Completes Sale of Messaging and NetworkX Businesses, Realizes Multi-Year Strategy of Cloud-Only Operating Model
Net Cash Provided by Operating Activities of
Year-over-Year Invoiced Cloud Revenue Increased 10.3% to
Company Updates 2023 Guidance, Provides Long-Term Operating Targets for Standalone Cloud Operations
Third Quarter and Recent Operational Highlights
- Closed the sale of the Messaging and NetworkX businesses to
Lumine Group for up to$41.8 million .Synchronoss executes on its strategic plan to solely focus on providing its industry-leading, high-margin, cloud-centric solutions to the global marketplace. This move strengthens the Company’s capital structure and streamlines its operational and sales focus, laying the foundation for more predictable future revenue and growth opportunities. - Secured a seven-year contract extension with Verizon to provide Synchronoss Cloud through 2030, further strengthening the foundation for its go-forward Cloud-only focus. This extended agreement, building on a highly successful, decade-long partnership with Verizon, highlights the value of the Synchronoss Personal Cloud to the Verizon subscriber base. The contract extension will allow for updates to the revenue recognition model, improving the alignment between subscriber growth and revenue growth over time.
- Launched Synchronoss Personal Cloud with SoftBank, powering one of Japan’s largest telecommunication carriers and its Anshin Data Box service. This service offers customers the ability to back up and restore photos, videos, and files with integrated artificial intelligence features, expanding Synchronoss’ Personal Cloud global presence in
Japan and aligning with its Cloud-only strategy. - Extended existing Cloud agreement with AT&T for an additional year under existing contract terms, as the Tier 1 operator continues to ramp new subscribers.
- Achieved 10% year-over-year Cloud subscriber growth for the third quarter of 2023. The fourteenth consecutive quarter of double-digit subscriber growth has been driven by the continued adoption of the Company’s Personal Cloud product by its customers’ subscribers, including Verizon and AT&T.
Management Commentary
“Last week, we closed the sale of the Messaging and NetworkX businesses to
“Financially, we delivered year-over-year GAAP revenue growth in the Cloud business, complemented by a solid 10.3% increase in invoiced Cloud revenue. Operationally, we marked our fourteenth consecutive quarter of double-digit Cloud subscriber growth, showcasing the enduring strength of our Cloud platform. Despite delays in key customer contracts in the now-divested Messaging and NetworkX businesses, we continued to generate solid financial performance as a whole. We are now moving full speed ahead under a more streamlined, focused operating model that will enable us to better meet the demands of the evolving Cloud market landscape. At the same time, we expect to materially improve operating margins and cash flows, enabling
Strategic Review Process Update
During 2022, the Company engaged
On
In light of the sale transaction, and as disclosed by B. Riley Financial (“BRF”), BRF informed the Company that it is no longer pursuing an acquisition of
This transaction positions
Key Performance Indicators ("KPIs")
- Cloud subscriber growth of approximately 10% continued the Company’s ongoing performance of year-over-year double-digit subscriber growth. Third quarter GAAP Cloud revenue increased 3.0% year-over-year as the run-off of deferred revenue from the year-ago comparisons has largely been realized.
- Invoiced Cloud revenue increased 10.3% year-over-year to
$41.6 million in the third quarter. On a trailing twelve-month basis, invoiced Cloud revenue increased 13.9 % from the comparable period. This non-GAAP measure, reconciled within the financial statements below, is intended to provide greater transparency in the underlying Cloud revenue trends as it is not impacted by changes in deferred and unbilled revenue. Going forward, the Company has moved to a ‘series guidance’ approach to revenue recognition across its customer base, which simplifies revenue recognition by using a straightforward model based on usage and pricing. - Quarterly recurring revenue was 88.4% of total revenue, an increase from 83.8% of total revenue in the second quarter of 2023 and 83.7% in the third quarter of last year. The increase in recurring revenue as a percentage of total revenue was due to the high concentration of Cloud revenue which represented over 71% of total revenue in the quarter. This period marks the thirteenth consecutive quarter of recurring revenue at 80.0% or greater.
