ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,570
|
|
|
$
|
33,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
44,202
|
|
|
47,849
|
|
|
Prepaid & Other Current Assets
|
|
41,058
|
|
|
39,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
117,830
|
|
|
121,367
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
9,822
|
|
|
11,732
|
|
|
Operating lease right-of-use assets
|
|
29,703
|
|
|
34,538
|
|
|
Goodwill
|
|
229,610
|
|
|
232,771
|
|
|
Intangible assets, net
|
|
64,887
|
|
|
69,593
|
|
|
Loan Receivable
|
|
4,834
|
|
|
4,834
|
|
|
|
|
|
|
|
|
Other Assets, non-current
|
|
7,004
|
|
|
7,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
345,860
|
|
|
360,888
|
|
|
Total assets
|
|
$
|
463,690
|
|
|
$
|
482,255
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
14,539
|
|
|
$
|
12,749
|
|
|
Accrued expenses
|
|
58,238
|
|
|
69,326
|
|
|
Deferred revenues, current
|
|
39,656
|
|
|
33,045
|
|
|
Debt, current
|
|
—
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
112,433
|
|
|
125,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of debt issuance costs
|
|
117,189
|
|
|
—
|
|
|
Deferred tax liabilities
|
|
727
|
|
|
1,875
|
|
|
Deferred revenues, non-current
|
|
1,439
|
|
|
12,569
|
|
|
|
|
|
|
|
|
Leases, non-current
|
|
40,315
|
|
|
44,273
|
|
|
Other non-current liabilities
|
|
4,625
|
|
|
4,995
|
|
|
Redeemable noncontrolling interest
|
|
12,500
|
|
|
12,500
|
|
|
Total liabilities
|
|
289,228
|
|
|
201,332
|
|
|
Commitments and contingencies
|
|
|
|
|
|
Series A Convertible Participating Perpetual Preferred Stock, $0.0001 par value; 10,000 shares authorized, nil and 250 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
|
|
—
|
|
|
237,641
|
|
|
Series B Non-Convertible Perpetual Preferred Stock, $0.0001 par value; 150 shares authorized, 75 and nil shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
|
|
72,506
|
|
|
—
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000 shares authorized, 88,121 and 51,177 shares issued; 88,121 and 44,015 outstanding at June 30, 2021 and December 31, 2020, respectively
|
|
9
|
|
|
5
|
|
|
Treasury stock, at cost (nil and 7,162 shares at June 30, 2021 and December 31, 2020, respectively)
|
|
—
|
|
|
(82,087)
|
|
|
Additional paid-in capital
|
|
491,660
|
|
|
499,348
|
|
|
Accumulated other comprehensive loss
|
|
(29,442)
|
|
|
(28,213)
|
|
|
Accumulated deficit
|
|
(360,271)
|
|
|
(345,771)
|
|
|
Total stockholders’ equity
|
|
101,956
|
|
|
43,282
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
463,690
|
|
|
$
|
482,255
|
|
|
See accompanying notes to condensed consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
71,532
|
|
|
$
|
76,535
|
|
|
$
|
137,031
|
|
|
$
|
153,657
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues1
|
|
27,142
|
|
|
29,480
|
|
|
55,779
|
|
|
64,951
|
|
|
|
Research and development
|
|
17,197
|
|
|
19,096
|
|
|
34,594
|
|
|
38,884
|
|
|
|
Selling, general and administrative
|
|
21,909
|
|
|
24,640
|
|
|
39,837
|
|
|
50,984
|
|
|
|
Restructuring charges
|
|
877
|
|
|
4,493
|
|
|
1,590
|
|
|
5,943
|
|
|
|
Depreciation and amortization
|
|
8,485
|
|
|
10,284
|
|
|
18,352
|
|
|
21,640
|
|
|
|
Total costs and expenses
|
|
75,610
|
|
|
87,993
|
|
|
150,152
|
|
|
182,402
|
|
|
|
Loss from continuing operations
|
|
(4,078)
|
|
|
(11,458)
|
|
|
(13,121)
|
|
|
(28,745)
|
|
|
|
Interest income
|
|
25
|
|
|
1,509
|
|
|
30
|
|
|
1,568
|
|
|
|
Interest expense
|
|
(144)
|
|
|
(84)
|
|
|
(239)
|
|
|
(329)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
1,576
|
|
|
1,367
|
|
|
(1,820)
|
|
|
3,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations, before taxes
|
|
(2,621)
|
|
|
(8,666)
|
|
|
(15,150)
|
|
|
(24,448)
|
|
|
|
Benefit for income taxes
|
|
201
|
|
|
7,972
|
|
|
364
|
|
|
20,404
|
|
|
|
Net loss from continuing operations
|
|
(2,420)
|
|
|
(694)
|
|
|
(14,786)
|
|
|
(4,044)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to redeemable noncontrolling interests
|
|
(50)
|
|
|
(165)
|
|
|
286
|
|
|
(182)
|
|
|
|
Preferred stock dividend
|
|
(21,476)
|
|
|
(9,289)
|
|
|
(32,006)
|
|
|
(18,197)
|
|
|
|
Net loss attributable to Synchronoss
|
|
$
|
(23,946)
|
|
|
$
|
(10,148)
|
|
|
$
|
(46,506)
|
|
|
$
|
(22,423)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.54)
|
|
|
$
|
(0.24)
|
|
|
$
|
(1.07)
|
|
|
$
|
(0.54)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.54)
|
|
|
$
|
(0.24)
|
|
|
$
|
(1.07)
|
|
|
$
|
(0.54)
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
44,131
|
|
|
41,697
|
|
|
43,438
|
|
|
41,482
|
|
|
|
Diluted
|
|
44,131
|
|
|
41,697
|
|
|
43,438
|
|
|
41,482
|
|
|
|
________________________________
1 Cost of revenues excludes depreciation and amortization which are shown separately.
See accompanying notes to condensed consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
Net loss
|
|
$
|
(2,420)
|
|
|
$
|
(694)
|
|
|
|
|
$
|
(14,786)
|
|
|
$
|
(4,044)
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
120
|
|
|
1,872
|
|
|
|
|
(1,768)
|
|
|
(2,069)
|
|
|
|
Unrealized gain on available for sale securities
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
751
|
|
|
|
Net (loss) income on inter-company foreign currency transactions
|
|
(213)
|
|
|
554
|
|
|
|
|
539
|
|
|
182
|
|
|
|
Total other comprehensive (loss) income
|
|
(93)
|
|
|
2,426
|
|
|
|
|
(1,229)
|
|
|
(1,136)
|
|
|
|
Comprehensive (loss) income
|
|
(2,513)
|
|
|
1,732
|
|
|
|
|
(16,015)
|
|
|
(5,180)
|
|
|
|
Comprehensive (loss) income attributable to redeemable noncontrolling interests
|
|
(50)
|
|
|
(165)
|
|
|
|
|
286
|
|
|
(182)
|
|
|
|
Comprehensive (loss) income attributable to Synchronoss
|
|
$
|
(2,563)
|
|
|
$
|
1,567
|
|
|
|
|
$
|
(15,729)
|
|
|
$
|
(5,362)
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited) (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
|
|
Accumulated Other
|
|
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-In Capital
|
|
Comprehensive Income (Loss)
|
|
Accumulated deficit
|
|
Stockholders' Equity
|
Balance at March 31, 2021
|
51,331
|
|
|
$
|
5
|
|
|
(7,162)
|
|
|
$
|
(82,087)
|
|
|
$
|
491,295
|
|
|
$
|
(29,349)
|
|
|
$
|
(357,801)
|
|
|
$
|
22,063
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,221
|
|
|
—
|
|
|
—
|
|
|
2,221
|
|
Issuance of restricted stock
|
1,644
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividend
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,808)
|
|
|
—
|
|
|
—
|
|
|
(9,808)
|
|
Amortization of preferred stock issuance costs1
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,668)
|
|
|
—
|
|
|
—
|
|
|
(11,668)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance - Public Offering
|
42,308
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
109,996
|
|
|
—
|
|
|
—
|
|
|
110,000
|
|
Common Stock - Issuance Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,340)
|
|
|
—
|
|
|
—
|
|
|
(8,340)
|
|
Treasury shares used in Public Offering
|
(7,162)
|
|
|
—
|
|
|
7,162
|
|
|
82,087
|
|
|
(82,087)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Synchronoss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,420)
|
|
|
(2,420)
|
|
Non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
(50)
|
|
|
—
|
|
Total other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(93)
|
|
|
—
|
|
|
(93)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
88,121
|
|
|
$
|
9
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
491,660
|
|
|
$
|
(29,442)
|
|
|
$
|
(360,271)
|
|
|
$
|
101,956
|
|
________________________________
1 Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
|
|
Accumulated Other
|
|
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-In Capital
|
|
Comprehensive Income (Loss)
|
|
Accumulated deficit
|
|
Stockholders' Equity
|
Balance at March 31, 2020
|
51,758
|
|
|
$
|
5
|
|
|
(7,162)
|
|
|
$
|
(82,087)
|
|
|
$
|
522,164
|
|
|
$
|
(36,823)
|
|
|
$
|
(338,454)
|
|
|
$
|
64,805
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,754
|
|
|
—
|
|
|
—
|
|
|
4,754
|
|
Issuance of restricted stock
|
(138)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends accrued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,454)
|
|
|
—
|
|
|
—
|
|
|
(8,454)
|
|
Amortization of preferred stock issuance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(835)
|
|
|
—
|
|
|
—
|
|
|
(835)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares withheld for taxes in connection with issuance of restricted stock
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Synchronoss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(694)
|
|
|
(694)
|
|
Non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
165
|
|
|
—
|
|
|
(165)
|
|
|
—
|
|
Total other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,426
|
|
|
—
|
|
|
2,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
51,619
|
|
|
$
|
5
|
|
|
(7,162)
|
|
|
$
|
(82,087)
|
|
|
$
|
517,794
|
|
|
$
|
(34,397)
|
|
|
$
|
(339,313)
|
|
|
$
|
62,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
|
|
Accumulated Other
|
|
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-In Capital
|
|
Comprehensive Income (Loss)
|
|
Accumulated deficit
|
|
Stockholders' Equity
|
Balance at December 31, 2020
|
51,177
|
|
|
$
|
5
|
|
|
(7,162)
|
|
|
$
|
(82,087)
|
|
|
$
|
499,348
|
|
|
$
|
(28,213)
|
|
|
$
|
(345,771)
|
|
|
$
|
43,282
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,034
|
|
|
—
|
|
|
—
|
|
|
5,034
|
|
Issuance of restricted stock
|
1,798
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividend
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,215)
|
|
|
—
|
|
|
—
|
|
|
(19,215)
|
|
Amortization of preferred stock issuance costs1
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,791)
|
|
|
—
|
|
|
—
|
|
|
(12,791)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance - Public Offering
|
42,308
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
109,996
|
|
|
—
|
|
|
—
|
|
|
110,000
|
|
Treasury shares used in Public Offering
|
(7,162)
|
|
|
—
|
|
|
7,162
|
|
|
82,087
|
|
|
(82,087)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common Stock - Issuance Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,340)
|
|
|
—
|
|
|
—
|
|
|
(8,340)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Synchronoss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,786)
|
|
|
(14,786)
|
|
Non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(286)
|
|
|
—
|
|
|
286
|
|
|
—
|
|
Total other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,229)
|
|
|
—
|
|
|
(1,229)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
88,121
|
|
|
$
|
9
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
491,660
|
|
|
$
|
(29,442)
|
|
|
$
|
(360,271)
|
|
|
$
|
101,956
|
|
________________________________
1 Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
|
|
Accumulated Other
|
|
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-In Capital
|
|
Comprehensive Income (Loss)
|
|
Accumulated deficit
|
|
Stockholders' Equity
|
Balance at December 31, 2019
|
51,704
|
|
|
$
|
5
|
|
|
(7,162)
|
|
|
$
|
(82,087)
|
|
|
$
|
525,739
|
|
|
$
|
(33,261)
|
|
|
$
|
(334,319)
|
|
|
$
|
76,077
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,070
|
|
|
—
|
|
|
—
|
|
|
10,070
|
|
Issuance of restricted stock
|
