Synchronoss Technologies, Inc.

Good day and welcome to the Synchronos Technologies third quarter 2021 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Todd Curley of NKR Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to Synchronos' third quarter 2021 earnings conference call. With me on today's call are Synchronos' President and Chief Executive Officer, Jeff Miller, Chief Financial Officer, Taylor Greenwald, and Executive Vice President of Financial Operations and Chief Human Resources 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 for the third quarter. The 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, November 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'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 such items as deferred revenue or the capitalization of software development. The company'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 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 and for your continued interest in Synchronous. On the call with me are Lou Ferraro, Executive Vice President of Financial Operations, and Taylor Greenwald, who we were excited to announce and appoint as Chief Financial Officer just six days ago. Taylor brings with him extensive experience in managing all financial functions of a large global public company and has a track record of driving revenue growth, profitability, and creating shareholder value. He was most recently the Chief Financial Officer of the Web Presence Division of Endurance International Group. And prior to that, spent 18 years with Convergys Corporation, where he held several senior leadership roles, including Senior Vice President of Finance, Controller, and Chief Accounting Officer. Taylor plans to hit the ground running, and I know is looking forward to engaging all of our investors over the coming months. Now, onto the results. I am pleased to announce strong third quarter results that demonstrated improvements to the overall profitability of the business. Q3 revenue was $69.8 million, and adjusted EBITDA of $12.3 million were above expectations, highlighted by growth in cloud revenue, which was up 9% year-over-year and 11% sequentially, and our digital business, which was up 14% year-over-year. and 18% sequentially. Had it not been for the accelerated CCMI revenue in the second quarter, both revenue and adjusted EBITDA would have increased on a year-over-year and sequential basis. Recurring revenue for the quarter was 83% of total revenue, 270 basis points higher than Q3 of 2020, reflecting that higher contributions from cloud subscriber growth and digital solutions in the quarter. Strength in the quarter was driven primarily by continued double digit subscriber growth across our cloud base of customers. Cloud subscriber growth was 16% on a trailing 12 month basis versus 12% in the prior year. This is the first time we're providing this metric publicly. But as we've explained in prior calls, the accounting treatment for our Verizon contract masks the underlying strength by flattening the monthly recognized revenue over the term of that contract. This treatment is specific to the Verizon cloud revenue. And since Verizon is currently our largest cloud customer, the positive momentum of double-digit subscriber growth is not reflected in the reported cloud revenue. By providing this performance metric, we want to provide evidence of the strong underlying fundamentals that are driving cloud revenue growth. and provide everyone a sense of where we can ultimately drive growth for our largest and most strategic unit. We plan to provide this metric on an ongoing basis, and I'm confident that we will sustain this momentum in 2022. During the quarter, Secret has closed a significant new cloud win with Telkomsel, the largest wireless carrier in Indonesia with 170 million subscribers. This is our second win with the division of Telkom Indonesia and follows our agreement earlier this year with Telkom Sigma. With the addition of Telkom Cell, we've now secured four new cloud customers this year. And the potential subscriber base now represented by our global cloud customer base is over 400 million. We remain in active discussions with other enterprises and global service providers. and we expect that those will yield additional agreements in the coming quarters. Also in cloud, we signed an agreement with U.S. Cellular to leverage our mobile content transfer solution, which is part of our cloud portfolio, to simplify the upgrade process for their new and existing subscribers. In messaging, we signed an agreement with Verizon to use our advanced messaging platform as the backbone for their RCS messaging deployment. And in Japan, we achieved another milestone of RCS messaging adoption by passing 25 million plus message subscribers. In digital, we signed a significant multi-year expansion agreement with a large Canadian telecommunications and media company who already leverages our spatial net offering and now plans to deploy a broader set of our modules. I would like to sincerely thank the employees of Synchronous for their accomplishments this quarter. Through your continued focus on execution and collaboration with our customers in product innovation and sales, we are driving growth in cloud and messaging subscribers and our digital business, laying the foundation for further improvements in coming quarters. Now let's take a deeper dive into third quarter results. Cloud revenue was $43 million. up 9% year-over-year and approximately 11% quarter-over-quarter. The strong performance reflects the aforementioned double-digit year-over-year growth in cloud subscribers. In fact, Verizon subscriber growth exceeded our original forecast, resulting in a favorable adjustment to our model, increasing our quarterly revenue recognition in Q3 and on an ongoing basis. Lou will provide further color on this in his prepared remarks. I'm also pleased to report that AT&T Cloud subscriber counts continue as well to be ahead of our forecasts, contributing to the overall performance. Recently, we streamlined the onboarding experience for iOS devices, reducing the friction for Apple users to activate the AT&T Personal Cloud solution. This represents another example of how our development teams are contributing to making the cloud experience more accessible and should help AT&T further accelerate cloud adoption within their customer base. As