Quarterly Report (10-q)

Date : 08/06/2019 @ 9:24PM
Source : Edgar (US Regulatory)
Stock : Synchronoss Technologies Inc (SNCR)
Quote : 4.37  0.12 (2.82%) @ 1:00AM
After Hours
Last Trade
Last $ 4.37 ◊ 0.00 (0.00%)

Quarterly Report (10-q)


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019
 
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 August 2, 2019 , there were 44,383,050 shares of common stock issued and outstanding.



SYNCHRONOSS TECHNOLOGIES, INC.
FORM 10-Q INDEX

 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




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

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
 
June 30, 2019
 
December 31, 2018
 
 
 

ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
34,229

 
$
103,771

Restricted cash*
381

 
6,089

Marketable securities, current
44,259

 
28,230

Accounts receivable, net of allowances of $3,455 and $4,599 at June 30, 2019 and December 31, 2018, respectively**
99,928

 
102,798

Prepaid expenses
28,460

 
45,058

Other current assets
10,252

 
8,508

Total current assets
217,509

 
294,454

Marketable securities, non-current
67

 
6,658

Property and equipment, net
44,164

 
67,937

Operating lease right-of-use assets
63,416

 

Goodwill
224,335

 
224,899

Intangible assets, net
86,649

 
98,706

Other assets
7,764


8,982

Equity method investment

 
1,619

Total assets
$
643,904

 
$
703,255


LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
18,458

 
13,576

Accrued expenses
54,247

 
59,545

Deferred revenues, current
59,574

 
57,101

Short-term convertible debt, net of debt issuance costs
47,076

 
113,542

Total current liabilities
179,355

 
243,764

Lease financing obligation

 
9,494

Operating lease liabilities, non-current
65,141

 

Deferred tax liabilities
638

 
1,347

Deferred revenues, non-current
44,128

 
59,841

Other non-current liabilities
6,118

 
10,797

Redeemable noncontrolling interest
12,500

 
12,500

Commitments and contingencies (Note 13)


 


Series A Convertible Participating Perpetual Preferred Stock, $0.0001 par value; 10,000 shares authorized; 202 shares issued and outstanding at June 30, 2019
184,668

 
176,603

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized, 51,578 and 49,836 shares issued; 44,416 and 42,674 outstanding at June 30, 2019 and December 31, 2018, respectively
5

 
5

Treasury stock, at cost (7,162 and 7,162 shares at June 30, 2019 and December 31, 2018, respectively)
(82,087
)
 
(82,087
)
Additional paid-in capital
531,282

 
534,673

Accumulated other comprehensive loss
(30,897
)
 
(30,383
)
Accumulated deficit
(266,947
)
 
(233,299
)
Total stockholders’ equity
151,356

 
188,909

Total liabilities and stockholders’ equity
$
643,904

 
$
703,255

_______________________________
*
See Note 2 .  Basis of Presentation and Consolidation for restricted cash details.
**
See Note 6. Investments in Affiliates and Related Transactions for related party transactions reflected in this account.

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 June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net revenues
 
$
77,846

 
$
76,742

 
$
165,951

 
$
160,451

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of revenues*
 
33,403

 
39,525

 
72,356

 
84,074

Research and development
 
19,026

 
20,200

 
38,707

 
41,105

Selling, general and administrative
 
23,080

 
33,938

 
52,326

 
72,048

Restructuring charges
 
356

 
2,778

 
777

 
3,886

Depreciation and amortization
 
20,269

 
23,401

 
40,412

 
46,672

Total costs and expenses
 
96,134

 
119,842

 
204,578

 
247,785

Loss from continuing operations
 
(18,288
)
 
(43,100
)
 
(38,627
)
 
(87,334
)
Interest income
 
299

 
3,763

 
488

 
7,315

Interest expense
 
(463
)
 
(1,318
)
 
(1,048
)
 
(2,565
)
Gain on extinguishment of debt
 
430

 

 
817

 

Other (expense) income, net
 
(24
)
 
(23
)
 
439

 
4,259

Equity method investment loss
 
(376
)
 
(7
)
 
(1,619
)
 
(212
)
Loss from continuing operations, before taxes
 
(18,422
)
 
