SYNC Synacor Inc

• Company initiates segment reporting for its Software & Services and Portal & Advertising businesses
• Q1 2019 GAAP net loss of $2.2 million, adjusted net loss of $1.2 million; significantly improved from adjusted net loss of $2.4 million in Q1 2018
• Adjusted EBITDA of $1.7 million, up 179% from $0.6 million in the year-ago quarter
• Revenue of $31.8 million, in line with guidance; software revenue of $11.2 million grew 4.4% from the year-ago quarter
• 96 new customers and 184 contract expansions for Zimbra email and collaboration platform

Synacor, Inc. (Nasdaq: SYNC), the trusted technology, multiplatform services and revenue partner for video, internet and communications providers, device manufacturers, governments and enterprises, today announced its financial results for the first quarter ended March 31, 2019.

“Our strong Q1 results reflect our continuing focus on profitability and software revenue,” said Himesh Bhise, Synacor’s chief executive officer. “Our total revenue was in line with expectations, while adjusted EBITDA exceeded guidance and was 179% higher than a year ago.”

“We have initiated segment reporting for software and advertising to provide greater investor visibility into how we are optimizing performance in each of these businesses, and to better reflect the overall strength of Synacor,” added Bhise.

Recent Highlights

• Signed Hughes Network Systems, the world's leading provider of broadband satellite networks and services and a leading managed services provider, as Synacor's first Zimbra X software-operated service provider customer in the United States. In addition to email, the four-year deal includes a renewal for portal services.
• Zimbra customer wins in Q1 include 96 new deployments and 184 deal expansions
• Zimbra ACTIV8 European Tour showcased the Company’s product and roadmap to more than 60 channel partners, including business service providers and value added resellers
• Synacor’s Cloud ID now live with first active end users via ETI reseller partnership; multiple operators scheduled to migrate their TV Everywhere integrations to Cloud ID

Financial Results

Revenue: For the first quarter of 2019, total revenue was $31.8 million, solidly in line with the Company’s financial guidance, and down from $32.9 million in the first quarter of 2018.

Software & Services revenue totaled $11.2 million in the first quarter of 2019, compared with $10.7 million in the first quarter of 2018. Portal & Advertising revenue totaled $20.7 million in the first quarter of 2019, compared with $22.2 million in the year-ago period.

Net Income: For the first quarter of 2019, GAAP net loss narrowed to $2.2 million, or $(0.06) per share. Adjusted net loss was $1.2 million or $(0.03) per share, compared with an adjusted net loss of $2.4 million, or $(0.06) per share, in the first quarter of 2018. Adjusted net loss excludes capitalized software impairment and certain legal and professional fees.

Adjusted EBITDA: In the first quarter of 2019, adjusted EBITDA increased 179% to $1.7 million from $0.6 million for the first quarter of 2018. Adjusted EBITDA excludes stock-based compensation, other income and expense, capitalized software impairment and certain legal and professional fees.

On a segment basis, adjusted EBITDA margin was 25% for Software & Services and 13% for Portal & Advertising.

Cash: The Company ended the first quarter of 2019 with $13.5 million in cash and cash equivalents, compared with $15.9 million at the end of the fourth quarter of 2018.

Guidance

Based on information available as of May 8, 2019, the Company is providing financial guidance for the second quarter and is reaffirming full year 2019 guidance as follows:

• Q2 2019 Guidance: Revenue for the second quarter of 2019 is projected to be in the range of $31 million to $33 million. The Company expects to report a net loss of $1.6 million to $2.1 million and adjusted EBITDA of $1.1 million to $1.6 million.
• Fiscal 2019 Guidance: Revenue for full year 2019 is expected to be in the range of $137 million to $145 million. The Company expects to report a net loss in the range of $2.2 million to $4.2 million and adjusted EBITDA in the range of $10 million to $12 million.

Conference Call Details

Synacor will host a conference call today at 5:00 p.m. ET to discuss the first-quarter 2019 financial results. The live webcast of Synacor’s earnings conference call can be accessed at http://investor.synacor.com/events.cfm. To participate, please log in approximately 10 minutes prior to the webcast. The call may be accessed toll-free via phone at (833) 235-2655, with conference ID 2069004, or callers outside the U.S. may dial (647) 689-4151. Following completion of the call, a recorded webcast replay will be available on Synacor's website. To listen to the telephone replay through May 15, 2019, call toll-free (800) 585-8367, or callers outside the U.S. may dial (416) 621-4642.

