Q3 2025 Synchronoss Technologies Inc Earnings Call

Speaker #3: Greetings and welcome to the Synchronous Technologies . Third quarter 2025 Earnings Call . At this time , all participants are in a listen only mode .

Speaker #3: A brief question and answer session will follow the formal presentation . If anyone should require operator assistance during the conference , please press star and then zero on your telephone keypad .

Speaker #3: As a reminder , this conference is being recorded . It is now my pleasure to introduce your host , Mr. Ryan Gardella of Investor Relations .

Speaker #3: Thank you . And you may proceed .

Speaker #4: Thanks , Claudia . Good afternoon . Welcome to the Synchronous Third Quarter 2020 Earnings Conference Call . Joining us from synchronous today is president and CEO Jeff Miller and CFO Louis Ferraro .

Speaker #4: By now everybody should have access to the company's third quarter 2020 earnings press release issued . This afternoon , which is available on the Investor Relations section of our website .

Speaker #4: Today's call will begin with remarks from Jeff and Liu , after which we'll host a question and answer session . Before we conclude , we'll provide the necessary cautions regarding the forward looking statements made by management during this call .

Speaker #4: I would like to remind everyone that this call will be recorded and made available for replay via a link in the Investor Relations section of the company's website.

Speaker #4: Now , I'd like to turn the call over to Jeff Miller , president and CEO of synchronous . Jeff .

Speaker #5: Thanks , Ryan . Welcome , everyone , and thank you for joining today's call . While revenue in the third quarter was slightly below our expectations , primarily due to subscriber growth , weakness among certain customers and delayed timing of new customer contracts , we are pleased with our profitability performance , including strong EBITDA results , net income of $5.8 million and diluted earnings per share of $0.51 .

Speaker #5: The sustained growth of our cloud based business model was evident , with recurring revenue representing more than 93% of total revenue . Our disciplined execution of key initiatives across the organization continues to enhance the company's financial strength and support .

Speaker #5: Sustained progress in the profitability of our more predictable and stable business model . While we continue to operate , operationalize our costs , we reflect rapidly in the changes of the economic environment .

Speaker #5: We have further focused on solidifying our balance sheet to enable greater operational flexibility for our future . This year , we completed a strategic $200 million , four year term loan refinancing , retiring our senior notes and prior term loan , strengthening our capital structure and extending our debt maturities to 2029 .

Speaker #5: This was followed by the completion of our CARES act refund process , resulting in the receipt of $33.9 million of total outstanding balance of the refund owed to the company .

Speaker #5: This long awaited refund enabled us to make a $25.4 million prepayment at par on our term loan . Adding to the total of $100 million of debt reduction over the past four years .

Speaker #5: And we placed an additional $8.5 million of cash . Inorganic investments to accelerate our growth . Among those potential avenues , we are exploring new product adjacencies to maximize our total addressable market outside the core mobile market .

Speaker #5: Turning to Q3 results . Revenue for the quarter was $42 million , consistent with results in Q1 and Q2 , and included a year over year subscriber growth rate of approximately 1% across our global customer base .

Speaker #5: While our subscriber growth count was lower than we expected in the quarter . We believe that new customer contracts , combined with the strategic changes to how some of our key existing customers are intending to regain market share should have a positive impact on our subscriber and revenue growth going forward .

Speaker #5: As I mentioned in the past , our service is extremely profitable for our carrier partners in their efforts to increase Rpu should ultimately be a positive net for synchronous .

Speaker #5: We delivered $12 million in adjusted EBITDA , which resulted in an adjusted EBITDA margin of 28.5% in the quarter . Those results , combined with our year over year reduction in operating expenses , further demonstrate the resilience of our high margin SaaS business model and our team's disciplined approach to cost management .

Speaker #5: Even while facing some revenue headwinds . Our recurring revenue grew to 93.8% of total revenue , underscoring the stability and predictability of our business model .

Speaker #5: Plus , with more than 90% of our projected revenue under long term contracts with tier one carriers , we can continue to operate from a position of fundamental strength .

Speaker #5: We also remain focused on adding new global customers to our cloud platform . And while we've reached the contract negotiation phase with prospects , those opportunities did not contribute revenue in the quarter .

Speaker #5: Next , I'd like to provide some context on our key customer relationships at AT&T . We continue to see positive momentum and subscriber growth .

Speaker #5: AT&T has seen a meaningful lift in their value added service revenue growth , enabled by the streamlined digital onboarding processes that jointly we've put in place , which continue to drive improved take rates .