(40,685
)
 
(39,550
)
 
(78,537
)
Benefit (provision) for income taxes
 
1,844

 
(579
)
 
3,235

 
(704
)
Net loss
 
(16,578
)
 
(41,264
)
 
(36,315
)
 
(79,241
)
Net (income) loss attributable to redeemable noncontrolling interests
 
(593
)
 
1,259

 
(906
)
 
2,544

Preferred stock dividend
 
(7,859
)
 
(7,260
)
 
(15,396
)
 
(10,613
)
Net loss attributable to Synchronoss
 
$
(25,030
)
 
$
(47,265
)
 
$
(52,617
)
 
$
(87,310
)
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.61
)
 
$
(1.20
)
 
$
(1.30
)
 
$
(2.14
)
Diluted
 
$
(0.61
)
 
$
(1.20
)
 
$
(1.30
)
 
$
(2.14
)
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
40,810

 
39,456

 
40,566

 
40,812

Diluted
 
40,810

 
39,456

 
40,566

 
40,812

________________________________
*
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 June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net loss
 
$
(16,578
)
 
$
(41,264
)
 
$
(36,315
)
 
$
(79,241
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
802

 
(7,857
)
 
507

 
(4,985
)
Unrealized gain (loss) on available for sale securities
 
3

 
(28
)
 
(902
)
 
(49
)
Net loss on intra-entity foreign currency transactions
 
264

 
(1,360
)
 
(119
)
 
(531
)
Total other comprehensive income (loss)
 
1,069

 
(9,245
)
 
(514
)
 
(5,565
)
Comprehensive loss
 
(15,509
)
 
(50,509
)
 
(36,829
)
 
(84,806
)
Comprehensive (income) loss attributable to redeemable noncontrolling interests
 
(593
)
 
1,259

 
(906
)
 
2,544

Comprehensive loss attributable to Synchronoss
 
$
(16,102
)
 
$
(49,250
)
 
$
(37,735
)
 
$
(82,262
)

See accompanying notes to condensed consolidated financial statements.

5


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

 
Three Months Ended June 30, 2019
 
Common Stock
 
 
 
Treasury Stock
 
 
 
Additional
 
Accumulative Other
 
 
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-In Capital
 
Comprehensive Income (Loss)
 
Accumulated deficit
 
Stockholders' Equity
Balance at March 31, 2019
49,908

 
$
5

 
(7,162
)
 
$
(82,087
)
 
$
533,224

 
$
(31,966
)
 
$
(249,776
)
 
$
169,400

Stock based compensation

 

 

 

 
5,329

 

 

 
5,329

Issuance of restricted stock
1,670

 

 

 

 

 

 

 

Preferred stock dividends declared

 

 

 

 
(7,331
)
 

 

 
(7,331
)
Amortization of preferred stock issuance costs

 

 

 

 
(528
)
 

 

 
(528
)
Shares withheld for taxes in connection with issuance of restricted stock

 

 

 

 
(5
)
 

 

 
(5
)
Net loss attributable to Synchronoss

 

 

 

 

 

 
(17,171
)
 
(17,171
)
Non-controlling interest

 

 

 

 
593

 

 

 
593

Total other comprehensive income (loss)

 

 

 

 

 
1,069

 

 
1,069

Balance at June 30, 2019
51,578

 
$
5

 
(7,162
)
 
$
(82,087
)
 
$
531,282

 
$
(30,897
)
 
$
(266,947
)
 
$
151,356

 
Three Months Ended June 30, 2018
 
Common Stock
 
 
 
Treasury Stock
 
 
 
Additional
 
Accumulative Other
 
 
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-In Capital
 
Comprehensive Income (Loss)
 
Accumulated deficit
 
Stockholders' Equity
Balance at March 31, 2018
52,274

 
$
5

 
(11,055
)
 
$
(150,414
)
 
$
612,758

 
$
(19,693
)
 
$
(51,837
)
 
$
390,819

Stock based compensation

 

 

 

 
7,621

 

 

 
7,621

Issuance of restricted stock
1,058

 

 

 

 

 

 

 

Preferred stock dividends declared

 

 

 

 
(6,828
)
 