About Synacor

Synacor (Nasdaq: SYNC) is the trusted technology development, multiplatform services and revenue partner for video, internet and communications providers, device manufacturers, governments and enterprises. Synacor's mission is to enable its customers to better engage with their consumers. Its customers use Synacor's technology platforms and services to scale their businesses and extend their subscriber relationships. Synacor delivers managed portals, advertising solutions, email and collaboration platforms, and cloud-based identity management. www.synacor.com

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures in this release. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (GAAP).

We report adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

For a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, please refer to the table “Reconciliation of GAAP to Non-GAAP Measures” in this press release.

We report adjusted net loss and adjusted diluted earnings per share because we believe these measures provide investors with additional information to assess our financial performance. These measures should be viewed as supplemental data, rather than substitutes or alternatives to the comparable GAAP measures. For a reconciliation of our GAAP Condensed Consolidated Statements of Operations to our adjusted non-GAAP measures, please refer to the table “Reconciliation of Adjusted Financial Measures” in this press release.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements concerning Synacor's expected financial performance including, without limitation, its second-quarter 2019 guidance, the statements and quotations from management and Synacor's strategic and operational plans. The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the Company's results could differ materially from the results expressed or implied by the forward-looking statements the Company makes.

The risks and uncertainties referred to above include - but are not limited to - risks associated with: execution of our plans and strategies, including the loss of a significant customer; execution against our agreement with AT&T the pace and degree to which the AT&T portal can be monetized; our ability to obtain new customers; our ability to integrate the assets and personnel from acquisitions; expectations regarding consumer taste and user adoption of applications and solutions; developments in internet browser software and search advertising technologies; general economic conditions; expectations regarding the Company's ability to timely expand the breadth of services and products or introduction of new services and products; consolidation within the cable and telecommunications industries; changes in the competitive dynamics in the market for online search and digital advertising; the risk that security measures could be breached and unauthorized access to subscriber data could be obtained; potential third party intellectual property infringement claims or other legal claims against Synacor; and the price volatility of our common stock.

Further information on these and other factors that could affect the Company’s financial results is included in filings it makes with the Securities and Exchange Commission from time to time, including the section entitled "Risk Factors" in the Company's most recent Form 10-K filed with the SEC. These documents are available on the SEC Filings section of the Investor Information section of the Company's website at http://investor.synacor.com/. All information provided in this release and in the attachments is available as of May 8, 2019, and Synacor undertakes no duty to update this information.

  Synacor, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited)               March 31, December 31, 2019 2018 Assets Current assets: Cash and cash equivalents $ 13,494 $ 15,921 Accounts receivable, net 21,007 25,567 Prepaid expenses and other current assets   4,300     3,779   Total current assets 38,801 45,267 Property and equipment, net 17,688 18,707 Operating lease right-of-use assets 9,041 — Goodwill 15,944 15,941 Intangible assets 10,017 10,553 Other assets   906     995   Total Assets $ 92,397   $ 91,463     Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 17,569 $ 19,174 Accrued expenses and other current liabilities 4,610 7,849 Current portion of deferred revenue 5,994 6,672 Current portion of long-term debt and finance leases 2,245 2,328 Current portion of operating lease liabilities   4,578     —   Total current liabilities 34,996 36,023 Long-term portion debt and finance leases 824 1,367 Deferred revenue 2,208 2,214 Long-term portion of operating lease liabilities 4,642 — Deferred income taxes 250 231 Other long-term liabilities   303     457   Total Liabilities   43,223     40,292   Stockholders' Equity: Common stock 399 399 Treasury stock (1,899 ) (1,899 ) Additional paid-in capital 145,123 144,739 Accumulated deficit (93,970 ) (91,726 ) Accumulated other comprehensive loss   (479 )   (342 ) Total stockholders’ equity   49,174     51,171   Total Liabilities and Stockholders' Equity $ 92,397   $ 91,463     Synacor, Inc. Condensed Consolidated Statements of Operations (In thousands except share and per share amounts) (Unaudited)             Three months ended March 31, 2019 2018   Revenue Software & Services $ 11,158 $ 10,685 Portal & Advertising   20,666     22,230   Total Revenue   31,824     32,915   Costs and operating expenses: Cost of revenue - Software & Services (1) 3,503 3,108 Cost of revenue - Portal & Advertising (1) 13,003 12,427 Technology and development (1)(2) 4,546 6,369 Sales and marketing (2) 5,991 5,936 General and administrative (1)(2) 4,465 5,017 Depreciation and amortization   2,435     2,435   Total costs and operating expenses   33,943     35,292     Loss from operations (2,119 ) (2,377 ) Other income - net 216 119 Interest expense   (64 )   (97 ) Loss before income taxes (1,967 ) (2,355 ) Provision for income taxes   277     20   Net loss $ (2,244 ) $ (2,375 )     Net loss per share: Basic $ (0.06 ) $ (0.06 ) Diluted $ (0.06 ) $ (0.06 )   Weighted average shares used to compute net loss per share: Basic   39,038,642     38,794,165   Diluted   39,038,642     38,794,165     Notes: (1) Exclusive of depreciation and amortization shown separately. (2) Includes stock-based compensation as follows: Three months ended March 31, 2019 2018 Technology and development $ 103 $ 134 Sales and marketing 115 138 General and administrative   113     281   $ 331   $ 553     Synacor, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)              

