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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 September 30, 2020
 
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x 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 x
Non-accelerated filer Smaller Reporting Company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class  Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $.0001 par value
 SNCR The Nasdaq Stock Market, LLC
As of November 05, 2020, there were 44,105,881 shares of common stock issued and outstanding.


SYNCHRONOSS TECHNOLOGIES, INC.
FORM 10-Q INDEX

  Page No.
3
   
3
   
 
3
   
 
4
5
   
6
 
8
   
 
9
   
   
   
   
   
   
   
   
 
   
   
   
   
   



PART I.  FINANCIAL INFORMATION
 
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
  September 30, 2020 December 31, 2019
ASSETS
Current assets:
Cash, restricted cash and cash equivalents $ 46,359  $ 39,001 
Marketable securities, current —  11 
Accounts receivable, net 47,705  65,863 
Prepaid & Other Current Assets 43,417  38,022 
Total current assets 137,481  142,897 
Non-Current Assets:
Property and equipment, net 13,408  26,525 
Operating lease right-of-use assets 37,019  53,965 
Goodwill 227,012  222,969 
Intangible assets, net 71,487  77,613 
Other Assets, non-current 12,167  8,054 
Total Non-Current Assets 361,093  389,126 
Total assets $ 498,574  $ 532,023 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 11,292  $ 21,551 
Accrued expenses 77,693  65,987 
Deferred revenues, current 33,897  65,858 
Debt, current 10,000  — 
Total current liabilities 132,882  153,396 
Deferred tax liabilities 2,559  1,679 
Deferred revenues, non-current 17,518  21,941 
Leases, non-current 48,787  60,976 
Other non-current liabilities 3,212  4,589 
Redeemable noncontrolling interest 12,500  12,500 
Commitments and contingencies
Series A Convertible Participating Perpetual Preferred Stock, $0.0001 par value; 10,000 shares authorized; 242 shares issued and outstanding at September 30, 2020
227,861  200,865 
Stockholders’ equity:
Common stock, $0.0001 par value; 100,000 shares authorized, 51,521 and 51,704 shares issued; 44,359 and 44,542 outstanding at September 30, 2020 and December 31, 2019, respectively
Treasury stock, at cost (7,162 and 7,162 shares at September 30, 2020 and December 31, 2019, respectively)
(82,087) (82,087)
Additional paid-in capital 512,504  525,739 
Accumulated other comprehensive loss (32,190) (33,261)
Accumulated deficit (344,977) (334,319)
Total stockholders’ equity 53,255  76,077 
Total liabilities and stockholders’ equity $ 498,574  $ 532,023 

See accompanying notes to condensed consolidated financial statements.
3

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net revenues $ 68,636  $ 52,210  $ 222,293  $ 218,161 
Costs and expenses:
Cost of revenues* 28,452  35,602  93,403  107,958 
Research and development 20,885  18,575  59,769  57,282 
Selling, general and administrative 23,265  30,536  74,249  82,862 
Restructuring charges 820  (39) 6,763  738 
Depreciation and amortization 12,212  18,508  33,852  58,920 
Total costs and expenses 85,634  103,182  268,036  307,760 
Loss from continuing operations (16,998) (50,972) (45,743) (89,599)
Interest income 20  228  1,587  716 
Interest expense (72) (203) (401) (1,251)
Gain (loss) on extinguishment of debt —  —  822 
Other Income, net 2,684  (422) 5,743  17 
Equity method investment loss —  —  —  (1,619)
Loss from continuing operations, before taxes (14,366) (51,364) (38,814) (90,914)
Benefit (provision) for income taxes 8,744  (9,849) 29,148  (6,614)
Net loss (5,622) (61,213) (9,666) (97,528)
Net loss attributable to redeemable noncontrolling interests (60) (25) (242) (931)
Preferred stock dividend (9,685) (8,194) (27,882) (23,590)
Net loss attributable to Synchronoss $ (15,367) $ (69,432) $ (37,790) $ (122,049)
Earnings per share
Basic $ (0.36) $ (1.70) $ (0.90) $ (3.01)
Diluted $ (0.36) $ (1.70) $ (0.90) $ (3.01)
Weighted-average common shares outstanding:
Basic 42,360  40,910  41,777  40,564 
Diluted 42,360  40,910  41,777  40,564 
________________________________
*    Cost of revenues excludes depreciation and amortization which are shown separately.

See accompanying notes to condensed consolidated financial statements.





