10-Q 1 sncr-20160331x10q.htm 10-Q sncr-Current Folio-10Q_Taxonomy2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

 

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

Or

 

 

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to

 

Commission file number 000-52049

 

SYNCHRONOSS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

 

06-1594540

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

200 Crossing Boulevard, 8th Floor

Bridgewater, New Jersey

 

08807

(Address of principal executive offices)

 

(Zip Code)

 

(866) 620-3940

(Registrant’s telephone number, including area code)

 

(Former name, former address, and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

Shares outstanding of the Registrant’s common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Class

 

Outstanding at April 30, 2016

Common stock, $0.0001 par value

 

44,715,031

 

 

 


 

SYNCHRONOSS TECHNOLOGIES, INC.

FORM 10-Q INDEX

 

 

 

 

PART I.

FINANCIAL INFORMATION

PAGE NO.

 

 

 

Item 1.

Condensed Consolidated Financial Statements and Notes

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income (unaudited) 

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

 

 

 

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4. 

Controls and Procedures

28

 

 

 

 

 

 

PART II. 

OTHER INFORMATION

29

 

 

 

Item 1. 

Legal Proceedings

29

 

 

 

Item 1A. 

Risk Factors

29

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3. 

Defaults Upon Senior Securities

30

 

 

 

Item 4. 

Mine Safety Disclosures

30

 

 

 

Item 5. 

Other Information

30

 

 

 

Item 6. 

Exhibits

31

 

 

 

SIGNATURES 

32

 

 

 

 

 

 

 

 


 

SYNCHRONOSS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

March 31, 2016

    

December 31, 2015

 

 

 

 

 

 

ASSETS

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

113,084

 

$

147,634

Marketable securities

 

63,713

 

 

66,357

Accounts receivable, net of allowance for doubtful accounts of $3,329 and $3,029 at March 31, 2016 and December 31, 2015, respectively

 

158,590

 

 

143,692

Prepaid expenses and other assets

 

54,939

 

 

49,262

Total current assets

 

390,326

 

 

406,945

Marketable securities

 

17,934

 

 

19,635

Property and equipment, net

 

162,040

 

 

168,280

Goodwill

 

310,937

 

 

221,271

Intangible assets, net

 

230,986

 

 

174,322

Deferred tax assets

 

5,176

 

 

3,560

Other assets

 

16,164

 

 

16,215

Total assets

$

1,133,563

 

$

1,010,228

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

 

 

Accounts payable

$

33,171

 

$

26,038

Accrued expenses

 

48,695

 

 

45,819

Deferred revenues

 

32,113

 

 

8,323

Contingent consideration obligation

 

1,271

 

 

 —

Short term debt

 

50,000

 

 

 —

Total current liabilities

 

165,250

 

 

80,180

Lease financing obligation - long term

 

14,047

 

 

13,343

Contingent consideration obligation - long-term

 

 —

 

 

930

Convertible debt

 

225,231

 

 

224,878

Deferred tax liability

 

23,096

 

 

16,404

Other liabilities

 

19,900

 

 

3,227

Redeemable noncontrolling interest

 

58,323

 

 

61,452

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding at March 31, 2016 and December 31, 2015

 

 —

 

 

 —

Common stock, $0.0001 par value; 100,000 shares authorized, 48,426 and 48,084 shares issued; 45,083 and 44,405 outstanding at March 31, 2016 and December 31, 2015, respectively

 

4

 

 

4

Treasury stock, at cost (3,343 and 3,679 shares at March 31, 2016 and December 31, 2015, respectively)

 

(72,368)

 

 

(65,651)

Additional paid-in capital

 

535,326

 

 

512,802

Accumulated other comprehensive loss

 

(29,258)

 

 

(38,684)

Retained earnings

 

194,012

 

 

201,343

Total stockholders’ equity

 

627,716

 

 

609,814

Total liabilities and stockholders’ equity

$

1,133,563

 

$

1,010,228

 

See accompanying notes to consolidated financial statements.