(83)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends accrued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,612)
|
|
|
—
|
|
|
—
|
|
|
(16,612)
|
|
Amortization of preferred stock issuance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,585)
|
|
|
—
|
|
|
—
|
|
|
(1,585)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares withheld for taxes in connection with issuance of restricted stock
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Synchronoss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,044)
|
|
|
(4,044)
|
|
Non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
182
|
|
|
—
|
|
|
(182)
|
|
|
—
|
|
Total other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,136)
|
|
|
—
|
|
|
(1,136)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of new credit loss accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(768)
|
|
|
(768)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
51,619
|
|
|
$
|
5
|
|
|
(7,162)
|
|
|
$
|
(82,087)
|
|
|
$
|
517,794
|
|
|
$
|
(34,397)
|
|
|
$
|
(339,313)
|
|
|
$
|
62,002
|
|
See accompanying notes to condensed consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
|
Operating activities:
|
|
|
|
|
|
Net loss continuing operations
|
$
|
(14,786)
|
|
|
$
|
(4,044)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
18,352
|
|
|
21,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on Disposals of fixed assets
|
(18)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on Disposals of intangible assets
|
(550)
|
|
|
(2,164)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
(1,471)
|
|
|
478
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
5,066
|
|
|
10,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease impairment
|
1,205
|
|
|
—
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable, net
|
4,743
|
|
|
904
|
|
|
|
Prepaid expenses and other current assets
|
(648)
|
|
|
(10,031)
|
|
|
|
Accounts payable
|
686
|
|
|
3,514
|
|
|
|
Accrued expenses
|
(4,151)
|
|
|
7,002
|
|
|
|
|
|
|
|
|
|
Other assets
|
—
|
|
|
502
|
|
|
|
Deferred revenues
|
(5,539)
|
|
|
(24,613)
|
|
|
|
Other liabilities
|
5,278
|
|
|
(1,748)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
8,167
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Purchases of fixed assets
|
(1,250)
|
|
|
(424)
|
|
|
|
Additions to capitalized software
|
(10,959)
|
|
|
(8,685)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of intangibles
|
550
|
|
|
2,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity of marketable securities available for sale
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
(11,659)
|
|
|
(6,934)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
Share-based compensation-related proceeds, net of taxes paid on withholding shares
|
(1)
|
|
|
—
|
|
|
|
Taxes paid on withholding shares
|
(1)
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs related to long term debt 1
|
(7,811)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long term debt
|
125,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving line of credit
|
—
|
|
|
10,000
|
|
|
|
Repayment of revolving line of credit
|
(10,000)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
110,000
|
|
|
—
|
|
|
|
Common stock issuance costs 2
|
(8,340)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock
|
75,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Redemption of Series A Preferred stock
|
(278,665)
|
|
|
—
|
|
|
|
Series B preferred stock issuance costs 3
|
(2,495)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
2,687
|
|
|
9,991
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
(296)
|
|
|
(895)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
(1,101)
|
|
|
3,770
|
|
|
|
Cash and cash equivalents, beginning of period
|
33,671
|
|
|
39,001
|
|
|
|
Cash and cash equivalents, end of period
|
$
|
32,570
|
|
|
$
|
42,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
Paid in kind dividends on Series A Convertible Participating Perpetual Preferred Stock 4
|
$
|
31,277
|
|
|
$
|
17,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________
1 Includes $0.8 million of issuance costs that were unpaid as of 6/30/2021
2 Includes $0.6 million of issuance costs that were unpaid as of 6/30/2021
3 Includes $0.2 million of issuance costs that were unpaid as of 6/30/2021
4 Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.
See accompanying notes to condensed consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
1. Description of Business
General
Synchronoss Technologies, Inc. (“Synchronoss” or the “Company”) Digital, Cloud, Messaging and Total Network Management platforms help the world’s leading companies, including operators, original equipment manufacturers (“OEMs”), and Media and Technology providers to deliver continuously transformative customer experiences that create high value engagement and new monetization opportunities.
The Company currently operates in and markets solutions and services directly through the Company’s sales organizations in North America, Europe and Asia-Pacific. The Company’s platforms give customers new opportunities in the Telecommunications, Media and Technology (“TMT”) space, taking advantage of the rapidly converging services, connected devices, networks and applications.
The Company delivers platforms, products and solutions including:
•White Label Personal Cloud: Cloud sync, backup, storage, device set up, content transfer and content engagement for user generated content.
•Messaging: White label consumer email solutions. Advanced, multi-channel messaging peer-to-peer (“P2P”) communications and application-to-person (“A2P”) commerce solutions.
•Digital: Customer journey and workflow design, development, orchestration and experience management.
•Total Network Management (“TNM”): integrated application suite that designs, procures, manages and optimizes telecom network infrastructure.
The Synchronoss Personal Cloud™ platform is a secure and highly scalable white label platform designed to store and sync subscriber’s personally created content seamlessly to and from current and new devices. This allows a carrier’s customers to protect, engage with and manage their personal content and gives the Company’s Operator customers the ability to increase average revenue per user (“ARPU”) through a new monthly recurring charge (“MRC”) and opportunities to mine valuable data that will give subscribers access to new, beneficial services. Additionally, the Company’s Personal Cloud Platform performs an expanding set of value-add services including facilitating an Operator’s initial device setup and enhancing visibility and control across disparate devices within subscribers’ smart homes.
The Synchronoss Messaging Platform powers hundreds of millions of subscribers’ mail boxes worldwide. The Company’s Advanced Messaging Product is a powerful, secure and intelligent white label messaging platform that expands capabilities for Operators and TMT companies to offer P2P messaging via Rich Communications Services (“RCS”). Additionally, the Company’s Advanced Messaging Product powers commerce and a robust ecosystem for Operators, brands and advertisers to execute Application to Person (“A2P”) commerce and data-rich dialogue with subscribers.
The Synchronoss Digital Platform is a suite of technology, tools and solutions that includes digital experience creation and management, automated provisioning, artificial intelligence and financial analytics that service a broad array of TMT markets. The products equip customers with a toolkit of capabilities where they can design, deploy and manage end user customer journeys and workflows easily and quickly from one central platform that also integrates across front end customer engagement channels as well as enterprise business systems (e.g. CRM, POS) allowing non-citizen developers to configure rather than code experiences. The platform sits between customer-facing touch points and a customer’s existing back-office systems to orchestrate data, workflows and processes into digital customer journeys that interface with end user channels creating user experiences that can be centrally managed and coordinated with less resources than is typical in a traditional IT environment.
The Synchronoss Total Network Management application suite provides Operators with the tools and software to design their physical network, streamline their infrastructure purchases, and comprehensive network expense optimization and management for leading top tier carriers around the globe.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
2. Basis of Presentation and Consolidation
Basis of Presentation and Consolidation
The accompanying interim unaudited condensed consolidated financial statements have been prepared by Synchronoss and in the opinion of management, include all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIE”) in which the Company is the primary beneficiary and entities in which the Company has a controlling interest. Investments in less than majority-owned companies in which the Company does not have a controlling interest, but does have significant influence, are accounted for as equity method investments. Investments in less than majority-owned companies in which the Company does not have the ability to exert significant influence over the operating and financial policies of the investee are accounted for using the cost method. All material intercompany transactions and accounts are eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation.
For further information about the Company’s basis of presentation and consolidation or its significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Risks and Uncertainties
There continue to be uncertainties regarding the current coronavirus ("COVID-19") pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect the Company’s financial results and business operations for the three and six months ended June 30, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Recently Issued Accounting Standards
Recent accounting pronouncements adopted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
|
Description
|
|
Effect on the financial statements
|
|
|
|
|
|
|
|
|
|
|
Update 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes
|
|
The ASU removes the exception to the general principles in ASC 740, Income Taxes, associated with the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments and interim-period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU improves the application of income tax related guidance and simplifies U.S. GAAP when accounting for franchise taxes that are partially based on income, transactions with government resulting in a step-up in tax basis goodwill, separate financial statements of legal entities not subject to tax, and enacted changes in tax laws in interim periods. Different transition approaches, retrospective, modified retrospective, or prospective, will apply to each income tax simplification provision.
|
|
The Company adopted the new standard as of January 1, 2021. The standard did not have a material impact on the Company’s consolidated financial position or results of operations upon adoption.
|
Date of adoption: January 1, 2021.
