Synchronoss Technologies, Inc. Announces Strong First Quarter Results

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May 5, 2016

Non-GAAP total revenue for the first quarter was $145.6 million, increasing 9% year-over-year

Cloud Services revenue for the first quarter was $84.3 million, increasing 18% year-over-year

Non-GAAP EPS for the first quarter was $0.49; Non-GAAP Free Cash Flow of $24 million

BRIDGEWATER, N.J.--(BUSINESS WIRE)--May 5, 2016-- Synchronoss Technologies, Inc. (NASDAQ: SNCR), the leader in mobile cloud innovation and software-based activation for mobile carriers, enterprises, retailers and OEMs around the world, today announced financial results for the first quarter of 2016.

“We are very proud of the Synchronoss team for starting 2016 with a strong first quarter and healthy momentum heading into the rest of the year,” said Stephen G. Waldis, Founder and Chief Executive Officer of Synchronoss. “Cloud services were robust this quarter, as increasing subscriber growth on our core customer base is laying the groundwork for incremental cloud opportunities both domestically and internationally over the next 12 to 18 months. We have a proven history of executing, launching, and scaling new offerings and leveraging technology opportunities into something that becomes much bigger as we have exhibited to our customers, partners, and investors over the years.”

Financial Highlights for the First Quarter of 2016

Non-GAAP

  • Total Revenue: $145.6 million compared to $133.1 million in the first quarter of 2015.
  • Gross profit: $85.2 million compared to $80.9 million in the first quarter of 2015.
  • Operating Income: $33.2 million compared to $34.9 million in the first quarter of 2015.
  • Net Income attributable to Synchronoss: $23.0 million compared to $22.3 million in the first quarter of 2015.
  • Earnings per Diluted Share: $0.49 compared to $0.49 in the first quarter of 2015.
  • Operating Cash Flow: $37.1 million compared to $5.4 million in the first quarter of 2015.

GAAP

  • Total Revenue: $142.7 million compared to $132.9 million in the first quarter of 2015.
  • Gross profit: $74.4 million compared to $79.3 million in the first quarter of 2015.
  • Operating Income: ($4.7 million) compared to $18.3 million in the first quarter of 2015.
  • Net Income attributable to Synchronoss: ($7.3 million) compared to $10.6 million in the first quarter of 2015.
  • Earnings per Diluted Share: ($0.17) compared to $0.23 in the first quarter of 2015.
  • Operating Cash Flow: $37.7 million compared to ($0.1 million) in the first quarter of 2015.

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 strong financial and operational performance to kick off 2016, particularly our ability to generate strong free cash flow,” said Karen L. Rosenberger, Chief Financial Officer and Treasurer. “We believe our ability to balance growth and profitability, while investing in our enterprise and international initiatives, well positions Synchronoss heading into the rest of 2016.”

First Quarter and Recent Business Highlights

  • Cloud Services revenue accounted for $84.3 million of non-GAAP revenue, representing approximately 58% of total non-GAAP revenue and growing 18% on a year-over-year basis.
  • Expanded our activation business with AT&T through our DIRECTV deal.
  • On target with the beta version of our Enterprise solution launched in April with general availability expected in early June.
  • Free cash flow of $24 million delivered in the quarter as this continues to be a major focal point of the company.
  • Announced $100 million share buyback program with $16.6 million completed in the quarter.
  • Completed the acquisition of privately held OpenWave Messaging to enhance our international go-to-market strategy.

Second Quarter Investor Conference Participation Schedule

  • Jefferies 2016 Global Technology, Media and Telecom Conference May 11, 2016 – Miami, FL
  • J.P. Morgan 44th Annual Technology, Media and Telecom Conference May 25, 2016 – Boston, MA

Financial Analyst Day

Synchronoss will be hosting its annual Financial Analyst and Investor Day on Thursday, June 9th at the Lotte New York Palace in New York City from 8:00 am and is expected to end at 2:00 pm ET. The event will also be webcast on the Synchronoss website. Analysts and investors who would like to register should visit our investor relations page at www.synchronoss.com/investor.

Members of Synchronoss’ management team are expected to present at these conferences and discuss the latest company strategies and initiatives. Conference presentations are expected to be available via webcast on the company’s website. To view these presentations and access the most updated information please visit the company’s website www.synchronoss.com. The schedule is subject to change.