Three months ended

March 31, 2019 2018 Cash Flows from Operating Activities: Net loss $ (2,244 ) $ (2,375 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,487 2,435 Capitalized software impairment 226 — Stock-based compensation expense 331 553 Provision for deferred income taxes 20 (39 ) Change in allowance for doubtful accounts 38 — Change in operating assets and liabilities: Accounts receivable, net 4,522 7,517 Prepaid expenses and other assets (521 ) (942 ) Other long-term assets 89 — Operating lease right-of-use assets, net 1,231 — Accounts payable, accrued expenses and other liabilities (4,598 ) (9,821 ) Deferred revenue (684 ) (872 ) Operating lease liabilities   (1,202 )   —   Net cash used in operating activities   (305 )   (3,544 ) Cash Flows from Investing Activities: Purchases of property and equipment   (1,325 )   (1,924 ) Net cash used in investing activities   (1,325 )   (1,924 ) Cash Flows from Financing Activities: Payments on long-term debt and finance leases (694 ) (520 ) Proceeds from exercise of common stock options   37     18   Net cash used in financing activities   (657 )   (502 ) Effect of exchange rate changes on cash and cash equivalents   (140 )   (81 ) Net decrease in Cash and Cash Equivalents (2,427 ) (6,051 ) Cash and Cash Equivalents at beginning of period   15,921     22,476   Cash and Cash Equivalents at end of period $ 13,494   $ 16,425     Synacor, Inc. Segment Results (In thousands except percentages) (Unaudited)                   Effective March 31, 2019, the Company concluded that we now have two reportable segments which were determined on the basis of the products and services provided to customers, identified as follows: (i) Software & Services, which includes email / collaboration (Zimbra) and identity management (Cloud ID). (ii) Portal & Advertising, which includes managed portals and advertising solutions for publishers.   The following table presents the key segment financial measures for the periods indicated. Please refer to the Reconciliation of GAAP to Non-GAAP Measures schedule for the reconciliation of Adjusted EBITDA.   Three months ended March 31, 2019 2018 % Change Segment Revenue: Software & Services $ 11,158 $ 10,685 4.4 % Portal & Advertising   20,666     22,230   -7.0 % Total $ 31,824   $ 32,915   -3.3 %   Segment Adjusted EBITDA: Software & Services $ 2,794 $ 2,497 11.9 % Portal & Advertising 2,621 3,048 -14.0 % Unallocated Corporate G&A Expense   (3,711 )   (4,934 ) -24.8 % Total $ 1,704   $ 611   178.9 %   Segment Adjusted EBITDA margin*: Software & Services 25.0 % 23.4 % 160 bps Portal & Advertising   12.7 %   13.7 % -100 bps Total   5.4 %   1.9 % 350 bps   *Adjusted EBITDA as a percent of revenue   The following tables presents a disaggregation of segment revenue for the periods indicated based upon the accounting definition of revenue recognition: (i) Recurring = revenue recognized over time (ii) Non-recurring = revenue recognized at a point in time   Three months ended March 31, 2019 2018 % Change Software & Services Revenue: Recurring $ 8,514 $ 8,324 2.3 % Non-recurring 2,284 1,899 20.3 % Discontinued Products**   360     462   -22.1 % Total $ 11,158   $ 10,685   4.4 %   Portal & Advertising Revenue: Recurring $ 1,506 $ 2,087 -27.8 % Non-recurring   19,160     20,143   -4.9 % Total $ 20,666   $ 22,230   -7.0 %   Total Revenue: Recurring $ 10,020 $ 10,411 -3.8 % Non-recurring 21,444 22,042 -2.7 % Discontinued Products**   360     462   -22.1 % Total $ 31,824   $ 32,915   -3.3 %   ** VAM video product line which was discontinued during Q1 2019.   Synacor, Inc. Reconciliation of Adjusted Financial Measures (In thousands except per share amounts) (Unaudited)                         Three months ended March 31, 2019