Speaker #5: We're still less 2% penetrated within the total subscriber base of AT&T , and growing ahead of our expectations , leaving a long runway for continued growth in 2026 and beyond .

Speaker #5: At Verizon , we continue to navigate the ongoing transition of the bundled cloud users migrating to their Myplan perks portfolio . While this transition has created some near-term subscriber growth pressure , which has been slightly compounded by weakness in the carrier's overall subscriber growth , we believe Verizon's focus on positioning our cloud than solution as a premium perk will ultimately strengthen the value proposition and drive more sustainable growth .

Speaker #5: As their customers migrate on to those individual perks . Selections . Further , we have several joint initiatives with Verizon that we believe will further accelerate growth , including expanded leverage of their direct and indirect retail channels , where we're seeing healthy uplifts in cloud , take rates in both Q3 and early signs in Q4 .

Speaker #5: We're also capitalizing on new SMB cloud perk to continue momentum with the SMB segment , and we're seeing promising subscriber adoption within the value segment represented by brands such as Straight Talk , Total Wireless , and Simple Mobile .

Speaker #5: At SoftBank , we've kicked off the development work of our digital integration to their my SoftBank app through our software Development kit . This will allow us to expand the discoverability across a broader base of software .

Speaker #5: SoftBank subscribers, which we expect to lead to increased adoption once fully implemented. We expect contribution from this digital channel expansion to begin next year.

Speaker #5: We're also below 2% penetration across SoftBank Mobile brands , with significant room for growth and expansion throughout 2026 and beyond . With capsule , our own branded solution .

Speaker #5: We're seeing digital marketing initiatives with our carrier partner , Telecom Cell , begin to generate tangible momentum . While this launch is still in small scale , we're encouraged by the focus in the results of their promotional efforts .

Speaker #5: We're also using this success story at Telecom Cell to pitch capsule to a variety of other deep pipeline opportunities with other carriers , and we're seeing meaningful progress in those conversations .

Speaker #5: It's still early , but we're pleased directionally and expect to see progress accelerate in 2026 . On the new business front , we continue to make progress across all channels , including our current partner , Assurant , who has helped us expand our reach into new customers .

Speaker #5: We intend to continue to leverage this partnership for new customer launches in the fourth quarter , and throughout 2026 , while seeking additional channel partners , which will expand our customer base .

Speaker #5: We're also making meaningful progress with several new potential customers moving to the contracting and onboarding phases in preparation for launches in 2026 . Also , synchronous continues to make and achieve significant milestones in our AI driven transformation .

Speaker #5: We successfully developed complex features like end to end encryption for desktop clients using AI development automation and advanced AI capabilities . By optimizing tuning large language models to generate user stories and test cases .

Speaker #5: Our teams leverage AI to enhance product features, improve security, and streamline development, including generating code that meets stringent security and compliance standards with minimal refactoring.

Speaker #5: We also accelerated innovation through open source AI model adoption , fine tuned models for greater accuracy , and deployed hybrid retrieval , augmented generation approaches to meet our customers requirements .

Speaker #5: These advancements have enabled us to deliver secure , scalable solutions hosted on private networks , enhance our user engagement with AI powered features , and lay the groundwork for continued growth in operational excellence .

Speaker #5: Additionally , we made a significant step forward with our core personal cloud platform by successfully completing and deploying a hybrid cloud AI model for advanced content intelligence , which also continues to focus on our cost optimization by enabling in-house photo tagging and image embedding to be dynamically distributed across both company owned and public cloud environments .

Speaker #5: This capability is a foundational pillar for next generation features , including the new Memories feature with integrated highlights and personalized genius style content , reinforcing the commitment to driving monthly engage users and delivering superior value to our service provider partners .

Speaker #5: Our enhanced platform capabilities large global cloud subscriber base , and talented software development teams are creating a recipe to introduce capabilities and offerings to drive revenue and complement the expansion of our current cloud customer base .

Speaker #5: We believe these strategic initiatives will drive accelerated growth in the years ahead. Now, I'd like to give some color around our guidance for the remainder of 2025, with anticipated continuation of subscriber headwinds among some customers in the fourth quarter.

Speaker #5: And anticipated revenue contributions from new customer contracts . We're adjusting our full year revenue guidance to be between 169 and $172 million , due to this revision and expectations on the top line .

Speaker #5: We are also lowering our adjusted EBITDA guidance to between 50 and $53 million and free cash flow of between 6 and $10 million .

Speaker #5: These adjustments are a reflection of slightly lower expected revenue contributions and steady performance in operating expenses . Our recurring revenue is still expected to be at least 90% of total revenue , and our adjusted gross margin is expected to remain between 78 and 80% .

