Synchronoss Technologies, Inc.

Q4 2022 Earnings Conference Call


spk_0: when we get up
spk_1: i will fall you're late august good afternoon and welcome to synchronize technologies fourth quarter and full year two thousand twenty two earnings conference call joining us today are sicker cigarettes technologies president and ceo jeff miller as the iphone move for our following their remarks we will open the call for your questions then before we conclude i'll provide the necessary cautions regarding the forward looking statements made by management during this call i would like to remind everyone that this call is being recorded and made available for replay be a link to the investor relations section of the company's website at secret of dot com our like to turn the call over to synchronizes ceo jeff miller sir you may proceed
spk_2: thank you operator welcome everyone and thank you for joining us today after the market closed we issued a press release announcing our results for fourth quarter and full year ended december thirty first twenty twenty two copy the press release is available in the investor relations section of our website and i encourage all listeners to the are released for additional information on what will be discussing today i'll start with a review of our recent updates and highlights before turning it over to lose to discuss our financial results for the fourth quarter and four year twenty twenty two after that will up to the call for questions our continued focus on growing our core cloud business and managing our cost rupture resulted in further improvements in profitability and cash flow in court in the fourth quarter enabling us to meet our bottom line goals for the year despite the challenging macro economic environment including headwinds with lower mobile handset purchase activity and subscriber activia activations we grew subscribers by a double digit rate for the eleventh consecutive quarter and more significantly we increased our invoice cloud revenue by nine point five percent in queue for and more than eight percent for the full year clearly the momentum of our club business remain strong or cash generation capabilities are materializing and growing and we can kinda deliver innovative and profitable solutions to our global base of customers our performance dropped twenty twenty two has set the stage for us to continue to scale are high margin club business and attain our goal generating positive cash flow and twenty twenty three and as we look forward to twenty twenty four the combination of anticipated cloud subscriber growth matched with the conclusion of certain nonrecurring payment obligations positions us to ramp cash grow significantly further and twenty twenty four on our provide for their updates with the three product groups beginning with our core business we experienced another solid operational quarter in cloud in the quarter we finalize the major cloud agreement with another tier one global operator do we expect a launch in the second half of twenty twenty three and it's forecasted to deliver more than fifty million dollars over the term of the relationship we also previously shared thank you for a deity chose to exercise a one year extension option or it's existing agreements which now runs through the end of twenty twenty three there were no changes to the commercial terms and a tp continues to leverage it's personal cloud to further engage with it's customers as part of the extension a deity is expanding it's marketing and distribution to leverage their retail channels with additional education in sales incentives highlighting the capabilities of the atp personal cloud we are anticipating a long term renewal agreement with a duty to be executed this year in november we had else can we be adopting rises private storage infrastructure to manage all digital content for rise and customers using the synchronous personal cloud platform on one hand this consolidation allows rising cloud subscribers to more efficiently store photos videos and other digital files managed by the sinkers cloud and for us consolidating the storage will enable our team to focus on developing new features and functionality while simultaneously eliminating the investment into hosting provides a storage infrastructure going forward aside from content storage secret as will continue hosting many key aspects of the rising cloud offering including access control authentication and customer life cycle management we've also made continued progress and are three strategic cloud priorities which are number one to protect and grow subscribers number to expand our global customer base and a three deliver anchor features beginning with our first priority progress with existing customers his continue with subscriber growth maintaining a strong pace as i mentioned earlier improving forty percent year over year and you for despite the global economic headwinds and challenging competitive dynamics in the mobile industry we continue to deliver double digit subscriber growth through increased collaboration with our two largest customers eighty a and arises moving to priority number two global customer expansion as i mentioned earlier the highlight of the quarter was the december signing of a milestone agreement with a global tier one operator which is forecasted to deliver more than fifty million dollars of the life for the multiyear contract the customers a leading provider of mobile telecommunications and i a city services and we've