4

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) (In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net loss $ (5,622) $ (61,213) $ (9,666) $ (97,528)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments 1,343  (2,435) (726) (1,928)
Unrealized loss on available for sale securities —  192  751  (710)
Net income (loss) on inter-company foreign currency transactions 864  (740) 1,046  (859)
Total other comprehensive income (loss) 2,207  (2,983) 1,071  (3,497)
Comprehensive loss (3,415) (64,196) (8,595) (101,025)
Comprehensive loss attributable to redeemable noncontrolling interests (60) (25) (242) (931)
Comprehensive loss attributable to Synchronoss $ (3,475) $ (64,221) $ (8,837) $ (101,956)

See accompanying notes to condensed consolidated financial statements.
5

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited) (In thousands)

Three Months Ended September 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 June 30, 2020 51,619  $ (7,162) $ (82,087) $ 517,794  $ (34,397) $ (339,313) $ 62,002 
Stock based compensation —  —  —  —  4,336  —  —  4,336 
Issuance of restricted stock (105) —  —  —  —  —  —  — 
Preferred stock dividends declared —  —  —  —  (8,761) —  —  (8,761)
Amortization of preferred stock issuance costs —  —  —  —  (925) —  —  (925)
Net loss attributable to Synchronoss —  —  —  —  —  —  (5,622) (5,622)
Non-controlling interest —  —  —  —  60  —  (60) — 
Total other comprehensive income (loss) —  —  —  —  —  2,207  —  2,207 
Adoption of new credit loss accounting standard —  —  —  —  —  —  18  18 
Balance at September 30, 2020 51,514  $ (7,162) $ (82,087) $ 512,504  $ (32,190) $ (344,977) $ 53,255 

Three Months Ended September 30, 2019
Common Stock Treasury Stock Additional Accumulated Other Total
Shares Amount Shares Amount Paid-In Capital Comprehensive Income (Loss) Accumulated deficit Stockholders' Equity
Balance at June 30, 2019 51,578  $ (7,162) $ (82,087) $ 531,282  $ (30,897) $ (266,948) $ 151,355 
Stock based compensation —  —  —  —  5,587  —  —  5,587 
Issuance of restricted stock 24  —  —  —  —  —  —  — 
Preferred stock dividends declared —  —  —  —  (7,598) —  —  (7,598)
Amortization of preferred stock issuance costs —  —  —  —  (597) —  —  (597)
Issuance of common stock on exercise of options —  —  —  39  —  —  39 
Shares withheld for taxes in connection with issuance of restricted stock (1) —  —  —  (4) —  —  (4)
Net income attributable to Synchronoss —  —  —  —  —  —  (61,237) (61,237)
Non-controlling interest —  —  —  —  25  —  —  25 
Total other comprehensive income (loss) —  —  —  —  —  (2,983) —  (2,983)
Balance at September 30, 2019 51,608  $ (7,162) $ (82,087) $ 528,734  $ (33,880) $ (328,185) $ 84,587 



6

Nine Months Ended September 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  $ (7,162) $ (82,087) $ 525,739  $ (33,261) $ (334,319) $ 76,077 
Stock based compensation —  —  —  —  14,406  —  —  14,406 
Issuance of restricted stock (188) —  —  —  —  —  —  — 
Preferred stock dividends declared —  —  —  —  (25,373) —  —  (25,373)
Amortization of preferred stock issuance costs —  —  —  —  (2,510) —  —  (2,510)
Shares withheld for taxes in connection with issuance of restricted stock (2) —  —  —  —  —  —  — 
Net loss attributable to Synchronoss —  —  —  —  —  —  (9,666) (9,666)
Non-controlling interest —  —  —  —  242  —  (242) — 
Total other comprehensive income (loss) —  —  —  —  —  1,071  —  1,071 
Adoption of new credit loss accounting standard —  —  —  —  —  —  (750) (750)
Balance at September 30, 2020 51,514  $ (7,162) $ (82,087) $ 512,504  $ (32,190) $ (344,977) $ 53,255 


Nine Months Ended September 30, 2019
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, 2018 49,836  $ (7,162) $ (82,087) $ 534,673  $ (30,383) $ (233,299) $ 188,909 
Stock based compensation —  —  —  —  16,694  —  —  16,694 
Issuance of restricted stock 1,767  —  —  —  —  —  —  — 
Preferred stock dividends declared —  —  —  —  (22,005) —  —  (22,005)
Amortization of preferred stock issuance costs —  —  —  —  (1,586) —  —  (1,586)
Issuance of common stock on exercise of options —  —  —  39  —  —  39 
Shares withheld for taxes in connection with issuance of restricted stock (2) —  —  —  (12) —  —  (12)
Adjustments to purchase price allocation —  —  —  —  —  —  3,574  3,574 
Net loss attributable to Synchronoss —  —  —  —  —  —  (98,458) (98,458)
Non-controlling interest —  —  —  —  931  —  —  931 
Total other comprehensive income (loss) —  —  —  —  —  (3,497) —  (3,497)
Other —  —  —  —  —  —  (2) (2)
Balance at September 30, 2019 51,608  $ (7,162) $ (82,087) $ 528,734  $ (33,880) $ (328,185) $ 84,587 

See accompanying notes to condensed consolidated financial statements.