3


 

SYNCHRONOSS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2016

 

2015

 

 

 

 

 

 

 

Net revenues

 

$

142,686

 

$

132,926

Costs and expenses:

 

 

 

 

 

 

Cost of services*

 

 

68,306

 

 

53,655

Research and development

 

 

24,097

 

 

22,024

Selling, general and administrative

 

 

27,581

 

 

20,883

Net change in contingent consideration obligation

 

 

341

 

 

 —

Restructuring charges

 

 

2,971

 

 

3,240

Depreciation and amortization

 

 

24,055

 

 

14,835

Total costs and expenses

 

 

147,351

 

 

114,637

(Loss) income from operations

 

 

(4,665)

 

 

18,289

Interest income

 

 

630

 

 

466

Interest expense

 

 

(1,576)

 

 

(1,342)

Other (expense) income

 

 

(884)

 

 

14

(Loss) income before income tax expense

 

 

(6,495)

 

 

17,427

Income tax expense

 

 

(3,965)

 

 

(6,866)

Net (loss) income

 

 

(10,460)

 

 

10,561

Net loss attributable to noncontrolling interests

 

 

(3,129)

 

 

 —

Net (loss) income attributable to Synchronoss

 

$

(7,331)

 

$

10,561

 

 

 

 

 

 

 

Net (loss) income per common share attributable to Synchronoss:

 

 

 

 

 

 

Basic

 

$

(0.17)

 

$

0.25

Diluted

 

$

(0.17)

 

$

0.23

Weighted-average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

43,423

 

 

41,626

Diluted

 

 

43,423

 

 

47,080

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to Synchronoss

 

$

2,095

 

$

(8,907)

 

 

 

 

 

*  

Cost of services excludes depreciation and amortization which is shown separately.

 

 

 

 

 

See accompanying notes to consolidated financial statements.

4


 

SYNCHRONOSS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2016

    

2015

Operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(10,460)

 

$

10,561

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

24,055

 

 

14,835

Amortization of debt issuance costs

 

 

375

 

 

375

Amortization of bond premium

 

 

373

 

 

474

Deferred income taxes

 

 

5,096

 

 

(733)

Non-cash interest on leased facility

 

 

229

 

 

233

Stock-based compensation

 

 

8,301

 

 

6,585

Contingent consideration obligation

 

 

341

 

 

(1,532)

Excess tax benefit from the exercise of stock options

 

 

623

 

 

(1,981)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts

 

 

(13,907)

 

 

(22,145)

Prepaid expenses and other current assets

 

 

(3,174)

 

 

5,623

Other assets

 

 

957

 

 

(443)

Accounts payable

 

 

8,317

 

 

106

Accrued expenses

 

 

(8,456)

 

 

(12,301)

Other liabilities

 

 

(55)

 

 

(243)

Deferred revenues

 

 

25,116

 

 

451

Net cash provided by (used in) operating activities

 

 

37,731

 

 

(135)

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Purchases of fixed assets

 

 

(13,153)

 

 

(24,217)

Purchases of marketable securities available-for-sale

 

 

(8,598)

 

 

(43,548)

Maturities of marketable securities available-for-sale

 

 

12,565

 

 

40,285

Businesses acquired, net of cash

 

 

(98,428)

 

 

(59,481)

Net cash used in investing activities

 

 

(107,614)

 

 

(86,961)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

1,755

 

 

5,398

Payments on contingent consideration obligation

 

 

 —

 

 

(4,468)

Borrowings on revolving line of credit

 

 

50,000

 

 

 —

Excess tax benefit from the exercise of stock options

 

 

(623)

 

 

1,981

Repurchase of common stock

 

 

(16,581)

 

 

 —

Proceeds from the sale of treasury stock in connection with an employee stock purchase plan

 

 

955

 

 

975

Repayments of capital lease obligations

 

 

(253)

 

 

(291)

Net cash provided by financing activities

 

 

35,253

 

 

3,595

Effect of exchange rate changes on cash

 

 

80

 

 

21

Net decrease in cash and cash equivalents

 

 

(34,550)

 

 

(83,480)

Cash and cash equivalents at beginning of period

 

 

147,634

 

 

235,967

Cash and cash equivalents at end of period

 

$

113,084

 

$

152,487

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Issuance of common stock in connection with Openwave acquisition

 

$

22,000

 

$

 —

Cash paid for income taxes

 

$

1,780

 

$

346

Cash paid for interest

 

$

1,533

 

$

1,053

 

See accompanying notes to consolidated financial statements.