begun work with them to launch a synchronous personal cloud to their tens of millions of subscribers with the launch expected and second half of this year this event underscores a critical step in our goal towards global cloud expansion our recent attendance at the mobile world congress industry event was encouraging his wealth where we witnessed the return of over a hundred thousand attendees in meetings with dozens of customers and prospects it is evident of service providers across europe asia and north america continue to provide proof prioritize arpu growth and profitability and their viewing value added services such as the secret as glad as essential pieces to the equation for general a new revenue with the added benefit of reducing customer churn the beginning twenty twenty three with a strong pipeline of additional cloud opportunities that reflect the relevance of our revenue generated value added services building further upon his recent tier one when need to the enhancements to our cloud feature capabilities we made significant updates to our platform it you for further cementing our leadership position as a number one in white label clap as beginning of this year we unveil the next generation personal cloud platform at si se las vegas or cloud solution which now supports over nine million subscribers worldwide include several features and functionality that leverage artificial intelligence and machine learning to have user engagement and to ensure data privacy and security the in has platform also as capabilities to better share files and optimise photos during mwc and barcelona artificial intelligence was one of the major industry themes the emerging fascination with generative ai is something that we anticipated and i've already applied to the updated cloud offering in queue for we debut genius which is just one element of cigarettes is robust ai capabilities the genius algorithms use deep learning models for photo optimization the first set of benefits allows users to enhance images colored black color black and white photos or perform touch ups and faces in captured pictures advanced highlights another who capability exemplifies are leveraging a machine learning to improve subscriber engagement this capability allows our cloud platform to present and share compelling use your contract tenth to curated presentation of flashbacks of the moments that me most to them
spk_3: we also introduced private folder
spk_2: personal clouds private folder includes a pin protected place to safely store valuable user content such as important photos or personal documents his capability enables users to take advantage of edge detection the easily and accurately scan and upload documents and other information to the secure folder additionally part of the updated platform capabilities is backtrack feature that allows users to restore files for their versions from previous day's this feature as many uses such as recovering from a virus ran somewhere or other malware that infected a user's files or protecting asset access to files that may get accidently corrupted are lost our product updates are highlighted in our secret is hosted explore virtual the met earlier this year and i encourage those of you on a call today to replay that which is available him in our investor relations website in summary we're continuing to position are high margin plowed business for growth among new and existing customers are cutting edge technology is trusted by the largest operators in the world and we're committed to continue to innovate and advancing our position as the leader in white label cloud in a messaging business we saw positive developments with customers in europe in the asia pacific markets the corner was highlighted by a milestone among the japanese consortium of operators as they reached thirty two point five million subscribers for the plus message cross operator rcs service which is powered by the secret is advance messaging platform the mark representatives fifty two percent increase in subscribers since november twenty twenty this is a great momentum for rcs in japan and were continue to work to provide innovative solutions that enable new ways to connect engage collaborate and transact business additionally we announced the extension of a longstanding relationship with a major global service provider in the a pack region as we now help and support over fifty million email service users with a cigarette email sweet and the mx nine core messaging platform this milestone not only demonstrates the level of commitment to innovation and customer satisfaction but also the scale ability and of are solutions and the strength of our technological capabilities the extension comes on the heels of several other wins also in the fourth quarter we migrated thirteen and a half million subscribers from a league leading tell operator in italy to the latest version of the singers email sweet this new environment is been enhanced with the latest features such as anti spam anti virus and i p reputation capabilities at the end a que three we also announced a three year secret as email sweet extension with fastweb a leading italian telecommunications operator these customers in italy have each been partner was segments for over two decades demonstrating the long term value provided by or messaging platform
spk_4: in summary
