Synchronoss Technologies, Inc. Announces Third Quarter 2015 Financial Results

October 28, 2015

Non-GAAP total revenue of $151.3 million increases 21% year-over-year

Cloud Services revenue of $76.1 million increases 31% year-over-year

Activation Services revenue of $75.2 million increases 11% year-over-year

Non-GAAP EPS of $0.58 increases 26% year-over-year

BRIDGEWATER, N.J.--(BUSINESS WIRE)--Oct. 28, 2015-- Synchronoss Technologies, Inc. (NASDAQ: SNCR), the mobile innovation leader that provides cloud solutions and software-based activation for mobile carriers, retailers and OEMs around the world, today announced financial results for the third quarter 2015.

“During the third quarter, Synchronoss passed the $600 million annualized revenue run rate, and did so while delivering 21% top line growth and a non-GAAP operating margin of 29%,” said Stephen G. Waldis, Founder, Chairman and Chief Executive Officer of Synchronoss. “We are excited about the growth opportunities ahead of us. Adoption of our cloud and activation platforms continues to grow globally, and we recently introduced powerful new predicative analytic capabilities. In addition, we have significantly expanded our addressable market with the launch of our enterprise business and the Synchronoss Secure Mobility Suite.”

On a GAAP basis, Synchronoss reported net revenues of $150.9 million, representing an increase of 21% compared to the third quarter of 2014. Gross profit was $87.4 million and income from operations was $22.3 million. Net income was $9.6 million, leading to diluted earnings per share of $0.21, compared to $0.22 for the third quarter of 2014.

On a non-GAAP basis, Synchronoss reported net revenues, which adds back the purchase accounting adjustment related to revenues for certain acquisitions, of $151.3 million, an increase of 21% compared to the third quarter of 2014. Gross profit was $92.1 million, representing a gross margin of 61%. Income from operations was $43.2 million, representing a year-over-year increase of 36% and an operating margin of 29%. Net income was $27.1 million, up from $20 million in the year ago period. Diluted earnings per share were $0.58, compared to $0.46 for the third quarter of 2014, an increase of 26% compared to the third quarter of 2014.

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

“We are pleased with our third quarter financial results that were highlighted by ongoing strong margin performance and increased earnings,” said Karen L. Rosenberger, Chief Financial Officer and Treasurer. “We are confident that our strategic customer relationships, combined with our growth investments and expansion into new market opportunities, position us well to scale Synchronoss to the next level and generate greater shareholder value over time.”

Recent Business Highlights:

Announced the launch of our enterprise business, which will offer secure mobility solutions to enterprise clients, initially in the financial services, life sciences and healthcare industries, and will be led by David Schuette, a seasoned enterprise executive.
Established a new venture to develop advanced mobile solutions by leveraging proprietary secure mobility technology contributed by The Goldman Sachs Group, Inc. (NYSE: GS) that will address the challenges associated with enterprise mobility applications.
Verizon reaffirmed its commitment to Synchronoss as a valued strategic partner.

Conference Call Details

In conjunction with this announcement, Synchronoss will host a conference call today, October 28, 2015, at 8:30 a.m. (ET) to discuss the company's financial results. To access this call, dial 877-930-7767 (domestic) or 253-336-7416 (international). The pass code for the call is 61520070. Additionally, a live web cast of the conference call will be available on the “Investor Relations” page on the company’s web site www.synchronoss.com.

Following the conference call, a replay will be available for a limited time at 855-859-2056 (domestic) or 404-537-3406 (international). The replay pass code is 61520070. An archived web cast of this conference call will also be available on the “Investor Relations” page of the company’s web site, www.synchronoss.com.

Non-GAAP Financial Measures

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

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

About Synchronoss Technologies, Inc.

Synchronoss Technologies, Inc. (NASDAQ:SNCR), is the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe. The company’s proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world. For more information visit us at: www.synchronoss.com

Forward-looking Statements

This document may include certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," “outlook” or words of similar meanings. These statements are based on our current beliefs or expectations and are inherently subject to various risks and uncertainties, including those set forth under the caption "Risk Factors" in Synchronoss’ Annual Report on Form 10-K for the year ended December 31, 2014 and other documents filed with the U.S. Securities and Exchange Commission. Actual results may differ materially from these expectations due to changes in global political, economic, business, competitive, market and regulatory factors. Synchronoss does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

The Synchronoss logo, Synchronoss and Synchronoss Integrated Life are trademarks of Synchronoss Technologies, Inc. All other trademarks are property of their respective owners.

