Still seeking to revive its sagging fortunes, Synacor is laying off 20% of its workforce as it continues to restructure its management team and fight off demands from two dissident shareholders for more radical steps.
Synacor Inc. , a Buffalo, N.Y.-based company that specializes in TV Everywhere authentication and web portal services for pay-TV providers, announced Tuesday that it will reduce staffing by about 70 positions as part of its latest effort to "streamline the business and focus on R&D costs." The layoffs were slated to take effect at the end of the third quarter.
The staff reduction comes as Synacor, which has been struggling with revenue declines and net income losses, continues to reshuffle its management team. In the latest move on that front, the company curtly announced the departure of COO Scott Bailey last week, saying he would leave his post September 30 to "pursue other interests." No replacement for Bailey has been announced yet.
Bailey's departure follows the exit of long-time Synacor CEO Ron Frankel, who abruptly announced his resignation as chief executive in June. Frankel then stepped down from the company's board of directors in August. (See Synacor CEO Quits as Financials Plunge.)
New Synacor CEO Himesh Bhise, a former Comcast Corp. (Nasdaq: CMCSA, CMCSK) executive who took over the helm in early August, said the layoffs, while painful, will help the company reposition itself for future growth. The company's sales fell 13% in the first half of the year, after slipping 8% last year from a high of $122 million in 2012.
"These are decisions that, regrettably, affect real people," Bhise said in a prepared statement. "However, becoming leaner and more agile strengthens Synacor and serves as the foundation for a broader strategic agenda to return the company to growth."
Synacor boasts a number of large and mid-sized cable operators and telcos as customers, including Verizon Communications Inc. (NYSE: VZ), Charter Communications Inc. , CenturyLink Inc. (NYSE: CTL), Suddenlink Communications and WideOpenWest Holdings LLC (WOW) . But its business model may need rethinking, as evidenced by Charter's recent decision to take over the development and management of its own web portal.
In the same announcement, Synacor reaffirmed its revenue guidance for the third quarter and full year while raising its EBITDA guidance for the full year. For the third quarter, it still expects sales to come in between $25 million and $26 million, with adjusted EBITDA in the range of negative $0.5 million to $0.5 million. For all of 2014, it expects revenue to reach $100 million to $103 million, with adjusted EBITDA now ranging between negative $1 million and breakeven, excluding the one-time cost of the layoffs and a $1 million pre-tax gain from the sale of an Internet domain name.
Separately, Synacor launched a fresh public relations offensive against two dissident shareholders that have been campaigning for the resignation of company chairman Jordon Levy and the sale of the company. Stoutly rejecting the demands of the two shareholders, JEC Capital and Ratio Capital Management, Synacor issued a press release Wednesday labeling the demands "excessive and inappropriate" and "lacking the best interest of all Synacor shareholders."
JEC Capital and Ratio Capital, which together own nearly 10% of Synacor's stock, have been calling for these drastic steps for the past few months. They also want Synacor to add two new directors to the board. Among other things, they have argued that Levy has led the board "into making decisions that are a mockery of proper corporate governance" and that the company's value "can be unlocked through a third-party strategic integration."
In its latest response to the two dissidents, the Synacor board, which earlier adopted a "poison pill" stockholders rights plan to fend off any unsolicited takeover attempts, said it tried to "engage in cooperative dialogue" with JEC Capital and Ratio Capital and ultimately offered them seats on the board. But it said the two shareholders rejected the offer and "abruptly" abandoned the discussions.
The Synacor board also questioned the motivations and actions of JEC Capital in the shareholder struggle. In its press release, the board noted that JEC Capital is affiliated with Peter Helland, who is both a managing director of JEC and the interim CEO of Piksel, an online video publishing firm that resurfaced in August after shedding its old name. Without actually naming Piksel, the Synacor board noted that Piksel has "similar customers to Synacor and may have the intent to become a potential acquirer." As a result, the board argued, Helland and JEC "may have motives that are not aligned with other shareholders."
Stay tuned for further episodes in this saga.
— Alan Breznick, Cable/Video Practice Leader, Light Reading