 

 
(6,828
)
Amortization of preferred stock issuance costs

 

 

 

 
(346
)
 

 

 
(346
)
Retirement of treasury stock
(3,893
)
 

 
3,893

 
68,330

 
(68,330
)
 

 

 

Shares withheld for taxes in connection with issuance of restricted stock

 

 

 

 
(10
)
 

 

 
(10
)
Net loss attributable to Synchronoss

 

 

 

 

 

 
(40,005
)
 
(40,005
)
Non-controlling interest

 

 

 

 
(1,259
)
 

 

 
(1,259
)
Total other comprehensive income (loss)

 

 

 

 

 
(9,212
)
 

 
(9,212
)
ASC 606 revenue recognition implementation impact

 

 

 

 

 
(33
)
 

 
(33
)
Other

 

 

 

 
(3
)
 

 
1

 
(2
)
Balance at June 30, 2018
49,439

 
$
5

 
(7,162
)
 
$
(82,084
)
 
$
543,603

 
$
(28,938
)
 
$
(91,841
)
 
$
340,745





6


 
Six Months Ended June 30, 2019
 
Common Stock
 
Treasury Stock
 
Additional
 
Accumulative Other
 
 
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-In Capital
 
Comprehensive Income (Loss)
 
Accumulated deficit
 
Stockholders' Equity
Balance at December 31, 2018
49,836

 
$
5

 
(7,162
)
 
$
(82,087
)
 
$
534,673

 
$
(30,383
)
 
$
(233,299
)
 
$
188,909

Stock based compensation

 

 

 

 
11,108

 

 

 
11,108

Issuance of restricted stock
1,743

 

 

 

 

 

 

 

Preferred stock dividends declared

 

 

 

 
(14,406
)
 

 

 
(14,406
)
Amortization of preferred stock issuance costs

 

 

 

 
(990
)
 

 

 
(990
)
Shares withheld for taxes in connection with issuance of restricted stock
(1
)
 

 

 

 
(9
)
 

 

 
(9
)
Net loss attributable to Synchronoss

 

 

 

 

 

 
(37,221
)
 
(37,221
)
Non-controlling interest

 

 

 

 
906

 

 

 
906

Total other comprehensive income (loss)

 

 

 

 

 
(514
)
 

 
(514
)
ASC 842 lease standard implementation impact

 

 

 

 

 

 
3,573

 
3,573

Balance at June 30, 2019
51,578

 
$
5

 
(7,162
)
 
$
(82,087
)
 
$
531,282

 
$
(30,897
)
 
$
(266,947
)
 
$
151,356

 
Six Months Ended June 30, 2018
 
Common Stock
 
Treasury Stock
 
Additional
 
Accumulative Other
 
 
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-In Capital
 
Comprehensive Income (Loss)
 
Accumulated deficit
 
Stockholders' Equity
Balance at December 31, 2017
52,028

 
$
5

 
(5,060
)
 
$
(105,584
)
 
$
597,553

 
$
(23,373
)
 
$
(5,014
)
 
$
463,587

Stock based compensation

 

 

 

 
14,807

 

 

 
14,807

Issuance of restricted stock
1,304

 

 

 

 

 

 

 

Preferred stock dividends declared

 

 

 

 
(10,181
)
 

 

 
(10,181
)
Amortization of preferred stock issuance costs

 

 

 

 
(432
)
 

 

 
(432
)
Retirement of treasury stock
(3,893
)
 

 
3,893

 
68,330

 
(68,330
)
 

 

 

Shares withheld for taxes in connection with issuance of restricted stock

 

 

 

 
(10
)
 

 

 
(10
)
Treasury shares received in connection with PIPE Purchase Agreement

 

 
(5,995
)
 
(44,830
)
 

 

 

 
(44,830
)
Net loss attributable to Synchronoss

 

 

 

 

 

 
(76,697
)
 
(76,697
)
Non-controlling interest

 

 

 

 
10,237

 

 

 
10,237

Total other comprehensive income (loss)

 

 

 

 

 
(5,565
)
 

 
(5,565
)
ASC 606 revenue recognition implementation impact

 

 

 

 

 

 
(10,130
)
 
(10,130
)
Other

 

 

 

 
(41
)
 

 

 
(41
)
Balance at June 30, 2018
49,439

 
$
5

 
(7,162
)
 
$
(82,084
)
 
$
543,603

 
$
(28,938
)
 
$
(91,841
)
 
$
340,745


See accompanying notes to condensed consolidated financial statements.