Speaker #5: Looking ahead , we see the softness in subscriber growth for the quarter as a temporary weakness , and we're building momentum across multiple fronts that we believe will drive improved performance in 2026 .

Speaker #5: We're diligently working to drive accelerated growth to our core offering while exploring additional adjacencies to expand our total addressable market without losing sight of what makes synchronous unique .

Speaker #5: We're seeing the pace of development increase , and we internally develop new tools for AI initiatives across the technical side of our organization , as well .

Speaker #5: Our strength and balance sheet operational discipline and expanding customer relationships provide a solid foundation for growth . And while we recognize our results for the quarter were slightly below our expectations , we believe our healthy business model combined with our disciplined approach to cost management and expectations for new customer launches , positions us to deliver improved growth , performance in 2026 and the years to come .

Speaker #5: We remain confident in our strategy . Our market position and our ability to drive long term value for shareholders . Now , I'd like to turn it over to Lou for a detailed review of our financial performance .

Speaker #5: Lou .

Speaker #6: Thank you . Jeff , and thank you , everyone for joining us today . First , I'll review our key financial metrics for the third quarter of 2025 , which we believe serve as critical benchmarks for our performance .

Speaker #6: And then we'll provide an update on our financial results and outlook . Starting with our key performance indicators , quarterly recurring revenue was 93.8% of total revenue , reflecting our stable cloud business model , which was driven by cloud subscriber growth of approximately 1% .

Speaker #6: Turning to our financial results for the third quarter ended September 30th , 2025 , total revenue was 42 million , down slightly from 43 million in the prior year period due to delay of anticipated customer contracts and lower than expected subscriber growth at certain customers .

Speaker #6: Adjusted gross profit was 33.4 million , or 79.5% of total revenue , compared to 34.2 million in the prior year , which amounted to 79.6% of revenue .

Speaker #6: The slight decline was due to lower revenue in the quarter . Income from operations was up 6.4% year over year , from 5.5 million to 5.9 million , driven by further reductions in operating expenses .

Speaker #6: As a reminder , we paid down 25.4 million or of our existing term loan at par last quarter from the proceeds of our CARES act refund .

Speaker #6: Therefore , we do not foresee having to make another scheduled amortization payment prior to 2028 . This should provide us with more free cash flow going to the bottom line over the next three years .

Speaker #6: Moving down the income statement , our total operating expenses decreased 3.5% from 37.4 million to 36.1 million . Cost of revenues and sales .

Speaker #6: General and administration costs were down year over year , while research and development and depreciation and amortization were up slightly . We're going to continue to be focused on disciplined cost control to support our profitability as part of our cost reduction initiatives .

Speaker #6: We're seeing benefits and productivity and cost savings from AI deployment , including the optimization of multiple open source models used in our products .

Speaker #6: We'll continue to evaluate every avenue to mitigate additional costs , including deploying AI and machine learning , both internally and externally . As appropriate .

Speaker #6: Net income was $5.8 million , or $0.51 per diluted share . This result was driven by a 5.2 million one time interest income event from our tax refund , as well as non-cash foreign exchange that was slightly positive in the quarter .

Speaker #6: As a reminder , foreign exchange is non-cash paper gain or loss that has no impact on the financial viability of the business . Door does it reflect on the fundamentals of our performance ?

Speaker #6: Adjusted EBITDA was $12 million , representing a 28.5% margin consistent with our high margin model and supported by cost control , including a 3.5% year over year reduction in operating expenses on a year over year basis .

Speaker #6: As we've mentioned previously , moving to the balance sheet . Cash and cash equivalents were 34.8 million as of September 30th , 2025 .

Speaker #6: This includes approximately 8.5 million in cash that was not used for the prepayment of debt from the tax refund , which we intend to use to fund new growth initiatives .

Speaker #6: The remainder of our proceeds from the factory Fund were used to materially reduce our total debt balance , resulting in net debt of 139.8 million , which is approximately 2.7 times our anticipated 2025 adjusted EBITDA .

Speaker #6: A significant reduction from the year ago period . As Jeff mentioned , this also reduced our annual interest payments by approximately 2.8 million .

Speaker #6: At current interest rates , free cash flow was 36 million , driven largely by the receipt of our tax refund in the quarter and adjusted free cash flow was 4.2 million .

Speaker #6: Due to the factors mentioned today , we have adjusted our guidance to reflect the following for 2025 , revenue of between 169 and 172 million .

Speaker #6: Adjusted gross margin of between 78 and 80% . Recurring revenue of at least 90% of total revenue . Adjusted EBITDA of between 50 and $53 million , and free cash flow of between 6 and $10 million .

