BRIDGEWATER, N.J. -- Synchronoss Technologies, Inc. (NASDAQ:SNCR), a global leader and innovator in cloud, messaging, digital, and IoT products and platforms, today announced that on June 29, 2018 it filed its Annual Report on Form 10-K for the year ended December 31, 2017, including the previously announced restatement of prior period results and its Quarterly Report on Form 10-Q for the first quarter of 2018. The Form 10-K also includes relevant quarterly, unaudited financial information for the first, second and third quarters of 2017.

Glenn Lurie, President and CEO of Synchronoss, said “Synchronoss’ filings represent a significant step towards reaching our SEC financial reporting obligations and Nasdaq listing requirements.” Lurie added, “As we look ahead, we believe that Synchronoss is well positioned for long-term success. We have re-focused the company on the telecommunications market while also adding the related media and technology sectors, expanding our market with an overall TMT focus. Synchronoss is differentiated by our tremendous product portfolio, domain expertise, and experienced team. We are pursuing a number of exciting new opportunities, which I am confident will drive growth and profitability for the company over time."

Lawrence Irving, Chief Financial Officer of Synchronoss, said “We are very pleased to have filed our Form 10-K for 2017 and to have completed the restatement of our financial statements. This was a comprehensive undertaking that involved a detailed and thorough examination of our current and historical financial statements, as well as our accounting policies and work processes.” Irving added, “Our next step is to complete the process to resolve any outstanding issues with Nasdaq.”

Summary Financial Highlights:

Mr. Irving continued, “Our financial performance in the first quarter of 2018 reflects the 2017 impact of transitioning our business, as well as management’s focus on completing the financial statement refiling process. The company wound down its enterprise strategy and re-focused on a TMT strategy that leverages its telecom roots, in addition to transitioning its Digital Cloud business to a premium subscriber model. With these distractions now behind us, and a new, re-focused strategy in place along with a meaningful infusion of new leadership brought into the company, we believe Synchronoss is much better positioned to generate solid growth from a long-term perspective.”

First Quarter 2018 Financial Results

Synchronoss adopted the new revenue recognition standard, ASC 606, as of January 1, 2018. The company’s first quarter 2018 financial results are presented according to ASC 606. The company’s full year 2017 results are presented under the previous accounting standard, ASC 605.

Revenue: Total Revenue was $83.7 million, compared to $86.1 million in the first quarter of 2017. Revenue in the first quarter of 2018 was favorably impacted by $11.0 million due to the implementation of ASC 606. Digital Cloud Revenue was $61.3 million, a 19.9% decrease year-over-year, and Messaging Revenue was $22.4 million, a 133.7% increase year-over-year. The year-over-year decrease in Digital Cloud revenue reflects the transition of our Cloud business to a focus on a premium subscriber model. The year-over-year increase in Messaging revenue reflects new sales in the Japanese market and revenue related to the delivery and launch of a new advanced messaging solution.

Gross profit: Gross profit was $39.2 million, representing a 46.8% gross margin. Non-GAAP gross profit was $40.3 million, representing a 48.1% non-GAAP gross margin.

Operating Income (Loss) from continuing operations: Loss from continuing operations was ($44.2) million, compared to a loss of ($51.3) million in the year-ago period.

Non-GAAP loss from continuing operations was ($20.9) million, compared to a loss of ($27.1) million in the year-ago period. Non-GAAP loss from continuing operations excludes stock-based compensation expense, acquisition costs, restructuring, amortization expense, integration costs, and one-time expenses due to restatement.

Adjusted EBITDA: Adjusted EBITDA was ($5.9) million, compared to ($12.4) million in the year-ago period. Adjusted EBITDA represents GAAP operating loss plus stock-based compensation expense, acquisition and restructuring charges, the net change in contingent consideration obligation, depreciation and amortization and restatement expenses.

Net Income (Loss) from continuing operations net of loss attributable to non-controlling interests: Net loss from continuing operations net of loss attributable to non-controlling interests was ($40.0) million, or ($0.95) per share based on 42.2 million weighted-average shares outstanding. This compares to a net loss of ($58.7) million, or ($1.33) per share based on 44.2 million weighted-average shares outstanding in 2017.

Non-GAAP net loss from continuing operations net of loss attributable to non-controlling interests was ($22.6) million, or ($0.54) per share, based on 42.2 million weighted-average shares outstanding. This compares to a net loss of ($27.9) million, or ($0.63) per share based on 44.2 million weighted-average shares outstanding in the year-ago period.

Cash and Cash Flow: As of March 31, 2018, Synchronoss had $320.0 million in cash, cash equivalents, short-term investments and restricted cash. Synchronoss had $228.1 million of convertible senior notes, net of issuance costs as of March 31, 2018 and $165.2 million of redeemable convertible preferred stock, net of issuance costs and discount. Synchronoss used 9.4 million in cash from operations, $1.1 million in purchase of fixed assets and $7.0 of capitalized software costs, leading to negative free cash flow of $17.5 million, compared to negative free cash flow of $19.4 million in the year-ago period.

Full Year 2017 Financial Results

Revenue: Total Revenue was $402.4 million, compared to $426.3 million in 2016. Digital Cloud Revenue was $348.5 million, a 9.6% decrease year-over-year, and Messaging Revenue was $53.9 million, a 31.8% increase year-over-year.