7


SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
 
Six Months Ended June 30,
 
2019
 
2018
Operating activities: 
 
 
 
Net loss
$
(36,315
)
 
$
(79,241
)
Adjustments to reconcile Net Loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
40,412

 
46,672

Change in fair value of financial instruments

 
(3,849
)
Amortization of debt issuance costs
237

 
706

(Gain) loss on extinguishment of debt
(817
)
 

Accrued PIK interest*

 
(7,037
)
(Earnings) loss from equity method investments*
1,619

 
212

Amortization of bond premium
(34
)
 
44

Deferred income taxes
(702
)
 
(1,223
)
Non-cash interest on leased facility

 
547

Stock-based compensation
11,028

 
14,824

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net of allowance for doubtful accounts
2,870

 
29,334

Prepaid expenses and other current assets
17,635

 
(13,415
)
Other assets
2,042

 
1,260

Accounts payable
5,151

 
8,109

Accrued expenses
(9,569
)
 
(24,685
)
Other liabilities
(1,826
)
 
632

Lease obligation interest payment

 
(483
)
Deferred revenues
(13,167
)
 
(43,788
)
Net cash provided by (used for) operating activities
18,564

 
(71,381
)
Investing activities:
 
 
 
Purchases of property and equipment
(4,940
)
 
(3,820
)
Purchases of capitalized software
(5,959
)
 
(8,201
)
Purchases of marketable securities available for sale
(37,542
)
 
(13,383
)
Maturity of marketable securities available for sale
28,191

 
1,970

Business acquired, net of cash

 
(9,798
)
Net cash used for investing activities
(20,250
)
 
(33,232
)
Financing activities:
 
 
 
Extinguishment of outstanding Convertible Senior Notes
(65,887
)
 

Proceeds from issuance of preferred stock

 
86,220

Preferred dividend payment
(7,075
)
 

Payments for finance leases
(612
)
 
(718
)
Net cash (used for) provided by financing activities
(73,574
)
 
85,502

Effect of exchange rate changes on cash
10

 
(749
)
Net decrease in cash, restricted cash and cash equivalents
(75,250
)
 
(19,860
)
Cash, restricted cash and cash equivalents, beginning of period
109,860

 
246,125

Cash, restricted cash and cash equivalents, end of period
$
34,610

 
$
226,265

 
 
 
 
Cash and cash equivalents per the Condensed Consolidated Balance Sheets
$
34,229

 
$
222,785

Restricted cash per the Condensed Consolidated Balance Sheets
$
381

 
$
3,480

Total cash, cash equivalents and restricted cash
$
34,610

 
$
226,265

 
 
 
 
Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Accrued dividends on Series A Convertible Participating Perpetual Preferred Stock
$
7,332

 
$
10,181

_______________________________
*
See Note 6. Investments in Affiliates and Related Transactions for related party transactions reflected in this account.

 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 Media and Technology providers to deliver continuously transformative customer experiences that create high value engagement and new monetization opportunities.
The Company currently operates in and markets solutions and services directly through the Company’s sales organizations in North America, Europe and Asia-Pacific. The Company’s platforms give customers new opportunities in the Telecommunications, Media and Technology (“TMT”) space, taking advantage of the rapidly converging services, connected devices, networks and applications.
The Company delivers platforms, products and solutions including:
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
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
IoT management technology for Smart Cities, Smart Buildings, Automotive and more