Speaker #6: The company's free cash flow guidance excludes proceeds of 33.9 million from the federal tax refund , as previously communicated , as discussed last quarter , the guidance also excludes approximately 4.4 million of transaction fees from the 2025 term loan .

Speaker #6: These fees resulted from the company's recapitalization , in which 75 million term loan and a portion of the senior notes were considered modified under accounting principles .

Speaker #6: When replaced with a new 200 million term loan due to participation by existing lenders . I'll now turn the call back over to the operator for questions and answers .

Speaker #6: Thank you for joining us today .

Speaker #3: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star and then one on your telephone keypad .

Speaker #3: Information will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue.

Speaker #3: If you could please limit your questions to one question and one follow up question for participants using speaker equipment , it may be necessary for you to pick up your handset to pick up your handset before pressing the star keys .

Speaker #3: One moment please , while we pull for questions . The first question comes from Anya Söderström from Sidoti and Co . Please proceed with your questions .

Speaker #3: Hi and thank .

Speaker #7: You for taking my question . So I'm just curious with the growth that you are seeing , is that mainly driven by by higher wallet share rather than the subscription subscriber growth , which seems to be a little bit challenged .

Speaker #7: And how should we then think about overall growth when the subscriber growth comes back ? If you are adding more value to the existing customers ?

Speaker #5: Yeah , and I'll give that a start . Thank you very much for joining us . First off , we had a slight growth in our subscriber and subscription growth .

Speaker #5: Revenue category this quarter . One of the major contributors , as I mentioned , has been a little bit of the long sales cycle that we have experienced on getting new customer contracts and therefore getting new customer growth to contribute to our overall results .

Speaker #5: We are seeing those conversations progress very well with new customer prospects . It's just taking some additional time to get through the contracts on the subscriber side , we believe the initiatives that we have in place with our existing customers and the momentum that has already in existence with AT&T in particular , will allow us to get back towards mid-single digit types .

Speaker #5: Subscriber growth complemented by bringing in some new customers to try to help drive our growth growth for 2026 and beyond .

Speaker #7: Okay . Thank you . And you're talking about two to to rather important customers in the pipeline that you think you're going to sign one by the end of the year .

Speaker #7: And one early next year , it sounded like . But how does the rest of the pipeline look like ?

Speaker #5: Well , the pipeline , you should look at our business . Obviously in two dimensions . Number one , continued growth with the subscribers that we or the customers we already serve .

Speaker #5: And as mentioned with , for example , at AT&T , less than 2% penetration of subscriber growth today across their broad subscriber base .

Speaker #5: We have a lot of growth that will be driven through that . In addition to that , the pipeline for other customers , both looks good for , I'll call it branded clouds , not unlike what we do today for AT&T , Verizon and SoftBank , but also for our capsule .

Speaker #5: And we have those opportunities in the United States , in Asia , in Europe and even other parts of the world . So we are continuing to see a broad and very healthy pipeline of opportunities .

Speaker #5: And the guidance that we've given , as I mentioned , yes , we expect to have a new customer launch this year and an additional one launch in 2026 .

Speaker #7: Okay . Thank you . And just one last for me with the improved balance sheet and and your positive cash . Cash flow , how should we think about capital allocation priorities ?

Speaker #7: And are you and potential share buybacks .

Speaker #5: Yeah . Maybe I'll ask Lou to address that question . I'd be of the capital plan .

Speaker #6: Sure . So the first thing that we're looking at is our ability for a change to be a little bit more on the offensive with our additional cash that we have from the tax refund and that really , before into stock buybacks , we look at that as a two pronged potential opportunity for the company .

Speaker #6: Number one is additional investment in our current products or expansion of our platform to serve our current and new customers with additional products or potentially some inorganic growth opportunities that prior to this point , we haven't been able to take advantage to look at and evaluate strategically .

Speaker #6: So that's really kind of where our capital allocation mindset is right now .

Speaker #7: Okay . Thank you . I'll get back in the queue .

Speaker #3: Thank you . Ladies and gentlemen . Just a reminder if you'd like to ask a question please press star . And then one if you'd like to ask a question , please press star .

Speaker #3: And then one . Our next question comes from

Speaker #3: Hickman from we get Lederman Tellem . Please proceed with your questions . John .

Speaker #8: Hi . Can you elaborate a little bit on the two line items ? The expense , the interest income and the interest expense ?

Speaker #8: Both of those were affected by your IRS payment . Is that what you said ?

Speaker #6: No . So our interest .

Speaker #5: Go ahead . Lou .

