Synchronoss Technologies, Inc.

Good day, everyone, and welcome to the Synchronos Fourth Quarter and Full Year 2020 Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Todd Curley of MKR Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, and welcome to Synchronos' Fourth Quarter and Full Year 2020 Earnings Conference Call. With me on today's call are Synchronos' President and CEO, Jeff Miller, and CFO, David Clark. Before I turn the call over to Jeff and David, I'd like to cover a few quick items. This afternoon, Synchronos issued a press release announcing its financial results. That release is available on the company's website at Synchronos.com. This call is being broadcast live over the internet for all interested parties, and the webcast will be archived on the investor relations page of the company's website. I want to remind everyone that on today's call, management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K and 10-Q, for a complete description of these risks. Our statements on this call are made as of today, March 8, 2021, and the company undertakes no obligation to revise or publicly update any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations, or otherwise. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures such as adjusted EBITDA. Adjusted EBITDA does not necessarily equate to cash generated by operations as it does not account for such items as deferred revenue or the capitalization of software development. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting. and present the reconciliation between the two for the periods reported in the release. With that said, I'll now turn the call over to Jeff.

Thanks, Todd, and good afternoon, everyone. Thank you for joining us today. As Todd mentioned, also joining us on the call is the Synchronous CFO, David Clark, who will be providing a financial update on our results for fourth quarter and full year 2020, as well as information pertaining to our 2021 outlook. Prior to discussing operating results, I would like to say that I'm honored and delighted to be the next president and CEO of Synchronous Technology, as announced earlier today. It's been my pleasure to serve as the interim president and CEO, and I'm grateful for the support of our board of directors and the Synchronous team, who have enabled us to make forward progress over the past six months on refining our strategy and delivering on our operating results. which we'll discuss further on today's call. I'm excited to continue to work closely with our customers, our team, and our board to write the next chapter of the synchronous narrative as we focus on driving profitable growth and delivering trusted cloud messaging and digital solutions that consumers and enterprises count on every day. I'm pleased to report that Synchronous delivered solid fiscal fourth quarter and full year 2020 operating results, driven by delivering and execution for our customers, disciplined cost containment, and continued product innovation. Our fourth quarter revenue of $69.4 million met our internal expectations and included improvements in gross and contribution margins, as well as significant reductions in operating expenses from the prior year. Again this quarter, recurring revenue represented more than 80% of our total revenues as an indication of a strong foundation established from our existing customers and multi-year contracts. For the full year, revenue was $291.7 million, also consistent with internal expectations. In the quarter, we delivered $6.4 million in adjusted EBITDA. resulting in full year adjusted EBITDA of 27.8 million, exceeding our guidance range of 23 to 26 million, and providing further evidence of our commitment to improving operational efficiency and our focus on improved profitability. I would like to thank the employees of Synchronous for their outstanding contributions in the wake of the challenges brought on by COVID-19 throughout 2020. And I want them to know that because of their efforts, we have built the foundation for success in 21 and beyond. In the quarter, Synchronous collaborated with Verizon to deliver enhancements which support the Verizon unlimited cloud plan that extends cloud into the 5G home. This industry-leading approach offers unlimited shared storage for photos, videos, and documents, along with protection for files, automatic backup for mobile, both iOS and Android, and computers. We are truly excited to participate in this launch and extending the Verizon Cloud products beyond wireless. Additionally, while still in their first year of AT&T's Cloud introduction, we saw positive momentum in consumer adoption during the fourth quarter, which has continued in early 2021. as new devices have come to market with a streamlined onboarding experience. I'm also pleased to share today that earlier this quarter, we signed an agreement with Allstate Protection Plans to integrate our synchronous personal cloud solution into select device protection plan offerings for Android and iOS devices. Along with our cloud relationship with Assurance, which was announced in 2020, today's announcement related to Allstate represents further progress in leveraging our cloud solution into the insurance device protection plan segment, where digital content protection plans complement device protection offerings from Assurance, Allstate, and other insurance providers. In messaging, we finished the year by signing a new multi-year contract with Altice USA to provide SaaS-based email services to their base of broadband video, and wireless customers. Altice is one of the largest broadband and video service providers in the United States, serving residential and business customers in 21 states. This award followed a rigorous selection and evaluation process and enabled Synchronous to displace one of our competitors. Also in the quarter, we sold additional RCS messaging licenses to our Japanese customers, A plus message service that includes KDDI, NTT Docomo, and SoftBank recently announced that they have now reached the milestone of 20 million RCS subscribers on the service. Our digital business contributed revenue growth during the quarter, from additional sales of our spatial licenses and maintenance, plus strong performance from our financial analytics product line. And in our last call, I referenced the signing of an agreement with AT&T for the extension of our activation services through the end of 2020. And I'm now pleased to report that we've signed a three-year extension to