Synchronoss Technologies(SNCR) - 2022 Q4 - Annual Report

Part I Item 1. Business Synchronoss Technologies, Inc. provides white-label cloud, messaging, digital, and network management solutions primarily for communications service providers, mobile insurance providers, and retailers - The company's business is structured around three core product sets: EngageX (Personal Cloud, Advanced Messaging, Email), OnboardingX (Backup/Restore, Content Transfer), and NetworkX (network design and management)[18][24] - Synchronoss serves three main markets globally: communications service providers (like mobile network operators), mobile insurance providers, and retailers, with key customers including AT&T, BT, Verizon, and Comcast[19][20] - The company faces competition from Over-the-top (OTT) service providers like Apple and Google in the Personal Cloud space, and from Telecom Expense Management (TEM) providers like TEOCO and Tangoe for its Digital Products[43][46] - As of December 31, 2022, the company held 71 issued patents and had 7 pending in the United States, with an additional 75 issued and 6 pending internationally[36] - As of December 31, 2022, Synchronoss had 1,391 full-time employees located across India, North America, Europe, and the Asia Pacific regions[50] Item 1A. Risk Factors The company identifies numerous risks to its business, categorized into operational, business/industry, legal/regulatory, and financial risks - A substantial portion of revenue comes from a limited number of customers; in 2022, the top five customers accounted for 73.4% of net revenues, with Verizon alone representing more than 10%[73] - The company faces significant competition in highly competitive and fragmented markets, including from in-house departments of its customers and large competitors with greater resources[132] - The business is subject to complex and evolving data privacy laws globally, such as the GDPR in Europe and the CPRA in California, which impose significant compliance costs and potential penalties for violations[156][157][158] - On December 27, 2022, the company received a notice from Nasdaq for non-compliance with the minimum bid price requirement, posing a risk of delisting if compliance is not regained[208] - The company settled with the SEC regarding restated financial statements from 2015-2016, agreeing to a civil penalty of $12.5 million payable over two years, and may also be required to indemnify former management members in a related civil action[186][551] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[210] Item 2. Properties The company's corporate headquarters is a leased office space of approximately 120,000 square feet in Bridgewater, New Jersey, with other leased facilities globally - The company leases its corporate headquarters in Bridgewater, New Jersey, along with other offices in the US and internationally, with lease terms expiring between 2023 and 2028[211] Item 3. Legal Proceedings This section refers to Note 20 of the Consolidated Financial Statements for a discussion of material pending legal proceedings - For details on legal proceedings, the report refers to Note 20 in Part II, Item 8[212] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable[213] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section details the market for the company's common stock (SNCR) and senior notes (SNCRL) on The Nasdaq Global Select Market, confirming no cash dividends on common stock and outlining Series B Preferred Stock dividend structure - The company's common stock trades on The Nasdaq Global Select Market under the symbol "SNCR"[215] - No cash dividends have ever been declared or paid on the company's common stock, and none are anticipated in the foreseeable future[216] - The Series B Preferred Stock has a tiered dividend rate, which was 13% per annum for 2022 and increased to 14% per annum for 2023 and thereafter; dividends can be paid in cash or in additional shares of Series B Preferred Stock[218] - On June 30, 2021, the company redeemed all 268,917 outstanding shares of its Series A Preferred Stock for an aggregate price of $278.7 million; no Series A Preferred Stock remains outstanding[221][265] Item 6. [Reserved] This section is intentionally left blank by the company Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports a $28.0 million decrease in net revenues for 2022 compared to 2021, primarily due to the dissolution of CCMI, the sale of non-strategic assets, and unfavorable foreign exchange rates, resulting in a shift to operating income Fiscal Year 2022 vs. 2021 Financial Results (in thousands) | Metric | 2022 | 2021 | $ Change | | :--- | :--- | :--- | :--- | | Net revenues | $252,628 | $280,615 | $(27,987) | | Total costs and expenses | $251,306 | $299,632 | $(48,326) | | Income (loss) from operations | $1,322 | $(19,017) | $20,339 | - The decrease in 2022 revenue was attributed to the dissolution of CCMI, the sale of the DXP and Activation assets, deferred revenue run-off, and unfavorable foreign exchange impacts[238] - The top five customers accounted for 73.4% of net revenues in 2022, highlighting significant customer