Synchronoss Technologies, Inc. Announces Third Quarter 2014 Financial Results

Non-GAAP total revenue of $125.5 million increases 39% year-over-year

Cloud Services non-GAAP revenue of $57.9 million increases 115% year-over-year

Non-GAAP operating income of $31.8 million or a 25% operating margin driving EPS of $0.46

BRIDGEWATER, N.J.--(BUSINESS WIRE)--Oct. 28, 2014-- Synchronoss Technologies, Inc. (NASDAQ: SNCR), the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe, today announced financial results for the third quarter of 2014.

"Synchronoss' strong third quarter financial results exceeded our expectations from a revenue and profitability perspective and were highlighted by 115% year-over-year Cloud Services revenue growth," said Stephen G. Waldis, Founder and Chief Executive Officer of Synchronoss. "Mobile operators are increasingly embracing cloud services as a core component of their communications offerings and a way to deliver significant value to their subscribers. We see exciting opportunities to enable our customers to provide a compelling cloud experience across an expanding array of devices."

Waldis added, "Activation Services also posted solid results that benefitted from positive transaction trends in both the wireless and cable markets. The proliferation of new connected device categories represents additional avenues for growth in Activation Services."

On a GAAP basis, Synchronoss reported net revenues of $125.2 million, representing an increase of 40% compared to the third quarter of 2013. Gross profit was $74.7 million and income from operations was $15.6 million in the quarter. Net income applicable to common stock was $9.3 million, leading to diluted earnings per share of $0.22, compared to $0.09 for the third quarter of 2013.

On a non-GAAP basis, Synchronoss reported net revenues for the third quarter, adjusted for the effect of certain acquisitions, of $125.5 million, an increase of 39% compared to the third quarter of 2013. Gross profit for the quarter was $76.6 million, representing a gross margin of 61%. Income from operations was $31.8 million in the quarter, representing a year-over-year increase of 52% and an operating margin of 25%. Net income was $20.0 million in the quarter, up from $13.5 million in the year ago period. Diluted earnings per share were $0.46 for the quarter, an increase of 35% compared to $0.34 for the third quarter of 2013.

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 results from both a financial and operational perspective, as we continue to generate both meaningful growth and sustained profitability," said Karen L. Rosenberger, Chief Financial Officer and Treasurer. "Our recent convertible debt offering provides us increased financial strength to more fully capitalize on the growth opportunities we are targeting."

Other Third Quarter and Recent Business Highlights:

  • Cloud Services non-GAAP revenue was $57.9 million, representing approximately 46% of total revenue.
  • Activation Services non-GAAP revenue was $67.6 million, representing approximately 54% of total revenue.
  • Completed an offering of $230.0 million aggregate principal amount of 0.75% Convertible Senior Notes due 2019 in an underwritten public offering. The offering provides the company with additional resources to fund and execute on its growth strategy.
  • Time Warner Cable has selected Synchronoss' Integrated Life Platform to streamline the sales and installation processes and ensure order accuracy for its IntelligentHome security and home management solution.

Conference Call Details

In conjunction with this announcement, Synchronoss will host a conference call today, October 28, 2014, at 8:30 a.m. (ET) to discuss the company's financial results. To access this call, dial 877-474-9501 (domestic) or 857-244-7554 (international). The pass code for the call is 80335446. 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 888-286-8010 (domestic) or 617-801-6888 (international). The replay pass code is 85736565. 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, 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, 2013 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.

Synchronoss, Synchronoss Personal Cloud, Synchronoss Integrated Life, Synchronoss Workspaceand the Synchronoss logo 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, 2014 December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents $ 265,623 $ 63,512
Marketable securities 37,626 9,105
Accounts receivable, net of allowance for doubtful accounts of $194 and $237 at September 30, 2014 and December 31, 2013, respectively 109,190 64,933
Prepaid expenses and other assets 24,659 19,451
Deferred tax assets 3,691 4,626
Total current assets

