Synchronoss Technologies Inc.

11/04/2025 | Press release | Distributed by Public on 11/04/2025 16:30

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included in Item 1 "Financial Information" of this Form 10-Q.
Forward-looking Statements
This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "should," "could," "would," "project," "target," "plan," "expect,", "seek," "hope," "likely," or the negative of these terms or other similar expressions.
Forward-looking statements are based on our management's beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q that may cause actual results to differ materially from those anticipated or implied by the forward-looking statements. These factors include, but are not limited to:
•Adverse changes in the national and global economic environments, including foreign currency exchange and tariffs could affect our sales, revenue and profitability;
•Changes in market trends, growth rates and consumer preferences could impact our ability to meet customer demands, launch new products or features successfully, attract and retain new customers, or to successfully compete with other providers of similar products;
•New laws, regulations or changes to existing laws or regulations, including economic and trade policy, taxation and data protection, could increase our operational complexity or cost;
•Failure to anticipate and keep up with technological advancements could impair our competitiveness;
•Security breaches or cyber-attacks could compromise our proprietary information, cause reputational harm and result in financial penalties;
•The sufficiency of and our ability access cash or cash equivalents to meet our liquidity needs, the timing of our federal tax refund, capital expenditures, fluctuations in interest rates or credit availability could impact our financial performance;
•Legal proceedings or changes in the legal environment could affect our business operations and financial condition;
•Pandemic outbreaks, geopolitical tensions or natural disasters could disrupt our operations;
•Our ability to attract and retain talented employees is crucial to our success and any shortfall in that area could impact our operations.
Given these risks and uncertainties, undue reliance should not be placed on such forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Investors, the media, and others should note that we intend to announce material information to the public through filings with the Securities and Exchange Commission (SEC), the investor relations page on our website (https://
synchronosstechnologiesinc.gcs-web.com/), press releases, public conference calls, webcasts and social media channels, including our X (formerly known as Twitter) feed (x.com/synchronoss) and LinkedIn page (https://www.linkedin.com/company/synchronoss-technologies). The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website. The contents of the websites provided above are not incorporated into this filing or in any other report or document we file with the SEC. These website addresses are intended to be inactive textual references only.
Overview
Synchronoss Technologies, Inc. ("Synchronoss" or the "Company") is a leading provider of white label cloud software and services that enable our customers to keep subscribers, systems, networks, and content in sync.
The Synchronoss Personal CloudTMplatform is a secure and highly scalable white label platform that allows our customers' subscribers to backup and protect, engage with, and manage their personal content and gives our operator customers the ability to increase average revenue per user ("ARPU") and reduce churn.
Designed for smartphones, tablets, and desktops across all operating systems, our platform ensures a seamless cross-device experience.
We market our solutions through multiple channels such as our corporate website, direct sales teams across key regions (North America, Europe, Middle East and Africa ("EMEA") and Asia-Pacific ("APAC")), and industry partnerships.
Revenues
We generate most of our revenues on a subscription basis, which is derived from customer contracts with terms ranging from three to five years.
The future success of our business depends on the continued growth of Business-to-Business ("B2B") and Business-to-Business-to-Consumer driving customer transactions, and continued expansion of our platforms into the telecom ("TMT") market globally through cloud markets. As such, the volume of subscribers and our ability to expand our footprint in TMT and globally may result in revenue fluctuations on a quarterly basis.
Most of our revenues are recorded in U.S. dollars, but as we continue to expand our footprint with international carriers, we are subject to currency translation that could affect our future net sales as reported in U.S. dollars.
The Company's top five customers accounted for99.1% and 97.9% of net revenues for the nine months ended September 30, 2025 and September 30, 2024, respectively. Contracts with these customers typically run for three to five years. Of these customers, both Verizon and AT&T accounted for more than 10% of our revenues in 2025 and 2024. The loss of Verizon or AT&T as a customer would have a material negative impact on our company. However, we believe the costs incurred by and subscriber disruption for Verizon or AT&T to replace Synchronoss' solutions would be substantial.