GAAP revenue breakdown by product is included below:
Q3 2023 vs Q3 2022 | |||||||||
(in thousands) | Q3 2023 Revenue | Q3 2022 Revenue | % Increase/ (Decrease) | % of Total Revenue | |||||
Cloud | $ | 39,727 | $ | 38,558 | 3.0% | 71.4% | |||
NetworkX | 6,872 | 9,635 | (28.7)% | 12.3% | |||||
Messaging | 9,049 | 11,703 | (22.7)% | 16.3% | |||||
Total | $ | 55,648 | $ | 59,896 | 100.0% |
Third Quarter 2023 Financial Results:
Results compare 2023 fiscal third quarter end (
- Total revenue decreased 7.1% to
$55.6 million from$59.9 million in the prior year period. The decline in revenue was primarily due to delays in key customer contract decision making in the Messaging and NetworkX businesses partially offset by growth in Cloud revenues due to subscriber adoption and professional services associated with the launch of SoftBank. - Gross profit increased 1.9% to
$30.7 million (55.2% of total revenue) from$30.2 million (50.4% of total revenue) in the prior year period. Gross margins increased as a result of the higher concentration of Cloud revenue to total revenue. - (Loss) income from operations was
$(2.9) million compared to$1.3 million in 2022. The increase in operating loss was primarily the result of impairments on a note receivable in the third quarter, which is reflected within selling, general, and administrative expenses. - Net loss was
$(5.2) million , or$(0.06) per share, compared to$(1.3) million , or$(0.01) per share, in the prior year period. The increase in net loss was primarily due to the aforementioned impairment. - Adjusted EBITDA (a non-GAAP metric reconciled below) increased 16.7% to
$13.4 million (24.0% of total revenue) from$11.5 million (19.1% of total revenue) in the prior year period. The increase in adjusted EBITDA margin was primarily attributable to the more favorable revenue mix noted previously and a reduction in performance-related compensation expenses. - Cash and cash equivalents were
$17.6 million atSeptember 30, 2023 , compared to$19 .3 million atJune 30, 2023 and$21.9 million atDecember 31, 2022 . Free cash flow was$1.1 million and adjusted free cash flow was$3.9 million . The Company did not receive additional tax refunds during the period, leaving its remaining balance due at approximately $28 million, which is expected to be received in the coming quarters. Management does not anticipate needing to raise additional capital for the foreseeable future.
Financial Commentary
CFO
“Separately, we have also updated our revenue recognition model for our Verizon Cloud contract, which will improve the alignment between subscriber growth and revenue growth over time, and more closely track to the invoiced Cloud growth profile of the business. We will improve our Cloud cost profile by eliminating approximately
Financial Outlook
As a result of the Company’s recent strategic sale of the Messaging and NetworkX businesses,
Compared to the third quarter of 2023, management expects fourth quarter revenue and adjusted EBITDA to decrease based on the aforementioned divestiture of the Messaging and NetworkX businesses. On a pro forma basis, the Company now expects Cloud-only GAAP revenue to range between
Based on the continued strong performance within the Company’s core Cloud business, improvements in operational expense management, and the divestiture,
Due to elongated mobile device upgrade patterns and the timing of the recent customer launch, the Company expects Cloud subscriber growth to moderate slightly to high-single-digit/low-double-digit levels in the fourth quarter of 2023 before returning to consistent double-digit growth in 2024 and beyond.
For the fiscal year ending
The Company now expects adjusted EBITDA to range between
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 included below under the heading "Non-GAAP Financial Measures." With respect to forward looking statements related to adjusted EBITDA, the Company has relied upon the exception in item 10(e)(1)(i)(B) of Regulation S-K and has not provided a quantitative reconciliation of forecasted adjusted EBITDA to forecasted GAAP net income (loss) attributable to
Conference Call
Registration Link: Click here to register
Please register online at least 10 minutes prior to the start time. Upon registration, the webcast platform will provide dial-in numbers and a unique access code. If you have any difficulty with registration or connecting to the conference call, please contact Gateway Investor Relations at 949-574-3860.