7

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
Nine Months Ended September 30,
2020 2019
Operating activities:
Net loss continuing operations $ (9,666) $ (97,528)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 33,852  58,921 
Amortization of debt issuance costs —  272 
(Gain) loss on extinguishment of debt —  (822)
Loss (earnings) from Equity method investments —  1,619 
(Gain) loss on Disposals of fixed assets 12  15 
(Gain) loss on Disposals of intangible assets (2,164) — 
Amortization of bond premium —  (34)
Deferred income taxes 356  (25)
Stock-based compensation 14,547  17,033 
Cumulative adjustment to STI receivable —  26,044 
ROU Asset Impairment 6,232  6,268 
Changes in operating assets and liabilities:
Accounts receivable, net 11,357  3,180 
Prepaid expenses and other current assets (5,426) 34,052 
Accounts payable (8,400) 2,615 
Accrued expenses 10,063  (9,418)
Deferred revenues (36,924) (28,583)
Other liabilities (5,178) (1,770)
Net cash provided by operating activities 8,661  11,839 
Investing activities:
Purchases of fixed assets (571) (7,077)
Additions to capitalized software (12,610) (9,289)
Acquisition of intangible assets (400) — 
Proceeds from the sale of intangibles 2,164  — 
Purchases of marketable securities available for sale —  (47,703)
Maturity of marketable securities available for sale 11  81,794 
Net cash provided by (used in) investing activities (11,406) 17,725 
Financing activities:
Taxes paid on withholding shares (9) — 
Retirement of Convertible Senior Notes & related costs —  (112,993)
Borrowings on revolving line of credit 10,000  — 
Preferred dividend payment —  (7,075)
Payments on capital obligations —  (925)
Net cash provided by (used in) financing activities 9,991  (120,993)
Effect of exchange rate changes on cash 112  783 
Net increase in cash and cash equivalents 7,358  (90,646)
Cash and cash equivalents, beginning of period 39,001  109,860 
Cash and cash equivalents, end of period $ 46,359  $ 19,214 
Supplemental disclosures of non-cash investing and financing activities:
Paid in kind dividends on Series A Convertible Participating Perpetual Preferred Stock $ 26,995  $ 14,407 

 See accompanying notes to condensed consolidated financial statements.
8

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 IoT platforms help the world’s leading companies, including operators, original equipment manufacturers (“OEMs”), and Technology, Media and Telecom (“TMT”) 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 TMT space, taking advantage of the rapidly converging services, connected devices, networks and applications.

The Company delivers platforms, products and solutions including:

Cloud sync, backup, storage, device set up, content transfer and content engagement for user generated content
Advanced, multi-channel messaging peer-to-peer (“P2P”) communications and application-to-person (“A2P”) commerce solutions
Digital experience management (Platform as a Service) - including digital journey creation, and journey design products that use analytics that power digital advisor products for IT and Business Channel Owners
IoT management technology for Smart Cities, Smart Buildings and more

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 an Operator’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 Synchronoss 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 Experience Platform (“DXP”) is a purpose-built experience management toolset that sits between the Company’s customers end-user facing applications and their existing back end systems, enabling the authoring and management of customer journeys in a cloud-native no/low-code environment. This platform uses products such as Journey Creator, Journey Advisor, CX Baseline and Digital Coach to create a wide variety of insight-driven customer experiences across existing channels (digital and analogue) including creating the ability to pause and resume continuous, intelligent experiences in an omni-channel environment. DXP can be operated by IT professionals and “citizen” developers (business analysts, etc.) enabling the Company’s customers to bring more compelling and complex experiences to market in less time with fewer and more diverse resources in a real-time, collaborative environment.

The Synchronoss IoT Platform creates an easy to use environment and extensible ecosystem making the management of disparate devices, sensors, data pools and networks easier to manage by IoT administrators and drives the propagation of new IoT applications and monetization models for TMT companies. The Company’s IoT platform utilizes Synchronoss platforms (DXP, Cloud, Messaging), products and solutions to make IoT more accessible and actionable for Smart Building facility managers, Smart City planners, Automotive OEMs and TMT ecosystem players.



9

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, 2019. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.

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, 2019.

Risks and Uncertainties

There are many 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 nine months ended September 30, 2020, 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.


10

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
ASU 2016-13, ASU 2019-4 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued ASU 2016-13 which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The ASU is effective for public companies in annual periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018 and interim periods within those years.
We adopted Topic 326 beginning on January 1, 2020 using the modified retrospective approach with a cumulative effect adjustment to opening retained earnings recorded at the beginning of the period of adoption. Upon adoption, we changed our impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost, including our accounts receivable. CECL estimates on accounts receivable are recorded as general and administrative expenses on our condensed consolidated statements of income. The cumulative effect adjustment from adoption was immaterial to our condensed consolidated financial statements.
Date of adoption: January 1, 2020.

Standards issued not yet 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 is still evaluating these changes and does not anticipate any material impact on the Company’s consolidated financial position or results of operations upon adoption.

Date of adoption: January 1, 2021.