|
|
|
|
|
Standards issued not yet adopted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
|
Description
|
|
Effect on the financial statements
|
|
|
|
|
|
|
|
|
|
|
Update 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06)
|
|
The ASU simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2022 on a full or modified retrospective basis, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
|
|
The Company does not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
|
Date of adoption: January 1, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
3. Revenue
Disaggregation of revenue
The Company disaggregates revenue from contracts with customers into the nature of the products and services and geographical regions. The Company’s geographic regions are the Americas, Europe, the Middle East and Africa (“EMEA”), and Asia Pacific (“APAC”). The majority of the Company’s revenue is from the Technology, Media and Telecom (collectively, “TMT”) sector.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Three Months Ended June 30, 2020
|
|
Cloud
|
|
Digital
|
|
Messaging
|
|
Total
|
|
Cloud
|
|
Digital
|
|
Messaging
|
|
Total
|
Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
37,071
|
|
|
$
|
10,603
|
|
|
$
|
11,265
|
|
|
$
|
58,939
|
|
|
$
|
40,761
|
|
|
$
|
12,637
|
|
|
$
|
8,500
|
|
|
$
|
61,898
|
|
APAC
|
—
|
|
|
915
|
|
|
6,249
|
|
|
7,164
|
|
|
—
|
|
|
1,019
|
|
|
6,708
|
|
|
7,727
|
|
EMEA
|
1,820
|
|
|
613
|
|
|
2,996
|
|
|
5,429
|
|
|
1,686
|
|
|
1,347
|
|
|
3,877
|
|
|
6,910
|
|
Total
|
$
|
38,891
|
|
|
$
|
12,131
|
|
|
$
|
20,510
|
|
|
$
|
71,532
|
|
|
$
|
42,447
|
|
|
$
|
15,003
|
|
|
$
|
19,085
|
|
|
$
|
76,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Line
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Services
|
$
|
3,884
|
|
|
$
|
2,118
|
|
|
$
|
2,587
|
|
|
$
|
8,589
|
|
|
$
|
4,984
|
|
|
$
|
2,736
|
|
|
$
|
5,972
|
|
|
$
|
13,692
|
|
Transaction Services
|
1,321
|
|
|
945
|
|
|
2
|
|
|
2,268
|
|
|
1,474
|
|
|
2,215
|
|
|
—
|
|
|
3,689
|
|
Subscription Services
|
33,686
|
|
|
8,546
|
|
|
17,921
|
|
|
60,153
|
|
|
35,989
|
|
|
9,251
|
|
|
11,112
|
|
|
56,352
|
|
License
|
—
|
|
|
522
|
|
|
—
|
|
|
522
|
|
|
—
|
|
|
801
|
|
|
2,001
|
|
|
2,802
|
|
Total
|
$
|
38,891
|
|
|
$
|
12,131
|
|
|
$
|
20,510
|
|
|
$
|
71,532
|
|
|
$
|
42,447
|
|
|
$
|
15,003
|
|
|
$
|
19,085
|
|
|
$
|
76,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2020
|
|
Cloud
|
|
Digital
|
|
Messaging
|
|
Total
|
|
Cloud
|
|
Digital
|
|
Messaging
|
|
Total
|
Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
74,102
|
|
|
$
|
21,843
|
|
|
$
|
14,781
|
|
|
$
|
110,726
|
|
|
$
|
80,083
|
|
|
$
|
23,574
|
|
|
$
|
19,403
|
|
|
$
|
123,060
|
|
APAC
|
—
|
|
|
2,043
|
|
|
12,949
|
|
|
14,992
|
|
|
—
|
|
|
1,577
|
|
|
15,883
|
|
|
17,460
|
|
EMEA
|
3,685
|
|
|
1,222
|
|
|
6,406
|
|
|
11,313
|
|
|
3,408
|
|
|
2,604
|
|
|
7,125
|
|
|
13,137
|
|
Total
|
$
|
77,787
|
|
|
$
|
25,108
|
|
|
$
|
34,136
|
|
|
$
|
137,031
|
|
|
$
|
83,491
|
|
|
$
|
27,755
|
|
|
$
|
42,411
|
|
|
$
|
153,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Line
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Services
|
$
|
7,809
|
|
|
$
|
4,229
|
|
|
$
|
5,198
|
|
|
$
|
17,236
|
|
|
$
|
9,145
|
|
|
$
|
7,272
|
|
|
$
|
11,202
|
|
|
$
|
27,619
|
|
Transaction Services
|
3,296
|
|
|
3,213
|
|
|
3
|
|
|
6,512
|
|
|
2,781
|
|
|
3,289
|
|
|
—
|
|
|
6,070
|
|
Subscription Services
|
66,682
|
|
|
16,979
|
|
|
28,535
|
|
|
112,196
|
|
|
71,565
|
|
|
16,253
|
|
|
21,729
|
|
|
109,547
|
|
License
|
—
|
|
|
687
|
|
|
400
|
|
|
1,087
|
|
|
—
|
|
|
941
|
|
|
9,480
|
|
|
10,421
|
|
Total
|
$
|
77,787
|
|
|
$
|
25,108
|
|
|
$
|
34,136
|
|
|
$
|
137,031
|
|
|
$
|
83,491
|
|
|
$
|
27,755
|
|
|
$
|
42,411
|
|
|
$
|
153,657
|
|
Trade Accounts Receivable and Contract balances
The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, the Company recognizes a receivable for revenues related to its time and materials and transaction or volume-based contracts. The Company presents such receivables in Trade accounts receivable, net in its Condensed Consolidated Statements
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
of Financial Position at their net estimated realizable value. The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other economic indicators.
A contract asset is a right to consideration that is conditional upon factors other than the passage of time. For example, the Company would record a contract asset if it records revenue on a professional services engagement but are not entitled to bill until the Company achieves specified milestones. Contract assets balance at June 30, 2021 is $4.3 million.
Amounts collected in advance of services being provided are accounted for as contract liabilities, which are presented as deferred revenue on the accompanying Condensed Consolidated Balance Sheets and are realized with the associated revenue recognized under the contract. Nearly all of the Company's contract liabilities balance is related to services revenue, primarily subscription services contracts.
The Company’s contract assets and liabilities are reported in a net position on a customer basis at the end of each reporting period.
Significant changes in the contract liabilities balance (current and non-current) during the period are as follows:
|
|
|
|
|
|
|
|
|
Contract Liabilities1
|
Balance - January 1, 2021
|
|
$
|
45,614
|
|
Revenue recognized in the period
|
|
(137,006)
|
|
Amounts billed but not recognized as revenue
|
|
132,487
|
|
|
|
|
|
|
|
Balance - June 30, 2021
|
|
$
|
41,095
|
|
________________________________
1 Comprised of Deferred Revenue
Transaction price allocated to the remaining performance obligations
Topic 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2021. The Company has elected not to disclose transaction price allocated to remaining performance obligations for:
1.Contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty;
2.Contracts for which the Company recognizes revenues based on the right to invoice for services performed;
3.Variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with Topic 606 Section 10-25-14(b), for which the criteria in Topic 606 Section 10-32-40 have been met. This applies to a limited number of situations where the Company is dependent upon data from a third party or where fees are highly variable.
Many of the Company’s performance obligations meet one or more of these exemptions. Specifically, the Company has excluded the following from the Company’s remaining performance obligations, all of which will be resolved in the period in which amounts are known:
•consideration for future transactions, above any contractual minimums
•consideration for success-based transactions contingent on third party data
•credits for failure to meet future service level requirements
As of June 30, 2021, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $258.2 million, of which approximately 80.9 percent is expected to be recognized as revenues within 2 years, and the remainder thereafter.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Estimates of revenue expected to be recognized in future periods also exclude unexercised customer options to purchase services that do not represent material rights to the customer. Customer options that do not represent a material right are only accounted for in accordance with Topic 606 when the customer exercises its option to purchase additional goods or services.
4. Fair Value Measurements
In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:
•Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;
•Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets; and
•Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.
The following is a summary of assets, liabilities and redeemable noncontrolling interests and their related classifications under the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents1
|
$
|
32,570
|
|
|
$
|
32,570
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
32,570
|
|
|
$
|
32,570
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests2
|
$
|
12,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,500
|
|
Total temporary equity
|
$
|
12,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents1
|
$
|
33,671
|
|
|
$
|
33,671
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
33,671
|
|
|
$
|
33,671
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary Equity
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests2
|
$
|
12,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,500
|
|
Total temporary equity
|
$
|
12,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,500
|
|
________________________________
1 Cash equivalents includes money market funds.
2 Put arrangements held by the noncontrolling interests in certain of the Company’s joint ventures.
Redeemable Noncontrolling Interests
The redeemable noncontrolling interests recorded at fair value are put arrangements held by the noncontrolling interests in certain of the Company’s joint ventures. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of the noncontrolling interest to the greater of the estimated redemption value, which approximates fair value, at the end of each reporting period or the initial carrying amount.
The fair value of the redeemable noncontrolling interests was estimated by applying an income approach using a discounted cash flow analysis. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Significant changes in the underlying assumptions used to value the redeemable
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
noncontrolling interests could significantly increase or decrease the fair value estimates recorded in the Condensed Consolidated Balance Sheets.
The changes in fair value of the Company’s Level 3 redeemable noncontrolling interests during the six months ended June 30, 2021 were as follows:
|
|
|
|
|
|
Balance at December 31, 2020
|
$
|
12,500
|
|
Fair value adjustment
|
286
|
|
Net (income) loss attributable to redeemable noncontrolling interests
|
(286)
|
|
Balance at June 30, 2021
|
$
|
12,500
|
|
5. Leases
The Company has entered into contracts with third parties to lease a variety of assets, including certain real estate, equipment, automobiles and other assets. The Company’s leases frequently allow for lease payments that could vary based on factors such as inflation or the degree of utilization of the underlying asset. For example, certain of the Company’s real estate leases could require us to make payments that vary based on common area maintenance charges, insurance and other charges. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company is party to certain sublease arrangements, primarily related to the Company’s real estate leases, where it acts as the lessee and intermediate lessor.
The Company reflects finance leases as a component of Leases, non-current on the Condensed Consolidated Balance Sheet. The finance leases were not material for the period ended June 30, 2021.
The following table presents information about the Company's Right of Use (ROU) assets and lease liabilities at June 30, 2021:
|
|
|
|
|
|
|
|
|
|
ROU assets:
|
|
|
Non-current operating lease ROU assets
|
|
$
|
29,703
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities:
|
|
|
Current operating lease liabilities1
|
|
$
|
8,261
|
|
Non-current operating lease liabilities
|
|
39,816
|
|
Total operating lease liabilities
|
|
$
|
48,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________
1 Amounts are included in Accrued Expenses on the Condensed Consolidated Balance Sheet.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The following table presents information about lease expense and sublease income for the three and six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2021
|
|
June 30, 2021
|
Operating lease cost1
|
$
|
2,433
|
|
|
$
|
5,034
|
|
Other lease costs and income:
|
|
|
|
Variable lease costs1,2
|
793
|
|
|
1,568
|
|
Sublease income1
|
(833)
|
|
|
(1,778)
|
|
|
|
|
|
Total net lease cost
|
$
|
2,393
|
|
|
$
|
4,824
|
|
________________________________
1 Amounts are included in Cost of revenues, Selling, general and administrative and/or Research and development based on the function that the underlying leased asset supports which are reflected in the Condensed Consolidated Statements of Operations.
2 As part of the Company’s continued cost savings initiatives, the Company closed certain office spaces and terminated various lease agreements. These actions resulted in a $1.2 million ROU asset impairment charge for the six months ended June 30, 2021, which was determined by the present value of the forecasted future cash flows for the remaining lease term.
