Q1 2020 Earnings Call
Until that time your lines will again be placed on a musical thank you for your patience.
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Good morning afternoon. My name is Simon and I will be our conference operator today.
At this time I would like to welcome everyone to this in the Corps first quarter 2020 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
He would like to withdraw your question that's the penalty. Thank you.
Mr. Rob Fink F. In K IR you may begin your conference.
Thank you operator.
Good evening, everyone welcome to Synacors first quarter 2020, <unk> financial results Conference call.
Today's call out to discuss the company's results are CEO, I'm, SBC and CFO to easily <unk>.
Please note that Matt is that will make forward looking statement during the call that are subject to various risks and uncertainties.
Actual results may differ materially from those results predicted and reported results should not be considered an indication future before.
Further information on these and other factors that could affect the Companys financial results are included in sort of course filings with the securities and exchange to measure.
Also during this conference call management made reference non-GAAP financial measures in discussing the company's performance reconciliations to the most directly comparable GAAP financial measure measures are provided in the tables included in today's press release.
With that said I will turn the call over to match matched the calls yours.
Uh huh.
Hello, and welcome to Q1 2020 conference call.
We have been working hard to protect the health and safety or from people do our parks to flatten the curve delivery excellence to our customers maintain focus on growing our business and investment cost and cash control measures until we all come out the other side this unprecedented.
Pandemic and when we do I remain confident as ever Synacor will be strong and better position as a higher margin I spoke is to collaboration software company.
These times are testing asphalt.
Synacor has risen to the challenge I could not be proud.
Synacor team for their hard work dedication during these volatile kind of times.
Our email software products remain highly relevant and highly utilized image distributed workforces.
Enterprise collaboration and virtual environment is critical and productivity and securities Paramount.
And higher video streaming by consumers is driving higher usage and customer interest in our comedy product.
Our portal engagement services also maintaining relevant as consumers spend more time in front of the screen.
These businesses are performing well with minimal direct impact from the endemic today.
The cool the impact of course, EMCORE is isolated to our publisher advertising business and that advertising situation is not unique to us.
According to the Internet advertising Bureau media spend is estimated declined 39% between March and June 2020, before it begins to rebound in the second half a year.
Like other advertising companies, our publishing facing business has been similarly, and abruptly impacted beginning in March and has resulted in no. Louis <unk> wells being slightly below our previous guidance.
I will touch on three takeaways during today's call.
First our Q1 financial results reflects strength in our software business.
Offset by covert 19 impact and an isolated to a publisher advertising business.
Second we continued to deliver customer wins and renewals, reflecting validation of a products in group control even in the spend Devon.
And first we will emerge on the other side the spend make strong and ready to embrace new opportunity.
I think per hour merger recruitment continues well be delayed due to both companies meeting deal would be in back of the pandemic.
Take away one.
Q1 can actual results reflect strengthened the software business offset by a temporary copel 19 impact in a publisher advertising business.
In Q1, we delivered revenue of $6 million and adjusted EBITDA of zero point $3 million boats coming in slightly below guidance due to the covert driven impact it was isolated to publish advertising business.
Before I do not dancing segment revenue came in at $9.5 million is 16% year over year decline, excluding ATP got snap.
The portal business performed to pre cobot plans, but we estimate that the coolfit impact on publisher advertising revenue and margin cost us about $1.3 million of EBITDA in Q1.
However, we saw the number of monthly publisher partners grow significantly over the prior year, which will benefit us when advertising spending the bounds, but the sharp declines in March offset this increased activity.
Overall, the Portland advertising segment delivered a negative 2% EBITDA margin against our pre drove it goes to operate at about 10% segment EBITDA margins.
On the other hand, our soften services revenue totaled $11.1 million and first quarter twentytwenty growing modestly as 2.4% year over year, when excluding a discontinued product.
Importantly.
Segment, adjusted EBITDA was $3.5 million, a 26% year over year improvement and representing a 31.9%.
When EBITDA margin.
Well I couldn't delayed some deals with new customers and caused a temporary reduction in maintenance renewals engagement with our products and services increased markedly which is encouraging validation of the value we delivered to customers.
Many of our email customers soy surgeon email usage in daily active log ins during the latter part of the first quarter.
And many of our video streaming customers saw a surge as a result shelter in place restrictions.
Our March.