Current Trends Affecting Our Results of Operations
Business from our Synchronoss Personal Cloud™ solution has been driven by the growth in mobile devices globally that are becoming content rich. As these devices replace other traditional devices like PCs, the ability to securely back up content from mobile devices, sync it with other devices and share it with family, friends, and business associates has become an essential need and subscriber expectation. Such devices include smartphones, connected cars, personal health and wellness devices, and connected home devices. The need for the content from these devices to be stored in a common cloud is also expected to drive our business in the longer term.
Discussion of the Condensed Consolidated Statements of Operations
Three months ended September 30, 2025 compared to the three months ended September 30, 2024
The following table presents an overview of our results of operations for the three months ended September 30, 2025 and 2024 (in thousands):
Three Months Ended September 30, Change
2025 2024 2025 vs 2024
Net revenues $ 42,003 $ 42,964 $ (961)
Costs and expenses:
Cost of revenues1
8,665 8,975 (310)
Research and development 10,837 10,333 504
Selling, general and administrative 12,174 13,755 (1,581)
Depreciation and amortization 4,458 4,386 72
Total costs and expenses 36,134 37,449 (1,315)
Income from operations 5,869 5,515 354
Interest income 5,404 165 5,239
Interest expense (7,776) (5,526) (2,250)
Foreign exchange gain (loss) 512 (5,461) 5,973
Other income, net 8 220 (212)
Income (loss) from operations, before taxes 4,017 (5,087) 9,104
Provision for income taxes 1,796 (628) 2,424
Net income (loss) $ 5,813 $ (5,715) $ 11,528
________________________________
1Cost of revenues excludes depreciation and amortization which are shown separately.
Net revenuesdecreased $1.0 million to $42.0 million for the three months ended September 30, 2025, compared to the same period in 2024. The decrease in revenue was primarily attributable to $0.8 million decrease in professional services, including $1.5 million impact of a customer contract that expired in the prior period, partially offset by subscriber growth.
Cost of revenuesdecreased $0.3 million to $8.7 million for the three months ended September 30, 2025, compared to the same period in 2024. The decrease in 2025 was primarily driven by the elimination of certain third-party service costs following the Company's transition of related activities to internal operations.
Research and developmentexpense increased $0.5 million to $10.8 million for the three months ended September 30, 2025, compared to the same period in 2024. The increase in 2025 was primarily attributable to higher personnel-related costs.
Selling, general and administrativeexpense decreased $1.6 million to $12.2 million for the three months ended September 30, 2025, compared to the same period in 2024. Selling, general and administrative expenses decreased primarily due to $1.3 million lower performance-based compensation expense in the current period due to expected full-year metric attainment compared to the prior period performance.
Depreciation and amortizationexpense increased $0.1 million for the three months ended September 30, 2025, compared to the same period in 2024. The 2025 increase was primarily attributable to increased amortization of capitalized software due to more amortizable assets placed in service in the current period.
Interest incomeincreased $5.2 million to $5.4 million for the three months ended September 30, 2025, compared to the same period in prior year primarily due to $5.2 million interest income related to the federal tax refund received by the Company during the third quarter of 2025.
Interest expenseincreased $2.3 million to $7.8 million for the three months ended September 30, 2025, compared to the same period in 2024. The increase in interest expense is attributable to $0.5 million higher interest on the 2025 Term Loan and $1.7 million amortization of deferred financing costs accelerated due to 2025 Term Loan principal prepayment in the current period.
Foreign exchange (loss) gainwas a gain of $0.5 million compared to a loss of $5.5 million for the three months ended September 30, 2025 and 2024, respectively, due to the impact of non-cash foreign exchange losses on intercompany payables and receivables primarily between the Company's U.S. and European entities.
Income tax. The Company recognized income tax benefit of approximately $1.8 million and income tax expense of approximately $0.6 million for the three months ended September 30, 2025 and 2024, respectively. The effective tax rate was approximately (44.7)% for the three months ended September 30, 2025, which was lower than the U.S. federal statutory rate, primarily due to the discrete tax benefit recorded in the period. The Company finalized its 2024 U.S. federal income tax return during the period, which resulted in a discrete tax benefit of $1.7 million primarily attributable to research tax credit and foreign tax credit studies completed prior to filing the tax return. The Company's effective tax rate was approximately (12.3)% for the three months ended September 30, 2024, which was lower than the U.S. federal statutory rate primarily due to the impact of permanent adjustments including Global Intangible Low-Taxes Income and adjustments to valuation allowances associated with prior year activity, partially offset by foreign tax rate differential.