The following table provides the undiscounted amount of future cash flows included in our lease liabilities at June 30, 2021 for each of the five years subsequent to December 31, 2020 and thereafter, as well as a reconciliation of such undiscounted cash flows to our lease liabilities at June 30, 2021:
|
|
|
|
|
|
|
Operating Leases
|
Remaining 2021
|
$
|
6,145
|
|
2022
|
10,946
|
|
2023
|
8,600
|
|
2024
|
8,346
|
|
2025
|
8,224
|
|
Thereafter
|
18,608
|
|
Total future lease payments
|
60,869
|
|
Less: amount representing interest
|
(12,792)
|
|
Present value of future lease payments (lease liability)
|
$
|
48,077
|
|
The following table provides the weighted-average remaining lease term and weighted-average discount rates for our leases as of June 30, 2021:
|
|
|
|
|
|
Operating Leases:
|
|
Weighted-average remaining lease term (years), weighted based on lease liability balances
|
6.19
|
Weighted-average discount rate (percentages), weighted based on the remaining balance of lease payments
|
7.6%
|
The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
Operating Leases:
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
7,348
|
|
Lease liabilities arising from obtaining right-of-use assets
|
—
|
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
6. Investments in Affiliates and Related Transactions
Sequential Technology International, LLC
In connection with the divestiture of the exception handling business of the Company in 2017, Synchronoss entered into a three-year Cloud Telephony and Support services agreement (“CTS Agreement”) to grant Sequential Technology International, LLC (“STIN”) access to certain Synchronoss software and private branch exchange systems to facilitate exception handling operations required to support STIN customers.
The CTS agreement expired in the first quarter of 2020. At the time of the expiration, the Company entered into an Asset Purchase Agreement with STIN. As part of the agreement, the Company received $1.6 million in exchange for certain hardware and system assets for the cloud telephony and remaining support service business.
During the second quarter of 2020, the Company entered into an agreement with STIN and AP Capital Holdings II, LLC (“APC”) to divest its remaining equity interest in STIN as well as settle its paid-in-kind purchase money note (“PIK note”) and certain amounts due as of December 31, 2019 in consideration for a $9.0 million secured promissory note (the “Note”), which includes contingent consideration of up to $16.0 million. The Note has an 8% interest rate and a 3-year stated term. As part of the arrangement, APC acquired a majority stake of STIN. Additionally, in the event of a sale of STIN by APC and STIN at a future date, the Company shall receive 5% of such sale proceeds, after reducing the sale proceeds by any outstanding amounts of the above Note, including any earned contingent consideration. The Company determined the fair value of the Note as of the transaction date to be approximately $4.8 million. The Company determined the fair value of the Note using a discounted cash flow analysis, which discounts the expected future cash flows of the asset to determine its fair value. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. No gain or loss was recognized as a result of the transaction. As of June 30, 2021, the Company reassessed the fair value of the Note and there were no material changes.
7. Debt
Offering of Senior Notes
On June 30, 2021, the Company closed its underwritten public offering of $120.0 million aggregate principal amount of 8.375% senior notes due 2026 at a par value of $25.00 per Senior Note (the “Senior Notes”). The offering was conducted pursuant to an underwriting agreement (the “Notes Underwriting Agreement”) dated June 25, 2021, by and among the Company and B. Riley Securities, Inc., as representative of the several underwriters (the “Notes Underwriters”). At the closing, the Company issued $125.0 million aggregate principal amount of Senior Notes, inclusive of $5.0 million aggregate principal amount of Senior Notes issued pursuant to the full exercise of the Notes Underwriters’ option to purchase additional Senior Notes.
The Notes Underwriting Agreement contains customary representations, warranties and covenants of the Company, customary conditions to closing, indemnification obligations of the Company and the Notes Underwriters, including for liabilities under the Securities Act, other obligations of the parties and termination provisions.
On June 30, 2021, the Company entered into an indenture (the “Base Indenture”) and a supplemental indenture (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”) with The Bank of New York Mellon Trust Company National Association, as trustee (the “Trustee”), between the Company and the Trustee. The Indenture establishes the form and provides for the issuance of the Senior Notes.
The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness. The Senior Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables. The Senior Notes bear interest at the rate of 8.375% per annum. Interest on the Senior
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on July 31, 2021. The Senior Notes will mature on June 30, 2026, unless redeemed prior to maturity.
The Company may, at its option, at any time and from time to time, redeem the Senior Notes for cash in whole or in part (i) on or after June 30, 2022 and prior to June 30, 2023, at a price equal to $25.75 per Senior Note, plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or after June 30, 2023 and prior to June 30, 2024, at a price equal to $25.50 per Senior Note, plus accrued and unpaid interest to, but excluding, the date of redemption, (iii) on or after June 30, 2024 and prior to June 30, 2025, at a price equal to $25.25 per Senior Note, plus accrued and unpaid interest to, but excluding, the date of redemption, and (iv) on or after June 30, 2025 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed Senior Notes.
The Indenture contains customary events of default and cure provisions. If an uncured default occurs and is continuing, the Trustee or the holders of at least 25% of the principal amount of the Senior Notes may declare the entire amount of the Senior Notes, together with accrued and unpaid interest, if any, to be immediately due and payable. In the case of an event of default involving the Company’s bankruptcy, insolvency or reorganization, the principal of, and accrued and unpaid interest on, the principal amount of the Senior Notes, together with accrued and unpaid interest, if any, will automatically, and without any declaration or other action on the part of the Trustee or the holders of the Senior Notes, become due and payable.
The carrying amounts of the Company’s borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes
|
|
June 30, 2021
|
|
December 31, 2020
|
8.375% Senior Notes due 2026
|
|
$
|
125,000
|
|
|
$
|
—
|
|
Unamortized discount and debt issuance cost1
|
|
(7,811)
|
|
|
—
|
|
Carrying value of Senior Notes
|
|
$
|
117,189
|
|
|
$
|
—
|
|
________________________________
1 Debt issuance are deferred and amortized into interest expense using the effective interest method.
The total fair value of our outstanding senior notes approximates its issued price. The Company is in compliance with its debt covenants as of June 30, 2021.
2019 Revolving Credit Facility
On October 4, 2019, the Company entered into a Credit Agreement with Citizens Bank, N.A., for a $10.0 million Revolving Credit Facility. Borrowings under the Revolving Credit Facility bore interest at a rate equal to, at the Company’s option, either (1) the arithmetic average of the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period (one, three or six months (or 12 months if agreed to by all applicable Lenders)) as selected by the Company relevant to such borrowing plus the applicable margin, or (2) a base rate determined by reference to the greatest of the federal funds rate plus 0.5%, the prime commercial lending rate as determined by the Agent, and the daily LIBOR rate plus 1.0%, in each case plus an applicable margin and subject to a floor of 0.5%.
On November 9, 2020, the Company entered into an amended credit agreement which changes the terms of the Company’s debt covenants.
On June 30, 2021, the Company paid off the outstanding balance and closed the Revolving Credit Facility.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Interest expense
The following table summarizes the Company’s interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Revolving Credit Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
$
|
72
|
|
|
$
|
12
|
|
|
|
|
$
|
84
|
|
|
$
|
28
|
|
|
|
Commitment fee
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
4
|
|
|
|
Interest on borrowings
|
|
63
|
|
|
68
|
|
|
|
|
126
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other1
|
|
9
|
|
|
4
|
|
|
|
|
29
|
|
|
215
|
|
|
|
Total
|
|
$
|
144
|
|
|
$
|
84
|
|
|
|
|
$
|
239
|
|
|
$
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________
1 Mainly finance leases’ related interest expense
Debt issuance costs are deferred and amortized to interest expense using the effective interest method. The interest expense for the Senior Notes was not material for the quarter.
8. Accumulated Other Comprehensive (Loss) / Income
The changes in accumulated other comprehensive (loss) income during the six months ended June 30, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
Other comprehensive (loss) income
|
|
Tax effect
|
|
Balance at
June 30, 2021
|
Foreign currency
|
$
|
(26,076)
|
|
|
$
|
(1,768)
|
|
|
$
|
—
|
|
|
$
|
(27,844)
|
|
Unrealized loss on intra-entity foreign currency transactions
|
(2,137)
|
|
|
807
|
|
|
(268)
|
|
|
(1,598)
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(28,213)
|
|
|
$
|
(961)
|
|
|
$
|
(268)
|
|
|
$
|
(29,442)
|
|
9. Stockholders’ Equity
Common Stock
Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. Dividends on common stock will be paid when, and if, declared by the Company’s Board of Directors. No dividends have ever been declared or paid by the Company.
Common Stock Offering
On June 29, 2021, the Company closed its underwritten public offering of common stock, par value $0.0001 per share. The offering was conducted pursuant to an underwriting agreement (the “Underwriting Agreement”) dated June 24, 2021, by and between the Company and B. Riley Securities, Inc., as representative of the several underwriters (the “Underwriters”) for net proceeds of $102.3 million. At the closing, the Company issued 42,307,692 shares of common stock, inclusive of 3,846,154
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
shares of common stock issued pursuant to the full exercise of the Underwriters’ option to purchase additional shares of common stock. The Company used the net proceeds for the redemption of the Series A Convertible Preferred Stock.
Preferred Stock
The Company’s Board of Directors (the “Board”) is authorized to issue preferred shares and has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of preferred stock.
Series B Non-Convertible Preferred Stock
On June 30, 2021, the Company closed a private placement of 75,000 shares of its Series B Perpetual Non-Convertible Preferred Stock, par value $0.0001 per share, with an initial liquidation preference of $1,000 per share (the “Series B Preferred Stock”), for net proceeds of $72.5 million (the “Series B Transaction”). The sale of the Series B Preferred Stock was pursuant to the Series B Preferred Stock Purchase Agreement, dated as of June 24, 2021 (the “Series B Purchase Agreement”), between the Company and B. Riley Principal Investments, LLC (“BRPI”).
In connection with the closing of the Series B Transaction, the Company (i) filed a Certificate of Designation with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series B Preferred Stock (the “Series B Certificate”) and (ii) entered into an Investor Rights Agreement with B. Riley Financial, Inc. (“B. Riley Financial”) and BRPI setting forth certain governance and registration rights of B. Riley Financial with respect to the Company.
Certificate of Designation of the Series B Preferred Stock
The rights, preferences, privileges, qualifications, restrictions and limitations of the shares of Series B Preferred Stock are set forth in the Series B Certificate. Under the Series B Certificate, the holders of the Series B Preferred Stock are entitled to receive, on each share of Series B Preferred Stock on a quarterly basis, an amount equal to the dividend rate, as described in the following sentence, divided by four and multiplied by the then-applicable Liquidation Preference per share of Series B Preferred Stock (collectively, the “Preferred Dividends”). The dividend rate is (1) 9.5% per annum for the period commencing on June 30, 2021 and ending on and including December 31, 2021, (2) 13% per annum for the year commencing on January 1, 2022 and ending on and including December 31, 2022; and (3) 14% per annum for the year commencing on January 1, 2023 and thereafter. The Preferred Dividends will be due in cash on January 1, April 1, July 1 and October 1 of each year (each, a “Series B Dividend Payment Date”). The Company may choose to pay the Series B Preferred Dividends in cash or in additional shares of Series B Preferred Stock. In the event the Company does not declare and pay a dividend in cash on any Series B Dividend Payment Date, the unpaid amount of the Preferred Dividend will be added to the Liquidation Preference. As of June 30, 2021, the Liquidation Value and Redemption Value of the Series B Preferred Shares was $75.1 million.