Corporate 19 related cost control measures. In addition to our ongoing cost control initiatives resulted in an allocated corporate Jamie declining 20% year over year to $3 million in Q1.
Take away too.
We continued to deliver customer wins in renewals, reflecting validation of a products and growth potential even in the spend demick.
He was just a few recent highlights of our accomplishments in Q1.
Acts to publish a customers advertising were 133 in Q1 growing over 50% year over year.
This reflects continued validation and an increased need for the advertising monetization services, we provide even though revenue and margin what impacted consistent with the.
Over the impacting overall media spend.
Zimbra its growth continues to be fueled by its differentiated is a highly extensible open core feature rich and value driven collaboration platform.
The number nine completed its beta and received hot complements on the new user experience for beta participants.
Zimbra line at Melbourne commercially and is already in use internationally has been growing list of highly relevant and out of the box integrations with popular apps, such as slack Dropbox and Sue.
We added more than 70 news MBR customers and expanded deals with 190 additional customers.
A few examples of our new Midmarket and government customers include the director to market turbulence in Vietnam, a government agencies as part of the Ministry of industry Crane.
And one of the largest public health research institutions in Africa.
Oh, they D continues to grow customers and enhanced features in enterprise identity and access management.
Yep sold and launch additional cloud I'd features for key service providers, we signed two service providers into content Mek looks to cloud I'd and on last quarter's call, we announced a significant new customer for whom cloud I'd in April management of multiple users across devices with higher levels of secured.
He'd privacy and the ability to rapidly onboard new partner scared subscribers in reduced total cost of ownership in Q1 to roll out this deployment progressed as flat.
I'll now turn the call over to Tim review, our financial results in greater detail.
Okay.
Thanks, so much and Hello, everyone.
For the first quarter of 2020 total consolidated revenue was $20.6 million slightly below the bottom end of our guidance range.
Excluding 18 Dot net revenue of $9.3 million have discontinued product revenue of zero point $4 million for the prior your numbers.
Apples to apples basis total revenue was down approximately $1.5 million, which SMS lunch and was driven by the covert by team impact on our advertising business.
Excluding the discontinued product revenue of zero point $4 million in Q1, 19, our first quarter 2020 software and services revenue of $11.1 million was up 2.4% compared with $10.8 million and the first quarter of 29 team.
Recurring revenue of $8.3 million was down 2.2% from the prior years quarter, primarily due to some mailbox cleanups. However, this was more than offset by non recurring revenue of $2.7 million, which was up 19.7% from the prior year quarter. This was largely driven by higher prefer.
National services revenue, which is a precursor to future recurring revenue growth.
Revenue in our portal and advertising segment totaled $9.5 million compared with $20.7 million in the first quarter of 2019th.
Excluding the $9.3 million of 80, T. got that revenue in Q1, 19 revenue was down 16.4% on an apples to apples basis.
S. S. Umesh mentioned the decline was driven by the covert 19 impacts on our publisher advertising business.
Total cost of revenue for the quarter exclusive of depreciation and amortization expense was 52.1% of revenue visit versus 51.9% of revenue in the first quarter of 2019.
This was primarily due to the lower cobot 19 impacted margins in our publisher advertising business.
Partially offset by higher software margins and favorable mix.
Total adjusted operating expense for the quarter exclusive of depreciation and amortization expense and one time charges was $10.4 million a decline of 25% from $14 million into first quarter of 2019.
This reflects our streamlining of operations following the exit of the 18 got that business and our continued focus on cost reductions and professional services and discretionary spending.
Also of note unallocated corporate expense for the quarter also excluding onetime charges was down $737000 or 20% from the prior years quarter.
As a result will be above items are cobot 19 impacted adjusted EBITDA for the first quarter was $313000 or 1.5% of revenue.
Slightly below the low end of our guidance range and this compares to $1.7 million or quite EUR, 5.4% of revenue and the first quarter 2019.
GAAP net loss for the first quarter was $4.5 million for 11 cents per share compared with a net loss of $2.2 million or six cents per share on the first quarter of 2019.
As mentioned in our earnings release, the first quarter of 2020 includes $1.4 million of merger related costs.
The E T F calculation for the first quarter of 2020, and 2019, because based on 39.7 million and 39.0 million weighted average common shares outstanding respectively.
Capital expenditures for the quarter, which were primarily capitalized software for $1 million versus $1.3 billion in the first quarter to maintain.