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.
11

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Cloud Digital Messaging Total Cloud Digital Messaging Total
Geography
Americas $ 37,806  $ 10,212  $ 4,249  $ 52,266  $ 38,669  $ (6,947) $ 2,514  $ 34,236 
APAC —  791  8,280  9,071  —  769  10,638  11,407 
EMEA 1,678  1,633  3,988  7,299  1,792  856  3,919  6,567 
Total $ 39,484  $ 12,635  $ 16,517  $ 68,636  $ 40,461  $ (5,322) $ 17,071  $ 52,210 
Service Line
Professional Services $ 5,253  $ 2,891  $ 3,262  $ 11,405  $ 3,861  $ 3,407  $ 2,698  $ 9,966 
Transaction Services 1,345  1,715  —  3,060  1,321  2,720  —  4,041 
Subscription Services 32,887  8,001  11,236  52,124  35,243  (12,653) 9,321  31,911 
License —  28  2,019  2,047  36  1,204  5,052  6,292 
Total $ 39,484  $ 12,635  $ 16,517  $ 68,636  $ 40,461  $ (5,322) $ 17,071  $ 52,210 



Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Cloud Digital Messaging Total Cloud Digital Messaging Total
Geography
Americas $ 117,889  $ 33,786  $ 23,652  $ 175,326  $ 116,165  $ 34,325  $ 6,864  $ 157,354 
APAC —  2,368  24,163  26,531  —  2,924  37,578  40,502 
EMEA 5,086  4,237  11,113  20,436  5,437  2,506  12,362  20,305 
Total $ 122,975  $ 40,390  $ 58,928  $ 222,293  $ 121,602  $ 39,755  $ 56,804  $ 218,161 
Service Line
Professional Services $ 14,398  $ 10,163  $ 14,464  $ 39,024  $ 11,220  $ 11,699  $ 20,066  $ 42,985 
Transaction Services 4,126  5,004  —  9,130  4,204  5,880  —  10,084 
Subscription Services 104,452  24,254  32,965  161,671  106,036  19,886  27,043  152,965 
License —  969  11,499  12,468  142  2,290  9,695  12,127 
Total $ 122,975  $ 40,390  $ 58,928  $ 222,293  $ 121,602  $ 39,755  $ 56,804  $ 218,161 

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 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 September 30, 2020 is $13.6 million.

12

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

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 (in thousands):
Contract Liabilities*
Balance - January 1, 2020 $ 87,799 
Revenue recognized in the period (218,074)
Amounts billed but not recognized as revenue 181,690 
Balance - September 30, 2020 $ 51,415 
________________________________
*    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 September 30, 2020. 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 September 30, 2020, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $296.0 million, of which approximately 64.6 percent is expected to be recognized as revenues within 2 years, and the remainder thereafter.

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.



13

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

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:
September 30, 2020
Total (Level 1) (Level 2) (Level 3)
Assets
Cash, cash equivalents and restricted cash (1)
$ 46,359  $ 46,359  $ —  $ — 
Total assets $ 46,359  $ 46,359  $ —  $ — 
Temporary equity
Redeemable noncontrolling interests (3)
$ 12,500  $ —  $ —  $ 12,500 
Total temporary equity $ 12,500  $ —  $ —  $ 12,500 

December 31, 2019
Total (Level 1) (Level 2) (Level 3)
Assets
Cash, cash equivalents and restricted cash (1)
$ 39,001  $ 39,001  $ —  $ — 
Marketable securities-short term (2)
11  —  11  — 
Total assets $ 39,012  $ 39,001  $ 11  $ — 
Temporary Equity
Redeemable noncontrolling interests (3)
$ 12,500  $ —  $ —  $ 12,500 
Total temporary equity $ 12,500  $ —  $ —  $ 12,500 
________________________________
(1)Cash equivalents primarily included money market funds.
(2)Marketable securities are comprised of municipal bonds, certificates of deposit. corporate bonds, treasury bonds, and mutual funds.
(3)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
14

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 nine months ended September 30, 2020 were as follows:

Balance at December 31, 2019 $ 12,500 
Fair value adjustment (242)
Net income attributable to redeemable noncontrolling interests 242 
Balance at September 30, 2020 $ 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 September 30, 2020.

The following table presents information about the Company's Right of Use (ROU) assets and lease liabilities at September 30, 2020 (in thousands):
ROU assets:
Non-current operating lease ROU assets $ 37,019 
Operating lease liabilities:
Current operating lease liabilities* $ (9,300)
Non-current operating lease liabilities (48,703)
Total operating lease liabilities $ (58,003)
________________________________
*    Amounts are included in Accrued Expenses on the Condensed Consolidated Balance Sheet.

The following table presents information about lease expense and sublease income for the three and nine months ended September 30, 2020 (in thousands):
Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2020
Operating lease cost* $ 2,996  $ 9,216 
Other lease costs and income:
Variable lease costs* (1)
5,365  7,092 
Sublease income* (971) (2,916)
Total net lease cost $ 7,390  $ 13,393 
________________________________
15

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

*    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.
(1)    During the third quarter, the Company reevaluated its current business model and determined that certain actions were appropriate to scale down the Company’s global real estate portfolio. These actions resulted in a $5.1 million impairment charge to the Company’s ROU assets and an additional $3.1 million impairment to leasehold improvements.