On and after the fifth anniversary of the date of issuance, holders of shares of Series B Preferred Stock will have the right to cause the Company to redeem each share of Series B Preferred Stock for cash in an amount equal to the sum of the current liquidation preference and any accrued dividends. Each share of Series B Preferred Stock will also be redeemable at the option of the holder upon the occurrence of a “Fundamental Change” at (i) par in the case of a payment in cash or (ii) 1.5 times par in the case of payment in shares of Common Stock (such shares being, “Registrable Securities”), subject to certain limitations on the amount of stock that could be issued to the holders of Series B Stock. In addition, the Company will be permitted to redeem outstanding shares of the Series B Preferred Stock at any time for the sum of the then-applicable Liquidation Preference and the accrued but unpaid dividends. Pursuant to the Series B Certificate, the Company will be required to use (i) the first $50.0 million of proceeds from certain transactions (i.e., disposition, sale of assets, tax refunds) received by the Company to redeem for cash, shares of the Series B Preferred Stock, on a pro rata basis among each holder of Series B Preferred Stock and (ii) the next $25.0 million of proceeds from certain transactions received by the Company may be used by the Company to buy back shares of Common Stock and to the extent, not used for such purpose by the Company, to redeem, for cash, shares of the Series B Preferred Stock, on a pro rata basis among each holder of the Series B Preferred Stock.
The Company shall be required to obtain the prior written consent of the holders holding at least a majority of the outstanding shares of the Series B Preferred Stock before taking certain actions, including: (i) certain dividends, repayments and redemptions; (ii) any amendment to the Company’s certificate of incorporation that adversely affects the rights,
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
preferences, privileges or voting powers of the Series B Preferred Stock; and (iii) issuances of stock ranking senior or equivalent to shares of the Series B Preferred Stock (including additional shares of the Series B Preferred Stock) in the priority of payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company. Other than with respect to the foregoing consent rights, the Series B Preferred Stock is non-voting stock.
Investor Rights Agreement
On June 30, 2021, the Company, B. Riley Financial and BRPI entered into an Investor Rights Agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, for so long as affiliates of B. Riley Financial beneficially own at least 10% of the outstanding shares of Common Stock (unless such equity threshold percentage is not met due to dilution from equity issuances), B. Riley Financial is entitled to nominate one Class II director (the “B. Riley Nominee”) to the Company’s board of directors (the “Board”), who shall be an employee of B. Riley Financial or its affiliates and is approved by the Board, such approval not to be unreasonably withheld. For so long as affiliates of B. Riley Financial beneficially own 5% or more but less than 10% of the outstanding shares of Common Stock (unless such equity threshold percentage is not met due to dilution from equity issuances), B. Riley Financial is entitled to certain board observer rights.
A summary of the Company’s Series B Perpetual Non-Convertible Preferred Stock balance at June 30, 2021 and changes during the six months ended June 30, 2021, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Stock
|
|
Shares
|
|
Amount
|
Balance at December 31, 2020
|
—
|
|
|
$
|
—
|
|
Issuance of Preferred Stock
|
75
|
|
|
75,000
|
|
Initial discount and issuance costs related to preferred stock
|
—
|
|
|
(2,494)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
75
|
|
|
$
|
72,506
|
|
Series A Convertible Preferred Stock
In accordance with the terms of the Share Purchase Agreement dated as of October 17, 2017 (the “PIPE Purchase Agreement”), with Silver Private Holdings I, LLC, an affiliate of Siris (“Silver”), on February 15, 2018, the Company issued to Silver 185,000 shares of its newly issued Series A Convertible Participating Perpetual Preferred Stock (the “Series A Preferred Stock”), par value $0.0001 per share, with an initial liquidation preference of $1,000 per share, in exchange for $97.7 million in cash and the transfer from Silver to the Company of the 5,994,667 shares of the Company’s common stock held by Silver (the “Preferred Transaction”).
Redemption of Series A Preferred Stock
The net proceeds from the common stock public offering, Senior Note offering and the Series B Preferred Stock transaction was used in part to fully redeem all outstanding shares of the Company’s Series A Preferred Stock on June 30, 2021 (the “Redemption”). The Company redeemed in full all of the 268,917 outstanding shares of the Series A Preferred Stock for an an aggregate Redemption Price of $278.7 million and all rights under the Investor Rights Agreement relating to the Series A Preferred Stock were terminated effective with the Redemption. No Series A Preferred Stock remain outstanding or authorized as of June 30, 2021.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
A summary of the Company’s Series A Convertible Participating Perpetual Preferred Stock balance at June 30, 2021 and changes during the six months ended June 30, 2021, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
|
|
Shares
|
|
Amount
|
Balance at December 31, 2020
|
250
|
|
|
$
|
237,641
|
|
|
|
|
|
|
|
|
|
Amortization of preferred stock issuance costs
|
—
|
|
|
12,791
|
|
Issuance of preferred PIK dividend
|
19
|
|
|
18,485
|
|
|
|
|
|
|
|
|
|
Payment of preferred dividend
|
—
|
|
|
9,748
|
|
Redemption of Series A preferred shares
|
(269)
|
|
|
(278,665)
|
|
Balance at June 30, 2021
|
—
|
|
|
$
|
—
|
|
The Company and Siris Capital Group, LLC (“Siris”) entered into an Advisory Services Agreement dated as of May 18, 2020 under which Siris may provide consulting and advisory services to the Company on operational, business, financial and strategic matters. All obligations related to this Advisory Services Agreement were paid by the Company and the Advisory Services Agreement was terminated as of June 30, 2021.
Registration Rights
The Investor Rights Agreement entered into June 30, 2021 provides that in the event Synchronoss issues Registrable Securities to the holders of Series B Preferred Stock, such holders will have certain demand and piggy-back registration rights with respect to such Registrable Securities. In addition, on June 30, 2021, in connection with the redemption of the Series A Preferred Stock, the Investor Rights Agreement between the Company and Silver terminated.
Stock Plans
On June 14, 2021 the Company filed a registration statement with the Securities and Exchange Commission to issue 3.0 million shares of common stock under the Company’s 2015 Equity Incentive Plan as approved by the Company’s shareholders at the Annual Meeting of Shareholders on June 10, 2021. There were no significant changes to the Company’s 2017 New Hire Equity Incentive Plan during the three and six months ended June 30, 2021. As of June 30, 2021, there were 0.6 million shares available for the grant or award under the Company’s 2015 Equity Incentive Plan and 0.4 million shares available for the grant or award under the Company’s 2017 New Hire Equity Incentive Plan.
The Company’s performance cash awards granted to executives under the Long Term Incentive (“LTI”) Plans have been accounted for as liability awards, due to the Company’s intent and the ability to settle such awards in cash upon vesting and the Company has reflected such awards in accrued expenses. As of June 30, 2021, the liability for such awards is approximately $0.3 million.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Stock-Based Compensation
The following table summarizes stock-based compensation expense related to all of the Company’s stock awards included by operating expense categories, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
Cost of revenues
|
$
|
379
|
|
|
$
|
642
|
|
|
|
|
$
|
857
|
|
|
$
|
1,394
|
|
|
|
Research and development
|
696
|
|
|
1,071
|
|
|
|
|
1,551
|
|
|
2,502
|
|
|
|
Selling, general and administrative
|
1,270
|
|
|
3,274
|
|
|
|
|
2,658
|
|
|
6,260
|
|
|
|
Total stock-based compensation expense
|
$
|
2,345
|
|
|
$
|
4,987
|
|
|
|
|
$
|
5,066
|
|
|
$
|
10,156
|
|
|
|
The following table summarizes stock-based compensation expense related to all of the Company’s stock awards included by award type, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
Stock options
|
$
|
893
|
|
|
$
|
1,805
|
|
|
|
|
$
|
1,848
|
|
|
$
|
3,588
|
|
|
|
Restricted stock awards
|
1,329
|
|
|
2,962
|
|
|
|
|
3,039
|
|
|
6,296
|
|
|
|
Performance Based Cash Units
|
123
|
|
|
220
|
|
|
|
|
179
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation before taxes
|
$
|
2,345
|
|
|
$
|
4,987
|
|
|
|
|
$
|
5,066
|
|
|
$
|
10,156
|
|
|
|
Tax benefit
|
$
|
440
|
|
|
$
|
664
|
|
|
|
|
$
|
937
|
|
|
$
|
1,588
|
|
|
|
The total stock-based compensation cost related to unvested equity awards as of June 30, 2021 was approximately $14.4 million. The expense is expected to be recognized over a weighted-average period of approximately 1.5 years.
The total stock-based compensation cost related to unvested performance based cash units as of June 30, 2021 was approximately $1.3 million. The expense is expected to be recognized over a weighted-average period of approximately 2.3 years.
Stock Options
The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock options. The weighted-average assumptions used in the Black-Scholes option pricing model are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
Expected stock price volatility
|
|
83.1
|
%
|
|
76.1
|
%
|
|
|
|
83.1
|
%
|
|
72.0
|
%
|
|
|
Risk-free interest rate
|
|
0.6
|
%
|
|
0.4
|
%
|
|
|
|
0.6
|
%
|
|
1.4
|
%
|
|
|
Expected life of options (in years)
|
|
4.25
|
|
4.45
|
|
|
|
4.24
|
|
4.42
|
|
|
Expected dividend yield
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
Weighted-average fair value (PSV) of the options
|
|
$
|
1.81
|
|
|
$
|
1.73
|
|
|
|
|
$
|
1.89
|
|
|
$
|
3.08
|
|
|
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The following table summarizes information about stock options outstanding as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
Options
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding at December 31, 2020
|
|
4,423
|
|
|
$
|
9.60
|
|
|
|
|
|
Options Granted
|
|
1,903
|
|
|
3.08
|
|
|
|
|
|
Options Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Options Cancelled
|
|
(950)
|
|
|
11.29
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
5,376
|
|
|
$
|
6.99
|
|
|
5.44
|
|
$
|
1,053
|
|
Vested and exercisable at June 30, 2021
|
|
1,778
|
|
|
$
|
12.84
|
|
|
3.71
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercisable at June 30, 2021 and 2020 was $0.6 thousand and nil, respectively. The total intrinsic value of stock options exercised during the six months ended June 30, 2021 and 2020 was nil and nil, respectively.
