Synchronoss Technologies, Inc. Announces Second Quarter 2012 Financial Results

Synchronoss Technologies, Inc. (NASDAQ: SNCR), the mobile innovation company that provides activation and content management solutions for mobile devices, today announced financial results for the second quarter of 2012.

“Synchronoss executed at a high level during the second quarter, achieving non-GAAP revenue and profitability that were in the upper half or above the high-end of our guidance,” said Stephen G. Waldis, Founder and Chief Executive Officer of Synchronoss.

Waldis added, “We believe it is increasingly clear that consumers will look to carriers for cloud-based content management solutions that can and will co-exist with those of major operating systems vendors. Synchronoss is becoming entrenched as a key enabler of carriers’ cloud strategies, evidenced by an additional major expansion of our relationship with Verizon and our agreement to deploy cloud-based content management services at a new Tier 1 European carrier. At the same time, we recently had another significant expansion of our relationship with Vodafone related to our enterprise activation platform.

For the second quarter of 2012, on a GAAP basis, Synchronoss reported net revenues of $67.0 million, representing an increase of 22% compared to the second quarter of 2011. Gross profit was $40.4 million and income from operations was $15.4 million in the second quarter of 2012. Net income applicable to common stock was $11.9 million, leading to diluted earnings per share of $0.31, compared to $0.06 for the second quarter of 2011.

On a non-GAAP basis, for the second quarter of 2012, Synchronoss reported net revenues, which adds back the purchase accounting adjustment related to revenues for certain acquisitions, of $67.2 million, an increase of 21% compared to the second quarter of 2011. Gross profit was $41.4 million, representing a gross margin of 62%. Income from operations was $17.5 million, representing a year-over-year increase of 49% and an operating margin of 26%. Net income was $11.2 million, leading to diluted earnings per share of $0.29, an increase of 38% compared to $0.21 for the second quarter of 2011.

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."

Lawrence R. Irving, Chief Financial Officer and Treasurer, said “In addition to growth at AT&T, Synchronoss was able to execute on its plan to diversify its revenue, with non-AT&T revenue representing a clear majority of our business for the first time in our history. Much of this growth in non-AT&T revenue is being driven by the increasing adoption of our cloud-based content management services by global service providers, which also helped to drive our non-GAAP gross margin to the highest level since Synchronoss has been a public company. In addition to expanding our addressable market opportunity, we believe the continued expansion of our cloud-based platform is further improving the long-term operating leverage inherent in our business model.”

Other Second Quarter 2012 and Recent Business Highlights:
  • Business outside of the AT&T relationship accounted for approximately $37.3 million of non-GAAP revenue, representing approximately 56% of total revenue. Verizon Wireless remained the largest contributor to Synchronoss’ business outside of AT&T, representing over 10% of Synchronoss’ revenue for the quarter. Business related to AT&T accounted for approximately $29.9 million of non-GAAP revenue, representing the other 44% of total revenue.
  • On May 7, 2012, Synchronoss acquired privately-held SpeechCycle, Inc., a speech-enabled customer self-service company,
  • On May 8, 2012, Synchronoss’ board of directors authorized a stock repurchase program under which the company may repurchase up to $25 million of its common stock.

Conference Call Details

In conjunction with this announcement, Synchronoss will host a conference call on Wednesday, August 1, 2012, at 4:30 p.m. (ET) to discuss the company's financial results. To access this call, dial 866-804-6927 (domestic) or 857-350-1673 (international). The pass code for the call is 14549848. 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 at 888-286-8010 (domestic) or 617-801-6888 (international). The replay pass code is 93509571. 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 (NASDAQ: SNCR) is the mobile innovation company that provides activation and content management solutions for mobile devices across the globe. For more information visit us at:

Web: www.synchronoss.com

Blog: http://blog.synchronoss.com

Twitter: http://twitter.com/synchronoss

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, 2011 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, ConvergenceNow, InterconnectNow, ConvergenceNow Plus+ and SmartMobility 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)
           
June 30, 2012 December 31, 2011
 
ASSETS
Current assets:
Cash and cash equivalents $ 35,081 $ 69,430
Marketable securities 65,175 51,504
Accounts receivable, net of allowance for doubtful accounts of $371 and $356 at June 30, 2012 and December 31, 2011, respectively 61,417 57,387
Prepaid expenses and other assets 17,472 16,061
Deferred tax assets   3,895     3,938  
 
Total current assets 183,040 198,320
Marketable securities 22,789 31,642
Property and equipment, net 49,539 34,969
Goodwill 66,646 54,617
Intangible assets, net 76,722 63,969
Deferred tax assets 11,654 12,606
Other assets   2,334     2,495  
 