The following table provides the undiscounted amount of future cash flows included in our lease liabilities at September 30, 2020 for each of the five years subsequent to December 31, 2019 and thereafter, as well as a reconciliation of such undiscounted cash flows to our lease liabilities at September 30, 2020 (in thousands):
Operating Leases
Remaining 2020 $ 3,296 
2021 13,160 
2022 12,241 
2023 9,756 
2024 8,926 
Thereafter 26,782 
Total future lease payments 74,162 
Less: amount representing interest (16,158)
Present value of future lease payments (lease liability) $ 58,003 

The following table provides the weighted-average remaining lease term and weighted-average discount rates for our leases as of September 30, 2020:

Operating Leases:
Weighted-average remaining lease term (years), weighted based on lease liability balances 6.52
Weighted-average discount rate (percentages), weighted based on the remaining balance of lease payments 7.7%

The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the nine months ended September 30, 2020 (in thousands):

Operating Leases:
Cash paid for amounts included in the measurement of lease liabilities $ 9,920 
Lease liabilities arising from obtaining right-of-use assets 1,481 

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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)


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. The Note has been reflected in Other assets on the Condensed Consolidated balance sheet. No gain or loss was recognized as a result of the transaction.

Additionally, the Company has renewed its commercial agreement with STIN to continue to provide software and managed support services.

7. Debt

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 bear 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 0.50%, the prime commercial lending rate as determined by the Agent, and the daily LIBOR rate plus 1.00%, in each case plus an applicable margin and subject to a floor of 0%. In addition, on a quarterly basis, the Company is required to pay each lender under the Revolving Credit Facility a 0.2% commitment fee in respect of commitments under the Revolving Credit Facility, which may be subject to adjustment based on the Company’s total leverage ratio. On November 9, 2020, the Company entered into an amended credit agreement which changes the terms of the Company’s debt covenants. The Company is in compliance with its debt covenants. The outstanding balance under the Revolving Credit Facility as of September 30, 2020 is $10.0 million.


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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)

Interest expense

The following table summarizes the Company’s interest expense:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Convertible Senior Notes
Amortization of debt issuance costs $ —  $ 36  $ —  $ 273 
Interest on borrowings —  66  —  363 
2019 Revolving Credit Facility —  — 
Amortization of debt issuance costs 12  —  40  — 
Commitment fee —  —  — 
Interest on borrowings 59  —  141  — 
Other 101  216  615 
Total $ 72  $ 203  $ 401  $ 1,251 

8. Accumulated Other Comprehensive (Loss) / Income

The changes in accumulated other comprehensive (loss) income during the nine months ended September 30, 2020 were as follows:
Balance at December 31, 2019 Other comprehensive loss Tax effect Balance at September 30, 2020
Foreign currency $ (28,204) $ (726) $ (28,930)
Unrealized loss on intra-entity foreign currency transactions (4,306) 1,516  (470) (3,260)
Unrealized holding gains (losses) on marketable debt securities (751) 751  —  — 
Total $ (33,261) $ 1,541  $ (470) $ (32,190)

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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)


9. Stockholders’ Equity

There were no significant changes to Company’s authorized capital stock and preferred stock during the nine months ended September 30, 2020.

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.

Preferred Stock

The Board of Directors 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.

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”).

As of September 30, 2020, there were 241,671 shares of Series A Preferred Stock outstanding, including the initial issuance of 185,000 shares of Series A Preferred Stock and the issuance of 56,671 shares of Series A Preferred Stock as dividends.

Certificate of Designation of the Series A Preferred Stock

The rights, preferences, privileges, qualifications, restrictions and limitations of the shares of Series A Preferred Stock are set forth in the Series A Certificate. Under the Series A Certificate, the holders of the Series A Preferred Stock are entitled to receive, on each share of Series A Preferred Stock on a quarterly basis, an amount equal to the dividend rate of 14.5% divided by four and multiplied by the then-applicable Liquidation Preference (as defined in the Series A Certificate) per share of Series A Preferred Stock (collectively, the “Preferred Dividends”). The Preferred Dividends are due on January 1, April 1, July 1 and October 1 of each year (each, a “Series A Dividend Payment Date”). The Company may choose to pay the Preferred Dividends in cash or in additional shares of Series A Preferred Stock. In the event the Company does not declare and pay a dividend in-kind or in cash on any Series A Dividend Payment Date, the unpaid amount of the Preferred Dividend will be added to the Liquidation Preference. In addition, the Series A Preferred Stock participates in dividends declared and paid on shares of the Company’s common stock.

Each share of Series A Preferred Stock is convertible, at the option of the holder, into the number of shares of common stock equal to the “Conversion Price” (as that term is defined in the Series A Certificate) multiplied by the then applicable “Conversion Rate” (as that term is defined in the Series A Certificate). Each share of Series A Preferred Stock is initially convertible into 55.5556 shares of common stock, representing an initial “conversion price” of approximately $18.00 per share of common stock. The Conversion Rate is subject to equitable proportionate adjustment in the event of stock splits, recapitalizations and other events set forth in the Series A Certificate.

19

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

On and after February 15, 2023, holders of shares of Series A Preferred Stock have the right to cause the Company to redeem each share of Series A Preferred Stock for cash in an amount equal to the sum of the current liquidation preference and any accrued dividends. Each share of Series A Preferred Stock is also redeemable at the option of the holder upon the occurrence of a “Fundamental Change” (as that term is defined in the Series A Certificate) at a specified premium (“Liquidation Value”). In addition, the Company is also permitted to redeem all outstanding shares of the Series A Preferred Stock at any time (i) within the first 30 months of the date of issuance for the sum of the then-applicable Liquidation Preference, accrued but unpaid dividends and a make whole amount (known as “Redemption Value”) and (ii) following the 30-month anniversary of the date of issuance for the sum of the then-applicable Liquidation Preference and the accrued but unpaid dividends. As of September 30, 2020, the Liquidation Value and Redemption Value of the Preferred Shares was $243.1 million.