 

5


 

Table of Contents

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

 

Synchronoss Technologies, Inc. (the “Company” or “Synchronoss”) is a leading innovator of cloud solutions, software-based activation, secure mobility, identity management and secure messaging for mobile carriers, enterprises, retailers and OEMs across the globe. Synchronoss’ software provides innovative service provider and enterprise solutions that drive billions of transactions on a wide range of connected devices across the world’s leading networks.  The Company’s solutions include: activation and provisioning software for devices and services, cloud-based sync, backup, storage and content engagement capabilities, broadband connectivity solutions, analytics, white label messaging, identity/access management and secure mobility management that enable communications service providers (CSPs), cable operators/multi-services operators (MSOs) and original equipment manufacturers (OEMs) with embedded connectivity (e.g. smartphones, laptops, tablets and mobile Internet devices (MIDs), such as automobiles, wearables for personal health and wellness, and connected homes), multi-channel retailers, medium and large enterprises and their consumers as well as other customers to accelerate and monetize value-add services for secure and broadband networks and connected devices.

 

Synchronoss’ Activation Software, Synchronoss Personal Cloud™ and Enterprise products and platforms provide end-to-end seamless integration between customer-facing channels/applications, communication services, or devices and “back-office” infrastructure-related systems and processes. The Company’s customers rely on the Company’s solutions and technology to automate the process of activation and content and settings management for their subscribers’ devices while delivering additional communication services.

 

The Synchronoss Activation solution orchestrates the complex and different back-end systems of communication service providers to provide a best-in-class ordering system by orchestrating the workflow and consolidated automated customer care services. This allows CSPs using the Company’s platforms to realize the full benefits of their offerings. The platforms also support, among other automated transaction areas, credit card billing, inventory management, and trouble ticketing. In addition to this, the platform supports the physical transactions involved in customer activation and service such as managing access service requests, local service requests, local number portability, and directory listings.

 

The Synchronoss Personal Cloud™ solution seamlessly transfers content from an old device to a new device, syncs, backs up and connects consumer’s content from multiple smart devices to the Company’s cloud platform. This allows carrier customers to protect and manage their growing cache of personally generated, mobile content over long periods of time.

 

The Synchronoss Enterprise solutions support an advanced mobility digital experience for businesses and consumers for accessing and protecting their information.  The Company’s identity and access management platform helps consumers and business users to securely authenticate access to online websites to conduct ecommerce transactions or access important data. The secure mobility platforms help users safely and securely store and share important data.  The solutions are based on understanding assumptions on the behaviors of individuals through the capture of who they are, what they are doing and how, where and when they are doing it. This allows the Company’s platforms to help reduce fraud, improve cybersecurity detection/prevention and overall productivity. The identity and access solution supports both consumers by allowing them to self-register and verify their identity, while providing non-intrusive multi-factor authentication and businesses the ability to be sure the correct person is doing the transaction.  The secure mobility solution combines the identity platform with a “bring your own device” (BYOD) platform that is based on a secure container for accessing data, applications, content and personal information management tools like email, calendar, messaging and notes.

 

The Company’s Integrated Life™ platform brings together select capabilities of the Company’s device/service Activation software and services with the Company’s Synchronoss Personal Cloud™ and analytics solutions to give carrier subscribers innovative digital experiences  that work across new and emerging consumer devices (e.g. connected cars, wearables, connected homes, smart TV’s, etc.) in carrier and the Internet of Things (IoT) markets.

 

Synchronoss Messaging is a white label messaging platform for service providers and offers a full range of deployment options including full integration with on premise systems, hybrid deployment support for optimal mix of technologies and protecting existing investments, and full cloud deployment for both SaaS and hosted models. Synchronoss Messaging features a distributed systems management console (messaging security, administration console for user and domain provisioning and management, integration with

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Table of Contents

SYNCHRONOSS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

(Amounts in tables in thousands, except for per share data or unless otherwise noted)

 

Nagios for monitoring and alerts) with support for smartphones, tablets and connected devices (support for leading protocols including iCal, CalDAV, CardDAV, EAS, IMAP/IDLE), Native Mobile App for iOS and Android for mail, contacts, calendar and task management.