Total assets $ 412,724   $ 398,618  
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 3,698 $ 7,712
Accrued expenses 19,857 24,153
Deferred revenues 7,773 8,834
Contingent consideration obligation   2,097     4,735  
 
Total current liabilities 33,425 45,434
Lease financing obligation - long term 9,254 9,241
Contingent consideration obligation - long-term 1,403 8,432
Other liabilities 1,044 948
Stockholders’ equity:

Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding at June 30, 2012 and December 31, 2011

Common stock, $0.0001 par value; 100,000 shares authorized, 41,933 and 41,063 shares issued; 39,054 and 38,394 outstanding at June 30, 2012 and December 31, 2011, respectively
4 4
Treasury stock, at cost (2,879 and 2,669 shares at June 30, 2012 and December 31, 2011, respectively) (47,485 ) (43,712 )
Additional paid-in capital 327,113 307,586
Accumulated other comprehensive loss (850 ) (699 )
Retained earnings   88,816     71,384  
 
Total stockholders’ equity   367,598     334,563  
 
Total liabilities and stockholders’ equity $ 412,724   $ 398,618  
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF INCOME
(in thousands, except per share data)
(Unaudited)
                     
Three Months Ended June 30, Six Months Ended June 30,
  2012     2011     2012     2011  
 
 
Net revenues $ 66,990 $ 54,817 $ 131,550 $ 107,695
Costs and expenses:
Cost of services (2)(3)(4)* 26,631 25,878 55,252 50,489
Research and development (2)(3)(4) 12,570 10,055 25,446 20,158
Selling, general and administrative (2)(3)(4) 11,060 10,648 21,450 20,795
Net change in contingent consideration obligation (4,628 ) (85 ) (5,408 ) 2,831
Depreciation and amortization   5,962     3,722     11,133     7,080  
 
Total costs and expenses   51,595     50,218     107,873     101,353  
 
Income from operations 15,395 4,599 23,677 6,342
Interest income 330 137 728 256
Interest expense (241 ) (238 ) (480 ) (475 )
Other income (5)   779     176     793     167  
 
Income before income tax expense 16,263 4,674 24,718 6,290
Income tax expense   (4,314 )   (1,470 )   (7,286 )   (2,947 )
 
Net income $ 11,949   $ 3,204   $ 17,432   $ 3,343  
 
 
Net income per common share:
Basic (1) $ 0.31   $ 0.07   $ 0.46   $ 0.13  
 
Diluted (1) $ 0.31   $ 0.06   $ 0.45   $ 0.12  
 
 
Weighted-average common shares outstanding:
Basic   38,353     37,541     38,207     37,144  
 
Diluted   39,075     38,827     39,123     38,508  
 
* Cost of services excludes depreciation which is shown separately.
 
(1) Adjustment to net income for equity mark-to-market on contingent consideration obligation:
Net income $ 11,949 $ 3,204 $ 17,432 $ 3,343
Income effect for equity mark-to-market on contingent consideration obligation, net of tax   -     (681 )   -     1,466  
 
Net income applicable to shares of common stock for earnings per share $ 11,949   $ 2,523   $ 17,432   $ 4,809  
 
 
(2) Amounts include fair value stock-based compensation as follows:
Cost of services $ 891 $ 1,125 $ 2,136 $ 2,257
Research and development 1,227 953 2,655 1,785
Selling, general and administrative   2,421     2,589     4,959     5,185  
 
Total fair value stock-based compensation expense $ 4,539   $ 4,667   $ 9,750   $ 9,227  
 
 
(3) Amounts include acquisition and restructuring costs as follows:
Cost of services $ - $ 15 $ - $ 15
Research and development 208 143 209 249
Selling, general and administrative   159     95     424     283  
 
Total acquisition and restructuring costs $ 367   $ 253   $ 633   $ 547  
 
 
(4) Amounts include fair value earn-out cash and stock compensation as follows:
Cost of services $ - $ 121 $ - $ 245
Research and development (98 ) (33 ) 116 433
Selling, general and administrative   (116 )   975     136     1,710  
 
Total fair value earn-out cash and stock compensation expense $ (214 ) $ 1,063   $ 252   $ 2,388  
 
 
(5) Amounts include Fx change of the contingent consideration obligation as follows:
Other income $ 347 $ - $ 114 $ -
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,
  2012     2011     2012     2011  
 
 
Non-GAAP financial measures and reconciliation:
 
GAAP Revenue $ 66,990 $ 54,817 $ 131,550 $ 107,695
Add: Deferred Revenue Write-Down   170     554     516     1,087  
 
