Synchronoss Technologies, Inc.

Good day and thank you for standing by. Welcome to the synchronous second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. And please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Todd Curley of MKR Investor Relations. Please, go ahead.

Thank you, Operator. Good afternoon, and welcome to Synchronous' second quarter 2021 earnings conference call. With me on today's call are Synchronous' President and Chief Executive Officer, Jeff Miller, and newly appointed Acting Chief Financial Officer, Lou Ferrero. Before I turn the call over to Jeff and Lou, I'd like to cover a few quick items. This afternoon, Synchronos issued a press release announcing its financial results. This 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 particularly comments regarding our long-term prospects and market opportunities, our 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 recent 10-K and 10-Q, for a complete description of these risks. Our statements on this call are made as of today, August 9th, 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'll 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 various items such as deferred revenue or the capitalization of software development. We believe that the use of non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing synchronous financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors. However, non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Today's earnings release and the related current report on Form 8K describe the differences between our non-GAAP and GAAP reporting and present a reconciliation between the two periods reported in the release. With that said, I'll now turn the call over to Jeff Miller.

Thanks, Todd, and good afternoon, everyone. Thank you for joining today's call and for your continued interest in Synchronous. I'm pleased to announce that our second quarter results have delivered better than expected revenue and profitability. This strong performance was the result of various factors, including double-digit year-over-year cloud subscriber growth, messaging subscriber growth, and our continued focus on driving business efficiencies and cost management. We also saw accelerated revenue from the dissolution of CCMI and in the quarter. Before further discussing second quarter results, I'd like to first welcome Lou Ferraro, who we just named as Acting Chief Financial Officer. He's with me on today's call, and Lou has been with the company for three and a half years, most recently as the Executive Vice President of Financial Operations and Chief Human Resources Officer. During his tenure, he spearheaded many of the improvements in the company's operating expenses and financial controls, and he was instrumental in successfully concluding our recent recapitalization effort. Lou will also continue in his role as Chief Human Resources Officer. I would also like to thank David Clark for his contributions as the synchronous CFO for the past three years, and for his part in ensuring a seamless handoff to Lou. I wish David well in his future endeavors. Returning to the highlights of the quarter, I'm pleased to report that we accomplished a recapitalization of the company and the redemption of the Series A preferred stock previously held by Cirrus Capital. This was a complicated undertaking that included the simultaneous issuance of three different financial instruments, for which there was greater investor demand than initially anticipated. I want to thank all the synchronous employees who worked tirelessly over the past months to successfully accomplish this recapitalization. which resulted in a more favorable and sustainable capital structure. Lou will share further details about the recapitalization, but the bottom line is that we retired the entire preferred stock held by Sears Capital, plus our revolving line of credit with Citizens Bank, through a combination of a bond issuance, equity raise, and a new Series B preferred stock, which was underwritten by investors led by B. Reilly Financial, who I want to welcome as our new strategic partner. This recapitalization reduces our projected 2021 full-year pro forma interest and dividend expense by over 50%. This new capital structure also eliminates significant operating constraints placed on management in pursuing our business initiatives. Going forward, we expect this new capital structure to provide us with greater flexibility with regard to corporate transactions, capital expenditures and investments, as well as our ability to raise debt, equity, and manage our working capital. Upon completion of these efforts, our financial obligations to Cirrus Capital have been successfully concluded, and Cirrus' representatives have stepped down from the synchronous board of directors. The three Cirrus board members were active contributors to our company and our board. They depart on good terms, and I thank them for all the support and counsel they offered us through the years. We now welcome B. Reilly Financial as our new partner. They were instrumental as the lead investment bank in ensuring the completion of the recapitalization. B. Reilly Financial committed significant amounts of their own capital, including purchasing all shares of the Series B preferred stock and 13.8 million shares of our common stock from the equity offerings. making them our largest shareholder, a clear demonstration of their belief in Synchronous' ability to deliver long-term shareholder value. As part of the transaction, we also announced that Martin Bernstein, the head of B. Reilly Principal Investments, has joined Synchronous Board as B. Reilly Financial's designee. As the largest equity holder, B. Reilly's interests are well aligned with our other shareholders, inserting the company's future direction including our goals for profitable growth and increasing shareholder value. I'm delighted to welcome Marty to our team, as well as the capital markets and governance insights that Marty will bring to the board. In addition to B. Reilly Financial, we were able to add many new equity and bondholders as a result of the transaction. I think it's noteworthy to mention that there was robust demand in both our equity and bond offerings and that they were oversubscribed. The strong demand further confirmed our belief that the previous capital structure created downward pressure on our stock and that the recapitalization was the first and necessary step to increasing shareholder value. To all the new investors, welcome to the synchronous family. And I appreciate the meetings that we've been able to have over the past few weeks, and I look forward to talking to many more of you in the coming months. Finally, I'd like to acknowledge our long-term shareholders. They've maintained their belief in Synchronous' unique value proposition and management's continued efforts to transform the company. Thank you for all your support these past months, as well as the encouragement and advice that you've provided. With this recapitalization