 

Synchronoss’ products and platforms are designed to be carrier-grade, highly available, flexible and scalable to enable multiple converged communication services to be managed across multiple distribution channels including e-commerce, m-commerce, telesales, customer stores, indirect and other retail outlets allowing Synchronoss to meet the rapidly changing and converging services and connected devices offered by the Company’s customers. The Company’s products, platforms and solutions enable its Enterprise customers to acquire, retain and service subscribers quickly, reliably and cost-effectively with white label and custom-branded solutions.  Customers can simplify the processes associated with managing the customer experience for procuring, activating, connecting, backing-up, synchronizing and enterprise-wide sharing/collaboration with connected devices and contents from these devices and associated services.  The extensibility, scalability, reliability and relevance of the Company’s platforms enable new revenue streams and retention opportunities for the Company’s customers through new subscriber acquisitions, sale of new devices, accessories and new value-added service offerings in the Cloud, while optimizing their cost of operations and enhancing customer experience. Synchronoss currently operates in and markets its solutions and services directly through its sales organizations in North America, Europe and Asia-Pacific.

 

2. Basis of Presentation and Consolidation

 

The condensed consolidated financial statements as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results 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 condensed consolidated financial statements and notes in the Annual Report of Synchronoss Technologies, Inc. incorporated by reference in the Company's annual report on Form 10-K for the year ended December 31, 2015. 

 

The condensed consolidated financial statements include the accounts of the Company, its whollyowned subsidiaries, variable interest entities (VIE) in which the Company is the primary beneficiary and entities in which the Company has a controlling interest. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method. All material intercompany transactions and accounts are eliminated in consolidation. The results reported in these consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. Certain amounts from the prior year’s financial statements 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 condensed consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

 

Recently Issued Accounting Standards

 

In March, 2016, the FASB released Accounting Standards Update (“ASU”) 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting for share-based payments, the amendments may significantly impact net income, earnings per share, and the statement of cash flows. The ASU is effective for public companies in annual periods beginning after December 15, 2016, and interim periods within those years. The Company is currently evaluating the impact of adoption on its condensed consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under ASU 2016-02, lessees will be required to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted using a modified retrospective approach. The Company

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SYNCHRONOSS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

(Amounts in tables in thousands, except for per share data or unless otherwise noted)

 

is in the process of evaluating the effect of the new guidance on its consolidated financial statements and disclosures.

 

In May 2014, the FASB and the International Accounting Standards Board (“IASB”) (collectively, the “Boards”) jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under US GAAP and IFRS. The standard’s core principle (issued as ASU 2014-09 by the FASB and as IFRS 15 by the IASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2017. The Company is currently evaluating its adoption method and the impact of the standard on its condensed consolidated financial statements.

 

Impact of New Accounting Pronouncements

 

The Company adopted ASU 2015-03, “Interest- Imputation of Interest (subtopic 835-30); Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associate with Line of Credit Arrangements, during the first quarter of 2016, concurrently. The adoption of these ASUs required the Company to reclassify its deferred financing costs associated with its Convertible Senior Notes from other assets to long-term debt on a retrospective basis. The Company's consolidated balance sheets included deferred financing costs of $4.8 million and $5.1 million as of March 31, 2016 and December 31, 2015, respectively, which were reclassified from other assets to long-term debt. The debt issuance costs associated with the Company's Credit Facility continue to be presented in other assets on the condensed consolidated balance sheets.

 

3. Earnings per Common Share

 

Basic earnings per share is calculated by using the weighted-average number of common shares outstanding during the period, excluding amounts associated with restricted shares.

 

The diluted earnings per share calculation is based on the weighted-average number of shares of common stock outstanding adjusted for the number of additional shares that would have been outstanding had all potentially dilutive common shares been issued.

 

Potentially dilutive shares of common stock include stock options, convertible debt and unvested restricted stock.  The dilutive effects of stock options and restricted stock awards are based on the treasury stock method.  The dilutive effect of the assumed conversion of convertible debt is determined using the if-converted method. The after-tax effect of interest expense related to the convertible securities is added back to net income (loss), and the convertible debt is assumed to have been converted into common shares at the beginning of the period.

 

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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 (loss) attributable to common stockholders per common share. Stock options that are anti-dilutive and excluded from the following table totaled 291 thousand for the three months ended March 31, 2015. For the three months ended March 31, 2016 no options were excluded from the calculation of diluted earnings per share as none of them were anti-dilutive.