Awards of Restricted Stock and Performance Stock
A summary of the Company’s unvested restricted stock at June 30, 2021, and changes during the six months ended June 30, 2021, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Restricted Stock
|
|
Number of
Awards
|
|
Weighted- Average
Grant Date
Fair Value
|
Unvested at December 31, 2020
|
|
1,510
|
|
|
$
|
7.05
|
|
Granted
|
|
1,960
|
|
|
3.12
|
|
Vested
|
|
(693)
|
|
|
7.48
|
|
Forfeited
|
|
(191)
|
|
|
4.92
|
|
Unvested at June 30, 2021
|
|
2,586
|
|
|
$
|
4.07
|
|
Restricted stock awards are granted subject to other service conditions or service and performance conditions (“Performance-Based Awards”). Restricted stock and Performance-Based Awards are measured at the closing stock price at the date of grant and are recognized straight line over the requisite service period.
Performance Based Cash Units
Performance based cash units vest at the end of a three-year period based on service and achievement of certain performance objectives determined by the Company’s Board of Directors.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
A summary of the Company’s unvested performance-based cash units at June 30, 2021 and changes during the six months ended June 30, 2021, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Cash Units
|
|
Number of
Units
|
|
Period End Fair Value
|
Unvested at December 31, 2020
|
|
907
|
|
|
$
|
4.70
|
|
Granted
|
|
1,546
|
|
|
—
|
|
Granted adjustment1
|
|
(308)
|
|
|
|
Vested
|
|
(30)
|
|
|
—
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Unvested at June 30, 2021
|
|
2,115
|
|
|
$
|
3.58
|
|
___________________________
1 Includes changes in the unvested units due to performance adjustments
Performance based cash units are measured at the closing stock price at the reporting period end date and are recognized straight line over the requisite service period. The expense for the period will increase or decrease based on updated fair values of these awards at each reporting date. Unvested units fluctuations are shown as adjustments to units granted in the table above. These fluctuations are based on the percentage achievement of the performance metrics at the end of each reporting period.
10. Income Taxes
The Company recognized approximately $0.4 million and $20.4 million in related income tax benefit during the six months ended June 30, 2021 and 2020, respectively. The effective tax rate was approximately 2.4% for the six months ended June 30, 2021, which was lower than the U.S. federal statutory rate primarily due to pre-tax losses in jurisdictions where full valuation allowances have been recorded, pre-tax losses in jurisdictions which have a zero tax rate, and certain foreign jurisdictions projecting current income tax expense. During the period, the Company also recognized a discrete income tax benefit associated with the release of certain reserves for uncertain tax benefits. The Company’s effective tax rate was approximately 83.5% for the six months ended June 30, 2020, which was higher than the U.S. federal statutory rate primarily due to the Company’s ability to recognize certain loss carrybacks as a result of the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in the first quarter of 2020, the impact of the redemption of the Company’s interest in STIN and valuation allowances recorded in domestic and foreign jurisdictions, partially offset by the impact of permanent book-tax differences. The Company continues to consider all available evidence, including historical profitability and projections of future taxable income together with new evidence, both positive and negative, that could affect the view of the future realization of deferred tax assets. As a result of the assessment, no change was recorded by the Company to the valuation allowance during the six months ended June 30, 2021.
On March 11, 2021 the American Rescue Plan Act ("ARPA") was signed into law which is aimed at addressing the continuing economic and health impacts of the COVID-19 pandemic. This legislation relief, along with the previous governmental relief packages provide for numerous changes to current tax law. The Company does not anticipate that ARPA will have a material impact on its financial statements in the period ending June 30, 2021.
Subsequent to the close of the quarter, the Internal Revenue Service commenced an audit of certain of the Company’s prior year U.S. federal income tax filings, including the 2015, 2016 and 2018 tax years. The Company does not believe that the results of this audit will have a material effect on its financial position or results of operations.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
11. Restructuring
The Company continues to execute certain restructurings to identify workforce optimization opportunities to better align the Company’s resources with its key strategic priorities. A summary of the Company’s restructuring accrual at June 30, 2021 and changes during the six months ended June 30, 2021, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
Charges
|
|
Payments
|
|
Other Adjustments
|
|
Balance at June 30, 2021
|
Employment termination costs
|
$
|
1,580
|
|
|
$
|
1,590
|
|
|
$
|
(1,600)
|
|
|
$
|
—
|
|
|
$
|
1,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Earnings per Common Share (“EPS”)
Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of the Company’s common stock for the year. The Company includes participating securities (Redeemable Convertible Preferred Stock - Participation with Dividends on Common Stock that contain preferred dividend) in the computation of EPS pursuant to the two-class method. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income attributable to common stockholders per common share from continued and discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
Numerator - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(2,420)
|
|
|
$
|
(694)
|
|
|
|
|
$
|
(14,786)
|
|
|
$
|
(4,044)
|
|
|
|
Net income (loss) attributable to redeemable noncontrolling interests
|
(50)
|
|
|
(165)
|
|
|
|
|
286
|
|
|
(182)
|
|
|
|
Preferred stock dividend1
|
(21,476)
|
|
|
(9,289)
|
|
|
|
|
(32,006)
|
|
|
(18,197)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Synchronoss
|
$
|
(23,946)
|
|
|
$
|
(10,148)
|
|
|
|
|
$
|
(46,506)
|
|
|
$
|
(22,423)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator - Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations attributable to Synchronoss
|
$
|
(23,946)
|
|
|
$
|
(10,148)
|
|
|
|
|
$
|
(46,506)
|
|
|
$
|
(22,423)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic
|
44,131
|
|
|
41,697
|
|
|
|
|
43,438
|
|
|
41,482
|
|
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares from assumed conversion of preferred stock2
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
Shares from assumed conversion of Performance Based Cash Units3
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — diluted
|
44,131
|
|
|
41,697
|
|
|
|
|
43,438
|
|
|
41,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.54)
|
|
|
$
|
(0.24)
|
|
|
|
|
$
|
(1.07)
|
|
|
$
|
(0.54)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
(0.54)
|
|
|
$
|
(0.24)
|
|
|
|
|
$
|
(1.07)
|
|
|
$
|
(0.54)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options excluded
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
Unvested shares of restricted stock awards
|
2,586
|
|
|
2,220
|
|
|
|
|
2,586
|
|
|
2,220
|
|
|
|
________________________________
1 Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.
2 The calculation does not include the effect of assumed conversion of preferred stock of 14,939,846 and 12,956,487 shares for the three months ended June 30, 2021 and 2020, respectively; and 14,679,984 and 12,729,876 shares for the six months ended June 30, 2021 and 2020, respectively; which is based on 55.5556 shares per $1,000 principal amount of the preferred stock, because the effect would have been anti–dilutive.
3 The calculation does not include the effect of assumed conversion of Performance Based Cash Units of 826,742 and nil shares for the three months ended June 30, 2021 and 2020, respectively; and 699,023 and nil shares for the six months ended June 30, 2021 and 2020, respectively; which is based on 1 share per 1 Performance Based Cash Unit, because the effect would have been anti–dilutive.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
13. Commitments, Contingencies and Other
Purchase Obligations
Aggregate annual future minimum payments under non-cancelable agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Non-cancelable agreements
|
|
|
|
|
2021
|
|
$
|
5,529
|
|
|
|
|
|
2022
|
|
16,471
|
|
|
|
|
|
2023
|
|
13,807
|
|
|
|
|
|
2024 and thereafter
|
|
21,995
|
|
|
|
|
|
Total
|
|
$
|
57,802
|
|
|
|
|
|
Legal Matters
In the ordinary course of business, the Company is regularly subject to various claims, suits, regulatory inquiries and investigations. The Company records a liability for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable, and the loss can be reasonably estimated. Management has also identified certain other legal matters where they believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the Company’s business, financial position, results of operations, or cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company.
On May 1, 2017, May 2, 2017, June 8, 2017 and June 14, 2017, four putative class actions were filed against the Company and certain of its current and former officers and directors in the United States District Court for the District of New Jersey (the “Securities Law Action”). After these cases were consolidated, the court appointed as lead plaintiff Employees’ Retirement System of the State of Hawaii, which filed, on November 20, 2017, a consolidated complaint purportedly on behalf of purchasers of the Company’s common stock between February 3, 2016 and June 13, 2017. On February 2, 2018, the defendants moved to dismiss the consolidated complaint in its entirety, with prejudice. Before that motion was decided, on August 24, 2018, lead plaintiff filed a consolidated amended complaint purportedly on behalf of purchasers of the Company’s common stock between October 28, 2014 and June 13, 2017. On June 28, 2019, the Court granted defendants’ motion to dismiss the consolidated amended complaint in its entirety, without prejudice, allowing lead plaintiff to leave to amend its complaint. On August 14, 2019, lead plaintiff filed a second amended complaint. The second amended complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and it alleges, among other things, that the defendants made false and misleading statements of material information concerning the Company’s financial results, business operations, and prospects. The plaintiff seeks unspecified damages, fees, interest, and costs. On October 4, 2019, the defendants moved to dismiss the second amended complaint in its entirety. On May 29, 2020, the court granted in part and denied in part defendants’ motion to dismiss the second amended complaint, without prejudice. Plaintiff filed its motion for class certification on October 30, 2020, which motion remains pending. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations.
On September 15, 2017, October 24, 2017, October 27, 2017 and October 30, 2017, Company shareholders filed derivative lawsuits against certain of the Company’s current and former officers and directors and the Company (as nominal defendant) in the United States District Court for the District of New Jersey (the “Derivative Suits”). On May 24, 2018, the Court consolidated the Derivative Suits and appointed Lisa LeBoeuf as lead plaintiff. The lead plaintiff designated as the Operative Complaint the complaint she previously had filed on October 27, 2017. On March 11, 2019, the defendants filed a motion to dismiss the Operative Complaint, which the Court granted in substantial part on November 26, 2019. On December 10, 2019,
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
the defendants filed a motion for reconsideration respecting the only claim to survive the motion to dismiss. On June 12, 2020, the Court granted the defendants’ motion for reconsideration and dismissed the remaining claim without prejudice, allowing lead plaintiff leave to amend her complaint. On July 13, 2020, lead plaintiff filed an amended complaint. The amended complaint alleges claims related to breaches of fiduciary duties and unjust enrichment. The amended complaint’s allegations relate to substantially the same facts as those underlying the Securities Law Action described above. On April 30, 2021, the Court dismissed Plaintiff’s amended complaint in its entirety. Plaintiff filed a notice of appeal on May 28, 2021. Due to the inherent uncertainties of litigation, including a potential appeal, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on our financial position or results of operations.