The Synchronoss Digital Experience Platform (“DXP”) is a purpose-built experience management toolset that sits between the 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 Personal Cloud Platform™ is a secure and highly scalable white label platform designed to store and sync subscriber’s personally created content seamlessly to and from current and new devices. This allows a carrier’s customers to protect, engage with and manage their personal content and gives the Company’s Operator customers the ability to increase average revenue per user (“ARPU”) through a new monthly recurring charge (“MRC”) and opportunities to mine valuable data that will give subscribers access to new, beneficial services. Additionally, the Company’s Personal Cloud Platform performs an expanding set of value-add services including facilitating an Operator’s initial device setup and enhancing visibility and control across disparate devices within subscribers’ smart homes.
The Synchronoss Messaging Platform powers hundreds of millions of subscribers’ mail boxes worldwide. The Company’s Advanced Messaging Product is a powerful, secure and intelligent white label messaging platform that expands capabilities for Operators and TMT companies to offer P2P messaging via Rich Communications Services (“RCS”). Additionally, the Company’s Advanced Messaging Product powers commerce and a robust ecosystem for Operators, brands and advertisers to execute Application to Person (“A2P”) commerce and data-rich dialogue with subscribers.
The Synchronoss 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.

2 .  Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

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)



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, 2018 . The results of operations for the three and six months ended  June 30, 2019  are not necessarily indicative of the results to be expected for the year ending December 31, 2019.

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, 2018 .

Restricted Cash

Restricted cash includes amounts related to various deposits, escrows and other cash collateral that are restricted by contractual obligation. As of June 30, 2019 , the restricted cash amounts were primarily attributed to cash held in transit, and operating cash held by the Company’s consolidated joint venture Zentry, LLC (“Zentry”), which cannot be used to fulfill the obligations of the Company as a whole.

Recently Issued Accounting Standards

Recent accounting pronouncements adopted
Standard
 
Description
 
Effect on the financial statements
Update 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting
 
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, regarding ASC Topic 718 “Compensation - Stock Compensation,” which largely aligns the accounting for share-based compensation for non-employees with employees. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.
 
The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2019.
 
 
 
 
ASU 2018-15 Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Cloud Computing Arrangements
 
In August 2018, the FASB issued final guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in Accounting Standards Codification (“ASC”) 350-402 Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40) to determine which implementation costs to capitalize as assets. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019. Early adoption of the amendments is permitted, including adoption in any interim period, for all entities and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.
 
The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2019.
 
 
 
 


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)


Leases

The Company adopted Accounting Standards Codification Topic 842, Leases (ASC 842) on January 1, 2019. ASC 842 applies to a number of arrangements to which the Company is party whereby the Company acts as a lessee.

Whenever the Company enters into a new arrangement, it must determine, at the inception date, whether the arrangement contains a lease. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset.

If a lease exists, the Company must then determine the separate lease and non-lease components of the arrangement. Each right to use an underlying asset conveyed by a lease arrangement should generally be considered a separate lease component if it both: (i) can benefit the Company without depending on other resources not readily available to the Company and (ii) does not significantly affect and is not significantly affected by other rights of use conveyed by the lease. Aspects of a lease arrangement that transfer other goods or services to the Company but do not meet the definition of lease components are considered non-lease components. The consideration owed by the Company pursuant to a lease arrangement is generally allocated to each lease and non-lease component for accounting purposes. However, the Company has elected to not separate lease and non-lease components. Each lease component is accounted for separately from other lease components, but together with the associated non-lease components.

For each lease, the Company must then determine:

The lease term - The lease term is the period of the lease not cancellable by the Company, together with periods covered by: (i) renewal options the Company is reasonably certain to exercise or that are controlled by the lessor and (ii) termination options the Company is reasonably certain not to exercise.

The present value of lease payments is calculated based on:

Lease payments - Lease payments include certain fixed and variable payments, less lease incentives, together with amounts probable of being owed by the Company under residual value guarantees and, if reasonably certain of being paid, the cost of certain renewal options and early termination penalties set forth in the lease arrangement. Lease payments exclude consideration that is: (i) not related to the transfer of goods and services to the Company and (ii) allocated to the non-lease components in a lease arrangement, except for the classes of assets where the Company has elected to not separate lease and non-lease components.

Discount rate - The discount rate must be determined based on information available to the Company upon the commencement of a lease. Lessees are required to use the rate implicit in the lease whenever such rate is readily available; however, as the implicit rate in the Company's leases is generally not readily determinable, the Company generally uses the hypothetical incremental borrowing rate it would have to pay to borrow an amount equal to the lease payments, on a collateralized basis, over a timeframe similar to the lease term.