The holders of a majority of the Series A Preferred Stock, voting separately as a class, are entitled at each of the Company’s annual meetings of stockholders or at any special meeting called for the purpose of electing directors (or by written consent signed by the holders of a majority of the then-outstanding shares of Series A Preferred Stock in lieu of such a meeting): (i) to nominate and elect two members of the Company’s Board of Directors for so long as the Preferred Percentage (as defined in the Series A Certificate) is equal to or greater than 10%; and (ii) to nominate and elect one member of the Company’s Board of Directors for so long as the Preferred Percentage is equal to or greater than 5% but less than 10%.

For so long as the holders of shares of Series A Preferred Stock have the right to nominate at least one director, the Company is required to obtain the prior approval of Silver prior to taking certain actions, including: (i) certain dividends, repayments and redemptions; (ii) any amendment to the Company’s certificate of incorporation that adversely effects the rights, preferences, privileges or voting powers of the Series A Preferred Stock; (iii) issuances of stock ranking senior or equivalent to shares of Series A Preferred Stock (including additional shares of Series A 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; (iv) changes in the size of the Company’s Board of Directors; (v) any amendment, alteration, modification or repeal of the charter of the Company’s Nominating and Corporate Governance Committee of the Board of Directors and related documents; and (vi) any change in the Company’s principal business or the entry into any line of business outside of the Company’s existing lines of businesses. In addition, in the event that the Company is in EBITDA Non-Compliance (as defined in the Series A Certificate) or the undertaking of certain actions would result in the Company exceeding a specified pro forma leverage ratio, then the prior approval of Silver would be required to incur indebtedness (or alter any debt document) in excess of $10.0 million, enter or consummate any transaction where the fair market value exceeds $5.0 million individually or $10.0 million in the aggregate in a fiscal year or authorize or commit to capital expenditures in excess of $25.0 million in a fiscal year.

Each holder of Series A Preferred Stock has one vote per share on any matter on which holders of Series A Preferred Stock are entitled to vote separately as a class, whether at a meeting or by written consent. The holders of Series A Preferred Stock are permitted to take any action or consent to any action with respect to such rights without a meeting by delivering a consent in writing or electronic transmission of the holders of the Series A Preferred Stock entitled to cast not less than the minimum number of votes that would be necessary to authorize, take or consent to such action at a meeting of stockholders. In addition to any vote (or action taken by written consent) of the holders of the shares of Series A Preferred Stock as a separate class provided for in the Series A Certificate or by the General Corporation Law of the State of Delaware, the holders of shares of the Series A Preferred Stock are entitled to vote with the holders of shares of common stock (and any other class or series that may similarly be entitled to vote on an as-converted basis with the holders of common stock) on all matters submitted to a vote or to the consent of the stockholders of the Company (including the election of directors) as one class.

20

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Under the Series A Certificate, if Silver and certain of its affiliates have elected to effect a conversion of some or all of their shares of Series A Preferred Stock and if the sum, without duplication, of (i) the aggregate number of shares of the Company’s common stock issued to such holders upon such conversion and any shares of the Company’s common stock previously issued to such holders upon conversion of Series A Preferred Stock and then held by such holders, plus (ii) the number of shares of the Company’s common stock underlying shares of Series A Preferred Stock that would be held at such time by such holders (after giving effect to such conversion), would exceed the 19.9% of the issued and outstanding shares of the Company’s voting stock on an as converted basis (the “Conversion Cap”), then such holders would only be entitled to convert such number of shares as would result in the sum of clauses (i) and (ii) (after giving effect to such conversion) being equal to the Conversion Cap (after giving effect to any such limitation on conversion). Any shares of Series A Preferred Stock which a holder has elected to convert but which, by reason of the previous sentence, are not so converted, will be treated as if the holder had not made such election to convert and such shares of Series A Preferred Stock will remain outstanding. Also, under the Series A Certificate, if the sum, without duplication, of (i) the aggregate voting power of the shares previously issued to Silver and certain of its affiliates held by such holders at the record date, plus (ii) the aggregate voting power of the shares of Series A Preferred Stock held by such holders as of such record date, would exceed 19.99% of the total voting power of the Company’s outstanding voting stock at such record date, then, with respect to such shares, Silver and certain of its affiliates are only entitled to cast a number of votes equal to 19.99% of such total voting power. The limitation on conversion and voting ceases to apply upon receipt of the requisite approval of holders of the Company’s common stock under the applicable listing standards.