mentioned in the quarter, we signed Telkomsel in Indonesia with a planned launch in Q1 2022. This is a major international win for Synchronous with a carrier whose subscriber base of 170 million is actually larger in size than AT&T or Verizon. The primary factors behind the Telkomsel win were our carrier-grade reliability and scalability, and the option to host the data locally in Indonesia in accordance with their local privacy laws. Year-to-date, we've now signed four new customers to the synchronous cloud platform, including all state protection plans, TelkomSigma, Kitamura, and now Telkomsel. In addition, we recently extended our partnership with mobile device and support and protection provider Assurant through a multi-year extension of our agreement to integrate the synchronous cloud with their portfolio of digital services to their mobile subscribers. Now, while these new cloud customers and new wins will provide limited financial contribution in the current quarter, we expect them to contribute more significantly in 2022 as they ramp up. Plus, as I briefly mentioned, during Q3, we signed an agreement with U.S. Cellular to utilize our mobile content transfer solution, part of our cloud portfolio, to ease the process for their consumers to protect and migrate their digital content as they upgrade devices. This solution will assist U.S. Cellular as they streamline the onboard and upgrade process for customers during the critical holiday season. Messaging revenue was $12.3 million, down 26% year-over-year and 40% quarter-over-quarter, largely due to the accelerated revenue recognition from CCMI that we realized and discussed in the second quarter. I want to highlight that during the quarter, Synchronous signed a contract with Verizon for our RCS-based messaging platform. In earlier calls, I noted that following the dissolution of CCMI, we anticipated working with carriers individually, much as we do in Japan. And our new agreement with Verizon represents a continuation of the work that began in Q4 of 2019 under the umbrella of CCMI. We're now working closely with Verizon to prepare for the launch of their RCS messaging expansion. In Japan, It was recently announced that the RCS-based plus message service now exceeds 25 million subscribers. This compares with 20 million announced at the end of Q4 2020 and speaks to how well received our solution has been in the Japanese market. As a result, we saw some incremental license revenue in the quarter and expect to sell additional capacity licenses in Q4. Over the course of Q3, We also migrated over 1.5 million accounts to our email solutions at customers like Bell, Altice, and Proximus, many of them from a competitor's platform. Additionally, we completed a migration of 5 million accounts in one of our email customers in Japan. In digital, revenue was up to $14.4 million, a 14% year-over-year and 18% quarter-over-quarter growth. We closed a significant multi-year contract with a large Canadian telecommunications and media company who's been using our spatial net solution for 15 years to help design and maintain its network. And they'll now use two additional modules to expand their suite. This company has a complex and varied network that includes fiber, coax, and copper network architectures, And these two additional modules will allow them to further optimize their network investment and increase their customer satisfaction. On the product innovation front, our R&D teams have been working hard on a significant overhaul of our White Label Cloud product that utilizes a new, modern, cross-platform client architecture. By enabling a faster integration and deployment framework, enhanced media ingestion, and allowing for better code reuse, we expect to greatly improve both the speed to market of our products and the productivity of our R&D investments. Within our digital portfolio, we formally launched two new products within our Spatial Suite network inventory management platform, Spatial Insight and Spatial Office. Spatial Insight provides our customers with extensive network capacity analysis and automated design capability for visibility into their network and the overall health of the platform. Spatial Office is a browser-based network viewing and reporting tool that provides instantaneous access to network data across an organization. And finally, we have successfully completed the integration of wireless activation for all three Tier 1 US carriers, leveraging our DXP platform for one of our key digital customers. This will enable wireless activation across the three U.S. carriers through a single platform. Before I turn it over to Lou, let me thank him for the fantastic job that he has done taking on the role of acting CFO, guiding us through the recapitalization process this summer in addition to all of his other responsibilities. He will be resuming his role as Executive Vice President of Financial Operations and chief human resources officer of the company. And he will remain an integral member of the senior leadership team. It's been a year since the board appointed me CEO. And through our employees' tireless efforts, we've made significant progress in turning around synchronous. Last quarter, we completed a recapitalization of the company and put in place a more sustainable capital structure. Through a focus on our customers, we're delivering accelerated subscriber growth across our base of global cloud customers, increasing from 12% to 16% on a year-over-year comparison. And we're adding new customers to that platform. We have prudently managed our expenses and improved operating efficiencies, which in combination with our incremental subscriber growth is leading to enhanced levels of profitability. Our R&D teams have continued their innovation, bringing new features, functionality, and capabilities to the market, while making our platforms more accessible and easier to use by subscribers. We see continued opportunities to improve, and I am more confident than ever in the bright future that lays ahead for Synchronous, and I'm honored and grateful for the opportunity to lead this company. I will continue to work to improve operational and financial results, and ultimately delivered enhanced value for our shareholders. We thank you all for your support. And with that, let me turn it over to Lou, who will provide more financial detail on Q3 results.