The conference call will be broadcast live and available for replay here and via the Investor Relations section of Synchronoss’ website.
Non-GAAP Financial Measures
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. Investors are encouraged to also review the Balance Sheet, Statement of Operations, and Statement of Cash Flow. As previously mentioned, a reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in this press release.
Forward-Looking Statements
This press release includes statements concerning
About
Media Relations Contact:
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Investor Relations Contact:
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-Financial Tables to Follow-
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)
2023 | 2022 | |||||
ASSETS | ||||||
Cash and cash equivalents | $ | 17,574 | $ | 21,921 | ||
Accounts receivable, net | 32,292 | 47,024 | ||||
Operating lease right-of-use assets | 15,977 | 20,863 | ||||
209,476 | 210,889 | |||||
Other assets | 85,888 | 97,375 | ||||
Total assets | $ | 361,207 | $ | 398,072 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Accounts payable and accrued expenses | $ | 57,644 | $ | 66,324 | ||
Deferred revenues | 19,510 | 14,183 | ||||
Debt, non-current | 135,792 | 134,584 | ||||
Operating lease liabilities, non-current | 25,186 | 29,637 | ||||
Other liabilities | 3,069 | 4,399 | ||||
Preferred stock | 68,348 | 68,348 | ||||
Redeemable noncontrolling interest | 12,500 | 12,500 | ||||
Stockholders’ equity | 39,158 | 68,097 | ||||
Total liabilities and stockholders’ equity | $ | 361,207 | $ | 398,072 |
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net revenues | $ | 55,648 | $ | 59,896 | $ | 173,069 | $ | 190,998 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenues1 | 17,897 | 22,440 | 60,060 | 69,595 | ||||||||||||
Research and development | 10,856 | 12,911 | 40,634 | 42,162 | ||||||||||||
Selling, general and administrative | 22,264 | 15,338 | 60,448 | 48,523 | ||||||||||||
Restructuring charges | 28 | 201 | 394 | 1,905 | ||||||||||||
Depreciation and amortization | 7,538 | 7,726 | 21,997 | 24,019 | ||||||||||||
Total costs and expenses | 58,583 | 58,616 | 183,533 | 186,204 | ||||||||||||
(Loss) income from operations | (2,935 | ) | 1,280 | (10,464 | ) | 4,794 | ||||||||||
Interest income | 149 | 20 | 371 | 230 | ||||||||||||
Interest expense | (3,482 | ) | (3,463 | ) | (10,397 | ) | (10,131 | ) | ||||||||
Gain on divestiture | — | (73 | ) | — | 2,549 | |||||||||||
Other income, net | 4,455 | 4,437 | 1,070 | 10,206 | ||||||||||||
(Loss) income from operations, before taxes | (1,813 | ) | 2,201 | (19,420 | ) | 7,648 | ||||||||||
Provision for income taxes | (866 | ) | (1,115 | ) | (2,708 | ) | (1,678 | ) | ||||||||
Net (loss) income | (2,679 | ) | 1,086 | (22,128 | ) | 5,970 | ||||||||||
Net (loss) income attributable to redeemable noncontrolling interests | (18 | ) | (66 | ) | 10 | (256 | ) | |||||||||
Preferred stock dividend | (2,474 | ) | (2,298 | ) | (7,423 | ) | (7,255 | ) | ||||||||
Net loss attributable to | $ | (5,171 | ) | $ | (1,278 | ) | $ | (29,541 | ) | $ | (1,541 | ) | ||||
Earnings (loss) per share: | ||||||||||||||||
Basic | $ | (0.06 | ) | $ | (0.01 | ) | $ | (0.34 | ) | $ | (0.02 | ) | ||||
Diluted | $ | (0.06 | ) | $ | (0.01 | ) | $ | (0.34 | ) | $ | (0.02 | ) | ||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 87,904 | 86,400 | 87,069 | 86,156 | ||||||||||||