spk_2: messaging continues to support a broad set of global customers and a compliment our court cloud business while providing financial stability profitability and positive cash flow finishing a digital we signed new contracts and rebranded the portfolio products introducing the network x monica the new brand identity more closely aligned are focused value proposition for telecom service providers to increase the utilization of network infrastructure and assets and services while reducing their costs for the purposes of this quarter all network x business is being referred to by it's legacy digital distinction beginning and twenty twenty three or financial reporting will be updated to reflect the new network ex navy convince as we also noted during our latest update in november we signed a multiyear agreement with consolidated communications to utilize the connect and platform as a reminder connected next is the newest evolution over i now products and it is the industry's only wholesale solution that enables partners to conduct business on a block chain distributed ledger consolidated communications has been using it to manage order fulfillment and network ticketing processes as well as to deliver simplified customer experience going forward we expect our remaining digital business to drive a steady revenue stream and healthy profitability for the company in summary the momentum of our cloud business remain strong are cash generation capabilities are materializing and growing and we're continuing to deliver innovative solutions to expanding set of global customers as we move through twenty twenty three we are extenuating the strong profit and growth profile of cloud while continuing to drive free cash flow improvements to disciplined cost management efforts with that altering the color blue to discuss our financial results for the quarter and here in greater detail
spk_5: the thank you jeff
spk_2: our fourth quarter free cash flow personal performance resulted from the combination of solid club growth over the past year and our continued prudent cost management efforts we achieved free cash flow of one point four million dollars and adjusted free cash flow of four point two million dollars increases have a point one million and ten point six million respectively from the prior year period
spk_6: as noted previously we are still experiencing macro economic conditions that are slowing the pace of customer decisionmaking which had a moderate impact our topline results during the period additional contributors to financial performance in the quarter came from five point nine million in revenue recognized and queue for twenty twenty one from the sale and products sun setting of the non strategic the xp and activation assets earlier and twenty twenty two and expected three point six million run off in cloud deferred revenue
spk_2: and a one point two million a favorable revenue impact from foreign exchange these impacts were partially offset by cloud subscriber growth despite these has when the operating improvements made throughout twenty twenty twenty two still resulted in a twenty point three million dollar increase in operating income for the year thanks to a nearly fifty million dollar reduction in total costs and expenses now i'd like to briefly discuss some our key performance indicators which serve as a leading success metrics for our business first as the solid year over year cloud subscriber growth of forty percent continuing our trend of double digit growth for the eleventh consecutive quarter
spk_6: looking at revenue byproduct cloud revenue of thirty nine point eight million was down twelve percent on a year old the your bases
spk_2: as a result of expected for revenue run off as well as the sun setting of the mobile content transfer brought the functionality of which is now built into the club lot of platinum
spk_6: cloud represent revenue represented sixty five point percent of total revenue in the fourth quarter of twenty twenty two up from sixty one percent in the same period twenty twenty one and up slightly from sixty four percent in que three digital revenue of a point one billion was down forty six percent on a year over year basis due to the sale and products on setting of the na strategic txt and activation as a sale and you to and made up thirteen percent of total revenue in the coin
spk_2: messaging revenue or thirteen point seven million made up twenty two percent of revenue and remained possibly flat for twenty twenty one quarterly recurring revenue was eighty one point six percent of total revenue in the fourth quarter comparatively flat que three and annual recovering revenue was a four point three percent and twenty twenty two also comparatively plot from toys sweet invoice cloud revenue increased nine and a half percent year over year to forty one point four million and group eight point three percent for the full year twenty twenty two to one hundred and fifty two million from one hundred and forty point nine million in the fire you
spk_6: this non gaap metric is intended to provide greater transparency in underlying revenue trends within our club business
spk_2: invoice revenue represents the cash revenue earned in period and as a direct reflection of the overall health and trajectory of the visits
spk_6: in invoice cloud revenue was not impacted by changes into ferdinando revenue and more accurately illustrates the growth of our core club business we expect continued growth of invoice cloud revenue and future quarters driving improvements in cash flow as subscribers grow a new customers come online turning their to our financial results in the fourth quarter and four year ended december thirty first twenty twenty two total revenue in the fourth quarter degree seventeen percent to sixty one point six million from seventy three point line and apply your period