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

	September 30, 2015		December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	143,352	$	235,967
Marketable securities		67,452		51,097
Accounts receivable, net of allowance for doubtful accounts of $376 and $88 at September 30, 2015 and December 31, 2014, respectively		157,166		118,371
Prepaid expenses and other assets		32,515		35,023
Deferred tax assets		3,899		1,475
Total current assets		404,384		441,933
Marketable securities		16,195		3,313
Property and equipment, net		168,785		151,171
Goodwill		186,973		147,135
Intangible assets, net		119,408		99,489
Deferred tax assets		7,754		1,232
Other assets		18,140		18,549
Total assets	$	921,639	$	862,822

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,814	$	25,059
Accrued expenses		41,594		42,679
Deferred revenues		14,039		11,897
Contingent consideration obligation		170		8,000
Total current liabilities		70,617		87,635
Lease financing obligation - long term		13,886		9,204
Convertible debt		230,000		230,000
Deferred tax liability		8,440		3,698
Other liabilities		2,970		3,178
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding at September 30, 2015 and December 31, 2014		—		—
Common stock, $0.0001 par value; 100,000 shares authorized, 47,757 and 46,444 shares issued; 44,078 and 42,711 outstanding at September 30, 2015 and December 31, 2014, respectively		4		4
Treasury stock, at cost (3,679 and 3,733 shares at September 30, 2015 and December 31, 2014, respectively)		(65,651)		(66,336)
Additional paid-in capital		498,653		454,740
Accumulated other comprehensive loss		(33,353)		(20,014)
Retained earnings		196,073		160,713
Total stockholders’ equity		595,726		529,107
Total liabilities and stockholders’ equity	$	921,639	$	862,822

SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF INCOME
(in thousands, except per share data)
(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014

Net revenues	$	150,874	$	125,175	$	421,620	$	327,103
Costs and expenses:
Cost of services (1)(2)(3)*		63,438		50,496		172,013		131,766
Research and development (1)(2)(3)		23,986		21,056		68,472		53,902
Selling, general and administrative (1)(2)(3)		21,003		21,382		60,603		55,656
Net change in contingent consideration obligation		—		355		—		1,680
Restructuring charges		399		—		5,090		—
Depreciation and amortization		19,754		16,268		51,221		42,292
Total costs and expenses		128,580		109,557		357,399		285,296
Income from operations		22,294		15,618		64,221		41,807
Interest income		546		358		1,483		867
Interest expense		(1,448)		(1,164)		(4,208)		(2,258)
Other income (4)		(1,030)		3		(601)		1,052
Income before income tax expense		20,362		14,815		60,895		41,468
Income tax expense		(10,717)		(5,488)		(25,535)		(16,193)
Net income	$	9,645	$	9,327	$	35,360	$	25,275

Net income attributable to Synchronoss		9,645		9,327		35,360		25,275
Add: After-tax interest on convertible debt		377		247		1,366		247
Net income for diluted EPS calculation**	$	10,022	$	9,574	$	36,726	$	25,522

Net income per common share:
Basic	$	0.23	$	0.23	$	0.84	$	0.63
Diluted	$	0.21	$	0.22	$	0.77	$	0.61

Weighted-average common shares outstanding:
Basic		42,491		40,833		42,077		40,173
Diluted		47,692		44,265		47,505		41,795

* Cost of services excludes depreciation and amortization which is shown separately.
** Includes an add back for the convertible debt interest

(1) Amounts include fair value stock-based compensation as follows:
Cost of services	$	1,884	$	1,575	$	4,969	$	4,286
Research and development		1,986		1,657		5,113		4,303
Selling, general and administrative		4,277		4,556		11,152		11,881
Total fair value stock-based compensation expense	$	8,147	$	7,788	$	21,234	$	20,470

(2) Amounts include acquisition costs as follows:
Cost of services	$	2,304	$	—	$	3,202	$	31
Research and development		2,289		—		4,932		77
Selling, general and administrative		134		1,932		449		2,285
Total acquisition costs	$	4,727	$	1,932	$	8,583	$	2,393

(3) Amounts include fair value earn-out cash and stock compensation as follows:
Cost of services	$	—	$	—	$	—	$	16
Research and development		—		—		—		—
Selling, general and administrative		—		400		—		1,232
Total fair value earn-out cash and stock compensation expense	$	—	$	400	$	—	$	1,248

(4) Amounts include Fx change of the contingent consideration obligation as follows:
Other (expense) income	$	—	$	41	$	—	$	41
								.


SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014

Non-GAAP financial measures and reconciliation:

GAAP Revenue	$	150,874	$	125,175	$	421,620	$	327,103
Add: Deferred revenue write-down		475		315		692		648
Non-GAAP Revenue	$	151,349	$	125,490	$	422,312	$	327,751

GAAP Revenue	$	150,874	$	125,175	$	421,620	$	327,103
Less: Cost of services		63,438		50,496		172,013		131,766
GAAP Gross Margin		87,436		74,679		249,607		195,337
Add: Deferred revenue write-down		475		315		692		648
Add: Fair value stock-based compensation		1,884		1,575		4,969		4,286
Add: Acquisition and restructuring costs		2,304		—		3,202		31
Add: Deferred compensation expense - earn-out		—		—		—		16
Non-GAAP Gross Margin	$	92,099	$	76,569	$	258,470	$	200,318
Non-GAAP Gross Margin %		61%		61%		61%		61%

GAAP income from operations	$	22,294	$	15,618	$	64,221	$	41,807
Add: Deferred revenue write-down		475		315		692		648
Add: Fair value stock-based compensation		8,147		7,788		21,234		20,470
Add: Acquisition and restructuring costs		5,126		1,932		13,673		2,393
Add: Net change in contingent consideration obligation		—		355		—		1,680
Add: Deferred compensation expense - earn-out		—		400		—		1,248
Add: Amortization expense		7,184		5,353		18,509		13,650
Non-GAAP income from operations	$	43,226	$	31,761	$	118,329	$	81,896

GAAP net income attributable to common stockholders	$	9,645	$	9,327	$	35,360	$	25,275
Add: Deferred revenue write-down, net of tax		365		208		513		432
Add: Fair value stock-based compensation, net of tax		6,799		5,047		15,730		13,662
Add: Acquisition and restructuring costs, net of taxes		4,297		1,284		10,129		1,597
Add: Net change in contingent consideration obligation, net of Fx change		—		395		—		1,721
Add: Deferred compensation expense - earn-out, net of tax		—		257		—		833
Add: Amortization expense, net of tax		5,983		3,476		13,711		9,110
Non-GAAP net income	$	27,089	$	19,994	$	75,443	$	52,630

Net income attributable to Synchronoss		27,089		19,994		75,443		52,630
Add: After-tax interest on convertible debt		516		253		1,544		253
Net income for diluted EPS calculation**	$	27,605	$	20,247	$	76,987	$	52,883

Diluted non-GAAP net income per share	$	0.58	$	0.46	$	1.62	$	1.27
Weighted shares outstanding - Diluted		47,692		44,265		47,505		41,795

SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)

	Nine Months Ended September 30,
	2015		2014
Operating activities:
Net income	$	35,360	$	25,275
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		51,221		42,292
Amortization of debt issuance costs		1,125		242
Amortization of bond premium		1,261		263
Deferred income taxes		(11,772)		(2,407)
Non-cash interest on leased facility		694		709
Stock-based compensation		21,234		20,470
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts		(40,442)		(40,795)
Prepaid expenses and other current assets		8,020		(4,434)
Other assets		(670)		(2,804)
Accounts payable		106		8,331
Accrued expenses		(4,975)		(1,570)
Contingent consideration obligation		(1,532)		2,881
Excess tax benefit from the exercise of stock options		(4,710)		(754)
Other liabilities		(138)		1,228
Deferred revenues		1,610		(3,925)
Net cash provided by operating activities		56,392		45,002

Investing activities:
Purchases of fixed assets		(53,461)		(24,796)
Purchases of intangible assets		(1,200)		—
Purchases of marketable securities available-for-sale		(105,817)		(27,657)
Maturities of marketable securities available-for-sale		75,370		1,990
Business acquired, net of cash		(83,592)		(38,085)
Net cash used in investing activities		(168,700)		(88,548)

Financing activities:
Proceeds from the exercise of stock options		16,752		20,727
Payments on contingent consideration obligation		(4,468)		—
Debt issuance costs related to convertible notes		—		(6,561)
Proceeds from issuance of convertible notes		—		230,000
Borrowings on revolving line of credit		—		40,000
Repayment of revolving line of credit		—		(40,000)
Excess tax benefit from the exercise of stock options		4,710		754
Proceeds from the sale of treasury stock in connection with an employee stock purchase plan		1,902		1,677
Repayments of capital obligations		(1,772)		(1,129)
Net cash provided by financing activities		17,124		245,468
Effect of exchange rate changes on cash		2,569		189
Net (decrease) increase in cash and cash equivalents		(92,615)		202,111
Cash and cash equivalents at beginning of period		235,967		63,512
Cash and cash equivalents at end of period	$	143,352	$	265,623


SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Cash Provided by Operating Activities
(in thousands)
(Unaudited)

	Nine Months Ended September 30,
	2015		2014

Non-GAAP cash provided by operating activities and reconciliation:

Net cash provided by operating activities (GAAP)	$	56,392	$	45,002
Add: Tax benefits from stock options exercised		4,710		754
Add: Cash payments on settlement of earn-out		3,532		—
Adjusted cash flow provided by operating activities (Non-GAAP)	$	64,634	$	45,756

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Source: Synchronoss Technologies, Inc.

Synchronoss Technologies, Inc.
Media:
Stacie Hiras, +1 908-674-0758
Stacie.hiras@synchronoss.com
or
Investor:
Seth Potter, +1 646-277-1230
investor@synchronoss.com