Diluted | 87,904 | 86,400 | 87,069 | 86,156 |
_________________________________
1 Cost of revenues excludes depreciation and amortization which are shown separately.
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
Nine Months Ended | |||||||
2023 | 2022 | ||||||
Net (loss) income from continuing operations | $ | (22,128 | ) | $ | 5,970 | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Non-cash items | 36,303 | 27,378 | |||||
Changes in operating assets and liabilities | 5,061 | (22,270 | ) | ||||
Net cash provided by operating activities | 19,236 | 11,078 | |||||
Investing activities: | |||||||
Purchases of fixed assets | (1,229 | ) | (1,021 | ) | |||
Purchases of intangible assets and capitalized software | (14,660 | ) | (15,250 | ) | |||
Other investing activities | — | 8,000 | |||||
Net cash used in investing activities | (15,889 | ) | (8,271 | ) | |||
Net cash used in financing activities | (7,496 | ) | (10,975 | ) | |||
Effect of exchange rate changes on cash | (198 | ) | (752 | ) | |||
Net decrease in cash and cash equivalents | (4,347 | ) | (8,920 | ) | |||
Cash and cash equivalents, beginning of period | 21,921 | 31,504 | |||||
Cash and cash equivalents, end of period | $ | 17,574 | $ | 22,584 |
SYNCHRONOSS TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited) (In thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Non-GAAP financial measures and reconciliation: | ||||||||||||||||
GAAP Revenue | $ | 55,648 | $ | 59,896 | $ | 173,069 | $ | 190,998 | ||||||||
Less: Cost of revenues | 17,897 | 22,440 | 60,060 | 69,595 | ||||||||||||
Less: Restructuring1 | — | — | 92 | 356 | ||||||||||||
Less: Depreciation and Amortization2 | 7,006 | 7,285 | 20,743 | 21,728 | ||||||||||||
Gross Profit | 30,745 | 30,171 | 92,174 | 99,319 | ||||||||||||
Add / (Less): | ||||||||||||||||
Stock-based compensation expense | 162 | 232 | 575 | 592 | ||||||||||||
Restructuring, transition and cease-use lease expense | 37 | 67 | 634 | 1,394 | ||||||||||||
Depreciation and Amortization2 | 7,006 | 7,285 | 20,743 | 21,728 | ||||||||||||
Adjusted Gross Profit | $ | 37,950 | $ | 37,755 | $ | 114,126 | $ | 123,033 | ||||||||
Adjusted Gross Margin | 68.2 | % | 63.0 | % | 65.9 | % | 64.4 | % |
_________________________________
1 Amounts associated with cost of revenues.
2 Depreciation and Amortization contains a reasonable allocation for expenses associated with cost of revenues.
SYNCHRONOSS TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited) (In thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
GAAP Net loss attributable to | $ | (5,171 | ) | $ | (1,278 | ) | $ | (29,541 | ) | $ | (1,541 | ) | ||||
Add / (Less): | ||||||||||||||||
Stock-based compensation expense | 1,241 | 1,801 | 4,605 | 4,692 | ||||||||||||
Restructuring, cease-use lease expense and change in contingent consideration | 5,861 | 557 | 9,881 | 3,949 | ||||||||||||
Amortization expense1 | 1,277 | 2,436 | 4,551 | 7,469 | ||||||||||||
Litigation, remediation and refiling costs, net | 1,654 | 88 | 5,997 | (227 | ) | |||||||||||
Non-GAAP Net income (loss) attributable to | $ | 4,862 | $ | 3,604 | $ | (4,507 | ) | $ | 14,342 | |||||||
Non-GAAP Net (loss) income per share: | ||||||||||||||||
Basic | $ | 0.06 | $ | 0.04 | $ | (0.05 | ) | $ | 0.17 | |||||||
Diluted | $ | 0.05 | $ | 0.04 | $ | (0.05 | ) | $ | 0.16 | |||||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic | 87,904 | 86,400 | 87,069 | 86,156 | ||||||||||||