spk_2: looking at a full year total revenue decrease ten percent to two hundred fifty two point six million from two hundred and eighty point six million twenty twenty one the decline of revenue for the quarter and year was a result of expected impact from the sale of products on setting up a notch procedure gxp inactivation as it's early and twenty two the expected run off and oh are deferred revenue unfavorable revenue impact from foreign exchange and the temporary slowdown and purchasing activity as a result of macro economic conditions also of note in the first half of year of twenty twenty one we recorded eleven point three million of revenue related to the termination of the cc a my joint venture which was a major contributor to the year over year decline leslie a good portion of our revenue come from operating in international markets the rather strength of the us dollar in relation to other global currency notably the japanese yen and the euro had a quantifiable impact on our results during the fourth quarter the navy impact tax revenue was approximately one point two million compared to the prior year period
spk_5: for the full your twenty twenty two the impact on fx was a negative impact of approximately five point one on
spk_2: gross crop it and que four degree seventy percent to thirty two point two million or fifty two point three percent of total revenue from thirty eight point eight million or fifty two point five percent of total revenue in the prior year for your period for the full year gross profit increase five percent one hundred thirty one million or fifty two point one percent of told revenue from one hundred and thirty nine point one million or forty nine point six percent of total revenue and twenty twenty one
spk_6: the decreasing gross profit for the quarter and year was primarily attributable to the previously mentioned changes in deferred revenue the sun setting of the mobile content transfer product and the sale of the companies the be like to be senescence the increasing gross margin was primarily attributable to increase revenue from high margin
spk_2: cloud subscriber growth and benefits from cost management efforts which have resulted in ongoing lower operating expenses fourth quarter loss from operations was three point five million compared income of four point six million in twenty twenty one does increase in operating income was a result of the revenue changed slightly offset by greater efficiency of already resources and other cost management efforts for the full year income from operation was one point three million compared to a was of ninety million twenty twenty one the increase in operating income for the year was a result of an increase portion of hard margin cloud run as well as reduce estrela expenses and greater efficiency of already resources throughout the year net loss in queue for was fifteen point nine billion or eighteen cents per share compared with it was of two point one million or two cents per share in the car year period the increase in net loss was for no credible to the changes in revenue of twelve point two million an increase in estrogen a primary primarily as a result
spk_6: for the change in the contingent consideration of three point six million an increase in collisions directly related to the cure one cloud contract finding queue for bunch of i just an increase of other expenses related to noncash foreign exchange from reevaluation the company in a copy trade receivables which was partially offset by continued expense
spk_2: man for the full year net loss was seventeen point five million or twenty cents per share compared to a net loss of fifty eight point five million or ninety cents per share and twenty twenty one
spk_6: the significant improvement in net loss was a result of operational improvements made for our twenty twenty two that resulted in nearly fifty million in annual reduction in total costs and expenses which have days streamlined or over operating costs profile going for
spk_2: in queue for adjusted even a decrease forty one point six percent to ten point nine billion or seventeen point seven percent of total revenue from eighteen point three million or twenty four point eight percent it's all rather in the period and prior year period the decrease in adjusted ebitda margin was primarily attributable to the changer revenues previously outline partially offset by expense management
spk_6: for the full year of just leave it a decrease three percent to forty point one million or nineteen percent of total revenue from forty nine point four million or seventeen point six percent of total revenue and twenty twenty one the increase in adjusted ebitda margin was partially attributable to the federal change and revenue mix toward high margin cloud subscriber growth and ongoing that benefits from cost management efforts previously noted which will continue as we enter twenty twenty three
spk_7: the decrease in adjusted even have resulted from the change revenue as previously outlined obvious at a lower normal rate than the change and rub
spk_6: moving onto the balance
spk_2: cash and cash equivalents were twenty one point nine million at december thirty first twenty twenty two compared to twenty two point six million at to september thirtieth twenty twenty two and thirty one point five million at december thirty one twenty twenty one free cash flow was one point four million and adjusted free careful was four point zero