Nine months ended September 30, 2025 compared to the nine months ended September 30, 2024
The following table presents an overview of our results of operations for the nine months ended September 30, 2025 and 2025 (in thousands):
Nine Months Ended September 30, $ Change
2025 2024 2025 vs 2024
Net revenues $ 126,702 $ 129,387 $ (2,685)
Costs and expenses:
Cost of revenues1
26,298 29,599 (3,301)
Research and development 30,939 32,560 (1,621)
Selling, general and administrative 35,404 39,800 (4,396)
Restructuring charges 165 267 (102)
Depreciation and amortization 12,938 12,773 165
Total costs and expenses 105,744 114,999 (9,255)
Income from operations 20,958 14,388 6,570
Interest income 5,906 556 5,350
Interest expense (19,763) (12,529) (7,234)
Debt modification expense (4,384) - (4,384)
Loss on debt extinguishment (1,993) - (1,993)
Foreign exchange loss (17,598) (440) (17,158)
Other income, net 11 230 (219)
(Loss) income from operations, before taxes (16,863) 2,205 (19,068)
Provision for income taxes (745) (3,939) 3,194
Net loss $ (17,608) $ (1,734) $ (15,874)
________________________________
1Cost of revenues excludes depreciation and amortization which are shown separately.
Net revenuesdecreased $2.7 million to $126.7 million for the nine months ended September 30, 2025, compared to the same period in 2024. The decrease in revenue was mainly attributable to the $3.6 million decrease in professional services and $4.0 million impact of a customer contract that expired in the prior period, partially offset by $3.9 million related to subscriber growth and $1.0 million greater license revenue in the current period.
Cost of revenuesdecreased $3.3 million to $26.3 million for the nine months ended September 30, 2025, compared to the same period in 2024. The decrease in 2025 was primarily due to lower baseline employee expenses resulting from restructuring measures implemented in the fourth quarter of 2024, as well as cost-saving initiatives aimed at reducing vendor expenditures and overhead.
Research and developmentexpense decreased $1.6 million to $30.9 million for the nine months ended September 30, 2025, compared to the same period in 2024. The decrease in 2025 was primarily attributable to cost-saving initiatives implemented in the fourth quarter of 2024 aimed at streamlining the workforce and reducing vendor expenditures.
Selling, general and administrativeexpense decreased $4.4 million to $35.4 million for the nine months ended September 30, 2025, compared to the same period in 2024. The decrease in 2025 was primarily attributable to cost-saving initiatives implemented in the fourth quarter of 2024, decrease in facilities expense due to prior year restructuring activity and lower performance-based compensation expense in the current period due to expected full-year metric attainment compared to the prior period performance.
Restructuring chargeswere $0.2 million and $0.3 million for the nine months ended September 30, 2025 and 2024, respectively, which primarily related to employment termination costs as a result of the work-force reductions initiated to reduce operating costs and align our resources with our key strategic priorities.
Depreciation and amortizationexpense increased $0.2 million to $12.9 million for the nine months ended September 30, 2025, compared to the same period in 2024. The 2025 increase was primarily attributable to increased amortization of capitalized software due to more amortizable assets placed in service in the current period.
Interest incomeincreased $5.4 million to $5.9 million for the nine months ended September 30, 2025, compared to the same period in 2024. The increase was primarily due to $5.2 million interest income related to the federal tax refund received by the Company during the third quarter of 2025.
Interest expenseincreased $7.2 million to $19.8 million for the nine months ended September 30, 2025, compared to the same period in 2024. The increase in interest expense is attributable to $4.9 million higher interest on the 2025 Term Loan and $2.3 million higher amortization of deferred financing costs, including $1.7 million amortization of deferred financing costs accelerated due to 2025 Term Loan principal prepayment in the current period.