440,789

161,627
Marketable securities 1,800 4,988
Property and equipment, net 130,623 106,106
Goodwill 151,055 137,743
Intangible assets, net 107,350 101,963
Deferred tax assets 5,596 4,210
Other assets 19,830 10,382
Total assets $ 857,043 $ 527,019
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,549 $ 9,528
Accrued expenses 39,448 37,919
Deferred revenues 12,159 15,372
Contingent consideration obligation 7,370 22
Total current liabilities 109,526 62,841
Lease financing obligation - long term 9,226 9,252
Contingent consideration obligation - long-term - 4,468
Convertible debt 230,000 -
Other liabilities 3,579 2,819
Stockholders' equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding at September 30, 2014 and December 31, 2013 - -
Common stock, $0.0001 par value; 100,000 shares authorized, 46,076 and 44,456 shares issued; 42,343 and 40,663 outstanding at September 30, 2014 and December 31, 2013, respectively 4 4
Treasury stock, at cost (3,733 and 3,793 shares at September 30, 2014 and December 31, 2013, respectively) (66,336 ) (67,104 )
Additional paid-in capital 436,503 393,644
Accumulated other comprehensive loss (12,552 ) (723 )
Retained earnings 147,093 121,818
Total stockholders' equity 504,712 447,639
Total liabilities and stockholders' equity $ 857,043 $ 527,019
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Net revenues $ 125,175 $ 89,716 $ 327,103 $ 251,840
Costs and expenses:
Cost of services (1)(2)(3)* 50,496 38,133 131,766 105,791
Research and development (1)(2)(3) 21,056 16,554 53,902 49,630
Selling, general and administrative (1)(2)(3) 21,382 15,562 55,656 45,157
Net change in contingent consideration obligation 355 500 1,680 2,676
Restructuring charges - - - 5,172
Depreciation and amortization 16,268 10,213 42,292 28,792
Total costs and expenses 109,557 80,962 285,296 237,218
Income from operations 15,618 8,754 41,807 14,622
Interest income 326 149 440 432
Interest expense (1,132) (235) (1,831) (714)
Other income (expense) (4) 3 (369) 1,052 (326)
Income before income tax expense 14,815 8,299 41,468 14,014
Income tax expense (5,488) (4,709) (16,193) (6,536)
Net income $ 9,327 $ 3,590 $ 25,275 $ 7,478
Net income attributable to Synchronoss 9,327 3,590 25,275 7,478
Add: After-tax interest on convertible debt 247 - 247 -
Net income for diluted EPS calculation $ 9,574 $ 3,590 $ 25,522 $ 7,478
Net income per common share:
Basic $ 0.23 $ 0.09 $ 0.63 $ 0.19
Diluted $ 0.22 $ 0.09 $ 0.61 $ 0.19
Weighted-average common shares outstanding:
Basic 40,833 38,960 40,173 38,589
Diluted 44,265 40,056 41,795 39,662
* Cost of services excludes depreciation and amortization which is shown separately.
(1) Amounts include fair value stock-based compensation as follows:
Cost of services $ 1,575 $ 1,470 $ 4,286 $ 3,874
Research and development 1,657 1,538 4,303 4,484
Selling, general and administrative 4,556 4,264 11,881 9,954
Total fair value stock-based compensation expense $ 7,788 $ 7,272 $ 20,470 $ 18,312
(2) Amounts include acquisition costs as follows:
Cost of services $ - $ 254 $ 31 $ 254
Research and development - 353 77 353
Selling, general and administrative 1,932 (269) 2,285 668
Total acquisition costs $ 1,932 $ 338 $ 2,393 $ 1,275
(3) Amounts include fair value earn-out cash and stock compensation as follows:
Cost of services $ - $ - $ 16 $ 247
Research and development - - - 105
Selling, general and administrative 400 - 1,232 190
Total fair value earn-out cash and stock compensation expense $ 400 $ - $ 1,248 $ 542
(4) Amounts include Fx change of the contingent consideration obligation as follows:
Other (expense) income $ 41 $ 107 $ 41 $ 122
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,
2014 2013 2014 2013
Non-GAAP financial measures and reconciliation:
GAAP Revenue $ 125,175 $ 89,716 $ 327,103 $ 251,840
Add: Deferred revenue write-down 315 558 648 3,104
Non-GAAP Revenue $ 125,490 $ 90,274 $ 327,751 $ 254,944
GAAP Revenue $ 125,175 $ 89,716 $ 327,103 $ 251,840
Less: Cost of services 50,496 38,133 131,766 105,791
GAAP Gross Margin 74,679 51,583 195,337 146,049
Add: Deferred revenue write-down 315 558 648 3,104
Add: Fair value stock-based compensation 1,575 1,470 4,286 3,874