We ended the quarter with $8.9 million in cash and cash equivalents.
Paired was $11 million at the end up 29 team and continue to have no borrowings on our credit facility.
Availability under the credit facility was $6.7 million as of the end of March.
As mentioned in our earnings release, it's similar to prior years the declining cash during the quarter was primarily related to normal seasonality of this most events, including bonuses and annual General insurance premiums. In addition, we also paid out approximately $500000 and onetime merger related costs.
I would also like to take this opportunity to provide some detail on the actions that we've already taken to reduce cost and preserve liquidity.
These include implementing a hiring freeze, reducing discretionary spending and minimizing capital spending.
We've also taken steps to improve our advertising margins.
We expect that these actions will enable us to maintain positive adjusted EBITDA and ensure sufficient liquidity for our operations going forward.
Now regarding guidance.
Given the uncertainty of covert 19 of the cold with 19 related disruption in the advertising market and the resulting volatility that our publisher advertising business. We have made the decision to withdraw our for your guidance and temporarily suspend quarterly guidance updates.
As the situation abates, and our visibility improves we expect to return to pride providing guidance.
And with that I'll turn the call back over to Himesh.
Thank you Tim.
Continuing with particularly its free.
We believe we have to creativity, the financial discipline and the resolved to get to the other side of the pandemic strong and ready to embrace new opportunity.
As to shed given the volatility you know publisher advertising business, resulting from coping team. We've made the decision to withdraw full year guidance and temporarily suspended practice Friday quarterly guidance, but that being said I would like to provide some Q2 indicators of our business.
The demand for collaboration and identity remains strong.
We expect similar EBITDA contribution at about 30% margin level from our software and services segment in Q2, just as we delivered in Q1.
We expect unallocated corporate gionee to roughly say at Q1 levels and significantly below Q2, Nox, you're benefiting from our cost control measures.
We believe software segment EBITDA, along with the benefit of the cost control measures we have implemented.
We will allow us to continue to be adjusted EBITDA positive in Q2.
Oh cashews in Q2 will be driven by the costs of our pending merger with Kumar.
But based on various covert related scenarios, we have run on business operations. We believe we have adequate cash on hand, and also have the backstop off on currently unused credit lines.
As media spending reaccelerates and our visibility improves we look forward to return to providing guidance about our expected results.
In addition planning for our merger Qumu continues the S. Four registration filing has been delayed due to both companies needing to deal with the impact of Cobot 19.
Now in its final stretch.
To recap the combination of soon Synacor and cool creates a cloud software folks business with a 50 million dollar foundation of recurring revenue.
Is it shouldn't be attractive collaboration market with compelling email identity and video products and an enviable global customer base.
We expect deliver an estimated $4 million to $5 million of annualized operating cost synergies. So we have already identified.
We expect SEC sundry Koumas go to market by leveraging a selection up on 1900 channel partners around the world.
And while the Corona bars outbreak as soon as a further catalyst to advance video conferencing and enterprise collaboration tools.
I believe that Synacors, good market and you're scaling team will help to profitably take advantage of this market opportunity.
In summary, we are managing our expenses in cash we remain focused on our transformation into a higher margins have spoken collaboration software company and we are confident that we have the dry powder to emerge from the current market disruption strong and ready to embrace new opportunity.
With that we'll open the called questions operating.
Thank you, ladies and gentlemen at this time I'd like to remind everyone that in order to ask a question. Please press Star then the number one on your telephone keypad.
Well pause for just a moment pick in public today roster.
And your first question comes to mind, if Mark Argento with Lake Street Capital. Your line is open.
Hi, I'm not sure Tim I'm, just a couple of quick questions here. So.
Oh, no particular order.
You noted that the publisher or number of publishers on the platform.
It was up fairly substantially in the quarter any any reason why you saw that type of tick up for you guys.
Changed marketing strategy or what's the dynamic driving a the publisher increase.
I'll take that one mark Thank you for the question.
I think it speaks directly to our value proposition you know, we help publishers make more money from the advertising inventory they have and in times like this that particular skill set is very very important to publishers.
I think from an overall revenue in our overall margin point of view, what you're seeing is an overall reduction in the entire media spend in the industry, but the ability to optimize and maximize the value. Each publishes AD inventory continues to be important maybe more important good night.
I believe that's why we're finding more remote publishers.
The onto the platform and again these are relationship. So once the summer bones people tend to work longer and harder with people who have worked for them during tough times like this one.