concentration, with Verizon accounting for over 10% of revenues[231] Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,359 | $4,945 | | Net cash used in investing activities | $(13,166) | $(23,943) | | Net cash (used in) provided by financing activities | $(13,276) | $16,188 | - As of December 31, 2022, the company had $21.9 million in cash and cash equivalents and believes this is sufficient to fund operations for the next twelve months[246][248] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange risk and interest rate risk, with no derivative instruments used for hedging - The company is exposed to foreign currency exchange risk due to its international operations but does not engage in hedging activities[312][313] - A hypothetical 100 basis point movement in interest rates would affect the company's annual interest income by approximately $0.2 million[315] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2020, 2021, and 2022, along with the independent auditor's report and detailed accompanying notes Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements, identifying critical audit matters related to revenue recognition and goodwill impairment - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the company's consolidated financial statements[319] - Critical Audit Matters identified were related to the judgment in recognizing revenue with multiple performance obligations and the assumptions used in the goodwill impairment test[323][324][328] Consolidated Financial Statements The consolidated financial statements show total assets decreased to $398.1 million in 2022 from $450.7 million in 2021, with a net loss of $7.7 million for 2022 Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $398,072 | $450,734 | | Total Liabilities | $249,127 | $274,906 | | Total Stockholders' Equity | $68,097 | $90,823 | Consolidated Statement of Operations Data (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net revenues | $252,628 | $280,615 | $291,670 | | Income (loss) from operations | $1,322 | $(19,017) | $(48,122) | | Net loss | $(7,716) | $(23,098) | $(10,358) | | Net loss attributable to Synchronoss | $(17,468) | $(58,451) | $(48,683) | Notes to Consolidated Financial Statements The notes provide critical details supporting the financial statements, including the sale of the DXP business, revenue disaggregation, goodwill balance, debt structure, capital stock, and the SEC settlement - On May 11, 2022, the company closed the sale of its Digital Experience Platform (DXP) business to iQmetrix for a total potential purchase price of up to $14 million, resulting in a gain of $2.5 million[352][355] Revenue by Product Line (in thousands) | Product Line | 2022 | 2021 | | :--- | :--- | :--- | | Cloud | $163,331 | $165,982 | | Digital | $40,338 | $54,456 | | Messaging | $48,959 | $60,177 | | Total | $252,628 | $280,615 | - The goodwill balance was $210.9 million as of December 31, 2022, with no impairment recorded as the fair value of the reporting unit exceeded its carrying value[463][465] - The company has $141.1 million in aggregate principal amount of 8.375% Senior Notes due 2026, with interest payable quarterly[476][483] - The company settled with the SEC and agreed to pay a civil penalty of $12.5 million in equal quarterly installments over two years[551] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[558] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, a conclusion affirmed by the independent auditor - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[559] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[560] - Ernst & Young LLP, the independent registered public accounting firm, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[561][565] Item 9B. Other Information The company reports that there is no other information to disclose for this item - None[572] Part III Item 10. Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the Registrant's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders[10] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the Registrant's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders[10][576] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership by certain beneficial owners and management is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the Registrant's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders[10][577] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the Registrant's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders[10][578] Item 14. Principal Accounting Fees and Services Information concerning the fees and services of the company's principal accountants is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the Registrant's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders[10][579] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and all exhibits filed as part of the Annual Report on Form 10-K - This section contains the index to the consolidated financial statements, financial statement schedules, and a list of all exhibits filed with the report[581][583] Item 16. Form 10-K Summary The company indicates that there is no Form 10-K summary - None[592]