Investor Rights Agreement
 
Concurrently with the closing of the Preferred Transaction, Synchronoss and Silver entered into an Investor Rights Agreement.  Under the terms of the Investor Rights Agreement, Silver and Synchronoss have agreed that, effective as of the closing of the Preferred Transaction, the Board of Directors of Synchronoss will consist of ten members.  From and after the closing of the Preferred Transaction, so long as the holders of Series A Preferred Stock have the right to nominate a member to the Board of Directors pursuant to the Series A Certificate, the Board of Directors of Synchronoss will consist of (i) two directors nominated and elected by the holders of shares of Series A Preferred Stock; (ii) four directors who meet the independence criteria set forth in the applicable listing standards (each of whom will be initially agreed upon by Synchronoss and Silver); and (iii) four other directors, two of whom shall satisfy the independence criteria of the applicable listing standards and, as of the closing of the Preferred Transaction, one of whom shall be the individual then serving as chief executive officer of Synchronoss and one of whom shall be the current chairman of the Board of Directors of Synchronoss as of the date of execution of the Investors Rights Agreement.  Following the closing of the Preferred Transaction, so long as the holders of Series A Preferred Stock have the right to nominate at least one director to the Board of Directors of Synchronoss pursuant to the Series A Certificate, Silver will have the right to designate two members of the Nominating and Corporate Governance Committee of the Board of Directors.
 
Pursuant to the terms of the Investor Rights Agreement, neither Silver nor its affiliates may transfer any shares of Series A Preferred Stock subject to certain exceptions (including transfers to affiliates that agree to be bound by the terms of the Investor Rights Agreement).
 
For so long as Silver has the right to appoint a director to the Board of Directors of Synchronoss, without the prior approval by a majority of directors voting who are not appointed by the holders of shares of Series A Preferred Stock, neither Silver nor its affiliates will directly or indirectly purchase or acquire any debt or equity securities of Synchronoss (including equity-linked derivative securities) if such purchase or acquisition would result in Silver’s Standstill Percentage (as defined in the Investor Rights Agreement) being in excess of 30%. However, the foregoing standstill restrictions would not prohibit the purchase of shares pursuant to the PIPE Purchase Agreement or the receipt of shares of Series A Preferred Stock issued as Preferred Dividends pursuant to the Series A Certificate, shares of Common Stock received upon conversion of shares of Series A Preferred Stock or receipt of any shares of Series A Preferred Stock, Common Stock or other securities of the Company otherwise paid as dividends or as an increase of the Liquidation Preference (as defined in the Series A Certificate) or distributions thereon.  Silver will also have preemptive rights with respect to issuances of securities of Synchronoss to maintain its ownership percentage.
 
21

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Under the terms of the Investor Rights Agreement, Silver will be entitled to (i) three demand registrations, with no more than two demand registrations in any single calendar year and provided that each demand registration must include at least 10% of the shares of Common Stock held by Silver, including shares of Common Stock issuable upon conversion of shares of Series A Preferred Stock and (ii) unlimited piggyback registration rights with respect to primary issuances and all other issuances.

A summary of the Company’s Series A Convertible Participating Perpetual Preferred Stock balance at September 30, 2020 and changes during the nine months ended September 30, 2020, are presented below:
Preferred Stock
Shares Amount
Balance at December 31, 2019 217  $ 200,865 
Issuance of preferred stock 25  — 
Amortization of preferred stock issuance costs —  2,510 
Issuance of preferred PIK dividend —  24,486 
Balance at September 30, 2020 242  $ 227,861 

Registration Rights

There were no significant changes to the Company’s registration rights during the three and nine months ended September 30, 2020.

22

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 Plans

There were no significant changes to the Company’s Stock Plans during the three and nine months ended September 30, 2020. As of September 30, 2020, there were 0.6 million shares available for the grant or award under the Company’s 2015 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 September 30, 2020, the liability for such awards is approximately $0.8 million.

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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Cost of revenues $ 505  $ 804  $ 1,899  $ 2,147 
Research and development 890  1,117  3,392  3,231 
Selling, general and administrative 2,996  4,079  9,256  11,650 
Total stock-based compensation expense $ 4,391  $ 6,000  $ 14,547  $ 17,028 

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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Stock options $ 1,701  $ 2,147  $ 5,289  $ 5,640 
Restricted stock awards 2,626  3,840  8,922  11,164 
Performance Based Cash Units 64  13  336  224 
Total stock-based compensation before taxes $ 4,391  $ 6,000  14,547  17,028 
Tax benefit $ 604  $ 862  $ 2,192  $ 2,700 

The total stock-based compensation cost related to unvested equity awards as of September 30, 2020 was approximately $19.9 million. The expense is expected to be recognized over a weighted-average period of approximately 0.89 years.

The total stock-based compensation cost related to unvested performance based cash units as of September 30, 2020 was approximately $0.8 million. The expense is expected to be recognized over a weighted-average period of approximately 1.87 years.

Stock Options

There were no significant changes to the Company’s Stock Option Plans during the three and nine months ended September 30, 2020.

23

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 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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Expected stock price volatility 78.3  % 69.8% 74.5  % 69.6  %
Risk-free interest rate 0.2  % 1.6% 1.0  % 1.9  %
Expected life of options (in years) 4.52 4.36 4.47 4.34
Expected dividend yield 0.0  % 0.0% 0.0  % 0.0  %
Weighted-average fair value (PSV) of the options $ 2.23  $ 4.42  $ 2.80  $ 3.84 

The following table summarizes information about stock options outstanding as of September 30, 2020: 
Options Number of
Options
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2019 4,922  $ 14.54 
Options Granted 2,293  4.86 
Options Exercised —  — 
Options Cancelled (1,149) 21.41 
Outstanding at September 30, 2020 6,066  $ 9.58  5.09 $ 11.25 
Vested at September 30, 2020 1,798  $ 15.87  3.89 $ — 
Exercisable at September 30, 2020 1,798  $ 15.87  3.89 $ — 

The total intrinsic value of stock options exercisable at September 30, 2020 and 2019 was nil and nil, respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2020 and 2019 was nil and nil, respectively.

Awards of Restricted Stock and Performance Stock

There were no significant changes to the Company’s restricted stock award (“Restricted Stock”) and performance stock plan during the three and nine months ended September 30, 2020.

A summary of the Company’s unvested restricted stock at September 30, 2020, and changes during the nine months ended September 30, 2020, is presented below:
Unvested Restricted Stock Number of
Awards
Weighted- Average
Grant Date
Fair Value
Unvested at December 31, 2019 3,375  $ 8.68 
Granted 286  5.00 
Vested (1,242) 9.02 
Forfeited (467) 7.66 
Unvested at September 30, 2020 1,952  $ 7.41 

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.
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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)



Performance Based Cash Units

Performance based cash units granted under the Company’s 2015 Plan 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.

A summary of the Company’s unvested performance-based cash units at September 30, 2020 and changes during the nine months ended September 30, 2020, is presented below:
Unvested Cash Units Number of
Units
Period End Fair Value
Unvested at December 31, 2019 1,046  $ 4.75 
Granted 1,391  — 
Vested —  — 
Forfeited (356) — 
Unvested at September 30, 2020 2,081  $ 3.01 

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.


25

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

10. Income Taxes

In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses. The CARES Act amends the Net Operating Loss (“NOL”) provisions of the Tax Cuts and Jobs Act, allowing for the carryback of losses arising in tax years 2018, 2019 and 2020, to each of the five taxable years preceding the taxable year of loss. The Company filed a carryback claim in the second quarter of 2020 for the NOL generated in tax year 2018, which will result in a refund of previously paid taxes. The carryback of the 2018 NOL will result in an increase in the Company’s 2019 tax liability, so the Company has also recorded an estimate of the additional 2019 current tax expense in the first quarter income tax provision. The estimated net income tax benefit associated with the 2018 NOL carryback is approximately $9 million, and this was recorded discretely in the first quarter income tax provision.

In April 2020, there was a redemption of the Company’s partnership interest in STIN. The total discrete benefit related to the exit from STI was $12.1 million which included the settlement of certain trade receivables.

During the third quarter, the Company finalized its U.S. federal income tax return which resulted in a discrete tax benefit of $1.5 million, primarily related to research and development tax credits generated, impact of favorable tax regulations released during the period and refinement of the 2019 current tax expense estimate recorded in the first quarter of 2020 associated with the 2018 NOL carryback claim. In the third quarter of 2020, the Company also received a tax refund for the carryback claim associated to the CARES Act.

The Company recognized approximately $29.1 million in related income tax benefit and $6.6 million in related income tax provision during the nine months ended September 30, 2020 and 2019, respectively. The effective tax rate was approximately 75.3% for the nine months ended September 30, 2020, which was higher than the U.S. federal statutory rate primarily due to discrete income tax benefit recorded in the period associated with a 2018 NOL carryback claim pursuant to the CARES Act, a redemption of the Company’s partnership interest in STIN, and the finalization of the Company’s U.S. federal income tax return. This increase was partially offset by projected current tax expense in certain foreign jurisdictions. 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 nine months ended September 30, 2020.

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 September 30, 2020 and changes during the nine months ended September 30, 2020, are presented below:

Balance at December 31, 2019 Charges Payments Other Adjustments Balance at September 30, 2020
Employment termination costs $ 90  $ 6,763  $ (4,890) $ 73  $ 2,036 

26

SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

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.

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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Numerator - Basic:
Net loss from continuing operations $ (5,622) $ (61,213) $ (9,666) $ (97,528)
Net loss attributable to redeemable noncontrolling interests (60) (25) (242) (931)
Preferred stock dividend (9,685) (8,194) (27,882) (23,590)
Net loss attributable to Synchronoss $ (15,367) $ (69,432) $ (37,790) $ (122,049)
Numerator - Diluted:
Net loss from continuing operations attributable to Synchronoss $ (15,367) $ (69,432) $ (37,790) $ (122,049)
Income effect for interest on convertible debt, net of tax —  —  —  — 
Net loss from continuing operations adjusted for the convertible debt (15,367) (69,432) (37,790) (122,049)
Denominator:
Weighted average common shares outstanding — basic 42,360  40,910  41,777  40,564 
Dilutive effect of:
Shares from assumed conversion of convertible debt 1
—  —  —  — 
Shares from assumed conversion of preferred stock 2
—  —  —  — 
Options and unvested restricted shares —  —  —  — 
Weighted average common shares outstanding — diluted 42,360  40,910  41,777  40,564 
Basic EPS
Earnings per share:
Basic $ (0.36) $ (1.70) $ (0.90) $ (3.01)