Lease classification - In making the determination of whether a lease is an operating lease or a finance lease, the Company considers the lease term in relation to the economic life of the leased asset, the present value of lease payments in relation to the fair value of the leased asset and certain other factors, including the lessee's and lessor's rights, obligations and economic incentives over the term of the lease.

Generally, upon the commencement of a lease, the Company will record a lease liability and a right-of-use (ROU) asset. However, the Company has elected, for certain classes of underlying assets with initial lease terms of twelve months or less (known as short-term leases), to not recognize a lease liability or ROU asset. Lease liabilities are initially recorded at lease commencement as the present value of future lease payments. ROU assets are initially recorded at lease commencement as the initial amount of the lease liability, together with the following, if applicable: (i) initial direct costs and (ii) lease payments made, net of lease incentives received, prior to lease commencement.

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)


Over the lease term, the Company generally increases it lease liabilities using the effective interest method and decreases its lease liabilities for lease payments made. The Company generally amortizes its ROU assets over the shorter of the estimated useful life and the lease term and assesses its ROU assets for impairment, similar to other long-lived assets.

For finance leases, amortization expense and interest expense are recognized separately in the Condensed Consolidated Statements of Operations, with amortization expense generally recorded on a straight-line basis and interest expense recorded using the effective interest method. For operating leases, a single lease cost is generally recognized in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term. Lease costs for short-term leases not recognized in the Condensed Consolidated Balance Sheets are recognized in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term. Variable lease costs not initially included in the lease liability and ROU asset impairment charges are expensed as incurred.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (ASU 2016-02). In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (ASU 2018-10), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, “Leases (Topic 842) - Targeted Improvements” (ASU 2018-11), which addresses implementation issues related to the new lease standard. These and certain other lease-related ASUs have generally been codified in ASC 842. ASC 842 supersedes the lease accounting requirements in Accounting Standards Codification Topic 840, Leases (ASC 840), and requires lessees to, among other things, recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases.

The Company adopted ASC 842 on January 1, 2019 for leases that existed on that date. The Company has elected to apply the provisions of ASC 842 modified retrospectively at January 1, 2019 through a cumulative-effect adjustment. Prior period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods.

The Company has elected certain practical expedients permitted under the transition guidance within ASC 842 to leases that commenced before January 1, 2019, including the package of practical expedients. Due to the Company's election of the package of practical expedients, the Company has carried forward certain historical conclusions for expired or existing contracts, including conclusions relating to initial direct costs and to the existence and classification of leases.

As of January 1, 2019, as a result of adopting ASC 842, the Company recorded a net decrease of $3.6 million to its Accumulated deficit.

The adoption of ASC 842 did not have a material effect on the Company's Loss from continuing operations or Net loss, or the related per-share amounts, during the three and six months ended June 30, 2019 .


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)


Standards issued not yet adopted
Standard
 
Description
 
Effect on the financial statements
Update 2018-17-Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
 
The update is intended to improve general purpose financial reporting by considering indirect interests held through related parties in common control arrangements on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The amendments in ASU 2018-17 will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

 
The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.
Date of adoption: January 1, 2020.
 
 
 
 
ASU 2016-13 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.
 
The Company is currently evaluating the impact of the adoption of this ASU but does not expect that the pending adoption of this ASU will have a material effect on its condensed consolidated financial statements.
Date of adoption: January 1, 2020.
 
 
 
 


3. Revenue

Disaggregation of revenue

The Company disaggregates revenue from contracts with customers into the nature of the products and services and geographical regions. The Company’s geographic regions are the Americas, Europe, the Middle East and Africa (“EMEA”), and Asia Pacific (“APAC”). The majority of the Company’s revenue is from the Technology, Media and Telecom (collectively, “TMT”) sector.
 