Is there any type of publisher that you guys are having more success with than others at this point.
[laughter] Mark I think the impact has has really been across the board and you've probably seen that in some of the results from from other advertising company I think the impact on on media spend has.
Uh Huh has addressed in impacted every single kind of integration I think the impact has been much more severe in certain verticals, but for a company at the scale of our is an across all of the publishers we so.
We are kind of exposed to the entire basket.
Thanks, and then I'm just turning over to striking about the software and services EBITDA margins and for.
Those can continue to be pretty strong and it looks like you anticipate this should remain above 30%.
Going forward.
I don't really driven by the mix for the type of a bit type of business are you doing within the segment or maybe you could help us unpack the.
Margin enhancement, you're seeing in that segment.
I'm sure.
Mark we talked a good that's before right the.
Gross margins in that business are in the 70% to 75% range and and with gross margins in that range.
Any kind of growth in the business.
Disproportionately hits, the bottom line, which allows us to.
Ah accelerate growth in segment EBITDA. So we're seeing some of that in Q1. We're also seeing some of the impact of the cost control measures that we put in place.
And all that is being offset by.
Slightly lower maintenance revenue and slightly lower in the new deals and and and some of the meal bar clean up things that are Tim talked about on.
And he's in his speech, so that's kind of the.
HM.
Plus or minus or what's going on.
Fundamentally this is the benefit of a high margin sulfur business and growth really does start hitting the bottom line.
Got it sort of effect of a tricky does or does it sounds like leveraging your kinda your opex.
The spend there is a.
The incremental margins I guess or for a pretty strong which makes sense given its off work.
Last one for me.
In terms of any updated thinking in terms of timing on the cumulative acquisition do you anticipate you know is still a Q2 close or where do you guys thinking for timelines are now going forward.
That's probably a good.
Gas or estimate marked a sometime in the June July timeframe, we think things got a little bit delayed because each company has to focus on their own people and ensuring we get through called the 19 related issues the registration filing S. Four.
It was a little bit delayed like I said, we believe it's in the in the final Strachan will be enhanced lawyers imminently.
And then it just depends on on on comment since considering devote et cetera.
Great. Thanks, guys appreciate it.
Thank you Mark, but that's mark.
Ladies and gentlemen, again, a few of us to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes on the line of Austin, Although with Canaccord. Your line is open.
Hi, Thanks for taking the questions I want to ask about the software segment.
In particular or what drove that little uptick to the nice 32%. If the margin and also I know you gave a range, but is there any anything more specific you can share about the gross margin as well.
Hi, I'm sure he payoffs and thank you for the question.
Let me just kind of maybe recap.
Some of the things we talked about on this call relating to something services.
Right.
The number one the top line did group it was modest growth rate 2.5%.
Give or take but the top thing did grow and that was driven by.
New customers in County D continued ramping up of the large streaming services customer, who we announced last quarter.
Continued a new and growth to customers for zimbra around the world over 250 in the quarter.
With some offset on a.
Lower maintenance revenues in some of this mailbox cleanup.
So that growth and that kind of mix of revenues and.
Ah slowed down.
Due to strong gross margins, we treat maintained like having software business 70, 75% range [noise].
And and the growth.
Plus the cost control measures that thing slows down to Opex.
To deliver the EBITDA levels that that we discussed which were.
Roughly 31% in several points higher than last year.
ER.
And in and what we indicated was those cost control measures continue to be in place.
We continue to have.
Pretty good visibility into our software business going forward, because a big chunk of it is.
Recurring and longer term contract base.
With two which is why it allows us to shed we believe.
Oh, yes, who will be delivering segment EBITDA in that range next winter as well.
Got it and I'm on the cost savings is there any of it anymore detail you can give to clear exactly in that discretionary spending here in Canada productions, maybe how it maps to the Opex lines.
Sure. Let me, let me start and then Tim if you want to jump in Weve leaf tobacco.
Every line we can.
In our expense gun.
Short of any lay off so far lows or or anything like that right. So we've we've stopped short and we really try to avoid.
Taking any actions of that nature in this environment, but we have reduced and eliminated open positions with for the hiring freeze in place. We've looked at every single category of discretionary expense on every single one those line items have been.
Reduced or we have gone back to vendors and renegotiated contracts and payments towns. So.
It's hard for me to point to.
Precisely one.