Conference Call Details

In conjunction with this announcement, Synchronoss will host a conference call on Thursday, May 5, 2016, at 5:00 p.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 83684777. Additionally, a live webcast of the conference call will be available on the “Investor Relations” page on the company’s website.

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 83684777. An archived webcast of this conference call will also be available on the “Investor Relations” page of the company’s website, 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 (NASDAQ: SNCR) is the mobile innovation leader that provides personal 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, 2015 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)
 
  March 31, 2016   December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents $ 113,084 $ 147,634
Marketable securities 63,713 66,357
Accounts receivable, net of allowance for doubtful accounts of $3,329 and $3,029 at March 31, 2016 and December 31, 2015, respectively 158,590 143,692
Prepaid expenses and other assets   54,939     49,262  
Total current assets 390,326 406,945
Marketable securities 17,934 19,635
Property and equipment, net 162,040 168,280
Goodwill 310,937 221,271
Intangible assets, net 230,986 174,322
Deferred tax assets 5,176 3,560
Other assets   16,164     16,215  
Total assets $ 1,133,563   $ 1,010,228  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 33,171 $ 26,038
Accrued expenses 48,695 45,819
Deferred revenues 41,401 8,323
Contingent consideration obligation 1,271 —
Short term debt   50,000     —  
Total current liabilities 174,538 80,180
Lease financing obligation - long term 14,047 13,343
Contingent consideration obligation - long-term — 930
Convertible debt 225,231 224,878
Deferred tax liability 23,096 16,404
Other liabilities 10,612 3,227
Redeemable noncontrolling interest 58,323 61,452
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding at March 31, 2016 and December 31, 2015 — —
Common stock, $0.0001 par value; 100,000 shares authorized, 48,426 and 48,084 shares issued; 45,083 and 44,405 outstanding at March 31, 2016 and December 31, 2015, respectively 4 4
Treasury stock, at cost (3,343 and 3,679 shares at March 31, 2016 and December 31, 2015, respectively) (72,368 ) (65,651 )
Additional paid-in capital 535,326 512,802
Accumulated other comprehensive loss (29,258 ) (38,684 )
Retained earnings   194,012     201,343  
Total stockholders’ equity   627,716     609,814  
Total liabilities and stockholders’ equity $ 1,133,563   $ 1,010,228  
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF INCOME
(in thousands, except per share data)
(Unaudited)
 
  Three Months Ended March 31,
  2016       2015  
 
Net revenues $ 142,686 $ 132,926
Costs and expenses:
Cost of services (1)(2)* 68,306 53,655
Research and development (1)(2) 24,097 22,024
Selling, general and administrative (1)(2) 27,581 20,883
Net change in contingent consideration obligation 341 —
Restructuring charges 2,971 3,240
Depreciation and amortization   24,055     14,835  
Total costs and expenses   147,351     114,637  
(Loss) income from operations (4,665 ) 18,289
Interest income 630 466
Interest expense (1,576 ) (1,342 )
Other income   (884 )   14  
(Loss) income before income tax expense (6,495 ) 17,427
Income tax expense   (3,965 )   (6,866 )
Net (loss) income (10,460 ) 10,561
Net loss attributable to noncontrolling interests   (3,129 )   —  
Net (loss) income attributable to Synchronoss $ (7,331 ) $ 10,561  
 
Net income attributable to Synchronoss (7,331 ) 10,561
Add: After-tax interest on convertible debt   —     475  
Net (loss) income for diluted EPS calculation ** $ (7,331 ) $ 11,036  
 
Net (loss) income per common share attributable to Synchronoss:
Basic $ (0.17 ) $ 0.25  
Diluted $ (0.17 ) $ 0.23  
 
Weighted-average common shares outstanding:
Basic   43,423     41,626  
Diluted   43,423     47,080  
 
* 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 $ 2,019 $ 1,482
Research and development 1,830 1,482
Selling, general and administrative   4,452     3,665  
Total fair value stock-based compensation expense $ 8,301   $ 6,629  
 
(2) Amounts include acquisition costs as follows:
Cost of services $ 5,928 $ —
Research and development 3,575 1,135
Selling, general and administrative   3,033     244  
Total acquisition costs $ 12,536   $ 1,379  
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)
 
  Three Months Ended March 31,
  2016       2015  
Non-GAAP financial measures and reconciliation:
 
GAAP Revenue $ 142,686 $ 132,926
Add: Deferred revenue write-down   2,891     179  
Non-GAAP Revenue $ 145,577   $ 133,105  
 