Add: Acquisition and restructuring costs - 254 31 254
Add: Deferred compensation expense - earn-out - - 16 247
Non-GAAP Gross Margin $ 76,569 $ 53,865 $ 200,318 $ 153,528
Non-GAAP Gross Margin % 61% 60% 61% 60%
GAAP income from operations $ 15,618 $ 8,754 $ 41,807 $ 14,622
Add: Deferred revenue write-down 315 558 648 3,104
Add: Fair value stock-based compensation 7,788 7,272 20,470 18,312
Add: Acquisition and restructuring costs 1,932 338 2,393 6,447
Add: Net change in contingent consideration obligation 355 500 1,680 2,676
Add: Deferred compensation expense - earn-out 400 - 1,248 542
Add: Amortization expense 5,353 3,534 13,650 10,681
Non-GAAP income from operations $ 31,761 $ 20,956 $ 81,896 $ 56,384
GAAP net income attributable to common stockholders $ 9,327 $ 3,590 $ 25,275 $ 7,478
Add: Deferred revenue write-down, net of tax 208 519 432 2,120
Add: Fair value stock-based compensation, net of tax 5,047 5,561 13,662 12,504
Add: Acquisition and restructuring costs, net of taxes 1,284 564 1,597 4,406
Add: Net change in contingent consideration obligation, net of Fx change 395 393 1,721 2,554
Add: Deferred compensation expense - earn-out, net of tax 257 29 833 370
Add: Amortization expense, net of tax 3,476 2,801 9,110 7,296
Non-GAAP net income $ 19,994 $ 13,457 $ 52,630 $ 36,728
Net income attributable to Synchronoss 19,994 13,457 52,630 36,728
Add: After-tax interest on convertible debt 253 - 253 -
Net income for diluted EPS calculation $ 20,247 $ 13,457 $ 52,883 $ 36,728
Diluted non-GAAP net income per share $ 0.46 $ 0.34 $ 1.27 $ 0.93
Weighted shares outstanding - Diluted 44,265 40,056 41,795 39,662
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended September 30,
2014 2013
Operating activities:
Net income $ 25,275 $ 7,478
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 42,292 28,792
Amortization of debt issuance costs 242
Amortization of bond premium 263 225
Deferred income taxes (2,407 ) 3,401
Non-cash interest on leased facility 709 691
Stock-based compensation 20,470 18,313
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts (40,795 ) (13,714 )
Prepaid expenses and other current assets (4,434 ) 1,656
Other assets (2,804 ) (6,724 )
Accounts payable 8,331 2,680
Accrued expenses (1,570 ) (11,952 )
Contingent consideration obligation 2,881 1,724
Excess tax benefit from the exercise of stock options (754 ) (983 )
Other liabilities 1,228 1,063
Deferred revenues (3,925 ) 760
Net cash provided by operating activities 45,002 33,410
Investing activities:
Purchases of fixed assets (24,796 ) (55,216 )
Purchases of marketable securities available-for-sale (27,657 ) (6,703 )
Maturities of marketable securities available-for-sale 1,990 13,635
Business acquired, net of cash (38,085 ) -
Net cash used in investing activities (88,548 ) (48,284 )
Financing activities:
Proceeds from the exercise of stock options 20,727 17,495
Payments on contingent consideration obligation - (1,090 )
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 754 983
Proceeds from the sale of treasury stock in connection with an employee stock purchase plan 1,677 1,474
Repayments of capital obligations (1,129 ) (1,236 )
Net cash provided by financing activities 245,468 17,626
Effect of exchange rate changes on cash 189 (1,693 )
Net increase in cash and cash equivalents 202,111 1,059
Cash and cash equivalents at beginning of period 63,512 36,028
Cash and cash equivalents at end of period $ 265,623 $ 37,087
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Cash Provided by Operating Activities
(in thousands)
(Unaudited)
Nine Months Ended September 30,
2014 2013
Non-GAAP cash provided by operating activities and reconciliation:
Net cash provided by operating activities (GAAP) $ 45,002 $ 33,410
Add: Tax benefits from stock options exercised 754 983
Add: Cash payments on settlement of Earn-out - 1,463
Adjusted cash flow provided by operating activities (Non-GAAP) $ 45,756 $ 35,856

Source: Synchronoss Technologies, Inc.

Synchronoss Technologies, Inc.
Investor:
Brian Denyeau, 646-277-1251
investor@synchronoss.com
or
Media:
Stacie Hiras, 908-674-0758
stacie.hiras@synchronoss.com

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