Non-GAAP Revenue $ 67,160   $ 55,371   $ 132,066   $ 108,782  
 
 
GAAP Revenue $ 66,990 $ 54,817 $ 131,550 $ 107,695
Less: Cost of Services   26,631     25,878     55,252     50,489  
 
GAAP Gross Margin 40,359 28,939 76,298 57,206
 
Add: Deferred revenue write-down 170 554 516 1,087
Add: Fair value stock-based compensation 891 1,125 2,136 2,257
Add: Acquisition and restructuring costs - 15 - 15
Add: Deferred compensation expense - earn-out   -     121     -     245  
 
Non-GAAP Gross Margin $ 41,420   $ 30,754   $ 78,950   $ 60,810  
 
Non-GAAP Gross Margin % 62 % 56 % 60 % 56 %
 
GAAP income from operations $ 15,395 $ 4,599 $ 23,677 $ 6,342
Add: Deferred revenue write-down 170 554 516 1,087
Add: Fair value stock-based compensation 4,539 4,667 9,750 9,227
Add: Acquisition and restructuring costs 367 253 633 547
Add: Net change in contingent consideration obligation (4,628 ) (85 ) (5,408 ) 2,831
Add: Deferred compensation expense - earn-out (214 ) 1,063 252 2,388
Add: Amortization expense   1,820     660     3,295     1,320  
 
Non-GAAP income from operations $ 17,449   $ 11,711   $ 32,715   $ 23,742  
 
 
GAAP net income attributable to common stockholders $ 11,949 $ 3,204 $ 17,432 $ 3,343
Add: Deferred revenue write-down, net of tax 115 384 338 783
Add: Fair value stock-based compensation, net of tax 3,029 3,227 6,380 6,643
Add: Acquisition and restructuring costs, net of taxes 243 174 414 394
Add: Net change in contingent consideration obligation, net of Fx change, net of tax (5,170 ) (145 ) (5,522 ) 2,039
Add: Deferred compensation expense - earn-out, net of tax (135 ) 727 165 1,720
Add: Amortization expense, net of tax   1,207     457     2,156     951  
 
Non-GAAP net income $ 11,238   $ 8,028   $ 21,363   $ 15,873  
 
Diluted non-GAAP net income per share $ 0.29   $ 0.21   $ 0.55   $ 0.41  
       
Weighted shares outstanding - Diluted   39,075     38,827     39,123     38,508  
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
 
        Six Months Ended June 30,
  2012         2011  
 
Operating activities:
Net income $ 17,432 $ 3,343
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 11,133 7,080
Loss on disposal of asset 214
Amortization of bond premium 665 134
Deferred income taxes 438 (1,575 )
Non-cash interest on leased facility 460 458
Stock-based compensation 9,750 10,053
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts (2,165 ) (11,570 )
Prepaid expenses and other current assets 2,844 (675 )
Other assets (170 ) (68 )
Accounts payable (4,517 ) 965
Accrued expenses (5,658 ) (1,022 )
Contingent consideration obligation (8,803 ) 1,942
Excess tax benefit from the exercise of stock options (4,864 ) (6,080 )
Other liabilities 82 (42 )
Deferred revenues   (558 )   9,685  
 
Net cash provided by operating activities 16,283 12,628
 
Investing activities:
Purchases of fixed assets (21,863 ) (7,356 )
Purchases of marketable securities available-for-sale (13,013 ) (27,052 )
Maturity of marketable securities available-for-sale 7,603 1,934
Business acquired, net of cash   (26,467 )   (7,823 )
 
Net cash used in investing activities (53,740 ) (40,297 )
 
Financing activities:
Proceeds from the exercise of stock options 4,912 11,027
Payments on contingent consideration obligation (2,268 ) (8,286 )
Excess tax benefit from the exercise of stock options 4,864 6,080
Repurchase of common stock (3,773 ) (7,796 )
Payments on capital obligations   (480 )   (496 )
 
Net cash provided by financing activities 3,255 529
 
Effect of exchange rate changes on cash   (147 )   181  
 
Net decrease in cash and cash equivalents (34,349 ) (26,959 )
Cash and cash equivalents at beginning of year   69,430     180,367  
 
Cash and cash equivalents at end of period $ 35,081   $ 153,408  
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Cash Provided by Operating Activities
(in thousands)
(Unaudited)
 
Six Months Ended June 30,
  2012     2011  
 
 
Non-GAAP cash provided by operating activities and reconciliation:
 
Net cash provided by operating activities (GAAP) $ 16,283 $ 12,628
Add: Tax benefits from stock options exercised 4,864 6,080
Add: Cash payments on settlement of Earn-out   3,533     2,383  
 
Adjusted cash flow provided by operating activities (Non-GAAP) $ 24,680   $ 21,091  
 

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