Debt modification expensewas $4.4 million and nil for the nine months ended September 30, 2025 and 2024, respectively, related to deferred financing costs associated with the 2025 Term Loan that were expensed on a pro-rata basis in accordance with debt modification accounting guidance during the current period.
Loss on debt extinguishmentwas $2.0 million and nil for the nine months ended September 30, 2025 and 2024, respectively, related to pro-rata unamortized debt issuance costs and prepayment premium associated with the 2021 Senior Notes extinguishment during the current period.
Foreign exchange (loss) gainwas a loss of $17.6 million compared to a loss of $0.4 million for the nine months ended September 30, 2025 and 2024, respectively, due to the impact of non-cash foreign exchange losses on intercompany payables and receivables primarily between the Company's U.S. and European entities.
Income tax. The Company recognized income tax expense of approximately $0.7 million and $3.9 million during the nine months ended September 30, 2025 and 2024, respectively. The effective tax rate was approximately (4.4)% for the nine months ended September 30, 2025, which was lower than the U.S. federal statutory rate due to the current period loss from operations before taxes, the impact of permanent adjustments, including Global Intangible Low-Taxed Income, decreased the effective tax rate, while the impact of foreign tax rate differential, and the impact of valuation allowances increased the effective tax rate. In
addition, the Company finalized its 2024 U.S. federal income tax return during the period, which resulted in a discrete tax benefit of $1.7 million primarily attributable to research tax credit and foreign tax credit studies completed prior to filing the tax return. The Company's effective tax rate was approximately 178.6% for the nine months ended September 30, 2024, which was higher than the U.S. federal statutory rate primarily due to the impact of permanent adjustments, most notably Global Intangible Low-Taxed Income, partially offset by foreign tax rate differential.
Liquidity and Capital Resources
Our principal sources of liquidity have been cash provided by operations. At September 30, 2025 the Company had an aggregate of $34.8 millioncash and cash equivalents, and generated operating cash flows of $41.9 millionfor the nine months ended September 30, 2025. At September 30, 2025, our non-U.S. subsidiaries held approximately $8.0 million of cash and cash equivalents that are available for use by our operations around the world. The Company believes it has sufficient cash and cash equivalents and will generate sufficient liquidity from operations to meet its obligations for at least the next twelve months.
Our policy has been to leave our cumulative unremitted foreign earnings invested indefinitely outside the United States, and we intend to continue this policy for most of our foreign subsidiaries. During 2023, we changed our indefinite reinvestment assertion for our Indian subsidiary and recorded a deferred tax liability associated with the outside basis difference. The Company continues to assert permanent reinvestment of foreign earnings in all other foreign jurisdictions. 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.
We believe that our cash, cash equivalents, financing sources, and our ability to manage working capital and expected positive cash flows generated from operations in combination with continued expense reductions will be sufficient to fund our operations for the next twelve months from the filing date of this Form 10-Q. However, as the current geopolitical tensions unfold, we will continue to assess any impact on our operations and our liquidity needs. Our liquidity plans are subject to a number of risks and uncertainties, including those described in the "Forward-Looking Statements" section of this MD&A and Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, some of which are outside of our control.
Discussion of Cash Flows
A summary of net cash flows follows (in thousands):
Nine Months Ended September 30,
2025 2024
Net cash provided by (used in):
Operating activities $ 41,936 $ 15,205
Investing activities (10,183) (9,109)
Financing activities $ (30,285) $ (5,384)
Our primary source of cash is receipts from revenue. The primary uses of cash are personnel and related costs, telecommunications, and facility costs related primarily to our cost of revenue and general operating expenses including professional service fees, consulting fees, building and equipment maintenance and marketing expense.
Cash provided by operating activities for the nine months ended September 30, 2025 was $41.9 million as compared to $15.2 million of cash provided by operating activities for the same period in 2024. In the current period, the Company generated cash from operations mainly driven by continued growth in cloud subscribers and reduced operating costs, $33.9 million federal tax refund (including $5.2 million of accrued interest), offset by $2.5 million higher debt interest paid in 2025, $3.7 million debt issuance and debt extinguishment costs related to modified debt, and favorable movements in working capital in 2025 compared to 2024.