On March 7, 2019, Synchronoss shareholders, Beth Daniel and Juan Solis, filed a separate derivative lawsuit against certain of the Company’s current and former officers and directors and the Company (as nominal defendant) in the Court of Chancery of the State of Delaware, asserting substantially the same allegations as those underlying the Derivative Suits and the Securities Law Action described above. Plaintiffs seek unspecified damages and for the Company to take steps to improve its corporate governance and internal procedures. On May 20, 2019, the parties stipulated to a stay of the action pending a ruling on the pending motion to dismiss in the Derivative Suits. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on our financial position or results of operations.
On June 11, 2020 and June 12, 2020, Company shareholders filed derivative lawsuits against certain of the Company’s current and former officers and directors and the Company (as nominal defendant) in the United States District Court for the District of New Jersey (the “Demand Refused Derivative Complaints”). The Demand Refused Derivative Complaints allege claims related to breaches of fiduciary duty, unjust enrichment, and alleged violations of securities laws. The complaints’ allegations relate substantially to the same facts as those underlying the Securities Law Action described above. The Demand Refused Derivative Complaints further allege that each plaintiff made a demand upon the Company’s Board of Directors to investigate the alleged misconduct and that such demand was wrongfully refused. Plaintiffs seek unspecified damages and for the Company to take steps to improve its corporate governance and internal procedures. On October 20, 2020, the Court consolidated the actions and appointed co-lead plaintiffs. On December 4, 2020, co-lead plaintiffs filed a consolidated amended complaint. On February 3, 2021, the defendants filed motions to dismiss the amended complaint, which remain pending before the Court. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations.
On May 7, 2021, a mediation took place concerning the Securities Law Action and all of the derivative actions. The Company and the parties to those actions are in the process of seeking to finalize a settlement of all claims.
On June 22, 2021, the Securities and Exchange Commission (“SEC”) staff notified the Company that the staff has made a preliminary determination to recommend that the SEC initiate an enforcement action against the Company in connection with certain financial transactions that the Company effected in 2015 and 2016 and its disclosure of and accounting for such transactions, which the Company restated in the third quarter of 2018 in its restated annual and quarterly financial statements for 2015 and 2016. That restatement followed the Company’s announcement, on June 13, 2017 (the “June 2017 Announcement”), that certain of its prior financial statements would need to be restated. Certain individuals, including certain current and former members of Synchronoss' management team, received similar notifications. The Company is in discussions with the SEC staff regarding the prospect of resolving this matter through settlement. If the Company is unable to resolve this matter through settlement then it would expect to receive a “Wells notice” from the SEC staff in connection with this matter. Although a Wells notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law, it is a formal notice that the SEC has made a preliminary determination to bring an enforcement action against the recipient. Upon receipt of a Wells notice, the recipient has the opportunity to respond to the SEC staff’s position before any formal enforcement action is taken.
In the third quarter of 2017, the SEC and Department of Justice initiated investigations in connection with the June 2017 Announcement and certain transactions that the Company restated in the third quarter of 2018. The Company has received subpoenas, produced documents, and provided additional information to the government in connection with those investigations.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Due to the inherent uncertainties of government investigations, the Company cannot predict the outcome of these government investigations or the SEC staff’s preliminary determination at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position, prospects or results of operations. It is possible that the ultimate amount of the Company’s liability could be higher than its current reserve.
Except as set forth above, the Company is not currently subject to any legal proceedings that could have a material adverse effect on its operations; however, it may from time to time become a party to various legal proceedings arising in the ordinary course of its business. The Company is currently the plaintiff in several patent infringement cases. The defendants in several of these cases have filed counterclaims. Although the Company cannot predict the outcome of the cases at this time due to the inherent uncertainties of litigation, the Company continues to pursue its claims and believes that the counterclaims are without merit, and the Company intends to defend against all of such counterclaims.
14. Additional Financial Information
Other Income, net
The following table sets forth the components of included in the Other Income, net included in the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
FX gains (losses)1
|
|
$
|
969
|
|
|
$
|
315
|
|
|
$
|
(2,304)
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government refunds
|
|
5
|
|
|
552
|
|
|
5
|
|
|
552
|
|
|
|
Income from sale of intangible assets2
|
|
550
|
|
|
321
|
|
|
550
|
|
|
2,164
|
|
|
|
Other3
|
|
52
|
|
|
179
|
|
|
(71)
|
|
|
241
|
|
|
|
Total
|
|
$
|
1,576
|
|
|
$
|
1,367
|
|
|
$
|
(1,820)
|
|
|
$
|
3,058
|
|
|
|
________________________________
1 Fair value of foreign exchange gains and losses
2 Represents gain on sale of certain of the Company’s IP addresses and Patents
3 Represents an aggregate of individually immaterial transactions
Discussion of the Condensed Consolidated Statements of Operations
Three months ended June 30, 2021 compared to the three months ended June 30, 2020
The following table presents an overview of our results of operations for the three months ended June 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
2021 vs 2020
|
|
|
|
2021
|
|
2020
|
|
|
|
$ Change
|
|
|
Net revenues
|
$
|
71,532
|
|
|
$
|
76,535
|
|
|
|
|
$
|
(5,003)
|
|
|
|
Cost of revenues1
|
27,142
|
|
|
29,480
|
|
|
|
|
(2,338)
|
|
|
|
Research and development
|
17,197
|
|
|
19,096
|
|
|
|
|
(1,899)
|
|
|
|
Selling, general and administrative
|
21,909
|
|
|
24,640
|
|
|
|
|
(2,731)
|
|
|
|
Restructuring charges
|
877
|
|
|
4,493
|
|
|
|
|
(3,616)
|
|
|
|
Depreciation and amortization
|
8,485
|
|
|
10,284
|
|
|
|
|
(1,799)
|
|
|
|
Total costs and expenses
|
75,610
|
|
|
87,993
|
|
|
|
|
(12,383)
|
|
|
|
Loss from continuing operations
|
$
|
(4,078)
|
|
|
$
|
(11,458)
|
|
|
|
|
$
|
7,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________
1 Cost of revenues excludes depreciation and amortization which are shown separately.
Net revenues decreased $5.0 million to $71.5 million for the three months ended June 30, 2021, compared to the same period in 2020. The decrease in revenue is primarily attributable to non-recurring license sales and one-time professional services in the prior period and the accounting treatment of deferred revenue due to a customer renewal as per ASC 606, which was signed in in the third quarter of fiscal 2020. These changes were partially offset by growth in cloud subscribers and the acceleration of subscription revenue from the dissolution of a previous customer.
Cost of revenues decreased $2.3 million to $27.1 million for the three months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to the year over year reduction in revenue and the cost savings from strategic initiatives implemented in the year driven mainly by data center consolidation and operating expense savings.
Research and development expense decreased $1.9 million to $17.2 million for the three months ended June 30, 2021, compared to the same period in 2020. The research and development costs decreased year over year mainly as a result of executed cost savings initiatives to streamline our workforce and reduce vendor spend.
Selling, general and administrative expense decreased $2.7 million to $21.9 million for the three months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to significant cost cutting initiatives executed in year which included headcount reductions, reduced vendor spending and lower facility costs.
Restructuring charges were $0.9 million and $4.5 million for the three months ended June 30, 2021 and 2020, respectively, which primarily related to employment termination costs as a result of the work-force reductions initiated in the current year to reduce operating costs and align our resources with our key strategic priorities.
Depreciation and amortization expense decreased $1.8 million to $8.5 million for the three months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to the expiration of amortizable acquired assets in combination with reduced capital expenditures mainly as a result of the data center consolidation project and efforts to streamline business operations, partially offset by the increased amortization of capitalized software.
Income tax. The Company recognized approximately $0.2 million and $8.0 million in related income tax benefit during the three months ended June 30, 2021 and 2020, respectively. The effective tax rate was approximately 7.7% for the three months ended June 30, 2021, which was lower than the U.S. federal statutory rate primarily due to pre-tax losses in jurisdictions where full valuation allowances have been recorded, and in zero rate jurisdictions, and discrete tax benefits associated with the release of certain uncertain tax benefit reserves, partially offset by certain foreign jurisdictions projecting current income tax expense. The Company’s effective tax rate was approximately 92.0% for the three months ended June 30, 2020, which was
higher than the U.S. federal statutory rate primarily due to the Company’s ability to recognize certain loss carrybacks as a result of the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in the first quarter of 2020, the impact of the redemption of the Company’s interest in STIN and valuation allowances recorded in domestic and foreign jurisdictions, partially offset by the impact of permanent book-tax differences.
Discussion of the Condensed Consolidated Statements of Operations
Six months ended June 30, 2021 compared to the six months ended June 30, 2020
The following table presents an overview of our results of operations for the six months ended June 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
$ Change
|
|
|
|
2021
|
|
2020
|
|
|
|
$ Change
|
|
|
Net revenues
|
$
|
137,031
|
|
|
$
|
153,657
|
|
|
|
|
$
|
(16,626)
|
|
|
|
Cost of revenues1
|
55,779
|
|
|
64,951
|
|
|
|
|
(9,172)
|
|
|
|
Research and development
|
34,594
|
|
|
38,884
|
|
|
|
|
(4,290)
|
|
|
|
Selling, general and administrative
|
39,837
|
|
|
50,984
|
|
|
|
|
(11,147)
|
|
|
|
Restructuring charges
|
1,590
|
|
|
5,943
|
|
|
|
|
(4,353)
|
|
|
|
Depreciation and amortization
|
18,352
|
|
|
21,640
|
|
|
|
|
(3,288)
|
|
|
|
Total costs and expenses
|
150,152
|
|
|
182,402
|
|
|
|
|
(32,250)
|
|
|
|
Loss from continuing operations
|
$
|
(13,121)
|
|
|
$
|
(28,745)
|
|
|
|
|
$
|
15,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________
1 Cost of revenues excludes depreciation and amortization which are shown separately.
Net revenues decreased $16.6 million to $137.0 million for the six months ended June 30, 2021, compared to the same period in 2020. The decrease in revenue is primarily attributable to non-recurring license sales and one-time professional services in the prior period and the accounting treatment of deferred revenue due to a customer renewal as per ASC 606, which was signed in in the third quarter of fiscal 2020. These changes were partially offset by growth in cloud subscribers and the acceleration of subscription revenue from the dissolution of a previous customer.
Cost of revenues decreased $9.2 million to $55.8 million for the six months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily due to cost savings initiatives implemented by the Company. These initiatives resulted in a significant decrease in cost of revenues driven mainly by data center consolidation and operating expense savings.
Research and development expense decreased $4.3 million to $34.6 million for the six months ended June 30, 2021, compared to the same period in 2020. The research and development costs decreased year over year mainly as a result of executed cost savings initiatives to streamline our workforce and reduce vendor spend.