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,  

 

 

 

2016

 

 

2015

Numerator:

 

 

 

 

 

 

Net (loss) income attributable to Synchronoss

 

$

(7,331)

    

$

10,561

Income effect for interest on convertible debt, net of tax

 

 

 —

 

 

475

Numerator for diluted EPS- Income to common stockholders after assumed conversions

 

$

(7,331)

 

$

11,036

Denominator:

 

 

 

 

 

 

Weighted average common shares outstanding — basic

 

 

43,423

 

 

41,626

Dilutive effect of:

 

 

 

 

 

 

Shares from assumed conversion of convertible debt

 

 

 —

 

 

4,326

Options and unvested restricted shares

 

 

 —

 

 

1,128

Weighted average common shares outstanding — diluted

 

 

43,423

 

 

47,080

 

 

 

 

4. Fair Value Measurements of Assets and Liabilities 

 

The Company classifies marketable securities as available-for-sale.  The fair value hierarchy established in the guidance adopted by the Company prioritizes the inputs used in valuation techniques into three levels 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.

 

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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 is a summary of assets, liabilities and redeemable noncontrolling interest and their related classifications under the fair value hierarchy: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (A)

 

$

113,084

 

$

113,084

 

$

 —

 

$

Securities available-for-sale (B)

 

 

81,647

 

 

 —

 

 

81,647

 

 

 —

Total assets

 

$

194,731

 

$

113,084

 

$

81,647

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration obligation

 

$

1,271

 

$

 —

 

$

 —

 

$

1,271

Total liabilities

 

$

1,271

 

$

 —

 

$

 —

 

$

1,271

 

 

 

 

 

 

 

 

 

 

 

 

 

Temporary Equity

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest (C)

 

$

58,323

 

$

 —

 

$

 —

 

$

58,323

Total temporary equity

 

$

58,323

 

$

 —

 

$

 —

 

$

58,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (A)

 

$

147,634

 

$

147,634

 

$

 —

 

$

Securities available-for-sale (B)

 

 

85,992

 

 

 —

 

 

85,992

 

 

 —

Total assets

 

$

233,626

 

$

147,634

 

$

85,992

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration obligation

 

$

930

 

$

 —

 

$

 —

 

$

930

Total liabilities

 

$

930

 

$

 —

 

$

 —

 

$

930

 

 

 

 

 

 

 

 

 

 

 

 

 

Temporary Equity

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

$

61,452

 

$

 —

 

$

 —

 

$

61,452

Total temporary equity

 

$

61,452

 

$

 —

 

$

 —

 

$

61,452

 

(A)

Cash and cash equivalents includes money market funds.

(B)

Securities available-for-sale include municipal bonds, commercial papers, certificates of deposit, enhanced income money market fund and corporate bonds which are classified as marketable securities.

(C)

As of March 31, 2016 the carrying amount of the redeemable noncontrolling interest was greater than the fair value and accordingly no adjustment to the fair value was recorded.

 

The Company utilizes the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The Company's marketable securities investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No transfers of assets between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy occurred during the three months ended March 31, 2016.

 

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SYNCHRONOSS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

(Amounts in tables in thousands, except for per share data or unless otherwise noted)

 

Available-for-Sale Securities

 

At March 31, 2016 and December 31, 2015, the estimated fair value of investments classified as available for sale, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

 

Gross

 

Gross

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

$

2,328

 

$

5

 

$

 —

 

$

2,333

Corporate bonds

 

40,214

 

 

 —

 

 

(356)

 

 

39,858

Municipal bonds

 

37,553

 

 

13

 

 

(22)

 

 

37,544

Fixed Income Fund

 

2,264

 

 

 —

 

 

(352)

 

 

1,912

Total available-for-sale securities

$

82,359

 

$

18

 

$

(730)

 

$

81,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

Gross

 

Gross

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

$

2,329

 

$

 —

 

$

(5)

 

$

2,324

Corporate bonds

 

39,986

 

 

 —

 

 

(253)

 

 

39,733

Municipal bonds

 

38,564

 

 

11

 

 

(44)

 

 

38,531

Fixed Income Fund

 

5,593

 

 

 —

 

 

(189)

 

 

5,404

Total available-for-sale securities

$

86,472

 

$

11

 

$

(491)

 

$

85,992

 

Unrealized gains and losses are reported as a component of accumulated other comprehensive loss in stockholders' equity. The cost of securities sold is based on the specific identification method. The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses as of March 31, 2016 and December 31, 2015 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available-for-sale, the Company does not currently intend to sell such investments and it is more likely than not to recover the carrying value prior to being required to sell such investments.