Three Months Ended June 30, 2019
 
Three Months Ended June 30, 2018
 
Cloud
 
Digital
 
Messaging
 
Total
 
Cloud
 
Digital
 
Messaging
 
Total
Geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
38,582

 
$
20,508

 
$
2,281

 
$
61,371

 
$
36,563

 
$
20,172

 
$
2,260

 
$
58,995

APAC

 
1,157

 
8,785

 
9,942

 

 
931

 
9,717

 
10,648

EMEA
1,849

 
561

 
4,123

 
6,533

 
2,157

 
1,083

 
3,859

 
7,099

Total
$
40,431

 
$
22,226

 
$
15,189

 
$
77,846

 
$
38,720

 
$
22,186

 
$
15,836

 
$
76,742

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service Line
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Professional Services
$
3,641

 
$
3,989

 
$
4,881

 
$
12,511

 
$
3,576

 
$
4,294

 
$
1,831

 
$
9,701

Transaction Services
1,521

 
1,144

 

 
2,665

 
2,442

 
2,116

 

 
4,558

Subscription Services
35,199

 
16,137

 
8,557

 
59,893

 
32,666

 
14,454

 
6,954

 
54,074

License
70

 
956

 
1,751

 
2,777

 
36

 
1,322

 
7,051

 
8,409

Total
$
40,431

 
$
22,226

 
$
15,189

 
$
77,846

 
$
38,720

 
$
22,186

 
$
15,836

 
$
76,742





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)


 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
 
Cloud
 
Digital
 
Messaging
 
Total
 
Cloud
 
Digital
 
Messaging
 
Total
Geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
77,496

 
$
41,272

 
$
4,350

 
$
123,118

 
$
72,423

 
$
41,051

 
$
4,871

 
$
118,345

APAC

 
2,155

 
26,940

 
29,095

 

 
2,615

 
25,640

 
28,255

EMEA
3,645

 
1,650

 
8,443

 
13,738

 
4,601

 
1,531

 
7,719

 
13,851

Total
$
81,141

 
$
45,077

 
$
39,733

 
$
165,951

 
$
77,024

 
$
45,197

 
$
38,230

 
$
160,451

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service Line
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Professional Services
$
7,359

 
$
8,292

 
$
17,368

 
$
33,019

 
$
7,020

 
$
10,002

 
$
6,390

 
$
23,412

Transaction Services
2,883

 
3,160

 

 
6,043

 
4,785

 
3,895

 

 
8,680

Subscription Services
70,793

 
32,539

 
17,722

 
121,054

 
64,795

 
29,531

 
15,733

 
110,059

License
106

 
1,086

 
4,643

 
5,835

 
424

 
1,769

 
16,107

 
18,300

Total
$
81,141

 
$
45,077

 
$
39,733

 
$
165,951

 
$
77,024

 
$
45,197

 
$
38,230

 
$
160,451


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 doubtful accounts 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 applicable factors.

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 its records revenue on a professional services engagement but are not entitled to bill until the Company achieves specified milestones. Contract asset balance at June 30, 2019 is $6.8 million .

Amounts collected in advance of services being provided are accounted for as contract liabilities, which are presented as deferred revenue on the accompanying balance sheet 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 noncurrent) during the period are as follows (in thousands):
 
Contract Liabilities*
Balance - January 1, 2019
$
116,942

Revenue recognized in the period
(147,904
)
Amounts billed but not recognized as revenue
134,664

Balance - June 30, 2019
$
103,702

________________________________
*
Comprised of Deferred Revenue


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)


Transaction price allocated to the remaining performance obligations

Topic 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2019 . The Company has elected not to disclose transaction price allocated to remaining performance obligations for:

1.
Contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty;
2.
Contracts for which the Company recognizes revenues based on the right to invoice for services performed;
3.
Variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with Topic 606 Section 10-25-14(b), for which the criteria in Topic 606 Section 10-32-40 have been met. This applies to a limited number of situations where the Company is dependent upon data from a third party or where fees are highly variable.

Many of the Company’s performance obligations meet one or more of these exemptions. Specifically, the Company has excluded the following from the Company’s remaining performance obligations, all of which will be resolved in the period in which amounts are known:
consideration for future transactions, above any contractual minimums
consideration for success-based transactions contingent on third party data
credits for failure to meet future service level requirements

As of June 30, 2019 , the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $274.0 million , of which approximately 93.6% 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.

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.