Diluted | 94,445 | 92,844 | 87,069 | 89,682 |
_________________________________
1 Amortization from acquired intangible assets.
SYNCHRONOSS TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited) (In thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
2023 | 2023 | 2023 | 2022 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Net loss attributable to | $ | (5,171 | ) | $ | (10,979 | ) | $ | (13,391 | ) | $ | (15,927 | ) | $ | (1,278 | ) | $ | (29,541 | ) | $ | (1,541 | ) | |||||||
Add / (Less): | ||||||||||||||||||||||||||||
Stock-based compensation expense | 1,241 | 1,625 | 1,739 | 769 | 1,801 | 4,605 | 4,692 | |||||||||||||||||||||
Restructuring, cease-use lease expense and change in contingent consideration | 5,861 | 3,301 | 719 | 3,962 | 557 | 9,881 | 3,949 | |||||||||||||||||||||
Litigation, remediation and refiling costs, net | 1,654 | 2,384 | 1,959 | 1,892 | 88 | 5,997 | (227 | ) | ||||||||||||||||||||
Depreciation and amortization | 7,538 | 6,939 | 7,520 | 7,734 | 7,726 | 21,997 | 24,019 | |||||||||||||||||||||
Interest income | (149 | ) | (127 | ) | (95 | ) | (235 | ) | (20 | ) | (371 | ) | (230 | ) | ||||||||||||||
Interest expense | 3,482 | 3,461 | 3,454 | 3,509 | 3,463 | 10,397 | 10,131 | |||||||||||||||||||||
Loss (gain) on sale of DXP Business | — | — | — | — | 73 | — | (2,549 | ) | ||||||||||||||||||||
Other expense (income), net | (4,455 | ) | 454 | 2,931 | 6,759 | (4,437 | ) | (1,070 | ) | (10,206 | ) | |||||||||||||||||
Provision (benefit) for income taxes | 866 | 783 | 1,059 | 181 | 1,115 | 2,708 | 1,678 | |||||||||||||||||||||
Net (income) loss attributable to noncontrolling interests | 18 | (14 | ) | (14 | ) | (56 | ) | 66 | (10 | ) | 256 | |||||||||||||||||
Preferred dividend | 2,474 | 2,475 | 2,474 | 2,297 | 2,298 | 7,423 | 7,255 | |||||||||||||||||||||
Adjusted EBITDA (non-GAAP) | $ | 13,359 | $ | 10,302 | $ | 8,355 | $ | 10,885 | $ | 11,452 | $ | 32,016 | $ | 37,227 |
Three Months Ended | Nine Months Ended | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
$ | 6,680 | $ | 4,350 | $ | 19,236 | $ | 11,078 | |||||||||
Add / (Less): | ||||||||||||||||
Capitalized software | (5,310 | ) | (4,555 | ) | (14,660 | ) | (15,250 | ) | ||||||||
Property and equipment | (235 | ) | (448 | ) | (1,229 | ) | (1,021 | ) | ||||||||
Free Cashflow | 1,135 | (653 | ) | 3,347 | (5,193 | ) | ||||||||||
Add: Litigation and remediation costs, net | 2,425 | 2,030 | 7,609 | 2,704 | ||||||||||||
Add: Restructuring | 302 | 1,457 | 2,403 | 5,890 | ||||||||||||
Adjusted Free Cashflow | $ | 3,862 | $ | 2,834 | $ | 13,359 | $ | 3,401 |
SYNCHRONOSS TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited) (In thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
GAAP Cloud Revenue | $ | 39,727 | $ | 38,558 | $ | 121,242 | $ | 123,536 | ||||||||
Increase / (Decrease) Change in Deferred Revenue | (248 | ) | 61 | (1,007 | ) | (7,660 | ) | |||||||||
(Increase) / Decrease: Change in Unbilled Receivables & Contract Assets | 2,151 | (869 | ) | 8,054 | (4,706 | ) | ||||||||||
Invoiced Cloud Revenue | $ | 41,630 | $ | 37,750 | $ | 128,289 | $ | 111,170 |
Invoiced Cloud Revenue is defined as GAAP revenue for Cloud disaggregated revenue stream, plus the period change in deferred revenue balance related to the Cloud revenue stream, less the period change in Unbilled Receivables and Contract Assets balance related to the Cloud revenue stream.
Source:
2023 GlobeNewswire, Inc., source