Gross profit: Gross profit was $220.9 million, representing a 54.9% gross margin. Non-GAAP gross profit was $227.3 million, representing a 56.5% non-GAAP gross margin.

Operating Income (Loss) from continuing operations: Loss from continuing operations was ($129.6) million, compared to a loss from continuing operations of ($122.6) million in 2016.

Non-GAAP loss from continuing operations was $3.6 million in 2017, compared to non-GAAP income from continuing operations of $14.4 million in 2016.

Adjusted EBITDA: Adjusted EBITDA was $56.5 million, compared to $69.8 million in the year-ago period.

Net Income (Loss) from continuing operations net of (loss) income attributable to non-controlling interests: Net loss from continuing operations net of loss attributable to non-controlling interests was ($184.9) million, or ($4.14) per share based on 44.7 million weighted-average shares outstanding. This compares to a net loss of ($78.7) million, or ($1.81) per share based on 43.6 million weighted-average shares outstanding in 2016. Net loss reflects the impact of higher interest expense, a loss on the extinguishment of debt, an equity method investment loss, and other expense.

Non-GAAP net loss from continuing operations net of loss attributable to non-controlling interests was ($84.1) million, or ($1.88) per share based on 44.7 million weighted-average shares outstanding. This compares to non-GAAP net income of $12.6 million, or $0.29 per share, based on 43.6 million weighted-average shares outstanding in the year-ago period.

Cash and Cash Flow: As of December 31, 2017, Synchronoss had $249.2 million in cash, cash equivalents, short-term investments and restricted cash. Synchronoss had $227.7 million of convertible senior notes, net of issuance costs as of December 31, 2017. Synchronoss used $18.2 million in cash from operations during 2017, $12.2 million related to the purchase of fixed assets and $9.1 million related to capitalized software costs, leading to free cash flow of negative $39.5 million, compared to free cash flow of $54.3 million in the year-ago period. 2017 free cash flow was impacted of approximately $37.2 million of one-time cash expenses related to the Company’s restatement process.

Summary of Restatement Effects on Prior Year Periods

The company’s Annual Report on Form 10-K for 2017 includes the restatement of its financial statements for the years ended December 31, 2016 and December 31, 2015. The company’s 10-K filing also includes restated selected financial data for the fiscal years ended December 31, 2016, 2015, 2014 and 2013, as well as restated unaudited financial information for each of the quarterly and year-to-date periods in 2015 and 2016 and unaudited financial information for the first three quarterly and year-to-date periods in 2017. The company has also filed its Quarterly Report on Form 10-Q for first quarter of 2018.

The circumstances that led to the restatement were in three primary areas:

Revenue Recognition Related to Hosting Services: Historically, the company entered into hosting arrangements that included various components in the fee structure, with certain fees accelerated during the initial years of the arrangement. In these instances the company recognized the accelerated fees as billed and the remaining fees were recognized on a straight-line basis over the term of the contract.

The company has determined to revise the accounting treatment for these hosting services to recognize revenue on a straight-line basis for such fees over the appropriate period of time when the benefits of hosting services were provided to the customer or the customer benefitted from the set-up fees. In certain cases, the company had entered into a separate hosting services contract with a customer, which the company has now determined should have been combined with the software license agreement and treated as part of a larger multiple element arrangement.

In other cases, certain hosting arrangements with customers included a perpetual software license that the company recognized on an upfront basis, as well as hosting fees that were recognized ratably over the term of the contract. The company has determined to revise the accounting treatment of such license fees to recognize them ratably over a period of time due to the inclusion of hosting services as part of the same multiple element arrangement. In certain cases, the company had entered into a separate hosting services contract with the customer.

The net result of these changes is that the revenue recognized on an accelerated or upfront basis has been deferred to future periods and will be recognized ratably over the term of the contract.

Revenue Recognition Related to Establishing Persuasive Evidence of an Arrangement:

Historically the company had, and continues to have, contractual arrangements with certain customers whereby there is an established master services agreement that includes general terms and conditions. Such master services agreements contemplate the customer delivering purchasing documentation for purposes of completing orders, indicating the nature, price and quantity of the products and services ordered. In certain cases, the company had historically formed a view that persuasive evidence of an arrangement existed relating to such orders based upon its receipt from the customer of written confirmation of the order and commitment to pay the agreed price, such as a quote approval sent by the customer in response to a quote issued by the company, but prior to that customer’ subsequent delivery to the company an executed statement of work or, in some instances, a purchase order pursuant to a master services agreement.

The company has determined, in certain situations, to revise the timing of revenue recognition to when it received final formal contract documentation, which occurred in a future period. In those cases where the adjustment to defer revenue has been recorded prior to when cash payment was received from the customer, the balance sheet impact has been to reduce the related accounts receivable balance, whereas the balance sheet impact of these adjustments after the receipt of cash payment from the customer has been to increase accrued liabilities.

In certain situations, these adjustments represent issues related to the timing of revenue recognition, while in other cases, these adjustments represent amounts that had subsequently been written-off to bad debt expense (whereas now both the revenue and the related bad debt expense has been reversed).

Synchronoss Technologies Inc. (Nasdaq: SNCR)