Cash used in investing activities for the nine months ended September 30, 2025 was $10.2 million as compared to $9.1 million of cash used in investing activities during the same period in 2024. The cash used in investing activities during current and prior year primarily funded product development for our Cloud offering and associated labor costs. In 2024, cash used in investing activities was offset by $1.5 million of deferred consideration for the sale of Messaging and NetworkX Businesses received by the company in the third quarter of 2024.
Cash used in financing activitiesfor the nine months ended September 30, 2025 was $30.3 million as compared to $5.4 million of cash used in financing activities during the same period in 2024. The cash used in financing activities in the current year was primarily related to the receipt of $126.4 million proceeds from 2025 Term Loan net of repayment of 2024 Term Loan, offset by $7.9 million in related issuance costs, $121.4 million repayment of 2021 Senior Notes and $0.7 million in related debt extinguishment costs, $25.4 million repayment of 2025 Term Loan principal due to receipt of the federal income tax refund, and $0.8 million of income and payroll taxes paid as a result of stock-based withholding. The cash used in financing activities in the prior year was primarily related to $75.0 million funding of the Term Loan; offset by $6.8 million issuance costs related to the 2024 term loan, $57.6 million Series B Preferred Stock Repurchase, $11.5 million Senior Notes Repurchase and $4.3 million Series B Preferred dividend payments.
Effect of Inflation
Inflationary increases in certain input costs, such as occupancy, labor and benefits, and general administrative costs have impacted our business. Management does not believe these impacts have had a material impact on our results of operations during the three months ended September 30, 2025and 2024. We cannot assure you, however, that we will not be affected by general inflation in the future.
Contractual Obligations
Our contractual obligations consist of office and laptop leases, notes payable and related interest as well as contractual commitments under third-party hosting, software licenses and maintenance agreements. The following table summarizes our long-term contractual obligations as of September 30, 2025 (in thousands):
Payments Due by Period
Total 2025 2026-2027 2028 Thereafter
Finance lease obligations $ 2,484 $ 495 $ 1,776 $ 213 $ -
Interest 70,007 5,050 40,073 19,341 5,543
Operating lease obligations 16,906 1,812 12,169 2,925 -
Purchase obligations1
33,625 4,275 22,984 6,366 -
2025 Term Loan 174,599 - - 14,599 $ 160,000
Total $ 297,621 $ 11,632 $ 77,002 $ 43,444 $ 165,543
_______________________________
1Amount represents obligations associated with colocation agreements and other customer delivery related purchase obligations.
Uncertain Tax Positions
Unrecognized tax benefits associated with uncertain tax positions were $4.4 million at September 30, 2025. We are not able to reasonably estimate when we would make any cash payments required to settle these liabilities, but we do not believe that the ultimate settlement of our obligations will materially affect our liquidity. The Company anticipates that $3.8 million of its currently unrecognized tax benefits, primarily related to research and development credits and other U.S. tax positions, may be recognized within the next 12 months as a result of a lapse of the statute of limitations.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements in accordance with U.S. GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during a fiscal period.
The SEC considers an accounting policy to be critical if it is important to a company's financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including but not limited to the potential impacts from current geopolitical tensions. As the extent and duration of the impacts from geopolitical developments remain unclear, the Company's estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.
The Company's stock price has experienced a continuous decline during the second and third quarters of 2025. Management monitors the Company's market capitalization relative to its carrying value as part of its impairment assessment process. While the decline in stock price may indicate potential impairment triggers, management has performed an evaluation of qualitative and quantitative factors and concluded that no impairment charge was required dor the nine months ended September 30, 2025. The Company will continue to monitor its stock price trends and other relevant factors for any potential impact on the recoverability of goodwill or other long-lived assets.
During the nine months ended September 30, 2025, there were no significant changes in our critical accounting policies and estimates from our Annual Report on Form 10-K for the year ended December 31, 2024. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 for a more complete discussion of our critical accounting policies and estimates.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards see Note 2. Basis of Presentation and Consolidation of the Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of September 30, 2025 and December 31, 2024 that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Synchronoss Technologies Inc. published this content on November 04, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 04, 2025 at 22:31 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]