spk_6: additionally cigarettes has yet to draw upon a accounts receivable securitisation facility we entered in the second quarter of twenty twenty two and we do not anticipate needing to utilize it further we believe that our current cash position and inspected improvements in cash generation in the coming quarters we do not have any me
spk_2: during additional capital for the foreseeable future
spk_6: as a reminder a pluck similarly twenty eight million of tax refund claims are still included in the balance you put it up with a desert the company did not receive any additional tax refunds during the period the remain cuts refunds remain under all we are responding to the was data requests in a timely manner and the or it is progressing it is difficult for us to estimate a time when the all will be concluded it is our intention to use the remaining tax reform to pay down preferred shares when they are receipt now let me move on to gods
spk_2: based on the continued strong performance within our core cloud business
spk_5: as well as improvements an operational expense management we are reiterating our expectation
spk_6: to be cash flow positive on it on adjusted basis for twenty twenty three
spk_2: we currently spoke to generate cash flow in the single digit millions for the for you
spk_3: additionally the after factoring in anticipated anticipated cloud revenue growth along with the exploration of certain existing non recurring payment obligations and other costs we expect casual generation to significantly improve in twenty twenty four
spk_6: we also expect cloud subscriber go to continue at a double digit rate on a year over year basis and twenty twenty three moving to gap revenue for the physical year and a december thirty first twenty twenty three we expect revenue to range between two hundred and forty two million and two hundred and fifty five know that comparable twenty twenty two pro forma gap revenue is two hundred and forty point four million after adjusting for the deferred revenue run off and for one eight million in revenue recognize prior to the sale of the dx be an activation as the net contribution to gap revenue from non cash deferred revenue is expected to be seven point billion four million less than twenty three that it wasn't twenty twenty two most of which is related to the first day of the year
spk_2: as a result of these rub these factors revenue in the first and second quarters of twenty three is expected to decline moderately year over year on a gap tastes after this time the majority of the impact from deferred revenue and divestitures is expected to be real as a result we expect to return to total revenue growth or a got basis for the second half of the year and in twenty twenty four finally we expect adjusted even have to range between forty four and fifty five million dollars and twenty twenty three
spk_1: although turn a covert of the operator for q and i thank you
spk_8: certainly and ladies and gentlemen if you have a question that this time please press star one one on your telephone at this we'd also like to love the company would like to request that each participant with their questions one question and one follow one moment for our first question our first question comes a line of just nichols from the riley your question please
spk_2: question i'm just looking at the the for que revenue could you provide a little bit more color looks like he came in near the bottom of the rangers and of curious what the person takes were between the top and bottom end of the range ah and how they played out relative to the company's expert patients specifically on the the car business and how they will translate to revenue ah in one key relative to where we came off and for que yeah great question josh so revenue for queue for in particular was again impacted negatively by foreign exchange as mentioned by over a million dollars in the quarter or we also did see some delays in customer decision making the candidly that was mostly outside the cloud or even found a very healthy cloud performance by virtue and but you saw in there is calls with invoice cloud revenue growing nine and a half percent in the quarter we were quite pleased with that
spk_8: in feel that that bodes well for what we're going expect to see as we continue and twenty twenty three and of with you want to add to that the do the decision making josh that we saw that was delayed was not a matter of many companies that were looking at license sales primarily in our messaging and digital does a saying
spk_9: that they were not going to purchase the process but products but more that they were pushing others decisions into twenty twenty three
spk_8: thanks and then just a trajectory sequentially for it for the first corner relative to the the for q and with and a baked into that our
spk_6: just as you repeat that it q one twenty three he q twenty three relative to to for q and just what kind of baked into the owl okay ice in this can be down a little bit sequentially before returning to pay growth in a second again
spk_8: yeah as it will be down slightly josh in queue wanting you to on and then we we expected that will turn around and you drink you fourth and one is due to that will be slightly impacted by these macro economic decision making efforts which was trying to be concerned about that however our club growth we think will continue your mates wrong with that double digit subscriber growth being the main catalyst for that
