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Synacor Inc. (SYNC)

Q2 2012 Earnings Call

July 25, 2012; 05:00 pm ET


Ron Frankel - President & Chief Executive Officer

Bill Stuart - Chief Financial Officer

Denise Garcia - ICR


Jason Helfstein - Oppenheimer

Laura Martin - Needham & Co.

Tom Roderick - Stifel Nicolaus

Rich Tullo - Albert Fried & Co.

Nat Schindler - Bank of America/Merrill Lynch



Good day ladies and gentlemen and welcome to the Synacor 2012 second quarter earnings call.

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At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions).

And now I’ll turn the conference over to your host, Denise Garcia of ICR; please begin.

Denise Garcia

Good afternoon. Welcome to Synacor’s second quarter of 2012 earnings call. Joining me today to discuss our results are CEO, Ron Frankel and CFO, Bill Stuart.

Before we begin, I would like to take this opportunity to remind you that during the course of this call management will make forward-looking statements, which are subject to various risks and uncertainties. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance.

Further information on these and other factors that could affect the company’s financial results is included in filing it makes with the Securities and Exchange Commission from time to time, including the section entitled Risk Factors and the company’s most recent 10-Q filed with the SEC on May 15, 2012.

Also, I’d like to remind you that during the course of this conference call we will discuss non-GAAP measures in talking about the company’s performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release.

This conference call is also being broadcast in the Internet and is available through the Investor Relations section of the Synacor website.

And now, I’ll turn the call over to Ron Frankel, Synacor’s President and CEO.

Ron Frankel

Thanks Denise and welcome to today’s conference call. I’m pleased to share our financial results and to provide an update on our business to our shareholders and the investment community.

Our second quarter revenue grew 58% to $30.8 million from $19.5 million in the same period last year. Adjusted EBITDA was $3.0 million for the quarter, an increase of over 100% compared to the adjusted EBITDA of $1.5 million in the second quarter of 2011.

The second quarter was the beginning of an exciting transitional period for Synacor. Regarding TV Everywhere we are very enthusiastic about our leadership position, as nearly 40 paid TV operators are utilizing our authentication technology, to enable over 25 million consumers access to NBC Universal's TV Everywhere offerings of the 2012 Summer Olympic games on multiple devices.

The authentication required by NBCU for the Olympics is a breakthrough for TV Everywhere. Its showcases the value consumers receive from their pay TV subscription and we at Synacor are delighted to play a significant leadership role. We expect our TV Everywhere offerings will contribute meaningfully to Synacor’s success over the next several years, as growing interest and usage of TV Everywhere will drive recurring fees and more traffic to the start pages we deliver for our customers.

We expect to roll out new start page and cloud based experiences in late 2012 and early 2013, based upon the technology we gain in the Carbyn acquisition earlier this year. These multi device products will incorporate TV Everywhere with a range of cloud-based services and exciting user experience and it will further extend our presence on multiple devices, including tablets, Smartphones and connect to televisions.

We also experienced a transition in the second quarter as the latest browsers combined with mobile devices give consumers a greater number of options for their search and discovery preferences. These developments have impacted the total number of unique visitors according to comScore and search queries we receive from our start pages. Our unique visitors grew 43% year-over-year; they decline 6% quarter-over-quarter. Search query grew 55% year-over-year, but declined 12% quarter-over-quarter.

We are addressing this changing environment with strategic initiatives such as TV Everywhere and new technologies such as Carbyn, both of which we expect will drive material increases in unique visitors and monetization opportunities for us on multiple devices and platforms.

Search and display advertising revenue grew 69% to $25.4 million from $15.1 million in the same period last year. Our revenue mix changed in the second quarter. We experienced greater increases in both display advertising and subscription-based revenue, while search revenue declined representing 56% of our total revenue.

Advertising impressions were up significantly on both, a year-over-year and quarter-over-quarter basis, as display-advertising revenue grew 74% year-over-year. Our direct sales team continues to bring in new advertisers across diverse verticals, including auto, finance, insurance and retail and entertainment and direct advertising CPMs are increasing.

In addition to Synacor’s own national sales force, we have engaged partners to sell our advertising inventory on a local and regional basis. The early tests are very encouraging. Our display advertising business continues to exceed our expectations.

Now lets talk a bit about subscriber-based revenue. In the second quarter subscriber-based revenue grew 22% to $5.4 million from $4.4 million in the same period last year. Looking at email and communication specifically, we continue to see solid revenue growth. We continue to deliver additional cloud based services like email and TV Everywhere to our current customer base. These additional products will also increase unique visitors and start page usage.

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