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)


The following is a summary of assets, liabilities and redeemable noncontrolling interests and their related classifications under the fair value hierarchy:
 
June 30, 2019
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash (1)
$
34,610

 
$
34,610

 
$

 
$

Marketable securities-short term (2)
44,259

 

 
44,259

 

Marketable securities-long term (2)
67

 

 
67

 

Total assets
$
78,936

 
$
34,610

 
$
44,326

 
$

Temporary equity
 
 
 
 
 
 
 
Redeemable noncontrolling interests (3)
$
12,500

 
$

 
$

 
$
12,500

Total temporary equity
$
12,500

 
$

 
$

 
$
12,500


 
December 31, 2018
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash (1)
$
109,860

 
$
109,860

 
$

 
$

Marketable securities-short term (2)
28,230

 

 
28,230

 

Marketable securities-long term (2)
6,658

 

 
6,658

 

Total assets
$
144,748

 
$
109,860

 
$
34,888

 
$

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.

Marketable Securities

The Company utilizes the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The Company’s marketable securities investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No transfers of assets between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy occurred during the six months ended June 30, 2019 .

For marketable debt securities, unrealized gains and losses are reported as a component of accumulated other comprehensive income in stockholders’ equity. The cost of securities sold is based on the specific identification method. The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses at June 30, 2019 and 2018 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available for sale, the Company does not currently intend to sell such investments and it is more likely than not to recover the carrying value prior to being required to sell such investments.

The marketable equity securities are mutual funds measured at fair value and classified within Level 2 in the fair value hierarchy. Unrealized gains and losses related to our marketable equity securities were recognized in other income (expense), net.


16

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


At June 30, 2019 and December 31, 2018 , the estimated fair value of investments in marketable debt securities, were as follows:
 
June 30, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Marketable securities - debt:
 
 
 
 
 
 
 
Municipal bonds
591

 
2

 

 
593

Treasury bonds
9,990

 

 

 
9,990

Total
$
10,581

 
$
2

 
$

 
$
10,583


As of June 30, 2019 , the aggregate related fair value of investment with unrealized losses was approximately $0.2 million .
 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Marketable securities - debt:
 
 
 
 
 
 
 
Certificates of deposit
$
3,776

 
$

 
$
(16
)
 
$
3,760

Corporate bonds
402

 

 
(1
)
 
401

Municipal bonds
10,913

 

 
(32
)
 
10,881

Treasury bonds
15,685

 

 

 
15,685

Total
$
30,776

 
$

 
$
(49
)
 
$
30,727


As of December 31, 2018 , the aggregate related fair value of investment with unrealized losses was approximately $14.9 million .

The contractual maturities of marketable debt securities were as follows:
 
June 30, 2019
 
Amortized
Cost
 
Fair
Value
Due within one year
$
10,514

 
$
10,516

Due after 1 year through 5 years
67

 
67

Due after 5 years through 10 years

 

Due after 10 years

 

Total marketable securities - debt
$
10,581

 
$
10,583


At June 30, 2019 and December 31, 2018 , the estimated fair value of investments in marketable equity securities, were as follows:
Balance at December 31, 2018
 
$
4,161

Mutual funds purchases
 
29,581

Realized gains (losses)
 
1

Balance at June 30, 2019
 
$
33,743



17

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


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 noncontrolling interests could significantly increase or decrease the fair value estimates recorded in the Condensed Consolidated Balance Sheets.

The changes in fair value of the Company’s Level 3 redeemable noncontrolling interests during the six months ended June 30, 2019 were as follows:
Balance at December 31, 2018
$
12,500

Fair value adjustment
(906
)
Net income attributable to redeemable noncontrolling interests
906

Balance at June 30, 2019
$
12,500


5. Leases

We have entered into contracts with third parties to lease a variety of assets, including certain real estate, equipment, automobiles and other assets. Our 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 our real estate leases could require us to make payments that vary based on common area maintenance charges, insurance and other charges. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We are party to certain sublease arrangements, primarily related to our real estate leases, where we act as the lessee and intermediate lessor. The Company does not have material sublease arrangements.

The following table presents information about the Company's ROU assets and lease liabilities at June 30, 2019 (in thousands):
ROU assets:
 
Non-current operating lease ROU assets
$
63,416