spk_6: thanks and and i think the last question for me probably one of the your points focuses the company has nice transition to a positive free cash flow generation haired seems like you're on track is the expectation that you're going to be able to maintain an increase the summer free cash flow generation or is are going to be much changes to his we think that the cadence that cash for generation and twenty three given have continued cloud subscriber growth that we've been seen
spk_10: i think what you'll see josh is we we always years we have our normal periodic give with some
spk_11: annual recurring payments n que one that tend to impact casual we don't usually tend to stabilize that over the last few years in queue to and have that growth continuing que three and queue for i think we'll see a very similar trajectory in twenty twenty three
spk_1: got it access
spk_12: thank you you're welcome
spk_2: they keep one moment far next question and just as a reminder if you have a question please press star one one on you telephone our next question comes online of like latimer for northland your question please or good figure on prison term his the guy in revenue guidance arrange for the year how can you think about the variable the gets a little low and rest of the upper end of that law ranch yeah first got off obviously an a to the circumstances on a for pro forma basis it represents growth over what we achieved and twenty twenty two
spk_12: and then what we expect within that range from to forty two to two fifty five will be based on the continued face or maybe accelerated pace of subscriber growth gonna be a large driver
spk_2: and and key decision making for license purchases throughout the year both in our messaging and our digital portfolio those will help define got to where we fit within that range as we finish out the year a disease you just any effect
spk_12: growth in all three businesses any better
spk_2: oh no i would represent to expectations that you're going to see growth in our business in cloud for sure it out and we expect generally flat performance across the messaging and a digital portfolio of depending on where refund land in that range having a
spk_13: and and hum
spk_12: in terms of the first time i think he still has the ah
spk_2: tom against the d x p business is he how much of a year over year echo that the xp sale have of the first now oh that's about four point eight billion dollars and then in addition to that as you as you heard from lose comment the other year over year comp will be about seven and a half million dollars worth of deferred revenue run off that will will have been in the prior to wanted you to for twenty twenty two character and it is that honest move to the horizon private
spk_14: cloud storage on how much as i think that that should help your gross margin but keep quiet and unload nevada i'm almost i might appear as harness
spk_15: yeah we're right now moving in almost completed all of the transition actually into that object storage from rising
spk_1: and we do expect it is going to have a favorable influence on knob on our total margin pictured in dollar terms probably it's the eight million dollars worth of improvement of in our cost structure to improve overall gross margin for the club business which is just another care when you'd already profitable business
spk_2: chris think it yep thank you a un just once again if you have a question please press start one one on your telephone and this doesn't include a question and answer session of today's program i like the hand the program back to jeff miller ceo for any further remarks right thank you i like to acknowledge the continue dedication of the entire secret esteem evident through the contributions made throughout twenty twenty two through your hard work and commitment our customers are and coming to our customers we have established a strong and global presence the customers
spk_1: and a reputation for excellence in innovation the for those of you joining us today we appreciate your continued interest in our company and to our investors thank you for your continued support we look forward to meeting with many of you over the course of the next day or weeks to come operator thank you very much they you before we conclude today's call i would like to provide synchronizes safe harbor statement that includes important cautions regarding forward looking statements made during this car during this column intimate discuss certain factors that are likely to influence the company's business going forward and he factors that are discussed today hey that are not historical particularly comments regarding our perspective market opportunities should be considered forward looking statements within the meaning of the applicable securities laws these forward looking statements a good comments about the company's plans and executions of forward future performance forward looking statements are subject to
spk_16: ooh a number of risks and uncertainties which could cause actual results differ materially all listeners are encouraged to review the company's se ve filings including the most recent ten k and pen queue for all description of these risks statements made during this call or made as a day and the company does not undertake any obligation

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