complete, we now have the operating flexibility to deliver enhanced messaging, cloud, and digital experiences for our customers, which we believe will enable long-term sustainable growth. in both revenues and profits. Moving on, we reported strong quarter with revenue coming in at $71.5 million, which was higher than our original expectations. The strong performance was primarily attributable to continued cloud and messaging subscriber growth and revenue acceleration related to the dissolution of the CCMI joint venture during the quarter. Recurring revenue for the quarter was at 87%. and represented a slight improvement over the prior quarter. In our cloud business, I'm pleased to report that subscriber growth remains strong, and the double-digit rate of growth has accelerated to surpass our pace from the year ago. At Verizon, subscriber growth has been favorably influenced by their Verizon Cloud Unlimited offering and joint marketing activities to their subscriber base. At AT&T, their personal cloud is also gaining momentum, and we continue to see higher than anticipated subscriber adoption, which we believe is only the beginning of this growth trend given the short time that their cloud solution has been available in the market. Looking ahead, we see significant opportunities to increase the penetration at both Verizon and AT&T subscriber bases, which represent more than 200 million mobile and home subscribers. Adding new customers to our platform is a key strategy to celebrating the top-line growth of our cloud business. In this quarter, we're pleased to welcome Kitamura, which is one of Japan's leading retailers, offering image-related services like camera, photo printing, and video services to their customers. Kitamura currently has over 1,000 physical locations in Japan and over 20 million paying visitors. In addition, Kitamura has approximately 10 million consumers for its online services. Kitamura will white label our cloud solution to allow their customers to back up and manage their valuable digital content, photos, and videos from any device. Through this integration with the synchronous cloud, Kitamura will offer a seamless online and retail experience that provides safe and reliable storage for their digital content. With the addition of Kitamura this quarter, we have added three new cloud customers in the first half of the year. I consider the addition of Kitamura an important milestone, as it represents our first cloud customer in Japan, expansion into a new vertical market, and another example of an enterprise using our reliable, scalable cloud technology to deliver innovative use cases, just as we've experienced in our successful expansion into the insurance vertical with Assurance and Allstate protection plans. We also continue to see subscriber growth in messaging, with customer expansion in both our core email and advanced messaging offerings. In the quarter, we migrated millions of subscribers for British Telecom and other global customers onto our core email platform. And nowhere is our messaging subscriber adoption more evident than in Japan, where subscribers for our PlusMessage RCS-based product continues to grow beyond the 20 million users that were announced publicly at the end of 2020. With that growing subscriber base, we're anticipating seeing additional RCS message license purchases from our Japanese carrier partners in the back half of the year. Also, as I mentioned, our work for the CCMI joint venture concluded during the quarter as that entity was dissolved. As we stated during our first quarter earnings call, we will see no negative effect in our 2020 annual financial expectations because of the wind-down of CCMI. In fact, we experienced revenue acceleration this quarter as a result of pulling forward revenue from future quarters. Each of the former CCMI participants has reiterated their continued support for RCS-based messaging, and we remain confident that our messaging platform will be leveraged by carriers globally, including in the U.S., as RCS begins to build momentum. In digital, we saw increased demand for our total network management suite as several of our customers expanded their licenses for our core modules and continue upgrading to newer modules like Spatial Storm and Spatial Office, which we launched in the second quarter within our network management platform Spatial Suite. On the new business front, we continue to expand our footprint of our financial analytics platform with a new contract with cloud solutions provider Unitas Global. And finally, as an update regarding our new blockchain product mentioned during our last call this quarter, we launched the production with a Tier 1 U.S. operator for our innovative carrier-to-carrier interconnection blockchain solution. Our solution provides automated processing of the buying and selling between carriers by eliminating billing inefficiencies via distributed ledger technology. This is an exciting new market for Synchronous, and we look forward to replicating that blockchain solution across many new carriers in the future. Operationally, the second quarter results reflected a continued improvement in managing our operating expenses. And we believe that there are still targeted opportunities in the organization to become more efficient without sacrificing growth potential. We continue to diligently monitor our cost base in order to support continued margin expansion as the business grows. So in summary, the second quarter was noteworthy for Synchronous. We redeemed our Series A preferred stock with a new sustainable capital structure, significantly reducing the cost of financing and restoring the company's flexibility to plan and invest for growth. We saw accelerated growth of our cloud subscriber base and another quarter of providing a secure white label cloud solution that continues to drive value for our customers. PLUS announced a new contract with Kitamura, who, like TelcomSigma and Allstate protection plans announced earlier this year, will start ramping in 2022. We see continued momentum in RCS messaging, as evidenced by increasing PLUS message subscribers in Japan, and believe we will have more customer news to share in the near future. Finally, we're seeing the benefits of our efforts to manage costs without limiting our ability to grow, and we anticipate this year to improve profitability and cash flow over time. When I began as CEO, I said I was going to pursue a more pragmatic strategy and focus on those lines of business that best leverage our competitive advantage to grow revenue and profitability. We've accomplished much, but I know this is just the beginning of a new chapter for the synchronous story, and we still have much hard work ahead of us. But now, management has the flexibility in pursuing a program of profitable growth. It's now time to move forward by building upon our achievements and delivering increased value for our shareholders. And with that, let me turn it over to Lou, who will provide more financial detail on our Q2 results.