
156

 
(19
)
 

 
28,827

Net change in contingent consideration obligation
 
 
572

 

 

 
(1,921
)
 

 

 
(1,349
)
Restructuring charges
 
 
924

 

 

 

 

 

 
924

Depreciation and amortization
 
 
24,692

 

 

 
(1,111
)
 
11

 

 
23,592

Total costs and expenses
 
 
134,336

 
2

 
(2,246
)
 
(2,811
)
 
2,881

 

 
132,162

Loss from continuing operations
 
 
(1,856
)
 
(6,442
)
 
(5,402
)
 
4,355

 
(2,881
)
 

 
(12,226
)
Interest income
 
 
271

 

 

 

 

 

 
271

Interest expense
 
 
(1,596
)
 

 

 

 

 

 
(1,596
)
Other expense, net
 
 
(167
)
 

 
16

 

 

 

 
(151
)
Loss from continuing operations, before taxes
 
 
(3,348
)
 
(6,442
)
 
(5,386
)
 
4,355

 
(2,881
)
 

 
(13,702
)
Benefit for income taxes
 
 
(1,621
)
 

 

 

 

 
5,231

 
3,610

Net loss from continuing operations
 
 
(4,969
)
 
(6,442
)
 
(5,386
)
 
4,355

 
(2,881
)
 
5,231

 
(10,092
)
Net income from discontinued operations, net of tax
 
 
9,802

 

 
(2,427
)
 
(272
)
 
(1
)
 
2,205

 
9,307

Net loss
 
 
4,833

 
(6,442
)
 
(7,813
)
 
4,083

 
(2,882
)
 
7,436

 
(785
)
Net loss attributable to redeemable noncontrolling interests
 
 
(2,843
)
 

 

 

 
(504
)
 

 
(3,347
)
Net loss attributable to Synchronoss
 
 
$
7,676

 
$
(6,442
)
 
$
(7,813
)
 
$
4,083

 
$
(2,378
)
 
$
7,436

 
$
2,562

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.15
)
Discontinued operations
 
 
0.23

 
 
 
 
 
 
 
 
 
 
 
0.21

 
 
 
$
0.18

 
 
 
 
 
 
 
 
 
 
 
$
0.06

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.15
)
Discontinued operations
 
 
0.23

 
 
 
 
 
 
 
 
 
 
 
0.21

 
 
 
$
0.18

 
 
 
 
 
 
 
 
 
 
 
$
0.06

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
43,560

 
 
 
 
 
 
 
 
 
 
 
43,560

Diluted
 
 
43,560

 
 
 
 
 
 
 
 
 
 
 
43,560

*
Cost of services excludes depreciation and amortization which is shown separately.
**
Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The following table presents the Condensed Consolidated Statement of Operations as previously reported, restatement adjustments and the Condensed Consolidated Statement of Operations as restated for the nine months ended September 30, 2016:
 
 
 
 
 
Adjustments
 
 
 
 
 
As Previously Reported**
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
Net revenues
 
 
$
354,954

 
$
(17,161
)
 
$
(9,523
)
 
$
(8,987
)
 
$

 
$

 
$
319,283

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues*
 
 
143,988

 

 

 
(107
)
 
(412
)
 

 
143,469

Research and development
 
 
78,408

 

 

 

 
6,496

 

 
84,904

Selling, general and administrative
 
 
87,809

 
155

 
(2,718
)
 
536

 
(1,161
)
 

 
84,621

Net change in contingent consideration obligation
 
 
7,299

 

 

 
(5,533
)
 

 

 
1,766

Restructuring charges
 
 
4,973

 

 

 

 

 

 
4,973

Depreciation and amortization
 
 
74,009

 

 

 
(3,333
)
 
(209
)
 

 
70,467

Total costs and expenses
 
 
396,486

 
155

 
(2,718
)
 
(8,437
)
 
4,714

 

 
390,200

Loss from continuing operations
 
 
(41,532
)
 
(17,316
)
 
(6,805
)
 
(550
)
 
(4,714
)
 

 
(70,917
)
Interest income
 
 
1,492

 

 

 

 

 

 
1,492

Interest expense
 
 
(5,006
)
 

 

 

 

 

 
(5,006
)
Other expense, net
 
 
(186
)
 

 
322

 

 

 

 
136

Loss from continuing operations, before taxes
 
 
(45,232
)
 
(17,316
)
 
(6,483
)
 
(550
)
 
(4,714
)
 

 
(74,295
)
Benefit for income taxes
 
 
814

 

 

 

 

 
17,946

 
18,760

Net loss from continuing operations
 
 
(44,418
)
 
(17,316
)
 
(6,483
)
 
(550
)
 
(4,714
)
 
17,946

 
(55,535
)
Net income from discontinued operations, net of tax
 
 
30,865

 

 
(5,726
)
 
(272
)
 

 
2,239

 
27,106

Net loss
 
 
(13,553
)
 
(17,316
)
 
(12,209
)
 
(822
)
 
(4,714
)
 
20,185

 
(28,429
)
Net loss attributable to redeemable noncontrolling interests
 
 
(8,836
)
 

 

 

 
(658
)
 

 
(9,494
)
Net loss attributable to Synchronoss
 
 
$
(4,717
)
 
$
(17,316
)
 
$
(12,209
)
 
$
(822
)
 
$
(4,056
)
 
$
20,185

 
$
(18,935
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.82
)
 
 
 
 
 
 
 
 
 
 
 
$
(1.06
)
Discontinued operations
 
 
0.71

 
 
 
 
 
 
 
 
 
 
 
0.62

 
 
 
$
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.44
)
Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.82
)
 
 
 
 
 
 
 
 
 
 
 
$
(1.06
)
Discontinued operations
 
 
0.71

 
 
 
 
 
 
 
 
 
 
 
0.62

 
 
 
$
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.44
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
43,488

 
 
 
 
 
 
 
 
 
 
 
43,469

Diluted
 
 
43,488

 
 
 
 
 
 
 
 
 
 
 
43,469

*
Cost of services excludes depreciation and amortization which is shown separately.
**
Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.

18

Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The following table presents the Condensed Consolidated Statement of Comprehensive (loss) as previously reported, restatement adjustments and the Condensed Consolidated Statement of Comprehensive Income (Loss) as restated for the three months ended September 30, 2016:
 
 
 
Adjustments
 
 
 
As Previously Reported**
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
Net (loss)
$
4,833

 
$
(6,442
)
 
$
(7,813
)
 
$
4,083

 
$
(2,882
)
 
$
7,436

 
$
(785
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
2,645

 

 
(31
)
 

 

 

 
2,614

Unrealized loss on available for sale securities
147

 

 

 

 

 

 
147

Net income on intra-entity foreign currency transactions
300

 

 

 

 

 

 
300

Total other comprehensive income, net of tax
3,092

 

 
(31
)
 

 

 

 
3,061

Comprehensive loss
7,925

 
(6,442
)