that relationship that began in January. On our last call, I talked about taking a more pragmatic approach to the business by focusing on those lines of business that provide the greatest potential for profitable growth, and allow us to leverage our trusted carrier-grade cloud messaging and digital platforms. In parallel, with narrowing our portfolio focuses, we're continuing to streamline the organization and associated operating expenses to deliver meaningful improvements in profitability and free cash flow. We believe the combination of these efforts will enable us to deliver compelling products that meet the high expectations of our customers and delivered sustained top-line growth over time. I've spent a great deal of time with our customers and strategic partners, and there's no doubt that singularly they are focused on their 5G rollout and ways to monetize technology that 5G will disrupt and to be at the forefront of new opportunities that 5G will enable. Beyond just providing the plumbing for mobile devices, we're seeing that the carriers are looking to take a larger share of the consumer home and mobile digital ecosystem. And we believe their path to realizing that goal is first and foremost through cloud and messaging. There are a few companies that have the decades-long track record of delivering carrier-grade software to the telecommunications industry and have the trust that can only accrue from years of reliable, uninterrupted service which is why I'm so excited about the opportunities that lie ahead for synchronous. We see 5G evolving our cloud platform as we move from an archiving use case, dependent on how data is stored, to use cases of collaboration, which are more about how data is used. More specifically, as 5G allows for greater content to be pushed to the mobile devices and the edge with near zero latency, Cloud will allow richer media creation and real-time content sharing and engagement. Looking at the cloud market, a recent study conducted by Arthur D. Little has revealed that by 2025, the market opportunity for personal cloud services in the U.S. alone will reach $8.9 billion, with greater up to $15 billion of opportunities globally. At present, Telecom operators only own about 1% of the US personal cloud user base. And we believe 5G will be a catalyst for better carrier penetration in this market. Over 200 million wireless and fixed line subscribers around the world now have access to synchronous personal cloud. And we believe that by building more engaging experiences, we can increase that subscriber count in 2021 and in future years with increased penetration of our existing customers as well as expansion of new cloud accounts. Messaging remains dominated by SMS, a dated technology that is ripe for disruption. In a time where 5G can deliver gigabit speeds to your mobile device, SMS's 160-character limitation and links to hyperlinks simply will not do. SMS is insufficient to power B2C commerce, as it cannot deliver the interactions that consumers now expect, nor deliver the engaging experiences that brands want to present to them. There are over 5 billion global messaging users, and the value of business-to-consumer messaging today for the operators is already greater than $20 billion per year. Preliminary results for RCS indicate that this enhanced form of messaging can drive exponential growth for carriers and result in increasing their revenue opportunities. For example, during Vodafone UK trials, open rates for an RCS message campaign were 80% versus only 1% for SMS. Response rates were 25% versus just over 1% for SMS. Synchronous is the leading provider with cross-market, cross-carrier scale for RCS-based messaging implementations. And in addition, we have another leg in this door as the preferred provider of over 250 million active email boxes globally. While we are belt-tightening overall, we plan to strategically increase investments in our cloud and messaging platforms and introduce new features and capabilities. that keep our platforms at the leading edge of these evolving and growing markets. Our products must not only work well and scale to carrier demands, but also deliver engaging experiences to our customers and their subscribers such that they, the carriers, can monetize an increasing share of their subscriber base. I would also note that these investments into our cloud and messaging platforms can be leveraged across our existing as well as new customers globally. And we believe these actions will add significantly to the leverage in our business model. We've also made changes to our digital business to help tighten the value proposition by combining our financial analytics, spatial, and iNow portfolio into what we call our total network management suite of products. While technically a legacy business, we believe this portfolio still offers significant value to our customers, contributes profitable revenue, and its tightened value proposition has the potential to contribute to growth in the top line. Over the past six months, we've taken definitive steps to improve our operational efficiency as we enter 2021. This includes a global restructuring of our sales organization by reducing a layer of management, thereby improving our customer intimacy and accelerating the speed of decision-making. Additionally, we renegotiated key contracts with third-party suppliers and made reductions in our global real estate footprint through a combination of consolidating and closing office space. All of these actions have contributed to reducing our ongoing operating expenses. In addition, I'm also announcing that we will no longer be investing resources and to build out our IoT practice. While it was no doubt a large and growing market, my goal is to refine our product line focus to where we have a market leading position. And we did not see the same level of synergies in our IoT business as the rest of our platforms. That said, we will continue to support the customers that we serve today. Before I turn it over to David, I wanted to report that we continue to work on delivering a sustainable capital structure to our shareholders. We understand that the preferred is a significant overhang to the value of our company, and we are actively pursuing a number of more favorable options to refinance. Now I will turn the call over to our CFO, David Clark. David? Thanks, Jeff, and thank you, everyone, for joining us. I will review our fourth quarter and full year 2020 results and provide guidance for 2021.