Boston, We tackled every single line item close as you can imagine when advertising revenues and lower two tons related to those advertising revenues are lower as well. So it's kind of been and all hands on board effort.
Got it sounds quite comprehensive and my last question I mean, I think there's a little bit more about qumu, but I imagine your your kept in the loop and watching it closely anyway, but.
Now can you give an overview on.
Maybe the uptake of.
Video management content management services in the pandemic and you know maybe the kind of customer interest, they're seeing and and whether it's you know structurally different than what you saw prior.
[noise] I think.
The higher incidence of work from home.
And distributed work during the pandemic and maybe a higher percentage of print as we start emerging from it.
Imply is that products and services related to that trend.
Our going to be in demand for us it it's higher usage or email as an important part of the enterprise collaboration mix for us it's higher video streaming and the increased complexity of that video streaming cross device.
This is an increase ski look then video streaming that is resulting in demand for our cloud I'd product and then Coos case clearly the need for video conferencing will help them as well I think it all goes back to reinforce our who read you know intent and strategic nationality.
Deal you put those three products together, particularly in a in a post globant type world.
Thank you start to looking at how compelling this combined collaboration identity company can be.
And we believe that we put these companies together.
And you you combine the company's sales forces when you put our global channel to work.
On on.
On Qumu is additional market opportunity I believe you can truly exome right revenue of the combined company at scale and and I believe there is.
I was attractive now more attractive now as it has an MBR was.
Got it thanks very much.
And there are no further questions at this time I will turn the call back over to Mr. DC.
Oh, and my apologies to give me one more question in queue, sorry, My apologies we.
We do have the line of George Sutton with Craig Hallum Go ahead. Your line is open.
Hey, guys. This is James on for George or have your touch your every conversation with customers change something outside of the Kumo acquisition and the overall shift work from home and could you maybe talk a little bit about other pipeline for Zimbra and cloud I'd trended throughout the quarter and.
Into April.
Got it thanks to the answer the question James.
Sure. So it it really does change by product line right. If you kind of if you kind of stepped back I believe.
Companies that have established brands establish relationships a better situated to take advantage of this market then trying to develop a brand new customer relationship when you're not going to be able to sit across the table from.
Prospect for many months to come and.
And I think in that regard we are extremely fortunate that I would go to market vehicle involves 1900 channel partners around the world who have established relationships on ready.
<unk> tons of customers with tons of prospects and so when they come across an opportunity to sell through additional collaboration product or email product that relationship already exists which is why.
We are.
Seeing and which is why we believe that our.
Are you in expansion deals or zimbra around the world will continue.
For comedy D.
What we are finding is that they just a lot more companies entering OTI t. and video streaming space right now there are tons more consumers using which means the demands for scalability are they using it across multiple devices, which means you have to be able to.
What's indicating on trying to seize these devices amongst a much more complex array of device awareness and platforms and I believe that kind of demand for a scalable.
Identity and access management solution that is.
Priced right.
Increases to the pipeline for us.
And as I as I mentioned earlier, you add to that mix.
Video streaming products of the kind that COO brings to the table games beef they've talked about.
Additional interest in their products, even even before the pandemic hit US we had already seen some of our channel partners around the world expressed interest in adding this enterprise video solution to their portfolio saw so I come back to mine.
Belief that.
We can accelerate the combined companies product suite and revenues leveraging these news channel partners and take advantage of this additional perhaps go good driven market opportunity in a much more cost effective and profitable way than each company can do independently.
Got it really appreciate the color and then I guess on the December wins in the quarter can maybe give some color on now what drove those when then you began to seed investments you've made on a sort of modernizing the interface you're going to bear fruit in terms of either.
Wins in the quarter or just engage with a broader pool of prospective customers.
[laughter], James you're you're exactly right to think.
Uh huh.
While our wireline channel always continues to perform.
I think it was important for our partners and customers to see the investment that we have been making in zimbra bear fruit and by deploying zimbra nine with the new user interface.
The extensibility into highly relevant apps like zooming slack and Dropbox, I think a mix of product a lot more compelling.
And and in parallel we continue the conversations around launching zimbra cloud as a pure SaaS products as well.
Great. That's it for me thanks, guys.
Thank you.
And there are no further questions at this time, Mr. B. say I will now turn it back over to you.
Thank you operator, and thank you everyone for joining us today.
Hey safe.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
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Oh.