GAAP Revenue $ 142,686 $ 132,926
Less: Cost of services   68,306     53,655  
GAAP Gross Margin 74,380 79,271
Add: Deferred revenue write-down 2,891 179
Add: Fair value stock-based compensation 2,019 1,482
Add: Acquisition and restructuring costs   5,928     —  
Non-GAAP Gross Margin $ 85,218   $ 80,932  
Non-GAAP Gross Margin % 59 % 61 %
 
GAAP income from operations $ (4,665 ) $ 18,289
Add: Deferred revenue write-down 2,891 179
Add: Fair value stock-based compensation 8,301 6,629
Add: Acquisition and restructuring costs 15,507 4,619
Add: Net change in contingent consideration obligation 341 —
Add: Amortization expense   10,808     5,175  
Non-GAAP income from operations $ 33,183   $ 34,891  
 
GAAP net (loss) income attributable to Synchronoss $ (7,331 ) $ 10,561
Add: Deferred revenue write-down, net of tax 2,220 127
Add: Fair value stock-based compensation, net of tax 6,375 4,697
Add: Acquisition and restructuring costs, net of taxes 12,309 3,273
Add: Net change in contingent consideration obligation, net of Fx change 341 —
Add: Amortization expense, net of tax   9,115     3,666  
Non-GAAP net income attributable to Synchronoss 23,029 22,324
Add: After-tax interest on convertible debt   549     514  
Net income for diluted EPS calculation $ 23,578   $ 22,838  
 
Diluted non-GAAP net income per share $ 0.49   $ 0.49  
 
Weighted shares outstanding - Diluted   48,147     47,080  
 
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
 
  Three Months Ended March 31,
  2016       2015  
Operating activities:
Net (loss) income $ (10,460 ) $ 10,561
 
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization expense 24,055 14,835
Amortization of debt issuance costs 375 375
Amortization of bond premium 373 474
Deferred income taxes 5,096 (733 )
Non-cash interest on leased facility 229 233
Stock-based compensation 8,301 6,585
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts (13,907 ) (22,145 )
Prepaid expenses and other current assets (3,174 ) 5,623
Other assets 957 (443 )
Accounts payable 8,317 106
Accrued expenses (8,456 ) (12,301 )
Contingent consideration obligation 341 (1,532 )
Excess tax benefit from the exercise of stock options 623 (1,981 )
Other liabilities (55 ) (243 )
Deferred revenues   25,116     451  
Net cash provided by (used in) operating activities 37,731 (135 )
 
Investing activities:
Purchases of fixed assets (13,153 ) (24,217 )
Purchases of marketable securities available-for-sale (8,598 ) (43,548 )
Maturities of marketable securities available-for-sale 12,565 40,285
Businesses acquired, net of cash   (98,428 )   (59,481 )
Net cash used in investing activities (107,614 ) (86,961 )
 
Financing activities:
Proceeds from the exercise of stock options 1,755 5,398
Payments on contingent consideration obligation — (4,468 )
Borrowings on revolving line of credit 50,000 —
Excess tax benefit from the exercise of stock options (623 ) 1,981
Repurchase of common stock (16,581 ) —
Proceeds from the sale of treasury stock in connection with an employee stock purchase plan 955 975
Repayments of capital lease obligations   (253 )   (291 )
Net cash provided by financing activities 35,253 3,595
Effect of exchange rate changes on cash   80     21  
Net decrease in cash and cash equivalents (34,550 ) (83,480 )
Cash and cash equivalents at beginning of period   147,634     235,967  
Cash and cash equivalents at end of period $ 113,084   $ 152,487  
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Cash Provided by Operating Activities
(in thousands)
(Unaudited)
 
  Three Months Ended March 31,
  2016       2015  
 
Non-GAAP cash provided by (used in) operating activities and reconciliation:
 
Net cash provided by (used in) operating activities (GAAP) $ 37,731 $ (135 )
Add: Tax benefits from stock options exercised (623 ) 1,981
Add: Cash payments on settlement of earn-out   —     3,532  
Adjusted cash flow provided by operating activities (Non-GAAP) $ 37,108   $ 5,378  

Source: Synchronoss Technologies, Inc.

Synchronoss Technologies, Inc.
Investor and Media:
Daniel Ives, +1 908-524-1047
daniel.ives@synchronoss.com