Selling, general and administrative expense decreased $11.1 million to $39.8 million for the six months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily driven by cost savings initiatives that resulted in a decrease in employee costs, facilities, and external costs related to outside consultants and legal fees.
Restructuring charges decreased $4.4 million to $1.6 million for the six months ended June 30, 2021, compared to the same period in 2020, which primarily related to employment termination costs as a result of the work-force reductions initiated in the current year to reduce operating costs and align our resources with our key strategic priorities.
Depreciation and amortization expense decreased $3.3 million to $18.4 million for the six months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to the expiration of amortizable acquired assets in combination with reduced capital expenditures mainly as a result of the data center consolidation project and efforts to streamline business operations, partially offset by the increased amortization of capitalized software.
Income tax. The Company recognized approximately $0.4 million and $20.4 million in related income tax benefit during the six months ended June 30, 2021 and 2020, respectively. The effective tax rate was approximately 2.4% for the six months ended June 30, 2021, which was lower than the U.S. federal statutory rate primarily due to pre-tax losses in jurisdictions where full valuation allowances have been recorded, pre-tax losses in jurisdictions which have a zero tax rate, and certain foreign jurisdictions projecting current income tax expense. During the period, the Company also recognized a discrete income tax benefit associated with the release of certain reserves for uncertain tax benefits. The Company’s effective tax rate was approximately 83.5% for the six months ended June 30, 2020, which was higher than the U.S. federal statutory rate primarily due to the Company’s ability to recognize certain loss carrybacks as a result of the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in the first quarter 2020, the impact of the redemption of the Company’s interest in STIN and valuation allowances recorded in domestic and foreign jurisdictions, partially offset by the impact of permanent book-tax differences. The Company continues to consider all available evidence, including historical profitability and projections of future taxable income together with new evidence, both positive and negative, that could affect the view of the future realization of deferred tax assets. As a result of the assessment, no change was recorded by the Company to the valuation allowance during the six months ended June 30, 2021.
Liquidity and Capital Resources
As of June 30, 2021, our principal sources of liquidity were cash provided by operations and the remaining proceeds from the financing transactions. Our cash and cash equivalents balance was $32.6 million at June 30, 2021. We anticipate that our principal uses of cash and cash equivalents will be to fund our business, including technology expansion and working capital.
At June 30, 2021, our non-U.S. subsidiaries held approximately $6.9 million of cash and cash equivalents that are available for use by our operations around the world. At this time, we believe the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S. However, if these funds were repatriated to the U.S. or used for U.S. operations, certain amounts could be subject to U.S. tax for the incremental amount in excess of the foreign tax paid. Due to the timing and circumstances of repatriation of these earnings, if any, it is not practical to determine the unrecognized deferred tax liability related to the amount.
We believe that our existing cash, cash equivalents, and our ability to manage working capital and expected positive cash flows generated from operations in combination with continued expense reductions will be sufficient to fund our operations for the next twelve months from the filing date of this Form 10-Q based on our current business plans. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. Given the economic uncertainty as a result of the pandemic, we have taken actions to improve our current liquidity position, including, reducing working capital, reducing operating costs and substantially reducing discretionary spending. Even with these actions however, an extended period of economic disruption as a result of the continued global impact of COVID-19 could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition. Our liquidity plans are subject to a number of risks and uncertainties, including those described in the "Forward-Looking Statements" section of this MD&A and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, some of which are outside of our control.
Redemption of Series A Preferred Stock
The net proceeds from our public offering of common stock, Senior Note offering and the Series B Preferred Stock transaction was used in part to fully redeem all outstanding shares of Series A Preferred Stock on June 30, 2021 (the “Redemption”).
For further details, see Note 7. Debt and Note 9. Stockholders’ Equity of the Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.
Series B Preferred Stock
On June 30, 2021, we closed a private placement of 75,000 shares of or Series B Preferred Stock, for an aggregate purchase price of $75.0 million. The holders of the Series B Preferred Stock are entitled to receive, on each share of Series B Preferred Stock on a quarterly basis, an amount equal to the dividend rate, as described in the following sentence, divided by four and multiplied by the then-applicable Liquidation Preference (as defined in the Series B Certificate) per share of Series B Preferred
Stock (collectively, the “Preferred Dividends”). The dividend rate is (1) 9.5% per annum for the period commencing on June 30, 2021 and ending on and including December 31, 2021, (2) 13% per annum for the year commencing on January 1, 2022 and ending on and including December 31, 2022; and (3) 14% per annum for the year commencing on January 1, 2023 and thereafter. The Preferred Dividends will be due in cash on January 1, April 1, July 1 and October 1 of each year (each, a “Series B Dividend Payment Date”). The Company may choose to pay the Series B Preferred Dividends in cash or in additional shares of Series B Preferred Stock. In the event Synchronoss does not declare and pay a dividend in cash on any Series B Dividend Payment Date, the unpaid amount of the Preferred Dividend will be added to the Liquidation Preference.
On and after the fifth anniversary of the date of issuance, holders of shares of Series B Preferred Stock will have the right to cause Synchronoss to redeem each share of Series B Preferred Stock for cash in an amount equal to the sum of the current liquidation preference and any accrued dividends. Each share of Series B Preferred Stock will also be redeemable at the option of the holder upon the occurrence of a “Fundamental Change” (as that term is defined in the Series B Certificate) at (i) par in the case of a payment in cash or (ii) 1.5 times par in the case of payment in shares of Common Stock (such shares being, “Registrable Securities”), subject to certain limitations on the amount of stock that could be issued to the holders of Series B Stock. In addition, the Company will be permitted to redeem outstanding shares of the Series B Preferred Stock at any time for the sum of the then-applicable Liquidation Preference and the accrued but unpaid dividends. Pursuant to the Series B Certificate, Synchronoss will be required to use (i) the first proceeds $50.0 million of proceeds from certain transactions (i.e., disposition, sale of assets, tax refunds) received by the Company to redeem for cash, shares of Series B Preferred Stock, on a pro rata basis among each holder of Series B Preferred Stock and (ii) the next $25.0 million of proceeds from certain transactions received by the Company may be used by the Company to buy back shares of Common Stock, and to the extent, not used for such purpose by the Company, to redeem, for cash, shares of Series B Preferred Stock, on a pro rata basis among each holder of Series B Preferred Stock.
Revolving Credit Facility
We repaid in full and closed our Revolving Credit Facility as of June 30, 2021. For further details, see Note 7. Debt of the Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.
Shelf Registration Statement
On August 19, 2020, the Company filed a universal shelf registration statement with the SEC for the issuance of common stock, preferred stock, debt securities, guarantees of debt securities, warrants and units up to an aggregate amount of $250.0 million (“the 2020 Shelf Registration Statement”). On August 28, 2020, the 2020 Shelf Registration Statement was declared effective by the SEC. As of June 30, 2021, except for the Common Stock offering and the issuance of Senior Notes, the Company has not raised additional capital using the 2020 Shelf Registration Statement.
Discussion of Cash Flows
A summary of net cash flows follows (in thousands):
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Six Months Ended June 30,
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Change
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2021
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2020
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2021 vs 2020
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Net cash provided by (used in):
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Operating activities
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$
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8,167
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$
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1,608
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$
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6,559
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Investing activities
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(11,659)
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(6,934)
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(4,725)
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Financing activities
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2,687
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|
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9,991
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(7,304)
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|
Our primary source of cash is receipts from revenue. The primary uses of cash are personnel and related costs, telecommunications and facility costs related primarily to our cost of revenue and general operating expenses including professional service fees, consulting fees, building and equipment maintenance and marketing expense.
Cash flows from operating activities for the six months ended June 30, 2021 was $8.2 million cash provided by operating activities, as compared to $1.6 million of cash provided by operating activities for the same period in 2020. The increase in cash provided by operations from the prior year is primarily attributable to favorable changes in working capital.
Cash flows from investing for the six months ended June 30, 2021 was $11.7 million cash used in investing, as compared to $6.9 million in cash used in investing activities during the same period in 2020. The cash used for investing in the current year was primarily related to the purchase of fixed assets and investment in capitalized software. The net decrease in cash used for investing in the prior year was primarily related to the investment in capitalized software offset by the sale of certain IP address assets.
Cash flows from financing for the six months ended June 30, 2021 was $2.7 million of cash provided, as compared to $10.0 million of cash provided by financing activities for the same period in 2020. In 2021, the net proceeds from our public offering of common stock, Senior Note offering and Series B Preferred Stock transaction was primarily used to fully redeem all outstanding shares of the Company’s Series A Preferred Stock and repay and close the Revolving Credit Facility on June 30, 2021. The cash provided from financing activities in the prior year was attributable to the drawdown from our Revolving Credit Facility.
Effect of Inflation
Although inflation generally affects us by increasing our cost of labor and equipment, we do not believe that inflation has had any material effect on our results of operations during the three or six months ended June 30, 2021 and 2020. We do not expect the current rate of inflation to have a material impact on our business.
Contractual Obligations
Our contractual obligations consist of contingent consideration, office equipment and colocation services and contractual commitments under third-party hosting, software licenses and maintenance agreements. The following table summarizes our long-term contractual obligations as of June 30, 2021 (in thousands).
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Payments Due by Period
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Total
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2021
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2022-2024
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2025-2026
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Thereafter
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Capital lease obligations
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$
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804
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$
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131
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$
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599
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|
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$
|
74
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|
|
$
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—
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Operating lease obligations
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60,868
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|
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6,145
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27,892
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16,268
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|
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10,563
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Purchase obligations1
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57,802
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5,529
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42,574
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9,699
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—
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8.375% Senior Notes due 2026
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125,000
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—
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—
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125,000
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—
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Total
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$
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244,474
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|
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$
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11,805
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|
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$
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71,065
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|
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$
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151,041
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|
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$
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10,563
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_______________________________
1 Amount represents obligations associated with colocation agreements and other customer delivery related purchase obligations.
Uncertain Tax Positions
Unrecognized tax positions of $2.6 million at June 30, 2021 are excluded from the table above as we are not able to reasonably estimate when we would make any cash payments required to settle these liabilities, but we do not believe that the ultimate settlement of our obligations will materially affect our liquidity. We anticipate that the balance of unrecognized tax benefits will decrease by approximately $0.6 million over the next twelve months.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements in accordance with U.S. GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during a fiscal period. The SEC considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application.
These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including but not limited to the potential impacts continuing to arise from COVID-19 and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See Part II, “Item 1A. Risk Factors” in this Form 10-Q for certain matters bearing risks on our future results of operations.
During the six months ended June 30, 2021, there were no significant changes in our critical accounting policies and estimates discussed in our Form 10-K for the year ended December 31, 2020. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 for a more complete discussion of our critical accounting policies and estimates.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards see Note 2. Basis of Presentation and Consolidation included in Part I, Item 1. “Notes to Condensed Consolidated Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of June 30, 2021 and December 31, 2020 that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.