 

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of March 31, 2016, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

Securities in unrealized loss position

 

Securities in unrealized loss position

 

 

 

 

 

 

 

less than 12 months

 

greater than 12 months

 

Total

 

 

 

 

 

 

 

 

 

Gross

 

 

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

unrealized

 

Fair

 

Losses

 

Value

 

Losses

 

Value

 

losses

 

Value

Certificates of deposit

$

(1)

 

$

247

 

$

 —

 

$

 —

 

$

(1)

 

$

247

Corporate bonds

 

(355)

 

 

39,657

 

 

 —

 

 

 —

 

 

(355)

 

 

39,657

Municipal bonds

 

(18)

 

 

19,407

 

 

 —

 

 

784

 

 

(18)

 

 

20,191

Fixed Income Fund

 

 —

 

 

 —

 

 

(186)

 

 

1,913

 

 

(186)

 

 

1,913

 

$

(374)

 

$

59,311

 

$

(186)

 

$

2,697

 

$

(560)

 

$

62,008

11


 

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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 unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2015, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

Securities in unrealized loss position

 

Securities in unrealized loss position

 

 

 

 

 

 

 

less than 12 months

 

greater than 12 months

 

Total

 

 

 

 

 

 

 

 

 

Gross

 

 

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

unrealized

 

Fair

 

Losses

 

Value

 

Losses

 

Value

 

losses

 

Value

Certificates of deposit

$

(5)

 

$

2,324

 

$

 —

 

$

 —

 

$

(5)

 

$

2,324

Corporate bonds

 

(253)

 

 

39,808

 

 

 —

 

 

 —

 

 

(253)

 

 

39,808

Municipal bonds

 

(43)

 

 

20,630

 

 

(1)

 

 

550

 

 

(44)

 

 

21,180

Fixed Income Fund

 

 —

 

 

 —

 

 

(189)

 

 

5,404

 

 

(189)

 

 

5,404

 

$

(301)

 

$

62,762

 

$

(190)

 

$

5,954

 

$

(491)

 

$

68,716

 

Expected maturities of available-for-sale securities are as follows:

 

 

 

 

 

 

 

 

March 31, 2016

 

Amortized

 

Fair

 

Cost

 

Value

 

 

 

 

 

 

Due within one year

$

62,158

 

$

61,800

Due after 1 year through 5 years

 

17,935

 

 

17,934

Total available-for-sale securities

$

80,093

 

$

79,734

 

Contingent Consideration

 

The Company determined the fair value of the contingent consideration related to the acquisition of Razorsight using a real options approach which uses a risk-adjusted expected growth rate based on assessments of expected growth in revenue, adjusted by an appropriate factor. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s contingent consideration obligation are the probabilities of achieving certain financial targets and contractual milestones.  Significant changes in any of those probabilities in isolation may result in a higher (lower) fair value measurement. 

 

The changes in fair value of the Company’s Level 3 contingent consideration obligation during the three months ended March 31, 2016 were as follows:

 

 

 

 

 

Balance at December 31, 2015

 

$

930

Fair value adjustment to contingent consideration obligation included in net loss

 

 

341

Balance at March 31, 2016

 

$

1,271

 

Redeemable Noncontrolling Interests

 

The Company accounts for the redeemable noncontrolling interest at its fair value as temporary equity, due to the redemption option existing outside the control of the Company. The noncontrolling shareholders have the option, which is embedded in the noncontrolling interest, to require the Company to purchase the remaining noncontrolling share at a formula price designed to approximate fair value based on operating results of the entity.

12


 

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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 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. As of March 31, 2016, the carrying amount of the redeemable noncontrolling interest was greater than the fair value and accordingly no adjustment to the fair value was recorded.

 

The fair value of the redeemable noncontrolling interest 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 noncontrolling interest 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 three months ended March 31, 2016 were as follows:

 

 

 

 

 

 

Balance at December 31, 2015

 

$

61,452

Fair value adjustment

 

 

 —

Net loss attributable to redeemable noncontrolling interests

 

 

(3,129)

Balance at March 31, 2016

 

$

58,323

 

 

 

5. Acquisition

 

Openwave Messaging, Inc. (“Openwave”)

 

On March 1, 2016, the Company acquired all outstanding shares of Openwave for $124.5 million, net of working capital adjustments and liabilities assumed, comprised of $102.5 million paid in cash and $22 million paid in shares of the Company’s common stock, based upon the average market value of the common stock for the ten trading days prior to the acquisition date.