Speaker #6: So our John , our interest income is a result of the interest that we received related to our federal tax refund . Okay .

Speaker #6: And our interest expense is related to the interest on the term loan and issuance costs related to it .

Speaker #8: Okay . So okay , so going how how much of that was like one time on the interest expense side .

Speaker #6: 1.7 million . That was the deferred issuance cost as it relates to that line item .

Speaker #8: 1.7 okay . And then the the interest from the so when you got the 39 million or whatever you had to pay , part of that was just a refund .

Speaker #8: But part of it was the interest . And that's where the interest that was like earned interest that you had been .

Speaker #6: Right . So if you look at if you look at the .

Speaker #8: Take it all at once .

Speaker #6: Yeah , if you look at the 33.8 million John , 28.6 was the pure refund amount that was the remaining balance of the 42 plus million dollars that we had filed for under the CARES act .

Speaker #6: And then we received $5.2 million going back retrospectively for all the years that were open under the investigation. So the total proceeds to the company were $33.9 million, inclusive of the interest.

Speaker #8: Okay . So then so you said you had 1% subscriber growth year over year . What happened between Q2 and Q3 ? Sequentially ?

Speaker #5: Oh , we went from 3% subscriber growth , I believe , as we reported last quarter to 1% this quarter , impacted by some of the things I had described .

Speaker #5: Yeah . Go ahead . Sorry .

Speaker #8: Well , was there a loss of subscribers , not just . No . No no .

Speaker #5: Year over year total subscriber growth on a on a we look at it year over year to be able to provide full visibility to gross adds net adds , churn and everything else .

Speaker #5: So we look on it on a year over year basis . Each quarter we are growing . So we grew hundreds of thousands of subscribers in the quarter .

Speaker #5: But by virtue of our 11 plus million subscriber base , that represented 1% on a year over year basis .

Speaker #8: Okay , so why so can you explain ? I mean , I see so . Revenues were actually down sequentially . Can you elaborate on that ?

Speaker #5: We had, in the second quarter, if you look at the line item detail, actually the revenue makeup, our subscription growth actually grew.

Speaker #5: As I mentioned to Ana , slightly Q3 over Q2 . But what we saw less of were one time license or professional services fees .

Speaker #5: That is a reflection of the fact that we had a contract with SoftBank that we closed in Q2 for the license associated with the SDK deployment that we're doing. While we saw some new business revenue in the third quarter, it was not as large as the second quarter performance.

Speaker #8: Okay . Thank you . I appreciate that color .

Speaker #5: Yeah . No problem . Thank you John .

Speaker #8: That's it for me .

Speaker #3: Thank you . There are no further questions at this time . I'd like to turn the floor back over to Mr. Jeff . Thank you sir .

Speaker #5: Thank you . Once again to all of those who participated in the investment community . We thank you for continuing to take time to invest your time and understanding and learning more about our business and the prospects for our future .

Speaker #5: To the synchronous team , once again , very strong performance by the team to help deliver tremendous advancements in our AI functionality to improve not only our product capability , but also our operational efficiency .

Speaker #5: And for continuing to maintain very disciplined control that give us the strong financial foundation upon which we have to grow the business in the future .

Speaker #5: So thanks to the synchronous team , I wish the rest of you a very good afternoon and thank you for your time . Taking the time to join the call back to you .

Speaker #5: Operator .

Speaker #9: Thanks , Jeff . Before we conclude today's call , I like to provide synchronous a safe harbor statement that includes important cautions regarding forward looking statements made during this call .

Speaker #9: During this call , management discussed certain factors that are likely to influence the company's business going forward . Any factors that are discussed today that are not historical , particularly comments regarding our prospects and market opportunities , are considered forward looking statements within the meaning of applicable securities laws .

Speaker #9: These forward looking statements include comments about the company's plans and expectations about future performance . Forward looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially .

Speaker #9: All listeners are encouraged to review the company's SEC filings , including its most recent 10-K and 10-q , for a description of these risks .

Speaker #9: Statements made during this call are , as of today , and the company does not undertake any obligation to update or revise any such forward looking statements , whether as a result of new information , future events or changes in expectations or otherwise .

Speaker #9: Please note that throughout today's call , management discussed certain non-GAAP financial measures , such as adjusted EBITDA . Although the non-GAAP financial measures are derived from GAAP numbers , adjusted EBITDA is not necessarily cash generated by operations , this does not account for such items as deferred revenue or the capitalization of software development .

Speaker #9: Today's earnings release describes differences between the company's non-GAAP and GAAP reporting measures , and presents a reconciliation for the periods reported and not released .