Per GAAPStatements

CapitalizedSoftwareImpairment

Certain Legal&Professional Fees

AdjustedNon-GAAP

Revenue Software & Services $ 11,158 $ 11,158 Portal & Advertising   20,666         20,666   Total Revenue $ 31,824     —     —   $ 31,824   Costs and operating expenses: Cost of revenue - Software & Services (1) 3,503

 

3,503 Cost of revenue - Portal & Advertising (1) 13,003 13,003 Technology and development (1)(2) 4,546

 

4,546 Sales and marketing (2) 5,991 5,991 General and administrative (1)(2) 4,465 (226 ) (779 ) 3,460 Depreciation and amortization   2,435         2,435   Total costs and operating expenses   33,943     (226 )   (779 )   32,938   Loss from operations (2,119 ) 226 779 (1,114 ) Other income - net 216 216 Interest expense   (64 )       (64 ) Loss before income taxes (1,967 ) 226 779 (962 ) Provision for income taxes (3)   277         277   Net loss $ (2,244 ) $ 226   $ 779   $ (1,239 ) Diluted EPS $ (0.06 ) $ 0.01 $ 0.02 $ (0.03 )       Three months ended March 31, 2018

Per GAAPStatements

CapitalizedSoftwareImpairment

Certain Legal&Professional Fees

AdjustedNon-GAAP

Revenue Software & Services $ 10,685 $ 10,685 Portal & Advertising   22,230         22,230   Total Revenue $ 32,915     —     —   $ 32,915   Costs and operating expenses: Cost of revenue - Software & Services (1) 3,108 3,108 Cost of revenue - Portal & Advertising (1) 12,427 12,427 Technology and development (1)(2) 6,369 6,369 Sales and marketing (2) 5,936 5,936 General and administrative (1)(2) 5,017 5,017 Depreciation and amortization   2,435         2,435   Total costs and operating expenses   35,292     —     —     35,292   Loss from operations (2,377 ) — — (2,377 ) Other income - net 119 119 Interest expense   (97 )       (97 ) Loss before income taxes (2,355 ) — — (2,355 ) Provision for income taxes (3)   20         20   Net loss $ (2,375 ) $ —   $ —   $ (2,375 ) Diluted EPS $ (0.06 ) $ — $ — $ (0.06 )   Notes: (1) Exclusive of depreciation and amortization shown separately. (2) Includes stock-based compensation (3) No income tax effects to adjustments presented due to full valuation allowance.  

 

Synacor's management believes that certain non-GAAP measures of Adjusted Net Loss and Adjusted Diluted Earnings per Share provide investors with additional information to assess the Company's financial performance. These measures should be viewed as supplemental data, rather than substitutes or alternatives to the comparable GAAP measures.

  Synacor, Inc. Reconciliation of GAAP to Non-GAAP Measures (In thousands) (Unaudited)               The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:   Three months ended March 31, 2019 2018   Reconciliation of Adjusted EBITDA: Net loss $ (2,244 ) $ (2,375 ) Provision for income taxes 277 20 Interest expense 64 97 Other income - net (216 ) (119 ) Depreciation and amortization 2,487 2,435 Capitalized software impairment 226 — Stock-based compensation expense 331 553 Certain legal expenses* 266 — Certain professional services fees**   513     —   Adjusted EBITDA $ 1,704   $ 611     * "Certain legal expenses" includes legal fees and other related expenses associated with legal proceedings outside the ordinary course of our business, including the class action securities litigation, and arbitration costs related to the dissolution of a former joint venture. ** “Certain professional services fees” includes fees and expenses related to merger and acquisition activities.  

Guidance Reconciliation

(In millions)       Q2-2019       FY 2019   Net Loss $(1.6) - $(2.1) $(2.2) - $(4.2)   Taxes, Interest & Other Income/Expense 0.3 1.2 Depreciation & Amortization 2.5 10.0 Stock-based Compensation 0.4 2.0 Certain Legal & Professional Fees - 0.8 Capitalized Software Impairment - 0.2           Adjusted EBITDA $1.1 - $1.6       $10.0 - $12.0

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Investor Contact:David CalusdianSharon Merrill Associatesir@synacor.com617-542-5300