 

Openwave’s product portfolio includes its core complete messaging platform optimized for today’s most complex messaging requirements worldwide with a particular geographic strength in Asia Pacific. With this acquisition and combined with Synchronoss’ current global footprint, Synchronoss will have direct access to subscribers around the world for the Synchronoss Personal Cloud™ platform and bolster the Company’s go-to-market efforts internationally.

 

13


 

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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 Company determined the preliminary fair value of the net assets acquired as follows:

 

 

 

 

 

 

 

 

 

Purchase Price

 

 

 

 

Allocation

 

 

Cash

 

$

4,110

 

 

Prepaid expenses and other assets

 

 

2,749

 

 

Property, Plant & Equipment

 

 

3,550

 

 

Long term assets

 

 

5,194

 

 

Intangible assets:

 

 

 

 

Wtd. Avg.

Tradename

 

 

1,000

 

1 year

Technology

 

 

32,100

 

7 years

Customer relationships

 

 

29,000

 

10 years

Goodwill

 

 

84,520

 

 

Total assets acquired

 

 

162,223

 

 

Accounts payable and accrued liabilities

 

 

17,022

 

 

Deferred revenues

 

 

7,854

 

 

Long term liabilities

 

 

12,809

 

 

Net assets acquired

 

$

124,538

 

 

 

The goodwill recorded in connection with this acquisition was based on operating synergies and other benefits expected to result from the combined operations and the assembled workforce acquired. The goodwill acquired is not deductible for tax purposes.

 

Acquisition-related costs recognized during the three months ended March 31, 2016 and 2015 including transaction costs such as legal, accounting, valuation and other professional services, were $1.6 million and $856 thousand, respectively and are included in the selling, general and administrative expenses on the condensed consolidated statements of income.

 

6. Stockholders’ Equity

 

Stock-Based Compensation

 

The following table summarizes information about stock-based compensation:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,  

 

    

2016

    

2015

Stock options

 

$

1,759

 

$

2,176

Restricted stock awards

 

 

6,288

 

 

4,303

ESPP Plan

 

 

254

 

 

150

Total stock-based compensation before taxes

 

$

8,301

 

$

6,629

Tax benefit

 

$

2,708

 

$

2,137

 

The total stock-based compensation cost related to unvested equity awards as of March 31, 2016 was approximately $52.8 million. The expense is expected to be recognized over a weighted-average period of approximately 2.67 years. 

 

14


 

Table of Contents

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 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 March 31, 

 

    

2016

    

2015

Expected stock price volatility

 

 

46

%

 

 

48

%

Risk-free interest rate

 

 

1.12

%

 

 

1.26

%

Expected life of options (in years)

 

 

3.99

 

 

 

4.01

 

Expected dividend yield

 

 

0

%

 

 

0

%

Weighted-average fair value (grant date) of the options

 

$

9.81

 

 

$

15.86

 

 

The following table summarizes information about stock options outstanding as of March 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

 

Aggregate

 

 

Number of

 

Average

 

Contractual

 

 

Intrinsic

Options

    

Options

    

Exercise Price

    

Term (Years)

    

 

Value

Outstanding at December 31, 2015 

 

2,348

 

$

31.04

 

 

 

 

 

Options Granted

 

456

 

 

26.78

 

 

 

 

 

Options Exercised

 

(125)

 

 

14.00

 

 

 

 

 

Options Cancelled

 

(42)

 

 

38.24

 

 

 

 

 

Outstanding at March 31, 2016 

 

2,637

 

$

31.00

 

4.71

 

$

9,927

Vested at March 31, 2016

 

2,382

 

$

30.69

 

4.55

 

$

9,301

Exercisable at March 31, 2016

 

1,211

 

$

27.33

 

3.16

 

$

6,842

 

The below table summarizes additional information related to stock options:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,  

 

 

2016

    

2015

Total intrinsic value for stock options exercised

 

$

1,859

 

$

4,751

Fair value of vested options

 

 

5,627

 

 

3,784

 

Awards of Restricted Stock and Performance Stock

 

A summary of the Company’s unvested restricted stock at March 31, 2016, and changes during the three months ended March 31, 2016, is presented below: