ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Synchronoss Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Synchronoss Technologies, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2014-09
As discussed in Note 2 to the consolidated financial statements, on January 1, 2018 the Company changed its method of accounting for recognizing revenue in 2018 to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12.
Adoption of ASU No. 2016-02
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases and associated amendments (Topic 842) using the modified retrospective method.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2001.
Iselin, New Jersey
March 16, 2020
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
38,990
|
|
|
$
|
103,771
|
|
|
Restricted cash
|
11
|
|
|
6,089
|
|
|
Marketable securities, current
|
11
|
|
|
28,230
|
|
|
Accounts receivable, net of allowances for bad debt of $1,864 and $4,599 at December 31, 2019 and December 31, 2018, respectively*
|
65,863
|
|
|
102,798
|
|
|
Prepaid expenses
|
33,230
|
|
|
45,058
|
|
|
Other current assets
|
4,792
|
|
|
8,508
|
|
|
Total current assets
|
142,897
|
|
|
294,454
|
|
|
Marketable securities, non-current
|
—
|
|
|
6,658
|
|
|
Property and equipment, net
|
26,525
|
|
|
67,937
|
|
|
Operating lease right-of-use assets
|
53,965
|
|
|
—
|
|
|
Goodwill
|
222,969
|
|
|
224,899
|
|
|
Intangible assets, net
|
77,613
|
|
|
98,706
|
|
|
Other assets
|
8,054
|
|
|
8,982
|
|
|
Equity method investment
|
—
|
|
|
1,619
|
|
|
Total assets
|
$
|
532,023
|
|
|
$
|
703,255
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
21,551
|
|
|
$
|
13,576
|
|
|
Accrued expenses
|
65,987
|
|
|
59,545
|
|
|
Deferred revenues, current
|
65,858
|
|
|
57,101
|
|
|
Short-term convertible debt, net of debt issuance costs
|
—
|
|
|
113,542
|
|
|
Total current liabilities
|
153,396
|
|
|
243,764
|
|
|
Lease financing obligation
|
—
|
|
|
9,494
|
|
|
Operating lease liabilities, non-current
|
60,976
|
|
|
—
|
|
|
Deferred tax liabilities
|
1,679
|
|
|
1,347
|
|
|
Deferred revenues, non-current
|
21,941
|
|
|
59,841
|
|
|
Other non-current liabilities
|
4,589
|
|
|
10,797
|
|
|
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; 217 shares issued and outstanding at December 31, 2019
|
200,865
|
|
|
176,603
|
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock, $0.0001 par value; 100,000 shares authorized, 51,704 and 49,836 shares issued; 44,542 and 42,674 outstanding at December 31, 2019 and December 31, 2018, respectively
|
5
|
|
|
5
|
|
|
Treasury stock, at cost (7,162 and 7,162 shares at December 31, 2019 and December 31, 2018, respectively)
|
(82,087
|
)
|
|
(82,087
|
)
|
|
Additional paid-in capital
|
525,739
|
|
|
534,673
|
|
|
Accumulated other comprehensive loss
|
(33,261
|
)
|
|
(30,383
|
)
|
|
Accumulated deficit
|
(334,319
|
)
|
|
(233,299
|
)
|
|
Total stockholders’ equity
|
76,077
|
|
|
188,909
|
|
|
Total liabilities and stockholders’ equity
|
$
|
532,023
|
|
|
$
|
703,255
|
|
_______________________________
|
|
|
|
*
|
See Note 5. Investments in Affiliates and Related Transactions for related party transactions reflected in this account.
|
See accompanying notes to consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
308,749
|
|
|
$
|
325,839
|
|
|
$
|
402,361
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Cost of revenues*
|
|
150,407
|
|
|
158,802
|
|
|
181,453
|
|
|
Research and development
|
|
75,568
|
|
|
79,172
|
|
|
90,850
|
|
|
Selling, general and administrative
|
|
112,771
|
|
|
122,112
|
|
|
154,037
|
|
|
Restructuring charges
|
|
755
|
|
|
12,375
|
|
|
10,739
|
|
|
Depreciation and amortization
|
|
77,036
|
|
|
117,654
|
|
|
94,884
|
|
|
Total costs and expenses
|
|
416,537
|
|
|
490,115
|
|
|
531,963
|
|
|
Loss from continuing operations
|
|
(107,788
|
)
|
|
(164,276
|
)
|
|
(129,602
|
)
|
|
Interest income
|
|
1,258
|
|
|
7,770
|
|
|
12,502
|
|
|
Interest expense
|
|
(1,355
|
)
|
|
(4,911
|
)
|
|
(55,771
|
)
|
|
Gain (loss) on extinguishment of debt
|
|
822
|
|
|
1,760
|
|
|
(29,413
|
)
|
|
Other Income (expense), net
|
|
7,389
|
|
|
(74,917
|
)
|
|
(17,678
|
)
|
|
Equity method investment loss
|
|
(1,619
|
)
|
|
(28,600
|
)
|
|
(9,125
|
)
|
|
Loss from continuing operations, before taxes
|
|
(101,293
|
)
|
|
(263,174
|
)
|
|
(229,087
|
)
|
|
Benefit (provision) for income taxes
|
|
(2,174
|
)
|
|
17,894
|
|
|
34,863
|
|
|
Net loss from continuing operations
|
|
(103,467
|
)
|
|
(245,280
|
)
|
|
(194,224
|
)
|
|
Net income from discontinued operations, net of tax**
|
|
—
|
|
|
18,288
|
|
|
75,495
|
|
|
Net loss
|
|
(103,467
|
)
|
|
(226,992
|
)
|
|
(118,729
|
)
|
|
Net (income) loss attributable to redeemable noncontrolling interests
|
|
(1,126
|
)
|
|
8,837
|
|
|
9,291
|
|
|
Preferred stock dividend
|
|
(32,134
|
)
|
|
(25,593
|
)
|
|
—
|
|
|
Net loss attributable to Synchronoss
|
|
$
|
(136,727
|
)
|
|
$
|
(243,748
|
)
|
|
$
|
(109,438
|
)
|
|
Earnings per share
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(3.36
|
)
|
|
$
|
(6.51
|
)
|
|
$
|
(4.14
|
)
|
|
Discontinued operations**
|
|
—
|
|
|
0.46
|
|
|
1.69
|
|
|
|
|
$
|
(3.36
|
)
|
|
$
|
(6.05
|
)
|
|
$
|
(2.45
|
)
|
|
Diluted:
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(3.36
|
)
|
|
$
|
(6.51
|
)
|
|
$
|
(4.14
|
)
|
|
Discontinued operations**
|
|
—
|
|
|
0.46
|
|
|
1.69
|
|
|
|
|
$
|
(3.36
|
)
|
|
$
|
(6.05
|
)
|
|
$
|
(2.45
|
)
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
40,694
|
|
|
40,277
|
|
|
44,669
|
|
|
Diluted
|
|
40,694
|
|
|
40,277
|
|
|
44,669
|
|
________________________________
|
|
|
|
*
|
Cost of revenues excludes depreciation and amortization which are shown separately.
|
|
|
|
|
**
|
See Note 3. Acquisitions and Divestitures for transactions classified as discontinued operations
|
See accompanying notes to consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net loss
|
|
$
|
(103,467
|
)
|
|
$
|
(226,992
|
)
|
|
$
|
(118,729
|
)
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(1,768
|
)
|
|
(6,152
|
)
|
|
17,027
|
|
|
Unrealized loss on available for sale securities
|
|
(710
|
)
|
|
(37
|
)
|
|
18
|
|
|
Net loss on intra-entity foreign currency transactions
|
|
(400
|
)
|
|
(821
|
)
|
|
1,932
|
|
|
Total other comprehensive income (loss)
|
|
(2,878
|
)
|
|
(7,010
|
)
|
|
18,977
|
|
|
Comprehensive loss
|
|
(106,345
|
)
|
|
(234,002
|
)
|
|
(99,752
|
)
|
|
Comprehensive (income) loss attributable to redeemable noncontrolling interests
|
|
(1,126
|
)
|
|
8,837
|
|
|
9,291
|
|
|
Comprehensive loss attributable to Synchronoss
|
|
$
|
(107,471
|
)
|
|
$
|
(225,165
|
)
|
|
$
|
(90,461
|
)
|
See accompanying notes to consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2016
|
50,388
|
|
|
$
|
5
|
|
|
(5,096
|
)
|
|
$
|
(106,631
|
)
|
|
$
|
571,153
|
|
|
$
|
(42,350
|
)
|
|
$
|
107,620
|
|
|
$
|
529,797
|
|
|
Cumulative effect of adjustment to retained earnings (ASU Adoption)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,196
|
)
|
|
(3,196
|
)
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,446
|
|
|
—
|
|
|
—
|
|
|
28,446
|
|
|
Issuance of restricted stock
|
1,565
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common stock on exercise of options
|
104
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,460
|
|
|
—
|
|
|
—
|
|
|
2,460
|
|
|
ESPP compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
495
|
|
|
—
|
|
|
—
|
|
|
495
|
|
|
Sale of treasury stock in connection with an employee stock purchase plan
|
—
|
|
|
—
|
|
|
36
|
|
|
1,047
|
|
|
|
|
—
|
|
|
—
|
|
|
1,047
|
|
|
Shares withheld for taxes in connection with issuance of restricted stock
|
(29
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(442
|
)
|
|
—
|
|
|
—
|
|
|
(442
|
)
|
|
Fair value of awards assumed on acquisition
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,701
|
|
|
—
|
|
|
—
|
|
|
4,701
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
|
|
31
|
|
|
Adjustments to redemption value of noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,291
|
)
|
|
—
|
|
|
—
|
|
|
(9,291
|
)
|
|
Net loss attributable to Synchronoss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(109,438
|
)
|
|
(109,438
|
)
|
|
Total other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
18,977
|
|
|
—
|
|
|
18,977
|
|
|
Balance at December 31, 2017
|
52,028
|
|
|
$
|
5
|
|
|
(5,060
|
)
|
|
$
|
(105,584
|
)
|
|
$
|
597,553
|
|
|
$
|
(23,373
|
)
|
|
$
|
(5,014
|
)
|
|
$
|
463,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,201
|
|
|
—
|
|
|
—
|
|
|
27,201
|
|
|
Issuance of restricted stock
|
1,707
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Preferred stock dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,331
|
)
|
|
—
|
|
|
—
|
|
|
(24,331
|
)
|
|
Amortization of preferred stock issuance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,262
|
)
|
|
—
|
|
|
—
|
|
|
(1,262
|
)
|
|
Retirement of treasury stock
|
(3,893
|
)
|
|
—
|
|
|
3,893
|
|
|
68,327
|
|
|
(68,327
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares withheld for taxes in connection with issuance of restricted stock
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(76
|
)
|
|
—
|
|
|
—
|
|
|
(76
|
)
|
|
Treasury shares received in connection with PIPE Purchase Agreement
|
—
|
|
|
—
|
|
|
(5,995
|
)
|
|
(44,830
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44,830
|
)
|
|
Net loss attributable to Synchronoss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(218,155
|
)
|
|
(218,155
|
)
|
|
Non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,943
|
|
|
—
|
|
|
—
|
|
|
3,943
|
|
|
Total other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,059
|
)
|
|
—
|
|
|
(7,059
|
)
|
|
ASC 606 revenue recognition implementation impact
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
(10,130
|
)
|
|
(10,081
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
Balance at December 31, 2018
|
49,836
|
|
|
$
|
5
|
|
|
(7,162
|
)
|
|
$
|
(82,087
|
)
|
|
$
|
534,673
|
|
|
$
|
(30,383
|
)
|
|
$
|
(233,299
|
)
|
|
$
|
188,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,050
|
|
|
—
|
|
|
—
|
|
|
22,050
|
|
|
Issuance of restricted stock
|
1,863
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Preferred stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,877
|
)
|
|
—
|
|
|
—
|
|
|
(29,877
|
)
|
|
Amortization of preferred stock issuance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(2,257
|
)
|
|
|
|
|
|
(2,257
|
)
|
|
Issuance of common stock on exercise of options
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
Shares withheld for taxes in connection with issuance of restricted stock
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
ASC 842 Lease implementation Adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,574
|
|
|
3,574
|
|
|
Net loss attributable to Synchronoss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(104,593
|
)
|
|
(104,593
|
)
|
|
Non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,126
|
|
|
—
|
|
|
—
|
|
|
1,126
|
|
|
Total other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,878
|
)
|
|
—
|
|
|
(2,878
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
Balance at December 31, 2019
|
51,704
|
|
|
$
|
5
|
|
|
(7,162
|
)
|
|
$
|
(82,087
|
)
|
|
$
|
525,739
|
|
|
$
|
(33,261
|
)
|
|
$
|
(334,319
|
)
|
|
$
|
76,077
|
|
See accompanying notes to consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Operating activities:
|
|
|
|
|
|
|
Net loss continuing operations
|
$
|
(103,467
|
)
|
|
$
|
(245,280
|
)
|
|
$
|
(194,224
|
)
|
|
Net loss from discontinued operations
|
—
|
|
|
—
|
|
|
75,495
|
|
|
Gain (loss) on Sale of discontinued operations, net of tax
|
—
|
|
|
18,288
|
|
|
(122,842
|
)
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
77,037
|
|
|
97,092
|
|
|
93,924
|
|
|
Goodwill impairment
|
—
|
|
|
9,100
|
|
|
—
|
|
|
Impairment of long-lived assets and capitalized software
|
—
|
|
|
11,462
|
|
|
960
|
|
|
Change in fair value of financial instruments
|
(163
|
)
|
|
(3,849
|
)
|
|
4,367
|
|
|
Amortization of debt issuance costs
|
285
|
|
|
1,294
|
|
|
12,771
|
|
|
(Gain) loss on extinguishment of debt
|
(822
|
)
|
|
(1,760
|
)
|
|
29,413
|
|
|
Accrued PIK interest
|
—
|
|
|
(7,037
|
)
|
|
(12,090
|
)
|
|
Allowance for loan losses
|
—
|
|
|
84,314
|
|
|
14,562
|
|
|
Loss (earnings) from Equity method investments
|
1,619
|
|
|
28,600
|
|
|
9,125
|
|
|
(Gain) loss on Disposals of fixed assets
|
15
|
|
|
277
|
|
|
(4,947
|
)
|
|
Discontinued operations non-cash and working capital adjustments*
|
—
|
|
|
—
|
|
|
48,647
|
|
|
(Gain) loss on Disposals of intangible assets
|
(5,429
|
)
|
|
—
|
|
|
—
|
|
|
Amortization of bond premium
|
(34
|
)
|
|
107
|
|
|
244
|
|
|
Deferred income taxes
|
357
|
|
|
(12,350
|
)
|
|
19,243
|
|
|
Non-cash interest on leased facility
|
—
|
|
|
|
|
1,203
|
|
|
Stock-based compensation
|
22,287
|
|
|
27,604
|
|
|
22,495
|
|
|
Contingent consideration obligation
|
—
|
|
|
—
|
|
|
(2,711
|
)
|
|
Cumulative adjustment to STI receivable
|
26,044
|
|
|
—
|
|
|
|
|
ROU Asset Impairment
|
6,268
|
|
|
—
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts
|
10,891
|
|
|
(21,521
|
)
|
|
29,283
|
|
|
Prepaid expenses and other current assets
|
18,209
|
|
|
(5,315
|
)
|
|
(5,513
|
)
|
|
Other assets
|
1,710
|
|
|
973
|
|
|
3,237
|
|
|
Accounts payable
|
8,879
|
|
|
6,846
|
|
|
(9,098
|
)
|
|
Accrued expenses
|
2,115
|
|
|
(18,068
|
)
|
|
(4,949
|
)
|
|
Other liabilities
|
(4,362
|
)
|
|
(4,675
|
)
|
|
(3,337
|
)
|
|
Deferred revenues
|
(28,856
|
)
|
|
2,529
|
|
|
(23,506
|
)
|
|
Net cash provided by (used in) operating activities
|
32,583
|
|
|
(31,369
|
)
|
|
(18,248
|
)
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Purchases of fixed assets
|
(8,183
|
)
|
|
(11,656
|
)
|
|
(12,151
|
)
|
|
Purchases of intangible assets and capitalized software
|
(13,008
|
)
|
|
(14,372
|
)
|
|
(9,119
|
)
|
|
Proceeds from the sale of intangibles
|
5,429
|
|
|
—
|
|
|
—
|
|
|
Proceeds from the sale of Speechcycle
|
—
|
|
|
—
|
|
|
13,500
|
|
|
Purchases of marketable securities available for sale
|
(51,745
|
)
|
|
(36,789
|
)
|
|
(219
|
)
|
|
Maturity of marketable securities available for sale
|
86,884
|
|
|
4,865
|
|
|
12,371
|
|
|
Proceeds from the sale of discontinued operations
|
—
|
|
|
—
|
|
|
928,171
|
|
|
Equity investment
|
—
|
|
|
404
|
|
|
608
|
|
|
Investing activities in discontinued operations*
|
—
|
|
|
—
|
|
|
(13,721
|
)
|
|
Investment in note receivable
|
—
|
|
|
—
|
|
|
(6,187
|
)
|
|
Business acquired, net of cash
|
—
|
|
|
(9,734
|
)
|
|
(815,008
|
)
|
|
Net cash provided by (used in) investing activities
|
19,377
|
|
|
(67,282
|
)
|
|
98,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Share-based compensation-related proceeds, net of taxes paid on withholding shares
|
39
|
|
|
—
|
|
|
2,584
|
|
|
Taxes paid on withholding shares
|
(15
|
)
|
|
—
|
|
|
(442
|
)
|
|
Payments on contingent consideration
|
—
|
|
|
—
|
|
|
(122
|
)
|
|
Debt issuance costs related to the Credit Facility
|
—
|
|
|
—
|
|
|
(3,692
|
)
|
|
Debt issuance costs related to long-term debt
|
—
|
|
|
—
|
|
|
(19,887
|
)
|
|
Debt amendment costs related to long-term debt
|
—
|
|
|
—
|
|
|
(16,776
|
)
|
|
Proceeds from issuance of convertible notes
|
—
|
|
|
—
|
|
|
900,000
|
|
|
Retirement of Convertible Senior Notes & related costs
|
(113,006
|
)
|
|
(113,696
|
)
|
|
—
|
|
|
Repayment of long-term debt
|
—
|
|
|
—
|
|
|
(900,000
|
)
|
|
Borrowings on revolving line of credit
|
2,000
|
|
|
—
|
|
|
|
|
Repayment of revolving line of credit
|
(2,000
|
)
|
|
—
|
|
|
(29,000
|
)
|
|
Excess tax benefits from stock option exercises
|
—
|
|
|
—
|
|
|
17
|
|
|
Proceeds from the sale of treasury stock in connection with an employee stock purchase plan
|
—
|
|
|
—
|
|
|
1,047
|
|
|
Proceeds from issuance of preferred stock
|
—
|
|
|
86,220
|
|
|
—
|
|
|
Preferred dividend payment
|
(7,075
|
)
|
|
(7,075
|
)
|
|
—
|
|
|
Proceeds from mandatorily redeemable financial instruments
|
—
|
|
|
—
|
|
|
33,592
|
|
|
Payments on capital obligations
|
(1,200
|
)
|
|
(1,334
|
)
|
|
(2,985
|
)
|
|
Net cash used in financing activities
|
(121,257
|
)
|
|
(35,885
|
)
|
|
(35,664
|
)
|
|
Effect of exchange rate changes on cash
|
(1,562
|
)
|
|
(1,729
|
)
|
|
(9,641
|
)
|
|
Net decrease in cash and cash equivalents
|
(70,859
|
)
|
|
(136,265
|
)
|
|
34,692
|
|
|
Cash and cash equivalents, beginning of period
|
109,860
|
|
|
246,125
|
|
|
211,433
|
|
|
Cash and cash equivalents, end of period
|
$
|
39,001
|
|
|
$
|
109,860
|
|
|
$
|
246,125
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
Cash paid for income taxes
|
$
|
3,598
|
|
|
$
|
22,549
|
|
|
$
|
7,612
|
|
|
Cash refund for income taxes
|
$
|
20,733
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for interest
|
$
|
666
|
|
|
$
|
3,258
|
|
|
$
|
55,957
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
|
Paid in kind dividends on Series A Convertible Participating Perpetual Preferred Stock
|
$
|
22,005
|
|
|
$
|
7,075
|
|
|
$
|
—
|
|
|
Issuance of common stock in connection with Intralinks acquisition
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,700
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents per Consolidated Balance Sheets
|
$
|
38,990
|
|
|
$
|
103,771
|
|
|
$
|
156,299
|
|
|
Restricted cash
|
$
|
11
|
|
|
$
|
6,089
|
|
|
$
|
89,826
|
|
|
Total cash, cash equivalents and restricted cash
|
$
|
39,001
|
|
|
$
|
109,860
|
|
|
$
|
246,125
|
|
_______________________________
|
|
|
|
*
|
See Note 5. Investments in Affiliates and Related Transactions for related party transactions reflected in this account.
|
See accompanying notes to consolidated financial statements.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:
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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
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Cloud sync, backup, storage, device set up, content transfer and content engagement for user generated content
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Advanced, multi-channel messaging peer-to-peer (“P2P”) communications and application-to-person (“A2P”) commerce solutions
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IoT management technology for Smart Cities, Smart Buildings and more
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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. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The 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.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Revenue Recognition and Deferred Revenue
The Company generates revenue from the delivery of a range of products, solutions and services principally on a transactional or subscription basis (“SaaS”) or in the form of Professional Services or Software Licenses. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, fees are fixed or determinable and collection is considered probable.
Transactional and Subscription Service Arrangements: Transaction and subscription revenues consist of revenues derived from the processing of transactions through the Company’s service platforms, providing enterprise portal management services on a subscription basis and maintenance agreements on software licenses. Transaction service arrangements include services such as processing equipment orders, new account set-up and activation, number port requests, credit checks and inventory management. Subscription services include monthly active user fees, SaaS fees, hosting and storage and the related maintenance support for those services.
Transaction revenues are principally based on a contractual price per transaction and are recognized based on the number of transactions processed during each reporting period. Revenues are recorded based on the total number of transactions processed at the applicable price established in the relevant contract. The total amount of revenue recognized is based primarily on the volume of transactions. Subscription revenues are recorded one of two ways: on a straight-line basis over the life of the contract or on a fixed monthly fee based on a set contracted amount.
Many of the Company’s contracts guarantee minimum volume transactions from the customer. In these instances, if the customer’s total transaction volume for the period is less than the contractual amount, the Company record revenues at the minimum guaranteed amount. Set-up fees for transactional service arrangements are deferred and recognized on a straight-line basis over the life of the contract since these amounts would not have been paid by the customer without the related transactional service arrangement. Revenues are presented net of discounts, which are volume level driven, or credits, which are performance driven, and are determined in the period in which the volume thresholds are met, or the services are provided.
Professional Service and Software License Arrangements: Professional services include process and workflow consulting services and development services. Professional services when sold with transactional or subscription service arrangements are accounted for separately when the professional services have value to the customer on a standalone basis and there is objective and reliable evidence of fair value of the professional services. When accounted for separately, professional service revenues are recognized as services are performed and all other elements of revenue recognition have been satisfied.
In determining whether professional service revenues can be accounted for separately from transaction or subscription service revenues, the Company considers the following factors for each professional services agreement: availability of the professional services from other vendors, whether objective and reliable evidence of fair value exists of the undelivered elements, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the transaction or subscription service start date and the contractual independence of the transactional or subscription service from the professional services.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
If a professional service arrangement were not to qualify for separate accounting, the Company would recognize the professional service revenues ratably over the remaining term of the transaction or subscription agreement.
Multiple Element Arrangements: Revenue from software license arrangements is recognized when the license is delivered to the customers and all of the software revenue recognition criteria are met. When software arrangements include multiple elements, the arrangement consideration is allocated at the inception to all deliverables using the residual method provided the Company has vendor specific objective evidence (“VSOE”) on all undelivered elements. The Company determines VSOE for each element based on historical stand-alone sales to third parties.
When transaction or subscription service arrangements, include multiple elements, the arrangement consideration is allocated at the inception of an arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. The selling price used for each deliverable will be based on VSOE if available, third-party evidence (“TPE”) if vendor- specific objective evidence is not available or estimated selling price (“ESP”) if neither vendor-specific objective evidence nor third-party evidence is available. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company determines ESP by considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. ESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings.
While specific and detailed rules and guidelines related to revenue recognition are followed, the Company makes and uses management judgments and estimates in connection with the revenue recognized in any reporting period, particularly in the areas described above, as well as collectability. If management made different estimates or judgments, differences in the timing of the recognition of revenue could occur.
Deferred Revenue
Deferred revenues represent billings to customers for services in advance of the performance of services, with revenues recognized as the services are rendered, and also include the fair value of deferred revenues recorded as a result of acquisitions.
Service Level Standards
Pursuant to certain contracts, the Company is subject to service level standards and to corresponding penalties for failure to meet those standards. All performance-related penalties are reflected as a corresponding reduction of the Company’s revenues. These penalties, if applicable, are recorded in the month incurred and were insignificant for the years ended December 31, 2019, 2018 and 2017, respectively.
Cost of Revenues
Cost of services includes all direct materials, direct labor and those indirect costs related to revenues such as indirect labor, materials and supplies and facilities cost, exclusive of depreciation expense.
Research and Development
Software development costs are accounted for in accordance with either ASC 985-20, “Software - Costs of Software to be Sold, Leased or Marketed,” or ASC 350-40, “Internal-Use Software.” Costs associated with the planning and designing phase of software development are classified as research and development costs and are expensed as incurred. The amounts capitalized include external direct costs of services used in developing internal-use software, employee compensation and related expenses of personnel directly associated with the development activities. Once technological feasibility has been determined, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to clients.
Amortization is calculated on a solution-by-solution basis and is recognized over the estimated economic life of the software, typically ranging two to three years. Amortization begins when the software is substantially completed for its intended use. Costs
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
incurred during the preliminary and post-implementation stages are expensed as incurred. The amounts capitalized include external direct costs of services used in developing internal-use software, employee compensation and related expenses of personnel directly associated with the development activities. Software development costs are evaluated for recoverability whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Unrecoverable costs are reviewed annually and recognized in the period they become unrecoverable, as needed, and are recorded in the Consolidated Statements of Operations as depreciation and amortization expense.
The unamortized software development costs and amortization expense were as follows:
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Year ended December 31,
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2019
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2018
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2017
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Unamortized software development costs
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$
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22,240
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$
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17,490
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$
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11,695
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Software development amortization expense
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8,258
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8,123
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3,178
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The Company recognized impairment charges to its capitalized software intangible assets, of nil, $0.5 million and $1.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company includes these impairments within the depreciation and amortization in its Consolidated Statements of Operations.
Concentration of Credit Risk
The Company’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains its cash and cash equivalents at several major financial institutions. The Company has not experienced any realized losses in such accounts and believes it is not exposed to any significant credit risk related to cash, cash equivalents and securities. The Company’s cash equivalents and short-term marketable securities consist primarily of money market funds, certificates of deposit, commercial paper, and municipal and corporate bonds. The Company believes that concentration of credit risk with respect to accounts receivable is limited because of the creditworthiness of its major customers.
The Company’s top five customers accounted for 69.2%, 69.0% and 73.0% of net revenues for the years ended December 31, 2019, 2018 and 2017, respectively. Contracts with these customers typically run for three to five years. Of these customers, Verizon accounted for more than 10% of the Company’s revenues in 2019, 2018, and 2017.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of acquisition to be cash equivalents.
Restricted Cash
Restricted cash includes amounts related to various deposits, escrows and other cash collateral that are restricted by contractual obligation. As of December 31, 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.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Accounts Receivable
Accounts receivable include current notes, amounts billed to customers, claims, and unbilled revenue, which consists of amounts recognized as sales but not yet billed. Substantially all amounts of unbilled receivables are expected to be billed and collected in the subsequent year. The Company had unbilled receivable balances of $5.1 million and $4.5 million as of December 31, 2019 and 2018, respectively.
Fair Value of Financial Instruments and Liabilities
The Company includes disclosures of fair value information about financial instruments and liabilities, whether or not recognized on the Consolidated Balance Sheets, for which it is practicable to estimate that value. Due to their short-term nature, the carrying amounts reported in the financial statements approximate the fair value for cash and cash equivalents, marketable securities, accounts receivable and accounts payable.
Derivatives
The Company evaluates convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under Accounting Standards Codification (“ASC”) Topic 815, "Derivatives and Hedging." The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Consolidated Statements of Operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
Allowance for Doubtful Accounts
The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. The Company estimates uncollectible amounts based upon historical bad debts, current customer receivable balances, the age of customer receivable balances, the customer’s financial condition and current economic trends.
Property and Equipment
Property and equipment and leasehold improvements are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 5 years, or the lesser of the related initial term of the lease or useful life for leasehold improvements. Amortization of property and equipment recorded under a capital lease is included with depreciation expense. Expenditures for routine maintenance and repairs are charged against operations, while major replacements, improvements and additions are capitalized.
Noncontrolling Interests and Mandatorily Redeemable Financial Instruments
Noncontrolling interests (“NCI”) are evaluated by the Company and are shown as either a liability, temporary equity (shown between liabilities and equity) or as permanent equity depending on the nature of the redeemable features at amounts based on formulas specific to each entity. Generally, mandatorily redeemable NCIs are classified as liabilities and non-mandatorily redeemable NCIs are classified outside of stockholders’ equity in the Consolidated Balance Sheets as temporary equity under the caption, redeemable noncontrolling interests, and are measured at their redemption values at the end of each period. If the redemption value is greater than the carrying value, an adjustment is recorded in retained earnings to record the NCI at its redemption value. Redeemable NCIs that are mandatorily redeemable are classified as a liability in the Consolidated Balance Sheets under either other current liabilities or other long-term liabilities, depending on the remaining duration until settlement, and are measured at the amount of cash that would be paid if settlement occurred at the balance sheet date with any change from the prior period recognized as interest expense.
If the noncontrolling interest is not currently redeemable yet probable of becoming redeemable, the Company is required to either (1) accrete changes in the redemption value over the period from the date of issuance to the earliest redemption date of the
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
instrument using an appropriate methodology, usually the interest method, or (2) recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of each reporting period. The Company has elected to recognize changes in the redemption value immediately as they occur and adjust 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.
Net income attributable to NCIs reflects the portion of the net income (loss) of consolidated entities applicable to the NCI stockholders in the accompanying Consolidated Statements of Operations. The net income attributable to NCI is classified in the Consolidated Statements of Operations as part of consolidated net income and deducted from total consolidated net income to arrive at the net income attributable to the Company.
Business Combinations
The Company accounts for business combinations in accordance with the acquisition method. The acquisition method of accounting requires that assets acquired, liabilities assumed and any noncontrolling interest in the acquiree (if any), be recorded at their fair values on the date of a business acquisition. The Company’s consolidated financial statements and results of operations reflect an acquired business from the completion date of the transaction.
The judgments that the Company makes in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following a business combination. The Company generally uses either the income, cost or market approach to aid in its conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.
The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, the Company revalues these obligations and records increases or decreases in their fair value as an adjustment to net change in contingent consideration obligation within the Consolidated Statements of Operations. Changes in the fair value of the contingent consideration obligation can result from updates in the achievement of financial or other operational targets and changes to the weighted probability of achieving those future targets. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, any change in the assumptions described above, could have a material impact on the amount of the net change in contingent consideration obligation that the Company records in any given period.
Discontinued Operations
The Company generally classifies a disposal transaction as discontinued operation in the consolidated financial statements when it qualifies as a component of the Company, meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale and it represents a strategic shift that has a major effect on the Company’s operations and financial results. Insignificant and non-strategic shifting divestitures are not classified within discontinued operations.
Investments in Affiliates and Other Entities
In the normal course of business, Synchronoss enters into various types of investment arrangements, each having unique terms and conditions. These investments may include equity interests held by Synchronoss in business entities, including general or limited partnerships, contractual ventures, or other forms of equity participation. Synchronoss determines whether such investments involve a variable interest entity (“VIE”) based on the characteristics of the subject entity. If the entity is determined to be a VIE, then management determines if Synchronoss is the primary beneficiary of the entity and whether or not consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities of a VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE, in either case that could potentially be significant to the VIE. When Synchronoss is deemed to be
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
the primary beneficiary, the VIE is consolidated and the other party’s equity interest in the VIE is accounted for as a noncontrolling interest.
The Company generally accounts for investments it makes in VIEs in which it has determined that it does not have a controlling financial interest but has significant influence over and holds at least a 20% ownership interest using the equity method. Any such investment not meeting the parameters to be accounted under the equity method would be accounted for using the cost method unless the investment had a readily determinable fair value, at which it would then be reported.
If an entity fails to meet the characteristics of a VIE, the Company then evaluates such entity under the voting model. Under the voting model, the Company consolidates the entity if they determine that they, directly or indirectly, have greater than 50% of the voting shares, and determine that other equity holders do not have substantive participating rights.
Allowance for Loan Losses
The Company’s allowance for credit losses relates to the related party note receivable and is based on the probable estimated losses that may be incurred. The allowance is based on two basic principles of accounting: (1) ASC Topic 450, “Accounting for Contingencies”, which requires that losses be accrued when they are probable of occurring and estimable, and (2) ASC Topic 310, “Accounting by Creditors for Impairment of a Loan”, which requires that losses be accrued based on the differences between the value of collateral and the present value of future cash flows.
The allowance for loan losses is established to estimate losses that may occur by recording a provision for loan losses that is charged to earnings in the period known. The allowance is evaluated by management taking into consideration adverse situations that may affect the borrower’s ability to repay and the estimated value of any underlying collateral. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Measured impairment and credit losses are charged against the allowance when management believes to the extent amounts are not collectible.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of assets acquired, including other definite-lived intangible assets. Goodwill is reviewed for impairment annually as of October 1st of each year or when an interim triggering event has occurred indicating potential impairment. The Company has concluded that it has two operating segments and one reportable segment because the aggregation criteria and the quantitative threshold test was met. The Company tests for goodwill impairment on each of its reporting units, which is at the operating segment or one level below the operating segment.
During the Company’s qualitative assessment, the Company makes significant estimates, assumptions, and judgments, around the financial performance of the Company, changes in share price, and forecasts of earnings, working capital requirements, and cash flows. The Company considers each reporting unit's historical results and operating trends as well as any strategic difference from the Company’s historical results when determining these assumptions.
The Company can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or the Company can directly perform the quantitative impairment test. If the Company determines that the fair value of a reporting unit is more likely than not to be less than its carrying amount, a quantitative impairment test is performed.
Fair value estimates used in the quantitative impairment test are calculated using a combination of the income and market approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the market approach is based on certain multiples of selected guideline public companies or selected guideline transactions. The approaches incorporate a number of market participant assumptions including future growth rates, discount rates, income tax rates and market activity in assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit's fair value, the Company recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.
The fair value measurement associated with the quantitative goodwill impairment test 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 goodwill could significantly increase or decrease the fair value estimates used for impairment assessments.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
In order to assess the reasonableness of the estimated fair value of the Company’s reporting units, the Company compares the aggregate reporting unit fair value to the Company’s market capitalization on an overall basis and calculates an implied control premium (the excess of the sum of the reporting units’ fair value over the Company’s market capitalization on an overall basis). The Company evaluates the control premium by comparing it to observable control premiums from recent comparable transactions. If the implied control premium is determined to not be reasonable in light of these recent transactions, the Company re-evaluates its reporting unit fair values, which may result in an adjustment to the discount rate and/or other assumptions.
This re-evaluation could result in a change to the estimated fair value for certain or all reporting units. If the fair value of a reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not impaired.
If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit’s carrying value over the fair value is recognized as an impairment loss.
The Company recorded a nil, $9.1 million and nil impairment charge on the Zentry joint venture for the years ended December 31, 2019, 2018 and 2017, respectively. For further details, see Note 7. Goodwill and Intangibles.
Impairment of Long-Lived Assets
A review of long-lived assets for impairment is performed when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If an indication of impairment is present, the Company compares the estimated undiscounted future cash flows to be generated by the asset to the asset’s carrying amount. If the undiscounted future cash flows are less than the carrying amount of the asset, the Company records an impairment loss equal to the amount by which the asset’s carrying amount exceeds its fair value. The fair value is determined based on valuation techniques such as a comparison to fair values of similar assets or 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 long lived assets could significantly increase or decrease the fair value estimates used for impairment assessments.
Long lived assets that do not have indefinite lives are amortized/depreciated over their useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company reevaluates the useful life determinations each year to determine whether events and circumstances warrant a revision to the remaining useful lives.
Income Taxes
On December 22, 2017, the U.S. government enacted TCJA. The TCJA makes changes to the corporate tax rate, business-related deductions and taxation of foreign earnings, among others, that will generally be effective for taxable years beginning after December 31, 2017. While our accounting for the recorded impact of the TCJA is deemed to be complete as of December 31, 2018, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the Internal Revenue Service (IRS) could impact our recorded amounts in future periods. In 2018, the impact of the TCJA was minor due to the losses incurred and the valuation allowance position.
Since the Company conducts operations on a global basis, the effective tax rate has, and will depend upon, the geographic distribution of pre-tax earnings among locations with varying tax rates. The Company accounts for the effects of income taxes that result from activities during the current and preceding years. Under this method, deferred income tax liabilities and assets are based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse or be utilized. The realization of deferred tax assets is contingent upon the generation of future taxable income. A valuation allowance is recorded if it is “more likely than not” that a portion or all of a deferred tax asset will not be realized.
In evaluating the Company’s ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
with historical results and incorporate assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating loss.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount of the accrual for which an exposure exists is measured by determining the amount that has a greater than 50 percent likelihood of being realized upon the settlement of the position. Components of the reserve are classified as current or a long-term liability in the Consolidated Balance Sheets based on when the Company expects each of the items to be settled. The Company records interest and penalties accrued in relation to uncertain tax benefits as a component of interest expense.
While the Company believes it has identified all reasonably identifiable exposures and that the reserve it has established for identifiable exposures is appropriate under the circumstances, it is possible that additional exposures exist and that exposures may be settled at amounts different than the amounts reserved. It is also possible that changes in facts and circumstances could cause it to either materially increase or reduce the carrying amount of tax reserves. In general, tax returns for the year 2016 and thereafter are subject to future examination by tax authorities.
The Company’s policy has been to leave the cumulative unremitted foreign earnings invested indefinitely outside the United States, and it intends to continue this policy. Although the transition tax in the TCJA has removed U.S. federal taxes on distributions to the U.S. on a go forward, the Company continues to assert permanent reinvestment on foreign earnings. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the unrecognized deferred tax liability relating to such amounts.
Standards issued not yet adopted
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Standard
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Description
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Effect on the financial statements
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Update 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes
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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.
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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.
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Date of adoption: January 1, 2021.
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Foreign Currency
The functional currency of non-U.S. entities is translated into U.S. dollars for balance sheet accounts using the month end rates in effect as of the balance sheet date and average exchange rate for revenue and expense accounts for each respective period. The translation adjustments are deferred as a separate component of stockholders’ equity within accumulated other comprehensive income.
Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the Consolidated Statements of Operations and were as follows:
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net gain (loss) on foreign currency translations
|
|
$
|
31
|
|
|
$
|
(478
|
)
|
|
$
|
(4,952
|
)
|
Comprehensive Income (Loss)
Reporting on comprehensive income requires components of other comprehensive income, including unrealized gains or losses on available-for-sale securities, to be included as part of total comprehensive income. Comprehensive income is comprised of net income, translation adjustments and unrealized gains and losses on available-for-sale securities. The components of comprehensive income are included in the Consolidated Statements of Comprehensive Income (Loss).
Basic and Diluted Net Income Attributable to Common Stockholders per Common Share
Basic EPS is computed based upon the weighted average number of common shares outstanding for the year, excluding amounts associated with restricted shares.
Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the potential 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 potential dilutive effect of common stock includes stock options, convertible debt and unvested restricted stock. The dilutive effects of stock options and restricted stock awards are based on the treasury stock method. The dilutive effect of the assumed conversion of convertible debt is determined using the if-converted method. The after-tax effect of interest expense related to the convertible securities is added back to net income, and the convertible debt is assumed to have been converted into common shares at the beginning of the period.
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.
Stock-Based Compensation
As of December 31, 2019, the Company maintains eight stock-based compensation plans.
The Company utilizes the Black-Scholes pricing model to determine the fair value of stock options on the dates of grant. Restricted stock awards are measured based on the fair market values of the underlying stock on the dates of grant. The Company recognizes stock-based compensation over the requisite service period with an offsetting credit to additional paid-in capital.
For the Company’s performance restricted stock awards, the Company estimates the number of shares the recipient is to receive by applying a probability of achieving the performance goals. The actual number of shares the recipient receives is determined at the end of the performance period based on the results achieved versus goals based on the performance targets, such as revenues and earnings before interest, tax, depreciation and amortization (“EBITDA”) after certain adjustments. Once the number of awards is determined, the compensation cost is fixed and continues to be recognized using straight line recognition over the requisite service period for each vesting tranche.
During 2017, the Board approved the issuance of performance-based restricted stock to certain executives which are eligible to vest if the volume-weighted average closing price over 20 consecutive trading days equals or exceeds certain stock prices during the specific performance period from July 2017 to July 2019. The Company utilized the Monte Carlo simulation to estimate the fair value of the restricted stock on its grant date.
Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on historical information of the Company’s stock. The average expected life was determined using historical stock option exercise activity. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
term equal to the expected life assumed at the date of grant. The Company has never declared or paid cash dividends on the common or preferred equity and does not anticipate paying any cash dividends in the foreseeable future. Forfeitures are accounted for as they occur.
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 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 consolidated financial statements.
|
|
Date of adoption: January 1, 2019.
|
|
|
|
|
Revenue
In May 2014, the FASB issued a new accounting standard related to revenue recognition, ASU 2014-09, “Revenue from Contracts with Customers,” (“Topic 606”). The new standard supersedes the existing revenue recognition requirements under U.S. GAAP and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. It also requires increased disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers.
On January 1, 2018, the Company adopted Topic 606 applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The Company recorded a net reduction to opening retained earnings of approximately $10.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606. The impact to revenues for the year ended December 31, 2018 was an increase of $29.4 million as a result of adopting Topic 606. The impact to costs was not material.
The impact of adoption primarily relates to (1) the delayed pattern of recognition under Topic 606 for certain professional services revenue when such professional services involve the customization of features and functionality for subscription services customers, and (2) the earlier pattern of recognition under Topic 606 for license revenue when the Company provides hosting services for on-premise license customers. In the case of professional services that involve the customization of features and functionality for subscription services, under historic accounting policies the professional services were considered to have standalone value, and as a result were recognized as the services were performed. Under Topic 606, such professional services are not considered to be a distinct performance obligation within the context of the subscription services contract, and as such each month’s customization services revenue is recognized over the shorter of the estimated remaining life of the subscription software
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
(typically three years) or the remaining term of the subscription services contract. In the case of license contracts sold in association with hosting, under historic accounting policies the license revenue was recognized over the hosting term due to the lack of vendor specific objective evidence (“VSOE”) of fair value for the hosting services. Under Topic 606, VSOE is no longer required in order separate revenue between the license and the hosting elements, and the license revenue is generally recognized upon delivery of the software based on the relative allocation of the contract price based on the established standalone selling price (“SSP”).
Additional impacts of adoption include (1) in certain cases changes in the amount allocated to the various performance obligations in accordance with the relative standalone selling price method required by Topic 606 compared to the amount allocated to the various elements in accordance with the residual method or the relative selling price method, as applicable, under historic accounting policies, (2) the capitalization and subsequent amortization of certain sales commissions as costs to obtain a contract under ASC 340-40, whereas under historic accounting policies all such amounts were expensed as incurred (3) the timing and amount of revenue recognition for certain sales contracts that are considered to involve variable consideration under Topic 606, but were considered to either not be fixed or determinable or to involve contingent revenue features under historic accounting policies, (4) in certain limited cases, the accounting for discounted customer options to purchase future software or services as material rights under Topic 606, as well as (5) the income tax impact of the above items, as applicable.
Changes in accounting policies as a result of adopting Topic 606 and nature of goods
The following is a description of principal activities from which the Company generates revenue. Revenues are recognized when control of the promised goods or services are transferred to the Company’s customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates all of its revenue from contracts with customers.
Subscription and Transaction revenues consist of revenues derived from the processing of transactions through the Company’s service platforms, providing enterprise portal management services on a subscription basis and maintenance agreements on software licenses. The Company generates revenue from Subscription services from monthly active user fees, software as a service (“SaaS”) fees, hosting and storage fees, and fees for the related maintenance support for those services. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a measure of progress (typically time-based) to any fixed consideration and allocates variable consideration to the distinct periods of service based on usage, under Topic 606 Section 10-25-14(b). When the Company does not allocate variable consideration to distinct periods of service, the total estimated transaction price is recognized ratably over the term of the contract, where the level of service provided to the customer does not vary significantly from one period to another.
Transaction service arrangements include services such as processing equipment orders, new account set‑up and activation, number port requests, credit checks and inventory management.
Transaction revenues are principally based on a contractual price per transaction and are recognized based on the number of transactions processed during each reporting period. Revenues are recorded based on the total number of transactions processed at the applicable price established in the relevant contract.
Many of the Company’s contracts guarantee minimum volume transactions from the customer. In these instances, if the customer’s total estimated transaction volume for the period is expected to be less than the contractual amount, the Company records revenues at the minimum guaranteed amount on a straight line based over the period covered by the minimum. Set‑up fees for transactional service arrangements are deferred until set up activities are completed and recognized on a straight‑line basis over remaining expected customer relationship period. Revenues are presented net of discounts, which are volume level driven.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
In accordance with Topic 606 Section 10-50-20, any credits due to customers, which are generally performance driven and based upon system availability or response times to incidents, are determined and accounted for in the period in which the services are provided. The Company recognizes revenues from support and maintenance performance obligations over the service delivery period.
The Company’s software licenses typically provide for a perpetual or term right to use the Company’s software. The Company has concluded that in most cases its software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered to the customer. Contracts that include software customization or specified upgrades may result in the combination of the customization services with the software license as one performance obligation. The Company does not have a history of returns, or refunds of is software licenses, however, in limited instances, the Company may constrain consideration to high-risk customers, until collection is resolved.
The Company’s professional services include software development and customization. The contracts generally include project deliverables specified by each customer. The performance obligations in the agreements are generally combined into one deliverable and generally result in the transfer of control over time. The underlying deliverable is owned and controlled by the customer and does not create an asset with an alternative use to us. The Company recognizes revenue on fixed fee contracts on the proportion of labor hours expended to the total hours expected to complete the contract performance obligation.
Most of the Company’s contracts with customers contain multiple performance obligations which generally include either 1) a perpetual software license with support and maintenance and sometimes a hosting agreement or 2) a term SaaS agreement, in many cases these are sold along with professional services. For these contracts, the Company accounts for individual goods and services separately if they are distinct performance obligations. This often requires significant judgment based upon knowledge of the products, the solution provided and the structure of the sales contract. In SaaS agreements, the Company provides a service to the customer which combines the software functionality, maintenance and hosting into a single performance obligation when the customer doesn’t have the ability to take possession of the underlying software license. The Company may also sell the same three goods and services in a contract, but there may be three performance obligations, where the customer has the right to take possession of the software license without significant penalty.
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company estimates standalone selling prices of software based on observable inputs of past transactions to similarly situated customers. When such observable data is not available for certain software licenses because there is a limited number of transactions or prices are highly variable, the Company will estimate the standalone selling price using the residual approach. Standalone selling prices of services are typically determined based on observable transactions when these services are sold on a standalone basis to similarly situated customers or estimated using a cost-plus margin approach.
Estimating the transaction price of variable consideration including the variable quantity subscription or transaction contracts in a multiple performance obligation arrangement requires significant judgment. The Company generally estimates this variable consideration at the most likely amount to which the Company expects to be entitled and in certain cases based on the expected value. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company reviews and update these estimates on a quarterly basis.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The Company’s typical performance obligations include the following:
|
|
|
|
|
|
|
|
|
|
|
Performance Obligation
|
|
When Performance Obligation is Typically Satisfied
|
|
When Payment is Typically Due
|
|
How Standalone Selling Price is Typically Estimated
|
|
Software License
|
|
|
|
|
|
|
|
Software License
|
|
Upon shipment or made available for download (point in time)
|
|
Within 90 days of delivery
|
|
Observable transactions or residual approach when prices are highly variable or uncertain
|
|
Software License with significant customization
|
|
Over the performance of the customization and installation of the software (over time)
|
|
Within 90 days of services
being performed
|
|
Residual approach
|
|
Hosting Services
|
|
As hosting services are provided (over time)
|
|
Within 90 days of services
being provided
|
|
Estimated using a cost-plus margin approach
|
|
Professional Services
|
|
|
|
|
|
|
|
Consulting
|
|
As work is performed (over time)
|
|
Within 90 days of services
being performed
|
|
Observable transactions
|
|
Customization
|
|
SaaS: Over the remaining term of the SaaS agreement
License: Over the performance of the customization and installation of the software (over time)
|
|
Within 90 days of services
being performed
|
|
Observable transactions
|
|
Transaction Services
|
|
As transaction is processed (over time)
|
|
Within 90 days of transaction
|
|
Observable transactions
|
|
Subscription Services
|
|
|
|
|
|
|
|
Customer Support
|
|
Ratably over the course of the support contract
(over time)
|
|
Within 90 days of the start of the contract period
|
|
Observable transactions
|
|
SaaS
|
|
Over the course of the SaaS service once the system is available for use
(over time)
|
|
Within 90 days of services
being performed
|
|
Estimated using a cost-plus margin approach
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2019
|
|
Twelve Months Ended December 31, 2018
|
|
|
Cloud
|
|
Digital
|
|
Messaging
|
|
Total
|
|
Cloud
|
|
Digital
|
|
Messaging
|
|
Total
|
|
Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
155,076
|
|
|
$
|
46,765
|
|
|
$
|
30,342
|
|
|
$
|
232,183
|
|
|
$
|
153,649
|
|
|
$
|
86,422
|
|
|
$
|
9,603
|
|
|
$
|
249,674
|
|
|
APAC
|
—
|
|
|
3,658
|
|
|
45,403
|
|
|
49,061
|
|
|
—
|
|
|
5,954
|
|
|
35,397
|
|
|
41,351
|
|
|
EMEA
|
7,620
|
|
|
3,379
|
|
|
16,506
|
|
|
27,505
|
|
|
8,921
|
|
|
7,018
|
|
|
18,875
|
|
|
34,814
|
|
|
Total
|
$
|
162,696
|
|
|
$
|
53,802
|
|
|
$
|
92,251
|
|
|
$
|
308,749
|
|
|
$
|
162,570
|
|
|
$
|
99,394
|
|
|
$
|
63,875
|
|
|
$
|
325,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Line
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Services
|
$
|
14,939
|
|
|
$
|
16,576
|
|
|
$
|
30,923
|
|
|
$
|
62,438
|
|
|
$
|
14,232
|
|
|
$
|
18,383
|
|
|
$
|
11,539
|
|
|
$
|
44,154
|
|
|
Transaction Services
|
5,606
|
|
|
6,690
|
|
|
—
|
|
|
12,296
|
|
|
9,025
|
|
|
9,706
|
|
|
—
|
|
|
18,731
|
|
|
Subscription Services
|
141,941
|
|
|
27,577
|
|
|
37,785
|
|
|
207,303
|
|
|
139,100
|
|
|
67,623
|
|
|
33,071
|
|
|
239,794
|
|
|
License
|
210
|
|
|
2,959
|
|
|
23,543
|
|
|
26,712
|
|
|
213
|
|
|
3,682
|
|
|
19,265
|
|
|
23,160
|
|
|
Total
|
$
|
162,696
|
|
|
$
|
53,802
|
|
|
$
|
92,251
|
|
|
$
|
308,749
|
|
|
$
|
162,570
|
|
|
$
|
99,394
|
|
|
$
|
63,875
|
|
|
$
|
325,839
|
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
|
|
|
|
*
|
During the period, changes to the STIN business led the Company to conclude that its collection of certain STIN receivables is no longer probable. The Company has updated its collectability assessment in accordance with ASC 842 and concluded that a contingency reserve is required, which included a reduction of digital revenue in America in the amount $26.0 million. For further details, see Note 5. Investments in Affiliates and Related Transactions of the Notes to Consolidated Financial Statements of this Form 10-K.
|
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 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 December 31, 2019 is $5.3 million.
Amounts collected in advance of services being provided are accounted for as contract liabilities, which are presented as deferred revenue on the accompanying 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
|
(295,817
|
)
|
|
Amounts billed but not recognized as revenue
|
266,674
|
|
|
Balance - December 31, 2019
|
$
|
87,799
|
|
________________________________
|
|
|
|
*
|
Comprised of Deferred Revenue
|
Revenues recognized during the year ended December 31, 2019 for performance obligations satisfied or partially satisfied in previous periods were immaterial.
Contract acquisition costs
In connection with the adoption of Topic 606 and the related cost accounting guidance under Accounting Standards Codification (“ASC”) 340, the Company is required to capitalize certain contract acquisition costs consisting primarily of commissions and bonuses paid when contracts are signed. The Company adopted Topic 606 on January 1, 2018 and capitalized $0.7 million in contract acquisition costs related to contracts that were not completed. For contracts that have a duration of less than one year, the Company follows a Topic 606 practical expedient and expenses these costs over the estimated customer life, because it does not pay commissions upon renewals that are commensurate with the initial contract. During the year ended December 31, 2019, the amount of amortization was $0.2 million and there was no impairment loss in relation to costs capitalized.
Contract Fulfillment Costs
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Under ASC 340-40, the Company evaluates whether or not it should capitalize the costs of fulfilling a contract. Such costs would be capitalized when they are not within the scope of other standards and: (1) are directly related to a contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered. As of December 31, 2019, the Company had $5.1 million of capitalized contract fulfillment costs.
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 December 31, 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 December 31, 2019, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $215.2 million, of which approximately 87.5% 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.
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.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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.
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 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 Consolidated Statements of Operations on a straight-line basis over the lease term. Lease costs for short-term leases not recognized in the Consolidated Balance Sheets are recognized in the 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
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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 year ended December 31, 2019.
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 but does not expect that the pending adoption of this ASU will have a material effect on its consolidated financial statements.
|
|
Date of adoption: January 1, 2020.
|
|
|
|
|
|
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.
|
|
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 consolidated financial statements.
|
|
Date of adoption: January 1, 2020.
|
|
|
|
|
Segment and Geographic Information
The Company’s chief operating decision‑maker is the Principal Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions. However, in assessing financial performance and allocating resources, the Company considers the markets in which it operates. The Company has determined that it currently operates in two business segments: (i) providing cloud solutions and software‑based activation for connected devices globally and (ii) enterprise solutions. Given the size of the Company’s enterprise segment, and the Company’s shift in focus toward the telecommunications, media and technology (“TMT”) market, the Company concluded that it has one reportable segment. Although the Company operates in North America, Europe and Asia‑Pacific a majority of the Company’s revenue and long-lived assets are in the U.S.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Revenues by geography are based on the billing addresses of the Company’s customers. The following tables set forth revenues and property and equipment, net by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
232,183
|
|
|
$
|
249,674
|
|
|
$
|
334,970
|
|
|
Foreign
|
|
76,566
|
|
|
76,165
|
|
|
67,391
|
|
|
Total
|
|
$
|
308,749
|
|
|
$
|
325,839
|
|
|
$
|
402,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Property and equipment, net:
|
|
|
|
|
|
Domestic
|
|
$
|
19,278
|
|
|
$
|
59,054
|
|
|
Foreign
|
|
7,247
|
|
|
8,883
|
|
|
Total
|
|
$
|
26,525
|
|
|
$
|
67,937
|
|
3. Acquisitions and Divestitures
2018 Transactions
Acquisition
Honeybee
In May 2018, the Company completed the acquisition of the honeybee software business (“honeybee”), a provider of digital solutions targeted at optimizing the customer experience from Dixons Carphone plc which offers a digital transformation platform that makes it easier for companies to design and launch omni-channel customer journeys. Consideration paid by the Company consisted of approximately $9.7 million in cash at the time of closing and deferred consideration of $8.7 million to be paid over the next three years.
Customers of the honeybee platform, such as mobile operators and other communication service providers, can rapidly create and adapt digital sales processes for contact centers, retail stores, and online channels. This helps reduce complexity for the end-user as well as internal employees, while delivering a single customer experience at all touch-points and improved business outcomes such as reduced cost and increased revenue. The acquisition did not have a material impact on the Company’s Consolidated Statements of Operations.
Divestitures
SNCR, LLC
On November 16, 2015, the Company formed a venture with Goldman Sachs (“Goldman”), referred to as SNCR, LLC in order to develop and deploy the Synchronoss Secure Mobility Suite, which would include integration of Synchronoss Workspace platform with Goldman's internally developed mobile security intellectual property to help provide a safe, secure mobile device environment that also effectively supports bring your own device (“BYOD”).
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
During the fourth quarter of 2017, the Company entered into a termination agreement with Goldman to terminate the venture, and provide a perpetual, irrevocable license of the venture’s intellectual property for use in Goldman’s back-office. As part of the agreement, the Company was relieved of any future obligations to support Goldman’s use of the software. The venture formally ended in the first quarter of 2018 resulting in the elimination of the Company’s associated noncontrolling interest balance and an increase to additional paid in capital balance of $12.8 million on the Company’s Consolidated Balance Sheet.
2017 Transactions
Intralinks
Acquisition
On January 19, 2017, the Company purchased all outstanding shares of Intralinks Holdings, Inc. (“Intralinks”). In connection with the acquisition, the Company entered into a $900.0 million senior secured term loan (the “2017 Term Facility”), as of the date of acquisition. Intralinks is a global technology provider of Software as a service (“SaaS”) solutions for secure enterprise content collaboration within and among organizations. Intralinks’ cloud-based solutions enable organizations to securely manage, control, track, search, exchange and collaborate on sensitive information inside and outside the firewall. The total purchase price consideration consisted of the repayment of existing Intralinks indebtedness, and non-cash consideration for services rendered on unvested Intralinks equity awards that were converted into the Company equity awards on the acquisition date. The acquisition was primarily funded from the proceeds of the $900.0 million credit agreement as of the date of acquisition (See Note 10. Debt for further discussion regarding the credit agreement). The goodwill recorded in connection with this acquisition was primarily attributed to operating synergies and other benefits expected to result from the combined operations and the assembled workforce acquired. The goodwill acquired is not deductible for tax purposes.
Divestitures
On June 23, 2017, the Company received a non-binding indication of interest from Siris Capital Group, LLC (“Siris”) to acquire the Company. In light of the indication of interest, the Company’s Board of Directors decided to explore a broad range of strategic alternatives that would have the potential to unlock shareholder value. In October 2017, the Company concluded its review of strategic alternatives and determined that the best approach for the Company to achieve its goal of maximizing shareholder value was to focus on its core Telecommunication, Media and Technology (“TMT”) business, divest non-core assets and improve the Company’s balance sheet strength, cash position and potential profitability. Under the terms of certain definitive agreements, investment funds affiliated with Siris acquired all of the stock of the Company’s wholly-owned subsidiary, Intralinks for consideration of cash and an option to investment in convertible preferred equity of the Company.
Subject to the terms and conditions set forth in the Share Purchase Agreement, dated as of October 17, 2017 (the “Share Purchase Agreement”), among Synchronoss, Intralinks and Impala Private Holdings II, LLC, an affiliate of Siris (“Impala”), a related party, due to its significant interest in the Company’s common stock. Impala agreed to acquire from the Company the issued and outstanding shares of common stock of Intralinks for approximately $977.3 million in cash plus a potential contingent payment of up to $25.0 million, subject to an adjustment for cash, debt and working capital (the “Intralinks Transaction”). The total amount of funds used to complete the Intralinks Transaction and related transactions and pay related fees and expenses was approximately $1.0 billion, which was funded through a combination of equity and debt financing obtained by Impala.
Under the terms of the Share Purchase Agreement, the Company also provided Siris with a Siris Put Right (“Siris Put Right”), which would allow Silver to put shares held at the time, to Synchronoss at price of $14.56 per share, or $87.3 million in the aggregate. The Company determined that the Call option on the issuance of preferred and the Siris Put Right, together, represented one mandatorily redeemable financial instrument with a fair value of $33.6 million, which reduced the gain on sale of Intralinks.
At the closing of the Intralinks Transaction on November 14, 2017, Impala acquired all of the issued and outstanding shares of Intralinks for approximately $991.0 million in cash, subject to post-closing adjustments for changes in cash, debt and working capital. If, in the future, Impala receives net cash proceeds in excess of $440.0 million from any sale of equity or assets of Intralinks, or a dividend or distribution in respect of the shares of Intralinks, then Impala is required to pay the Company up to an additional $25.0 million in cash or publicly traded securities. Immediately following the consummation of the Intralinks Transaction, the Company paid to Impala $5.0 million as partial reimbursement of the out-of-pocket fees and expenses incurred by Impala, Siris
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
and their respective affiliates in connection with the execution of the Share Purchase Agreement and the Intralinks Transaction. Amounts reimbursed were recorded as a reduction in the gain on sale.
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 us of the 5,994,667 shares of our common stock held by Silver (the “Preferred Transaction”). In connection with the issuance of the Series A Preferred Stock, we (i) filed a Certificate of Designation with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series A Preferred Stock (the “Series A Certificate”) and (ii) entered into an Investor Rights Agreement with Silver setting forth certain registration, governance and preemptive rights of Silver with respect to us (the “Investor Rights Agreement”). See Note 12. Capital Structure for further discussion.
The following is a summary of the operating results of Intralinks during the year ended December 31, 2017, which have been reflected within income from discontinued operations, net of tax:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
Net revenues
|
|
$
|
213,178
|
|
|
Costs and expenses:
|
|
|
|
Cost of services
|
|
35,393
|
|
|
Research and development
|
|
19,148
|
|
|
Selling, general and administrative
|
|
114,737
|
|
|
Restructuring
|
|
15,995
|
|
|
Depreciation and amortization
|
|
41,780
|
|
|
Total costs and expenses
|
|
227,053
|
|
|
Other income, net
|
|
1,448
|
|
|
Loss from discontinued operations
|
|
(12,427
|
)
|
|
Gain on sale of discontinued operations
|
|
122,842
|
|
|
Income from discontinued operations before taxes
|
|
110,415
|
|
|
Provision for income taxes
|
|
(34,920
|
)
|
|
Discontinued operations, net of taxes
|
|
$
|
75,495
|
|
The pre-tax gain on sale of Intralinks included in the Consolidated Statement of Operations was $122.8 million for the year ended December 31, 2017.
The Company signed a Transition Service Agreement (“TSA”) to provide accounting, tax, legal, payroll and IT services for up to six months after the divestiture. Amounts earned under the agreement were reflected as a reduction in Selling, general and administrative expenses in the statement of operations.
SpeechCycle
On February 1, 2017, the Company completed a divestiture of its SpeechCycle business, to an unrelated third party, for consideration of $13.5 million.
As part of the divestiture, the Company entered into a one-year transition services agreement with the acquirer to support various indirect activities such as customer software support, technical support services and maintenance and support services. These services were terminated during the first quarter of 2018. The Company recorded a pre-tax gain of $4.9 million as a result of the divestiture which is included in other income (expense), net in the Consolidated Statement of Operations.
Acquisition-Related Costs
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Total acquisition-related costs recognized during the year ended December 31, 2019, 2018, and 2017 including transaction costs such as legal, accounting, valuation and other professional services, were nil, $0.1 million and $13.0 million, respectively, and are included in selling, general and administrative expense in the Consolidated Statements of Operations.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
Marketable securities-long term (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total assets
|
$
|
39,012
|
|
|
$
|
39,001
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
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
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
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.
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
|
|
|
|
(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 year ended December 31, 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 December 31, 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 the Company’s marketable equity securities were recognized in other income (expense), net.
The estimated fair value of investments in marketable debt securities were immaterial and as follows at December 31, 2019 and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
At December 31, 2019 and December 31, 2018, the aggregate related fair value of investment with unrealized losses was approximately nil and $14.9 million respectively.
At December 31, 2019, the estimated fair value of investments in marketable equity securities, were as follows:
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
4,161
|
|
|
Mutual funds purchases
|
|
51,744
|
|
|
Mutual funds sales
|
|
(55,895
|
)
|
|
Realized gains (losses)
|
|
1
|
|
|
Balance at December 31, 2019
|
|
$
|
11
|
|
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.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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 Consolidated Balance Sheets.
The changes in fair value of the Company’s Level 3 redeemable noncontrolling interests during the year ended December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
$
|
12,500
|
|
|
Fair value adjustment
|
(1,126
|
)
|
|
Net income attributable to redeemable noncontrolling interests
|
1,126
|
|
|
Balance at December 31, 2019
|
$
|
12,500
|
|
5. Investments in Affiliates and Related Transactions
Sequential Technology International, LLC
In connection with the divestiture of the exception handling business of the Company, Synchronoss entered into a three-year Cloud Telephony and Support services 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.
For the year ended December 31, 2019 and 2018, the Company recognized $(6.9) million and $25.7 million, respectively, in revenue related to Cloud Telephony and Support services, and nil and $2.1 million, respectively, in revenue related to all other services.
Changes to the STIN business led the Company to conclude that its collection of certain STIN receivables is no longer probable as of December 31, 2019. In accordance with ASC 842, the portion of revenue that is no longer deemed collectible is reversed in the current period against revenue. Accordingly, the Company determined a contingency reserve is required, which included a reduction of revenue in the amount $26.0 million in the third quarter of 2019. The impacts of this change are reflected in the STIN affiliate revenue and accounts receivable.
The STIN affiliate accounts receivable balances in the Consolidated Balance Sheet as of December 31, 2019 and December 31, 2018, were $8.1 million and $27.5 million, respectively. These amounts principally included revenues generated from the Cloud and Telephony Support Services agreement and pass-through of vendor expenses incurred during the transition and assignment of vendor contracts.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
6. Property and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
Computer hardware
|
|
$
|
214,880
|
|
|
$
|
246,373
|
|
|
Computer software
|
|
64,509
|
|
|
64,530
|
|
|
Construction in-progress
|
|
—
|
|
|
651
|
|
|
Furniture and fixtures
|
|
9,546
|
|
|
9,408
|
|
|
Building
|
|
—
|
|
|
8,808
|
|
|
Leasehold improvements
|
|
25,768
|
|
|
23,602
|
|
|
|
|
314,703
|
|
|
353,372
|
|
|
Less: Accumulated depreciation
|
|
(288,178
|
)
|
|
(285,435
|
)
|
|
|
|
$
|
26,525
|
|
|
$
|
67,937
|
|
Depreciation expense was approximately $43.5 million, $55.8 million and $57.0 million for 2019, 2018, and 2017, respectively. Amortization of property and equipment recorded under capital leases are included in depreciation expense.
The Company capitalized $3.4 million related to cloud computing arrangements. The Company estimated the useful life for the cloud computing arrangements is 5 years.
7. Goodwill and Intangibles
Goodwill
The Company records goodwill which represents the excess of the purchase price over the fair value of assets acquired, including other definite-lived intangible assets. Goodwill is reviewed annually for impairment or upon the occurrence of events or changes in circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount.
The following table shows the adjustments to goodwill during 2019 and 2018:
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
237,303
|
|
|
Acquisitions
|
|
2,156
|
|
|
Impairment
|
|
(9,100
|
)
|
|
Translation adjustments
|
|
(5,460
|
)
|
|
Balance at December 31, 2018
|
|
$
|
224,899
|
|
|
Acquisitions
|
|
—
|
|
|
Impairment
|
|
—
|
|
|
Translation adjustments
|
|
(1,930
|
)
|
|
Balance at December 31, 2019
|
|
$
|
222,969
|
|
When performing its annual impairment test, the Company compares the fair value of each reporting unit to its carrying amount with the fair values derived from the market approach the income approach. Under the market approach, the Company estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit. The Company weights the fair value derived from the market approach depending on the level of comparability of these publicly-traded companies to the reporting unit. When market comparables are not meaningful or not available, the Company estimates the fair value of a reporting unit using only the income approach. Under
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows. The Company bases cash flow projections on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The Company bases the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected cash flows.
In order to assess the reasonableness of the estimated fair value of the Company’s reporting units, the Company compares the aggregate reporting unit fair value to the Company’s market capitalization on an overall basis and calculates an implied control premium (the excess of the sum of the reporting units’ fair value over the Company’s market capitalization on an overall basis). The Company evaluates the control premium by comparing it to observable control premiums from recent comparable transactions. If the implied control premium is determined to not be reasonable in light of these recent transactions, the Company re-evaluates its reporting unit fair values, which may result in an adjustment to the discount rate and/or other assumptions. This re-evaluation could result in a change to the estimated fair value for certain or all reporting units. If the fair value of a reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not impaired.
If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit’s carrying value over the fair value is recognized as an impairment loss.
For the years ended December 31, 2019, 2018, and 2017 the Company recognized goodwill impairment charges of nil, $9.1 million, and nil, respectively. The Company recorded a $9.1 million impairment charge on the Zentry joint venture in 2018 as a result of various business changes to Zentry, which ultimately led the Company to sunset certain Zentry product offerings. The Company evaluated the impact of these business changes and determined that the future cash flows generated by the assets were not sufficient to support its recoverability and accordingly, the Company recognized an impairment charge for Zentry’s outstanding goodwill.
Other Intangible Assets
The Company’s intangible assets with definite lives consist primarily of technology, capitalized software, trade names, and customer lists and relationships. These intangible assets are being amortized on the straight-line method over the estimated useful lives of the assets. Amortization expense related to intangible assets for the years ended December 31, 2019, 2018 and 2017 was $33.5 million, $41.3 million and $36.9 million, respectively.
The Company recognized impairment charges to its intangible assets of $0.0 million, $11.0 million and $1.0 million for the years ended December 31, 2019, 2018 and 2017 respectively. The Company includes these impairments within depreciation and amortization in its Consolidated Statements of Operations. The 2018 impairment charge was incurred to the outstanding Zentry intangible assets for the same reasons discussed above.
As of December 31, 2019, the Company had $6.4 million of capitalized software costs that are currently in the development stage. Amortization of these costs will begin once the software projects are complete and ready for their intended use.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The Company’s intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
|
Technology
|
|
$
|
99,832
|
|
|
$
|
(83,608
|
)
|
|
$
|
16,224
|
|
|
Customer lists and relationships
|
|
125,308
|
|
|
(86,555
|
)
|
|
38,753
|
|
|
Capitalized software and patents
|
|
46,222
|
|
|
(23,586
|
)
|
|
22,636
|
|
|
Trade name
|
|
2,450
|
|
|
(2,450
|
)
|
|
—
|
|
|
|
|
$
|
273,812
|
|
|
$
|
(196,199
|
)
|
|
$
|
77,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
|
Technology
|
|
$
|
100,896
|
|
|
$
|
(73,271
|
)
|
|
$
|
27,625
|
|
|
Customer lists and relationships
|
|
127,755
|
|
|
(75,123
|
)
|
|
52,632
|
|
|
Capitalized software and patents
|
|
33,710
|
|
|
(15,261
|
)
|
|
18,449
|
|
|
Trade name
|
|
2,546
|
|
|
(2,546
|
)
|
|
—
|
|
|
|
|
$
|
264,907
|
|
|
$
|
(166,201
|
)
|
|
$
|
98,706
|
|
Estimated future amortization expense of its intangible assets for the next five years is as follows:
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
2020
|
|
$
|
24,691
|
|
|
2021
|
|
17,047
|
|
|
2022
|
|
12,606
|
|
|
2023
|
|
5,749
|
|
|
2024
|
|
5,151
|
|
|
Thereafter
|
|
5,973
|
|
|
Total *
|
|
$
|
71,217
|
|
____________________________
* As of December 31, 2019, the Company had $6.4 million of capitalized software costs that are currently in the development stage. Amortization of these costs will begin once the software projects are complete and ready for their intended use.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
8. Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
Accrued compensation and benefits
|
|
$
|
26,507
|
|
|
$
|
26,840
|
|
|
Accrued professional service fees
|
|
7,248
|
|
|
8,177
|
|
|
Accrued telecommunications
|
|
2,493
|
|
|
1,758
|
|
|
Accrued income taxes payable
|
|
4,063
|
|
|
1,394
|
|
|
Accrued preferred dividend
|
|
7,873
|
|
|
7,075
|
|
|
Accrued other
|
|
17,803
|
|
|
14,301
|
|
|
Total
|
|
$
|
65,987
|
|
|
$
|
59,545
|
|
9. 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 does not have material sublease arrangements.
The following table presents information about the Company's ROU assets and lease liabilities at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
ROU assets:
|
|
|
Non-current operating lease ROU assets
|
$
|
53,965
|
|
|
|
|
|
Operating lease liabilities:
|
|
|
Current operating lease liabilities*
|
$
|
8,473
|
|
|
Non-current operating lease liabilities
|
60,976
|
|
|
Total operating lease liabilities
|
$
|
69,449
|
|
________________________________
|
|
|
|
*
|
Amounts are included in Accrued Expenses on Consolidated Balance Sheets.
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The following table presents information about lease expense and sublease income for the year ended December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
Operating lease cost*
|
|
$
|
13,034
|
|
|
Other lease costs and income:
|
|
|
|
Variable lease costs* (1)
|
|
7,374
|
|
|
Sublease income*
|
|
(1,297
|
)
|
|
Total net lease cost
|
|
$
|
19,111
|
|
________________________________
|
|
|
|
*
|
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 Consolidated Statements of Operations.
|
|
|
|
|
(1)
|
During the third quarter, the Company executed an agreement enabling the Company to achieve data center consolidation moving forward. The Company recorded a $6.2 million ROU asset impairment based on forecasted future cash flows for those data centers impacted by the agreement.
|
The following table provides the undiscounted amount of future cash flows included in the Company’s lease liabilities at December 31, 2019 for each of the five years subsequent to December 31, 2019 and thereafter, as well as a reconciliation of such undiscounted cash flows to the Company’s lease liabilities at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2020
|
$
|
13,639
|
|
|
2021
|
12,932
|
|
|
2022
|
12,330
|
|
|
2023
|
10,040
|
|
|
2024
|
10,139
|
|
|
Thereafter
|
33,995
|
|
|
Total future lease payments
|
93,075
|
|
|
Less: amount representing interest
|
(23,626
|
)
|
|
Present value of future lease payments (lease liability)
|
$
|
69,449
|
|
The following table provides the weighted-average remaining lease term and weighted-average discount rates for the Company’s leases as of December 31, 2019:
|
|
|
|
|
|
|
Operating Leases:
|
|
|
Weighted-average remaining lease term (years), weighted based on lease liability balances
|
7.63
|
|
|
Weighted-average discount rate (percentages), weighted based on the remaining balance of lease payments
|
8.0
|
%
|
The following table provides certain cash flow and supplemental noncash information related to the Company’s lease liabilities for the year ended December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
Operating Leases:
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
12,427
|
|
|
Lease liabilities arising from obtaining right-of-use assets
|
895
|
|
10. Debt
2019 Revolving Credit Facility
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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 0.00%. 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. The outstanding balance under the Revolving Credit Facility as of December 31, 2019 is zero.
The outstanding debt balance is nil at December 31, 2019 and the balance at December 31, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Convertible Senior Notes
|
|
$
|
113,980
|
|
|
Amended Credit Agreement
|
|
—
|
|
|
Total debt, principal amount
|
|
113,980
|
|
|
Unamortized debt issuance cost (1)
|
|
(438
|
)
|
|
Total debt, carrying value
|
|
$
|
113,542
|
|
|
Total short-term debt, carrying value
|
|
$
|
113,542
|
|
|
Total long-term debt, carrying value
|
|
$
|
—
|
|
________________________________
|
|
|
|
(1)
|
Unamortized debt issuance cost is related to Convertible Senior Notes.
|
Convertible Senior Notes
On August 12, 2014, the Company issued $230.0 million aggregate principal amount of its 0.75% Convertible Senior Notes due in 2019 (the “2019 Notes”). The 2019 Notes were paid at maturity on August 15, 2019. The 2019 Notes bore an interest rate of 0.75% per annum payable semi-annually in arrears on February 15 and August 15 of each year. The Company accounted for the $230.0 million face value of the debt as a liability and capitalized approximately $7.1 million of financing fees, related to the issuance which are presented net of the face value of the 2019 Notes on the Consolidated Balance Sheets.
The 2019 Notes were senior, unsecured obligations of the Company, and were convertible into shares of its common stock based on a conversion rate of 18.8072 shares per $1,000 principal amount of 2019 Notes which is equivalent to an initial conversion price of approximately $53.17 per share. The 2019 Notes were convertible at the note holders’ option prior to their maturity and if specified corporate transactions occur. The issue price of the 2019 Notes was equal to their face amount. As of the maturity date, none of the 2019 Notes were converted to common stock.
Holders of the 2019 Notes who converted their notes in connection with a qualifying fundamental change, as defined in the related indenture, may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, following the occurrence of a fundamental change, holders may require that the Company repurchase some or all of the 2019 Notes for cash at a repurchase price equal to 100% of the principal amount of the notes being repurchased, plus accrued and unpaid interest, if any. As of the maturity date of the 2019 Notes, none of these conditions existed.
Included in the definition of a fundamental change is whether the Company’s common stock ceases to be listed or quoted on Nasdaq. In May 2018, trading of the Company’s common stock was suspended on Nasdaq, however, it was not delisted. On September 26, 2018, the Company received notice, that the Nasdaq Listing Qualifications Staff (the “Staff”) approved the listing of its common stock on Nasdaq. The result of this approval caused the suspension of trading in Company’s common stock on The Nasdaq Stock Market to be lifted. On November 2, 2018, the Company retired approximately $116.0 million of the 2019 Notes as part of a settlement agreement entered into on November 1, 2018, among the Company, Indaba Capital Fund, L.P and Westwood Management Corp. related to the BNY Action and, as a result the parties filed a stipulation of dismissal of the BNY Action. For additional information regarding this litigation, see Item 3. “Legal Proceedings” contained in this Form 10-K.
The 2019 Notes were the Company’s direct senior unsecured obligations and rank equal in right of payment to all of the Company’s existing and future unsecured and unsubordinated indebtedness.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
During the years ended December 31, 2019, 2018 and 2017, interest expense for the Company’s 2019 Notes related to the contractual interest coupon was $0.4 million, $1.6 million, and $1.7 million respectively.
The Company is required to meet all SEC filing requirements and deadlines to be compliant with the 2019 Notes. In the event that the Company does not meet the filing requirements, the Company will be in default under the 2019 Notes unless it elects to pay the noteholders additional interest of 0.25% up to 180 days from the date of the notice of default and 0.50% thereafter up to 360 days. The Company may agree to pay additional interest to the holders by notifying holders and the trustee within 90 days from the notice of default. If the Company decides to pay the additional interest but has not remedied its failure to meet all SEC filing requirements within 360 days from the notice of default, it will be in default. If the Company fails to elect to pay the additional interest, it will be in default if it does not remedy its failure to meet all SEC filing requirements within the 90 days from the notice of default.
The Company received a notice of default from holders of more than 25% of the outstanding principal amount of the 2019 Notes on October 13, 2017. In accordance with the terms of the 2019 Notes, the Company elected to begin paying additional interest starting January 11, 2018 (the 90th day following the Company’s receipt of the notice of default). As a result of the Company regaining compliance with its SEC filing requirements, the Company was no longer required to pay the additional interest as of July 9, 2018. The Company was required to record a derivative related to this contingent interest as a liability and expense in its financial statements due to the late filings of the Company’s quarterly reports on Form 10-Q in 2017. At December 31, 2018, the recorded contingent interest derivative liability within accrued expenses was zero as a result of Company regaining compliance with its SEC filing requirements.
2019 Notes Notice
On June 13, 2018, The Bank of New York Mellon, in its capacity as trustee (the “Trustee”) under the indenture dated as of August 12, 2014 (the “Indenture”) governing for the 2019 Notes, filed a verified complaint with the Court of Chancery of the State of Delaware, captioned The Bank of New York Mellon, as Indenture Trustee v. Synchronoss Technologies, Inc. (the “BNY Action”). The BNY Action complaint alleges that a “Fundamental Change” has occurred under the Indenture as a result of the Company’s Common Stock ceasing to be listed or quoted on Nasdaq and that an event of default under the Indenture has occurred as a result of the Company’s failure to provide a notice of such Fundamental Change which, if true, following notice from holders of more than 25% of the outstanding principal under the Notes would trigger the acceleration of the principal and interest outstanding under the 2019 Notes, which otherwise mature on August 15, 2019. On November 2018, the parties filed a stipulation of dismissal of the BNY Action. For further details, see Note 18. Legal Matters.
On November 2, 2018, the Company retired $116.0 million of 2019 Notes as a part of settlement agreement entered into on November 1, 2018, among the Company, Indaba Capital Fund, L.P. (“Indaba”) and Westwood Management Corp. (“Westwood”) related to the BNY Action. For further details see Note 18. Legal Matters. At December 31, 2019, the carrying amount of the liability was zero and the outstanding principal of the 2019 Notes was zero.
2017 Credit Agreement
On January 19, 2017, the Company entered into a credit agreement with the lending institutions from time to time parties thereto and Goldman Sachs as administrative agent, collateral agent, swingline lender and a letter of credit issuer (as amended from time to time, the “2017 Credit Agreement”) which was comprised of a $900.0 million term credit facility with a maturity date of January 19, 2024 (the “2017 Term Facility”) and a revolving credit facility of up to $200.0 million (the “Revolving Facility”) with a maturity date of January 19, 2022. Obligations under the 2017 Credit Agreement were guaranteed by certain of the Company’s subsidiaries and secured by substantially all of the Company’s and its subsidiaries’ assets.
The 2017 Term Facility amortized at 1% per annum in equal quarterly installments with the balance payable on the maturity date. The Revolving Facility included borrowing capacity available for letters of credit and for borrowings on same-day notice under swingline loans and borrowing thereunder could be used for working capital needs and other general corporate purposes.
The 2017 Term Facility initially bore interest at a rate equal to, at the Company’s option, the adjusted LIBOR rate for an applicable interest period or an alternate base rate, in each case, plus an applicable margin of 2.75% or 1.75%, respectively. The Revolving Facility initially bore an interest at a rate equal to, at the Company’s option, the adjusted LIBOR rate or an alternate base rate, in each case, plus an applicable margin of 2.50% or 1.50%, respectively, subject to step-downs based on the Company’s
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
ratio of first lien secured debt to adjusted EBITDA, as defined in the 2017 Credit Agreement. The Company paid a commitment fee in the range of 0.25% to 0.375% on the unused balance of the Revolving Facility. Interest was payable quarterly under the 2017 Credit Agreement.
Subject to certain customary exceptions, the 2017 Term Facility was subject to mandatory prepayments in amounts equal to: (1) 100% of the net cash proceeds from any non-ordinary course sale or other disposition of assets (including as a result of casualty or condemnation) by Synchronoss or its subsidiaries subject to customary reinvestment provisions and certain other exceptions; (2) 100% of the net cash proceeds from incurrences of debt (other than permitted debt); and (3) a customary annual excess cash flow sweep at levels based on the Company’s applicable ratio of first lien secured debt to adjusted EBITDA, as defined in the 2017 Credit Agreement.
The 2017 Credit Agreement contained a number of customary affirmative and negative covenants and events of default, which, among other things, restricted the Synchronoss’ and its subsidiaries’ ability to incur debt, allow liens on assets, make investments, pay dividends or prepay certain other debt. The 2017 Credit Agreement also required Synchronoss to comply with certain financial maintenance covenants, including a total gross leverage ratio and an interest charge coverage ratio.
Certain of the lenders under the 2017 Credit Agreement, or their affiliates, provided, and may in the future from time to time provide, certain commercial and investment banking, financial advisory and other services in the ordinary course of business for the registrant and its affiliates, for which they have in the past and may in the future receive customary fees and commissions.
As a result of the Company’s restatement, it was unable to comply with covenants requiring the timely delivery of audited financial statements and interim financial information. The Company obtained waivers to extend the dates by which the Company was required to deliver such financial information to June 30, 2017.
Waiver Agreement to 2017 Credit Agreement
On June 30, 2017, the Company, the Lenders and the Administrative Agent entered into a Limited Waiver to Credit Agreement (the “Waiver Agreement”) pursuant to which the Lenders agreed, subject to the limitations contained in the Waiver Agreement, to temporarily waive (the “Limited Waiver”) the anticipated event of default (the “Anticipated Event of Default”) resulting from the Company’s failure to deliver its first quarter 2017 financial statements, together with related items required under the 2017 Credit Agreement on or prior to June 30, 2017. In the absence of the Limited Waiver, after the occurrence of the Anticipated Event of Default the Lenders would be permitted to exercise their rights and remedies available to them under the 2017 Credit Facility with respect to an event of default. The Limited Waiver was designed to give the Company and the Lenders additional time to negotiate in good faith and document certain amendments to the 2017 Credit Facility.
As consideration for the Limited Waiver, the Company agreed to pay a consent fee to each Lender who consented to the Waiver Agreement in an amount equal to 0.15% of the aggregate principal amount of such consenting Lender’s revolving credit commitments and term loans outstanding under the 2017 Credit Agreement, which amount was credited against any consent fee that was required to be paid in connection with any subsequent waiver of the Anticipated Event of Default or related amendment of the 2017 Credit Agreement. In addition, the Company paid the reasonable fees and expenses of counsel and other costs and expenses requested by the Administrative Agent on behalf of the Lenders and certain other fees as set forth in the Waiver Agreement.
First Amendment to 2017 Credit Agreement
On July 19, 2017, the Company entered into a first amendment and limited waiver to the 2017 Credit Agreement (the “First Amendment”). Pursuant to the First Amendment, the lenders and administrative agent agreed to extend the time period for delivery by the Company of its quarterly financial statements for the quarters ended March 31, 2017 and June 30, 2017 (the “2017 Quarterly Financial Statements”) and to waive the default and event of default arising from the Company’s failure to deliver the 2017 Quarterly Financial Statements within the timeframe originally required by the 2017 Credit Agreement (or, at the Company’s election, November 16, 2017, if prior to October 17, 2017 the Company pays a fee to the Lenders equal to 25 basis points on the aggregate principal amount of revolving commitments and terms loans outstanding).
The First Amendment effected various other changes to the terms of the Credit Agreement, including reducing revolving credit commitments from $200.0 million to $100.0 million (with a sub-limit on usage of $50.0 million until the earliest date by which the Company has delivered the 2017 Quarterly Financial Statements, the restated financial statements for the fiscal years ended
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
December 31, 2016 and 2015 (and the respective quarterly periods) and certain information with respect to disclosing and remedying any material weaknesses in the Company’s internal control structure related to financial reporting.)
Under the First Amendment, the Company was required to maintain a first lien secured net leverage ratio of no more than (x) 5.50 to 1 for any period ending from September 30, 2017 through March 31, 2019; (y) 5.00 to 1 for any period ending June 30, 2019 through December 31, 2019; and (z) 4.25 to 1 for any period ending March 31, 2020 and thereafter. The Company was also required to maintain a minimum interest coverage ratio of no less than 2.00 to 1.
Until the earlier of (A) the later of (i) December 15, 2017 and (ii) in the event that, prior to December 15, 2017, the Company has publicly announced a strategic transaction, or merger, business combination, acquisition or divestiture that would result in a change of control or a requirement to prepay the loans and terminate commitments under the Amended Credit Agreement, the date on which such transaction is consummated or abandoned (the “Initial Period End Date”) and (B) June 15, 2018, term loans under the Amended Credit Agreement bear interest at a rate equal to, at the Company’s option, the adjusted LIBOR rate for an applicable interest period or an alternate base rate (subject to a floor of 1.00% and 2.00%, respectively), in each case, plus an applicable margin of 4.50% or 3.50%, respectively. Thereafter, the applicable margins increase to 5.75% and 4.75%, respectively, if the Company’s first lien secured net leverage ratio is less than or equal to 5.00 to 1, and to 6.75% and 5.75%, respectively, if the Company’s first lien secured net leverage ratio is greater than 5.00 to 1. The foregoing applicable margins are subject to a retroactive increase of 0.25% each if the Restated Financial Statements show an amount of net revenue for any fiscal year ended December 31, 2015, December 31, 2016 and, if applicable, December 31, 2014 that varies by greater than 15% of the net revenue set forth on Consolidated Balance Sheets and related Consolidated Statements of Operations of the Company for such fiscal year that had originally been filed with the Securities and Exchange Commission.
Until the Initial Period End Date, revolving loans under the Amended Credit Agreement bear interest at a rate equal to, at Company’s option, the adjusted LIBOR rate or an alternate base rate (subject to a floor of 1.00% and 2.00%, respectively), in each case, plus an applicable margin of 4.50% or 3.50%, respectively. Thereafter, the applicable margins will be subject to step-downs based on the Company’s first lien secured net leverage ratio.
Until the Initial Period End Date, term loans under the Amended Credit Agreement are subject to a prepayment premium of 1.00% solely if prepaid with proceeds of a repricing transaction. Thereafter, the term loans will be subject to (x) a 2.00% prepayment premium for any voluntary prepayments (including upon a change of control) made through the one-year anniversary of the Initial Period End Date and (y) a 1.00% prepayment premium for any voluntary prepayments (including upon a change of control) made after the one-year anniversary of the Initial Period End Date and prior to the second anniversary thereof.
The Amendment also effected various other changes to the baskets and exceptions under the negative covenants of the Credit Agreement.
The Company’s effective interest rate on the term loans was approximately 4.08% prior to the First Amendment and ranged from 5.74% to 5.76% from July 19, 2017 through November 2017. During 2017, the Company paid approximately $16.8 million in fees related to obtaining waivers, amendments, and consents in relation to the 2017 Credit Agreement as a result of the delay in the delivery of the 2017 Quarterly Financial Statements. These costs were recognized within the Interest expense line of the Consolidated Statements of Operations until the debt was repaid in the fourth quarter of 2017. The remaining balance was recognized within the Extinguishment of debt line item of the Consolidated Statements of Operations.
Repayment of 2017 Credit Agreement
In connection with the consummation of the Intralinks divestiture (See Note 3. Acquisitions and Divestitures), the Company utilized a portion of the proceeds from the Intralinks divestiture to repay all outstanding obligations under the 2017 Credit Agreement. In connection therewith, the Company delivered all notices and took all other actions to facilitate and cause the termination of the 2017 Credit Agreement, the repayment in full of all obligations then outstanding thereunder and the release of any security interests in connection therewith, effective as of November 14, 2017. The aggregate payoff amount was approximately $897.5 million and included all accrued interest, fees and prepayment penalties associated therewith. The Company incurred approximately $29.4 million of a loss on the extinguishment of the 2017 Credit Agreement for the year ended December 31, 2017.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Amended Credit Facility
On July 7, 2016, the Company entered into an Amended Credit Facility with Wells Fargo Bank, National Association, as administrative agent and several lenders party thereto (the “Amended Credit Facility”). The Amended Credit Facility, was permitted to be used for general corporate purposes, was a $250.0 million unsecured revolving line of credit that was set to mature on July 7, 2021, subject to terms and conditions set forth therein. The Company paid a commitment fee in the range of 15 to 30 basis points on the unused balance of the revolving credit facility under the Amended Credit Facility. Synchronoss had the right to request an increase in the aggregate principal amount of the Amended Credit Facility up to $350.0 million. Interest on the borrowings ranged from 1.94% to 2.03%.
On January 19, 2017, the Company repaid all outstanding obligations under the Amended Credit Facility with Wells Fargo Bank and the several lenders party thereto. The aggregate payoff amount was $29.0 million and included all accrued interest and associated prepayment penalties.
Interest expense
The following table summarizes the Company’s interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Amended Credit Facility
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
748
|
|
|
Commitment fee
|
|
—
|
|
|
—
|
|
|
25
|
|
|
Interest on borrowings
|
|
—
|
|
|
—
|
|
|
24
|
|
|
2017 Term Facility
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
—
|
|
|
—
|
|
|
2,915
|
|
|
Interest on borrowings
|
|
—
|
|
|
—
|
|
|
35,327
|
|
|
Contingent Interest Derivative
|
|
—
|
|
|
—
|
|
|
2,489
|
|
|
Amendment fees paid to third parties
|
|
—
|
|
|
—
|
|
|
5,716
|
|
|
Revolving Facility
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
—
|
|
|
—
|
|
|
646
|
|
|
Commitment fee
|
|
—
|
|
|
—
|
|
|
494
|
|
|
Amendment fees paid to third parties
|
|
—
|
|
|
—
|
|
|
1,662
|
|
|
Convertible Senior Notes
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
$
|
285
|
|
|
$
|
1,294
|
|
|
1,413
|
|
|
Interest on borrowings
|
|
363
|
|
|
1,578
|
|
|
1,725
|
|
|
Additional interest on default
|
|
—
|
|
|
191
|
|
|
193
|
|
|
2019 Revolving Credit Facility
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of debt issuance costs
|
|
8
|
|
|
—
|
|
|
—
|
|
|
Commitment fee
|
|
5
|
|
|
—
|
|
|
—
|
|
|
Interest on borrowings
|
|
3
|
|
|
—
|
|
|
—
|
|
|
Capital leases
|
|
—
|
|
|
964
|
|
|
971
|
|
|
Other
|
|
691
|
|
|
884
|
|
|
1,423
|
|
|
Total
|
|
$
|
1,355
|
|
|
$
|
4,911
|
|
|
$
|
55,771
|
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
11. Accumulated Other Comprehensive (Loss) / Income
The changes in accumulated other comprehensive (loss) income during the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
Other comprehensive loss
|
|
Tax effect
|
|
Balance at December 31, 2019
|
|
Foreign currency
|
$
|
(26,436
|
)
|
|
$
|
(1,768
|
)
|
|
$
|
—
|
|
|
$
|
(28,204
|
)
|
|
Unrealized loss on intra-entity foreign currency transactions
|
(3,906
|
)
|
|
(579
|
)
|
|
179
|
|
|
(4,306
|
)
|
|
Unrealized holding losses on marketable debt securities
|
(41
|
)
|
|
(710
|
)
|
|
—
|
|
|
(751
|
)
|
|
Total
|
$
|
(30,383
|
)
|
|
$
|
(3,057
|
)
|
|
$
|
179
|
|
|
$
|
(33,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
Other comprehensive loss
|
|
Tax effect
|
|
Balance at December 31, 2018
|
|
Foreign currency
|
$
|
(20,284
|
)
|
|
$
|
(6,152
|
)
|
|
$
|
—
|
|
|
$
|
(26,436
|
)
|
|
Unrealized loss on intra-entity foreign currency transactions
|
(3,085
|
)
|
|
(1,263
|
)
|
|
442
|
|
|
(3,906
|
)
|
|
Unrealized holding losses on marketable debt securities
|
(4
|
)
|
|
(37
|
)
|
|
—
|
|
|
(41
|
)
|
|
Total
|
$
|
(23,373
|
)
|
|
$
|
(7,452
|
)
|
|
$
|
442
|
|
|
$
|
(30,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
Other comprehensive income
|
|
Tax effect
|
|
Balance at December 31, 2017
|
|
Foreign currency
|
$
|
(37,311
|
)
|
|
$
|
17,027
|
|
|
$
|
—
|
|
|
$
|
(20,284
|
)
|
|
Unrealized income (loss) on intra-entity foreign currency transactions
|
(5,017
|
)
|
|
3,322
|
|
|
(1,390
|
)
|
|
(3,085
|
)
|
|
Unrealized holding gains (losses) on marketable debt securities
|
(22
|
)
|
|
28
|
|
|
(10
|
)
|
|
(4
|
)
|
|
Total
|
$
|
(42,350
|
)
|
|
$
|
20,377
|
|
|
$
|
(1,400
|
)
|
|
$
|
(23,373
|
)
|
12. Capital Structure
As of December 31, 2019, the Company’s authorized capital stock was 110 million shares of stock with a par value of $0.0001, of which 100 million shares were designated as common stock and 10 million shares were designated as preferred stock. There were no significant changes to Company’s authorized capital stock and preferred stock during the year ended December 31, 2019.
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.
Treasury Stock
On February 4, 2016, the Company announced that the Board of Directors approved a share repurchase program under which the Company may repurchase up to $100.0 million of its outstanding common stock for 12 to 18 months following the announcement. In 2016, the Company repurchased approximately 1.3 million shares of the Company’s common stock under this program for an aggregate repurchase price of $40.0 million. There were no share repurchases subsequent to 2016. In 2018, in connection with execution of the Share Purchase Agreement, the Company received 5,994,667 shares of Synchronoss common stock, which have been recorded as Treasury shares as of December 31, 2019. Additionally, in 2018 the Company retired 3.9 million shares of Common Stock that were previously repurchased in prior years. Any related additional paid in capital and par values were removed from the Common Stock numbers.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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 December 31, 2019, there were 217,186 shares of Series A Preferred Stock outstanding, including the initial issuance of 185,000 shares of Series A Preferred Stock and the issuance of 32,186 shares of Series A Preferred Stock as dividends.
In accordance with the terms of the PIPE Purchase Agreement with Silver on February 15, 2018, Silver exercised its option to complete the Preferred Transaction. In connection with the issuance of the Series A Preferred Stock, the Company (i) filed the certificate of designations to its certificate of incorporation to establish the rights, preferences, privileges, qualifications, restrictions and limitations of the Series A Preferred Stock (the “Series A Certificate”) and (ii) entered into the Investor Rights Agreement setting forth certain registration, governance and preemptive rights of Silver with respect to Synchronoss. Pursuant to the PIPE Purchase Agreement, at the closing, the Company paid to Siris $5.0 million as a reimbursement of Silver’s reasonable costs and expenses incurred in connection with the Preferred Transaction. In connection with execution of the Preferred Transaction, Silver delivered 5,994,667 shares of Synchronoss common stock, which have been recorded as Treasury shares as of December 31, 2019.
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.
On and after the fifth anniversary of February 15, 2018, 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 December 31, 2019, the Liquidation Value and Redemption Value of the Preferred Shares was $243.1 million.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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.
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
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
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.
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 December 31, 2019 and changes during the year ended December 31, 2019, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Shares
|
|
Amount
|
|
Balance at December 31, 2018
|
195
|
|
|
$
|
176,603
|
|
|
Issuance of preferred stock
|
22
|
|
|
—
|
|
|
Initial discount and issuance costs related to preferred stock
|
—
|
|
|
—
|
|
|
Amortization of preferred stock issuance costs
|
—
|
|
|
2,257
|
|
|
Issuance of preferred PIK dividend
|
—
|
|
|
22,005
|
|
|
Balance at December 31, 2019
|
217
|
|
|
$
|
200,865
|
|
Registration Rights
There were no significant changes to the Company’s registration rights during the year ended December 31, 2019.
13. Stock Plans
In March 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan replaces the Company’s prior 2000 Equity Incentive Plan (the “2000 Plan”) and the 2006 Equity Incentive Plan (the “2006 Plan”) (collectively, the “Plans”). Beginning March 2015, all awards were granted under the 2015 Plan. In addition, any awards that were previously granted under any prior Plans that terminate without issuance of shares, shall be eligible for issuance under the 2015 Plan.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Under the 2015 Plan, the Company may grant to its employees, outside directors and consultants awards in the form of non-qualified stock options, shares of restricted stock, stock units, or stock appreciation rights and performance shares. The Company’s Board of Directors administers the Plan and is responsible for determining the individuals to be granted options or shares, the number of options or shares each individual will receive, the price per share and the exercise period of each option.
During 2017, the Company’s Board of Directors approved the issuance of market-based restricted stock to certain executives which are eligible to vest if the volume-weighted average closing price over 20 consecutive trading days equals or exceeds certain stock prices during the specific performance period from July 2017 to July 2019. The Company utilized the Monte Carlo simulation to estimate the fair value of the restricted stock on its grant date.
In connection with the appointment a new Chief Executive Officer in November 2017, the Company entered into an employment agreement which provided for the grant of restricted stock awards, stock options and performance stock awards. These awards were approved by the Compensation Committee of Synchronoss’ Board of Directors and granted as an inducement equity award outside the 2015 Plan in accordance with the Nasdaq Listing Rule 5635(c)(4) (the “Inducement Rule”).
On December 15, 2017, the Compensation Committee adopted the 2017 New Hire Equity Incentive Plan (“2017 New Hire Plan”), which is intended to be exempt from the stockholder approval requirements under the “inducement grant exception” provided by the Inducement Rule. The Committee authorized the issuance of up to 1.5 million Common Shares to new hires, with the purpose of promoting the long-term success of the Company and the creation of stockholder value by (a) providing for the attraction and retention of new employees with exceptional qualifications, (b) encouraging new employees to focus on critical long-range objectives, and (c) linking new employees directly to stockholder interests through increased stock ownership. As required by the Inducement Rule, the Company issues a press release promptly upon issuing shares to new employees pursuant to the 2017 New Hire Plan.
There were no significant changes to the Company’s Stock Plans during the year ended December 31, 2019. As of December 31, 2019, there were 1.8 million shares available for the grant or award under the Company’s 2015 Plan and 0.3 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 has reflected such awards in accrued expenses. As of December 31, 2019, the liability for such awards is approximately $0.6 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Cost of revenues
|
$
|
2,929
|
|
|
$
|
4,370
|
|
|
$
|
4,602
|
|
|
Research and development
|
4,227
|
|
|
6,055
|
|
|
6,030
|
|
|
Selling, general and administrative
|
15,094
|
|
|
17,179
|
|
|
11,863
|
|
|
Total stock-based compensation expense
|
$
|
22,250
|
|
|
$
|
27,604
|
|
|
$
|
22,495
|
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The following table summarizes stock-based compensation expense related to all of the Company’s stock awards included by award types, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Stock options
|
$
|
7,348
|
|
|
$
|
7,368
|
|
|
$
|
6,311
|
|
|
Restricted stock awards
|
14,775
|
|
|
20,216
|
|
|
15,802
|
|
|
Employee Stock Purchase Plan
|
—
|
|
|
—
|
|
|
382
|
|
|
Performance Based Cash Units
|
127
|
|
|
20
|
|
|
—
|
|
|
Total stock-based compensation before taxes
|
22,250
|
|
|
27,604
|
|
|
22,495
|
|
|
Tax benefit
|
$
|
3,455
|
|
|
$
|
5,387
|
|
|
$
|
3,921
|
|
The total stock-based compensation cost related to unvested equity awards as of December 31, 2019 was approximately $30.8 million. The expense is expected to be recognized over a weighted-average period of approximately 1.9 years.
The total stock-based compensation cost related to unvested performance-based cash units as of December 31, 2019 was approximately $0.3 million. The expense is expected to be recognized over a weighted-average period of approximately 1.6 years.
In June 2019, two of Synchronoss board members decided not to stand re-election at the 2019 Annual Shareholder Meeting. The Company accelerated the vesting of certain unvested restricted stock awards and stock options for these board members at their termination date. The Company accounted for the acceleration of these grants as a Type I modification under ASC Topic 718 and recorded a one-time expense of $0.3 million.
As part of the work force reduction driven by corporate restructuring initiated in 2016, the Company terminated certain employees in 2017 and accelerated the vesting of certain unvested restricted stock awards and stock options for these employees. The Company accounted for the acceleration of these awards as a result of the restructuring termination as a Type III modification under ASC Topic 718 and recorded a one-time expense of $1.1 million.
In July 2017, the Company modified the terms of performance-based restricted stock awards granted to certain employees in 2015 and 2016 to modify the performance period as the performance targets for 2017 established previously were not considered probable due to the changes in the business driven by significant acquisitions and divestitures by the Company. The modification of the performance-based shares was considered a Type III modification under ASC Topic 718, and as a result, the Company reversed all previously recorded expense for these awards and recorded the new compensation expense over the new requisite service period as a result of the modification. The total incremental compensation expense resulting from these modifications was $2.0 million.
Replacement Awards
On January 19, 2017, certain equity awards granted under the Intralinks Holdings, Inc. 2010 Equity Incentive Plan and the Intralinks Holdings, Inc. 2007 Stock Option and Grant Plan (together, the “Intralinks Plans”) were assumed by the Company’s 2015 Equity Incentive Plan (the “2015 Plan”). The assumed awards are subject to the vesting and service conditions of the 2015 Plan. Subsequently, these were accelerated as part of the Intralinks Transaction.
Among the equity awards assumed were restricted stock units subject to market-based performance targets in order for them to vest. Vesting is subject to continued service requirements through the vesting date. The grant date fair value for such unvested restricted stock units was estimated using a Monte Carlo simulation that incorporates option-pricing inputs covering the period from the grant date through the end of the performance period. Stock-based compensation expense for such unvested restricted stock units is recognized on a straight-line basis over the vesting period, regardless of whether the market condition is satisfied. All of these awards were canceled during 2017 pursuant to termination of related employees.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Stock Options
Options that were granted under the Company’s 2000, 2006 and 2015 Plans generally vest 25% on the first-year anniversary of the date of grant plus an additional 1/48th for each month of continuous service thereafter.
Options that were granted under the Company’s 2010 Plan generally vest 50% on the second-year anniversary and an additional 1/48th for each month of continuous service thereafter.
Incentive options that were granted under the 2000 and 2006 Plans generally vest 25% on the first-year anniversary on the date of grant and an additional 1/48th for each month of continuous service thereafter.
There were no significant changes to the Company’s Stock Option Plans during the year ended December 31, 2019.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Expected stock price volatility
|
|
69.6
|
%
|
|
65.5
|
%
|
|
57.0
|
%
|
|
Risk-free interest rate
|
|
1.9
|
%
|
|
2.6
|
%
|
|
1.8
|
%
|
|
Expected life of options (in years)
|
|
4.34
|
|
|
4.13
|
|
|
4.08
|
|
|
Expected dividend yield
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
Weighted-average fair value (grant date) of the options
|
|
$
|
3.82
|
|
|
$
|
4.91
|
|
|
$
|
6.30
|
|
The following table summarizes information about stock options outstanding as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
Options
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2018
|
|
4,254
|
|
|
$
|
17.93
|
|
|
|
|
|
|
Options Granted
|
|
1,249
|
|
|
7.05
|
|
|
|
|
|
|
Options Exercised
|
|
(7
|
)
|
|
5.48
|
|
|
|
|
|
|
Options Cancelled
|
|
(574
|
)
|
|
23.51
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
4,922
|
|
|
$
|
14.54
|
|
|
4.78
|
|
$
|
5.56
|
|
|
Vested at December 31, 2019
|
|
1,792
|
|
|
$
|
23.54
|
|
|
3.59
|
|
$
|
1.23
|
|
|
Exercisable at December 31, 2019
|
|
1,792
|
|
|
$
|
23.54
|
|
|
3.59
|
|
$
|
1.23
|
|
The total intrinsic value of stock options exercised during the year ended December 31, 2019 and 2018 was $20.5 thousand and nil, respectively. The total intrinsic value of stock options exercisable as of December 31, 2019 and 2018 was $1.2 thousand and nil, respectively.
Awards of Restricted Stock and Performance Stock
Restricted stock awards (“Restricted Stock”) granted under the Company’s Plans generally vest 25% of the applicable shares on the first anniversary of the date of grant and thereafter an additional 1/16th for each three months of continuous service.
Performance stock awards granted under the Company’s 2006 Plan generally vest with respect to one-third of the applicable shares on the date that the performance objectives under the performance stock awards are achieved and thereafter an additional one-third for each year of continuous service.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Generally, performance stock awards 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.
There were no significant changes to the Company’s restricted stock award (“Restricted Stock”) and performance stock plan during the year ended December 31, 2019.
A summary of the Company’s unvested restricted stock at December 31, 2019, and changes during the year ended December 31, 2019, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Restricted Stock
|
|
Number of
Awards
|
|
Weighted- Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2018
|
|
2,630
|
|
|
$
|
12.71
|
|
|
Granted
|
|
2,204
|
|
|
7.02
|
|
|
Vested
|
|
(1,188
|
)
|
|
17.70
|
|
|
Forfeited
|
|
(271
|
)
|
|
10.90
|
|
|
Unvested at December 31, 2019
|
|
3,375
|
|
|
$
|
8.68
|
|
Restricted stock awards are granted subject to other service conditions or service and performance conditions (“Performance-Based Awards”). Restricted stock and Performance-Based Awards are measured at the closing stock price at the date of grant and are recognized straight line over the requisite service period.
Performance Based Cash Units
Performance based cash units 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 December 31, 2019 and changes during the year ended December 31, 2019, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Cash Units
|
|
Number of
Awards
|
|
Weighted- Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2018
|
|
70
|
|
|
$
|
6.14
|
|
|
Granted
|
|
976
|
|
|
—
|
|
|
Vested
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
Unvested at December 31, 2019
|
|
1,046
|
|
|
$
|
4.75
|
|
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.
14. 401(k) Plan
The Company has a 401(k) plan (the “401(k) Plan”) covering all eligible employees. The 401(k) Plan allows for a discretionary employer match. The Company incurred and expensed $2.6 million, $2.2 million, and $2.9 million for the years ended December 31, 2019, 2018 and 2017, respectively, in 401(k) Plan match contributions.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
15. Restructuring
The Company continues 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 December 31, 2019 and changes during the year ended December 31, 2019, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
Charges
|
|
Payments
|
|
Other Adjustments1
|
|
Balance at December 31, 2019
|
|
Employment termination costs
|
$
|
1,276
|
|
|
$
|
755
|
|
|
$
|
(2,082
|
)
|
|
$
|
141
|
|
|
$
|
90
|
|
________________________________
|
|
|
|
(1)
|
Includes non-cash adjustments and reclassifications.
|
16. Income Taxes
The components of income or (loss) from continuing operations before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Domestic
|
$
|
(104,445
|
)
|
|
$
|
(216,589
|
)
|
|
$
|
(210,214
|
)
|
|
Foreign
|
3,152
|
|
|
(46,585
|
)
|
|
(18,873
|
)
|
|
Total
|
$
|
(101,293
|
)
|
|
$
|
(263,174
|
)
|
|
$
|
(229,087
|
)
|
The components of income tax (expense) benefit from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
(208
|
)
|
|
$
|
3,163
|
|
|
$
|
600
|
|
|
State
|
46
|
|
|
116
|
|
|
—
|
|
|
Foreign
|
(2,048
|
)
|
|
(2,612
|
)
|
|
(4,817
|
)
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
(28
|
)
|
|
6,729
|
|
|
40,634
|
|
|
State
|
(17
|
)
|
|
2,214
|
|
|
1,340
|
|
|
Foreign
|
81
|
|
|
8,284
|
|
|
(2,894
|
)
|
|
Income tax (provision) benefit
|
$
|
(2,174
|
)
|
|
$
|
17,894
|
|
|
$
|
34,863
|
|
Reconciliations of the statutory tax rates and the effective tax rates from continuing operations for the years ended December 31, 2019, 2018 and 2017 are as follows:
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
|
State taxes, net of federal benefit
|
(0.8
|
)%
|
|
3.0
|
%
|
|
1.0
|
%
|
|
Effect of rates different than statutory
|
(4.3
|
)%
|
|
(2.0
|
)%
|
|
(2.0
|
)%
|
|
Minority interest
|
0.2
|
%
|
|
(1.0
|
)%
|
|
(1.0
|
)%
|
|
Non-deductible stock-based compensation
|
(2.5
|
)%
|
|
(2.0
|
)%
|
|
(2.0
|
)%
|
|
Other permanent adjustments
|
(0.3
|
)%
|
|
—
|
%
|
|
(2.0
|
)%
|
|
Research and development credit
|
0.5
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Change in valuation allowance
|
6.7
|
%
|
|
(17.0
|
)%
|
|
(7.0
|
)%
|
|
Statute release of uncertain tax position
|
0.6
|
%
|
|
1.0
|
%
|
|
—
|
%
|
|
Other
|
(1.4
|
)%
|
|
1.0
|
%
|
|
(2.0
|
)%
|
|
Acquisitions and foreign tax residency changes
|
—
|
%
|
|
3.0
|
%
|
|
(2.0
|
)%
|
|
Investment in JV
|
(1.7
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
Global Intangible Low-Taxed Income
|
(3.3
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
Waived deductions for purposes of Base Erosion Anti-Abuse Tax
|
(17.0
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
Tax Reform Rate Reduction
|
—
|
%
|
|
—
|
%
|
|
(3.0
|
)%
|
|
Net
|
(2.1
|
)%
|
|
7.0
|
%
|
|
15.0
|
%
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
Accrued liabilities
|
$
|
78
|
|
|
$
|
88
|
|
|
Deferred revenue
|
12,943
|
|
|
13,120
|
|
|
Bad debts reserve
|
9,291
|
|
|
1,108
|
|
|
Deferred compensation
|
5,262
|
|
|
4,680
|
|
|
Federal net operating loss carry forwards
|
7,969
|
|
|
28,193
|
|
|
State net operating loss carry forwards
|
4,236
|
|
|
7,085
|
|
|
Foreign net operating loss carry forwards
|
9,401
|
|
|
10,880
|
|
|
Deferred rent
|
—
|
|
|
776
|
|
|
Lease Obligations
|
13,791
|
|
|
—
|
|
|
Capital loss carry forward
|
1,563
|
|
|
1,689
|
|
|
Intangible assets
|
2,716
|
|
|
1,318
|
|
|
Basis difference
|
8,041
|
|
|
7,632
|
|
|
Installment sale
|
8,726
|
|
|
8,819
|
|
|
Other
|
3,208
|
|
|
3,508
|
|
|
Total deferred tax assets
|
$
|
87,225
|
|
|
$
|
88,896
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Depreciation and amortization
|
(5,965
|
)
|
|
(9,179
|
)
|
|
Lease Assets
|
(9,593
|
)
|
|
—
|
|
|
Total deferred tax liabilities
|
(15,558
|
)
|
|
(9,179
|
)
|
|
Less: valuation allowance
|
(73,346
|
)
|
|
(81,064
|
)
|
|
Net deferred income tax (liabilities) assets
|
$
|
(1,679
|
)
|
|
$
|
(1,347
|
)
|
As of December 31, 2019, the Company has federal and state income tax net operating loss (“NOL”) carryforwards of $38.0 million and $67.3 million, respectively, including NOL carryforwards which will expire at various dates from 2023 through 2039, and NOL carryforwards which do not expire. The Company also has foreign NOL carryforwards in various jurisdictions of $98.5 million that have various carryforward periods. Such NOL carryforwards expire as follows:
|
|
|
|
|
|
|
|
2023 - 2027
|
846
|
|
|
2028 - 2038
|
74,911
|
|
|
Indefinite
|
128,071
|
|
|
|
$
|
203,828
|
|
In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results and incorporates assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage the underlying businesses.
The foreign NOL carryforwards in the income tax returns filed included unrecognized tax benefits taken in prior years. The NOLs for which a deferred tax asset is recognized for financial statement purposes in accordance with ASC 740 are presented net of these unrecognized tax benefits.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The Company continues to evaluate the ability to realize all of its net deferred tax assets at each reporting date and records a benefit for deferred tax assets to the extent it has deferred tax liabilities that provide a source of income to benefit the deferred tax asset. As a result of this analysis, the Company recorded a valuation allowance against the net deferred tax assets of certain foreign jurisdictions as the realization of these assets is not more likely than not, given uncertainty of future earnings in these jurisdictions. The valuation allowance decreased by $7.7 million and increased by $48.5 million during the years ended December 31, 2019 and December 31, 2018, respectively. The decrease in tax year ended December 31, 2019 is primarily related to utilization of NOL carryforwards. The increase in tax year ended December 31, 2018 was primarily attributable to an increase in NOL carryforwards and valuation allowance recorded in additional foreign jurisdictions where realizability of the deferred tax assets is no longer more likely than not.
The Company is subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2019, the Company’s tax years for 2016 through 2019 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2019, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2015. However, to the extent we utilize our NOL carryforwards in the future, the tax years in which the attribute was generated may still be adjusted upon examination by the tax authorities in the future period when the attribute is utilized.
The Company is currently under income tax examinations in Illinois for the tax years 2014 through 2015, Colorado for tax years 2014 through 2017, and Massachusetts for the tax years 2015 through 2017. The Company does not believe that the results of this audit will have a material effect on its financial position or results of operations.
In 2017, the TCJA included a transition tax based on undistributed, untaxed foreign earnings analyzed in aggregate. The final analysis performed by the Company resulted in an overall untaxed deficit and no transition tax. In addition, no income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Should the Company decide to repatriate the foreign earnings, it would need to adjust its income tax provision in the period it determined that the earnings will no longer be indefinitely invested outside the United States. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the unrecognized deferred tax liability relating to such amounts.
A reconciliation of the amounts of unrecognized tax benefits excluding interest, are as follows:
|
|
|
|
|
|
|
|
Unrecognized tax benefit at December 31, 2016
|
4,585
|
|
|
Increase for tax positions taken during prior year
|
1,823
|
|
|
Increases related to acquired entities
|
13,278
|
|
|
Reduction due to lapse of applicable statute of limitations
|
(1,512
|
)
|
|
Decreases related to divested entities
|
(13,645
|
)
|
|
Increases for tax positions of current period
|
1,946
|
|
|
Unrecognized tax benefit at December 31, 2017
|
6,475
|
|
|
Decrease for tax positions taken during prior year
|
(567
|
)
|
|
Increases related to acquired entities
|
—
|
|
|
Reduction due to lapse of applicable statute of limitations
|
(2,657
|
)
|
|
Decreases related to divested entities
|
—
|
|
|
Increases for tax positions of current period
|
721
|
|
|
Unrecognized tax benefit at December 31, 2018
|
3,972
|
|
|
Increase for tax positions taken during prior year
|
—
|
|
|
Increases related to acquired entities
|
—
|
|
|
Increases and (decreases) related to Lapse of Statute of Limitations
|
(703
|
)
|
|
Decreases related to divested entities
|
—
|
|
|
Increases for tax positions of current period
|
—
|
|
|
Unrecognized tax benefit at December 31, 2019
|
$
|
3,269
|
|
Included in the balance of unrecognized tax benefits as of the years ended December 31, 2019 and 2018, are $2.8 million and $3.5 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in interest expense. The liability for unrecognized tax benefits excludes accrued interest of $0.3 million, $0.4 million, and $0.6 million, for the years ended December 31, 2019, 2018 and 2017, respectively. The Company believes that it is reasonably possible that approximately $0.5 million of its currently unrecognized tax benefits primarily related to research and development credits, which are individually insignificant, may be recognized by the end of 2020 as a result of a lapse of the statute of limitations.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
17. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Numerator - Basic:
|
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(103,467
|
)
|
|
$
|
(245,280
|
)
|
|
$
|
(194,224
|
)
|
|
Net (income) loss attributable to redeemable noncontrolling interests
|
(1,126
|
)
|
|
8,837
|
|
|
9,291
|
|
|
Preferred stock dividend
|
(32,134
|
)
|
|
(25,593
|
)
|
|
—
|
|
|
Net (loss) income from continuing operations attributable to Synchronoss
|
(136,727
|
)
|
|
(262,036
|
)
|
|
(184,933
|
)
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes**
|
—
|
|
|
18,288
|
|
|
75,495
|
|
|
Net (loss) income attributable to Synchronoss
|
$
|
(136,727
|
)
|
|
$
|
(243,748
|
)
|
|
$
|
(109,438
|
)
|
|
|
|
|
|
|
|
|
Numerator - Diluted:
|
|
|
|
|
|
|
Net (loss) income from continuing operations attributable to Synchronoss
|
$
|
(136,727
|
)
|
|
$
|
(262,036
|
)
|
|
$
|
(184,933
|
)
|
|
Income effect for interest on convertible debt, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss from continuing operations adjusted for the convertible debt
|
(136,727
|
)
|
|
(262,036
|
)
|
|
(184,933
|
)
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes**
|
—
|
|
|
18,288
|
|
|
75,495
|
|
|
Net loss attributable to Synchronoss
|
$
|
(136,727
|
)
|
|
$
|
(243,748
|
)
|
|
$
|
(109,438
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic
|
40,694
|
|
|
40,277
|
|
|
44,669
|
|
|
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
|
40,694
|
|
|
40,277
|
|
|
44,669
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
Continuing operations
|
$
|
(3.36
|
)
|
|
$
|
(6.51
|
)
|
|
$
|
(4.14
|
)
|
|
Discontinued operations**
|
$
|
—
|
|
|
$
|
0.46
|
|
|
$
|
1.69
|
|
|
|
$
|
(3.36
|
)
|
|
$
|
(6.05
|
)
|
|
$
|
(2.45
|
)
|
|
Diluted EPS
|
|
|
|
|
|
|
Continuing operations
|
$
|
(3.36
|
)
|
|
$
|
(6.51
|
)
|
|
$
|
(4.14
|
)
|
|
Discontinued operations**
|
$
|
—
|
|
|
$
|
0.46
|
|
|
$
|
1.69
|
|
|
|
$
|
(3.36
|
)
|
|
$
|
(6.05
|
)
|
|
$
|
(2.45
|
)
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options excluded
|
—
|
|
|
—
|
|
|
—
|
|
|
Unvested shares of restricted stock awards
|
3,375
|
|
|
2,700
|
|
|
2,648
|
|
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
|
|
|
|
(1)
|
The calculation does not include the effect of assumed conversion of convertible debt of 1,288,292, 3,972,939, and 4,325,646 shares for the year ended December 31, 2019, 2018 and 2017, respectively; which is based on 18.8072 shares per $1,000 principal amount of the Senior Convertible Notes.
|
|
|
|
|
(2)
|
The calculation does not include the effect of assumed conversion of preferred stock of 11,383,105 and 9,312,528 shares for the year ended December 31, 2019 and 2018, respectively; which is based on 55.5556 shares per $1,000 principal amount of the preferred stock, because the effect would have been anti–dilutive.
|
18. Commitments.
Non-cancelable agreements
The Company leases office space, automobiles, office equipment and co-location services under non-cancelable agreements that expire at various dates, with the latest expiration in 2023.
Aggregate annual future minimum payments under non-cancelable agreements are as follows:
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
Non-cancelable agreements
|
|
2020
|
|
$
|
25,275
|
|
|
2021
|
|
2,575
|
|
|
2022
|
|
2,207
|
|
|
2023 and thereafter
|
|
920
|
|
|
|
|
$
|
30,977
|
|
19. Legal Matters
In the ordinary course of business, the Company is regularly subject to various claims, suits, regulatory inquiries and investigations. The Company records a liability for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable, and the loss can be reasonably estimated. Management has also identified certain other legal matters where they believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the Company’s business, financial position, results of operations, or cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company.
On May 1, 2017, May 2, 2017, June 8, 2017 and June 14, 2017, four putative class actions were filed against the Company and certain of its current and former officers and directors in the United States District Court for the District of New Jersey (the “Securities Law Action”). After these cases were consolidated, the court appointed as lead plaintiff Employees’ Retirement System of the State of Hawaii, which filed, on November 20, 2017, a consolidated complaint purportedly on behalf of purchasers of the Company’s common stock between February 3, 2016 and June 13, 2017. On February 2, 2018, the defendants moved to dismiss the consolidated complaint in its entirety, with prejudice. Before that motion was decided, on August 24, 2018, lead plaintiff filed a consolidated amended complaint purportedly on behalf of purchasers of the Company’s common stock between October 28, 2014 and June 13, 2017. On June 28, 2019, the Court granted defendants’ motion to dismiss the consolidated amended complaint in its entirety, without prejudice, allowing lead plaintiff to leave to amend its complaint. On August 14, 2019, lead plaintiff filed a second amended complaint. The second amended complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and it alleges, among other things, that the defendants made false and misleading statements of material information concerning the Company’s financial results, business operations, and prospects. On October 4, 2019, the defendants moved to dismiss the second amended complaint in its entirety, with prejudice. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. The plaintiff seeks unspecified damages, fees, interest,
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
and costs. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the actions at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations.
On September 15, 2017, October 24, 2017, October 27, 2017 and October 30, 2017, the Company’s shareholders filed derivative lawsuits against certain of its officers and directors and the Company (as nominal defendant) in the United States District Court for the District of New Jersey (the “Derivative Suits”). On May 24, 2018, the Court consolidated the Derivative Suits and appointed Lisa LeBoeuf as lead plaintiff. The lead plaintiff designated as the Operative Complaint the complaint she previously had filed on October 27, 2017, which alleges claims related to breaches of fiduciary duties and unjust enrichment. The Operative Complaint’s allegations relate to substantially the same facts as those underlying the Securities Law Action described above. Plaintiff seeks unspecified damages and for the Company to take steps to improve its corporate governance and internal procedures. Defendants’ motion to dismiss the Operative Complaint is pending before the Court.
On March 7, 2019, Synchronoss shareholders, Beth Daniel and Juan Solis, filed a separate derivative lawsuit against certain of the Company’s current and former officers and directors and the Company (as nominal defendant) in the Court of Chancery of the State of Delaware, asserting substantially the same allegations as those underlying the Derivative Suits and the Securities Law Action described above. Plaintiffs seek unspecified damages and for the Company to take steps to improve its corporate governance and internal procedures. On May 20, 2019, the parties stipulated to a stay of the action pending a ruling on the pending motion to dismiss in the Derivative Suits. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the Derivative Suits at this time and can give no assurance that the asserted claims will not have a material adverse effect on our financial position or results of operations.
Except as set forth above, the Company is not currently subject to any legal proceedings that could have a material adverse effect on its operations; however, it may from time to time become a party to various legal proceedings arising in the ordinary course of its business. The Company is currently the plaintiff in several patent infringement cases. The defendants in several of these cases have filed counterclaims. Although the Company cannot predict the outcome of the cases at this time due to the inherent uncertainties of litigation, the Company continues to pursue its claims and believes that the counterclaims are without merit, and the Company intends to defend against all of such counterclaims.
20. Subsequent Events
Subsequent to December 31, 2019, the Company paid in-kind the accrued Preferred Dividends of $7.9 million.
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
21. Additional Financial Information
Other Income (expense), net
The following table sets forth the components of Other Income (expense), net included in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
FX gains (losses) (1)
|
$
|
31
|
|
|
$
|
(478
|
)
|
|
$
|
(4,952
|
)
|
|
PIK Note impairment (2)
|
—
|
|
|
(84,314
|
)
|
|
(14,562
|
)
|
|
Litigation settlement (3)
|
—
|
|
|
4,495
|
|
|
—
|
|
|
Remeasurement gain (loss) on financial instrument (4)
|
—
|
|
|
3,849
|
|
|
(4,367
|
)
|
|
Divestiture: SpeechCycle (5)
|
—
|
|
|
—
|
|
|
4,947
|
|
|
Income from Investment (6)
|
—
|
|
|
519
|
|
|
—
|
|
|
Income from sale of intangible assets (7)
|
5,518
|
|
|
—
|
|
|
—
|
|
|
Income from Tax credit (8)
|
1,039
|
|
|
—
|
|
|
—
|
|
|
Others (9)
|
801
|
|
|
1,012
|
|
|
1,256
|
|
|
|
$
|
7,389
|
|
|
$
|
(74,917
|
)
|
|
$
|
(17,678
|
)
|
________________________________
|
|
|
|
(1)
|
Fair value of foreign exchange gains and losses
|
|
|
|
|
(2)
|
PIK Note impairment on the troubled debt restructuring
|
|
|
|
|
(3)
|
Represents Legal settlement of $4.2 million and $0.3 million IP settlement from third parties
|
|
|
|
|
(4)
|
Remeasurement of gain/loss on Mandatorily Redeemable Put option for common shares held by Siris.
|
|
|
|
|
(5)
|
Represents gain on divestiture of SpeechCycle.
|
|
|
|
|
(6)
|
Represents gain on sale on the Company’s cost investment in Clarity, Money Inc.
|
|
|
|
|
(7)
|
Represents gain on sale on the Company’s IP addresses
|
|
|
|
|
(8)
|
Represents VOX Acquisition R&D Tax Credit
|
|
|
|
|
(9)
|
Represents an aggregate of individually immaterial transactions
|
22. Summary of Quarterly Results of Operations (Unaudited)
Quarterly results of operations for 2019 and 2018 are as follows:
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except for per share data or unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
2019
|
(In thousands, except per share data)
|
|
Net revenues
|
$
|
88,105
|
|
|
$
|
77,846
|
|
|
$
|
52,210
|
|
|
$
|
90,588
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
(20,339
|
)
|
|
(18,288
|
)
|
|
(50,972
|
)
|
|
(18,189
|
)
|
|
Net (loss) income
|
(19,737
|
)
|
|
(16,577
|
)
|
|
(61,213
|
)
|
|
(5,940
|
)
|
|
Net (loss) income attributable to Synchronoss
|
(27,587
|
)
|
|
(25,030
|
)
|
|
(69,432
|
)
|
|
(14,678
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
Continuing operations (1)
|
$
|
(0.68
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(0.36
|
)
|
|
Discontinued operations (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
(0.68
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(0.36
|
)
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Continuing operations (1)
|
$
|
(0.68
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(0.36
|
)
|
|
Discontinued operations (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
(0.68
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
2018
|
(In thousands, except per share data)
|
|
Net revenues
|
$
|
83,709
|
|
|
$
|
76,742
|
|
|
$
|
83,286
|
|
|
$
|
82,102
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
(44,234
|
)
|
|
(43,100
|
)
|
|
(34,629
|
)
|
|
(42,313
|
)
|
|
Net (loss) income
|
(37,977
|
)
|
|
(41,264
|
)
|
|
(46,644
|
)
|
|
(101,107
|
)
|
|
Net (loss) income attributable to Synchronoss
|
(40,045
|
)
|
|
(47,265
|
)
|
|
(54,529
|
)
|
|
(101,909
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
Continuing operations (1)
|
$
|
(0.95
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(3.01
|
)
|
|
Discontinued operations (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
0.45
|
|
|
|
$
|
(0.95
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(2.56
|
)
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Continuing operations (1)
|
$
|
(0.95
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(3.01
|
)
|
|
Discontinued operations (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
0.45
|
|
|
|
$
|
(0.95
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(2.56
|
)
|
________________________________
|
|
|
|
(1)
|
Per common share amounts for the quarters and full year have been calculated separately. Accordingly, quarterly amounts do not add to the annual amount because of differences in the number of weighted-average common shares outstanding during each period which results principally from the effect of issuing shares of the Company’s common stock and options throughout the year.
|