Synacor Reports Strong Q1 Earnings, Exceeding Q1 Guidance

  • Company initiates segment reporting for its Software & Services and
    Portal & Advertising businesses
  • Q1 2019 GAAP net loss of $2.2 million, adjusted net loss of $1.2
    million; significantly improved from adjusted net loss of $2.4 million
    in Q1 2018
  • Adjusted EBITDA of $1.7 million, up 179% from $0.6 million in the
    year-ago quarter
  • Revenue of $31.8 million, in line with guidance; software revenue of
    $11.2 million grew 4.4% from the year-ago quarter
  • 96 new customers and 184 contract expansions for Zimbra email and
    collaboration platform

BUFFALO, N.Y.–(BUSINESS WIRE)–Synacor, Inc. (Nasdaq: SYNC), the trusted technology, multiplatform
services and revenue partner for video, internet and communications
providers, device manufacturers, governments and enterprises, today
announced its financial results for the first quarter ended March 31,
2019.

“Our strong Q1 results reflect our continuing focus on profitability and
software revenue,” said Himesh Bhise, Synacor’s chief executive officer.
“Our total revenue was in line with expectations, while adjusted EBITDA
exceeded guidance and was 179% higher than a year ago.”

“We have initiated segment reporting for software and advertising to
provide greater investor visibility into how we are optimizing
performance in each of these businesses, and to better reflect the
overall strength of Synacor,” added Bhise.

Recent Highlights

  • Signed Hughes Network Systems, the world’s leading provider of
    broadband satellite networks and services and a leading managed
    services provider, as Synacor’s first Zimbra X software-operated
    service provider customer in the United States. In addition to email,
    the four-year deal includes a renewal for portal services.
  • Zimbra customer wins in Q1 include 96 new deployments and 184 deal
    expansions
  • Zimbra ACTIV8 European Tour showcased the Company’s product and
    roadmap to more than 60 channel partners, including business service
    providers and value added resellers
  • Synacor’s Cloud ID now live with first active end users via ETI
    reseller partnership; multiple operators scheduled to migrate their TV
    Everywhere integrations to Cloud ID

Financial Results

Revenue: For the first quarter of 2019, total revenue was
$31.8 million, solidly in line with the Company’s financial guidance,
and down from $32.9 million in the first quarter of 2018.

Software & Services revenue totaled $11.2 million in the first quarter
of 2019, compared with $10.7 million in the first quarter of 2018.
Portal & Advertising revenue totaled $20.7 million in the first quarter
of 2019, compared with $22.2 million in the year-ago period.

Net Income: For the first quarter of 2019, GAAP net
loss narrowed to $2.2 million, or $(0.06) per share. Adjusted net loss
was $1.2 million or $(0.03) per share, compared with an adjusted net
loss of $2.4 million, or $(0.06) per share, in the first quarter of
2018. Adjusted net loss excludes capitalized software impairment and
certain legal and professional fees.

Adjusted EBITDA: In the first quarter of 2019, adjusted
EBITDA increased 179% to $1.7 million from $0.6 million for the first
quarter of 2018. Adjusted EBITDA excludes stock-based compensation,
other income and expense, capitalized software impairment and certain
legal and professional fees.

On a segment basis, adjusted EBITDA margin was 25% for Software &
Services and 13% for Portal & Advertising.

Cash: The Company ended the first quarter of 2019 with
$13.5 million in cash and cash equivalents, compared with $15.9 million
at the end of the fourth quarter of 2018.

Guidance

Based on information available as of May 8, 2019, the Company is
providing financial guidance for the second quarter and is reaffirming
full year 2019 guidance as follows:

  • Q2 2019 Guidance: Revenue for the second quarter of 2019
    is projected to be in the range of $31 million to $33 million. The
    Company expects to report a net loss of $1.6 million to $2.1 million
    and adjusted EBITDA of $1.1 million to $1.6 million.
  • Fiscal 2019 Guidance: Revenue for full year 2019 is
    expected to be in the range of $137 million to $145 million. The
    Company expects to report a net loss in the range of $2.2 million to
    $4.2 million and adjusted EBITDA in the range of $10 million to $12
    million.

Conference Call Details

Synacor will host a conference call today at 5:00 p.m. ET to discuss the
first-quarter 2019 financial results. The live webcast of Synacor’s
earnings conference call can be accessed at http://investor.synacor.com/events.cfm.
To participate, please log in approximately 10 minutes prior to the
webcast. The call may be accessed toll-free via phone at (833) 235-2655,
with conference ID 2069004, or callers outside the U.S. may dial (647)
689-4151. Following completion of the call, a recorded webcast replay
will be available on Synacor’s website. To listen to the telephone
replay through May 15, 2019, call toll-free (800) 585-8367, or callers
outside the U.S. may dial (416) 621-4642.

About Synacor

Synacor (Nasdaq: SYNC) is the trusted technology development,
multiplatform services and revenue partner for video, internet and
communications providers, device manufacturers, governments and
enterprises. Synacor’s mission is to enable its customers to better
engage with their consumers. Its customers use Synacor’s technology
platforms and services to scale their businesses and extend their
subscriber relationships. Synacor delivers managed portals, advertising
solutions, email and collaboration platforms, and cloud-based identity
management. www.synacor.com

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures in this release.
Generally, a non-GAAP financial measure is a numerical measure of a
company’s performance, financial position or cash flows that either
excludes or includes amounts that are not normally excluded or included
in the most directly comparable measure calculated and presented in
accordance with generally accepted accounting principles (GAAP).

We report adjusted EBITDA because it is a key measure used by our
management and Board of Directors to understand and evaluate our core
operating performance and trends, to prepare and approve our annual
budget and to develop short- and long-term operational plans. In
particular, the exclusion of certain expenses in calculating adjusted
EBITDA can provide a useful measure for period-to-period comparisons of
our core business. Accordingly, we believe that adjusted EBITDA provides
useful information to investors and others in understanding and
evaluating our operating results in the same manner as our management
and Board of Directors.

For a reconciliation of adjusted EBITDA to net loss, the most directly
comparable financial measure calculated and presented in accordance with
GAAP, please refer to the table “Reconciliation of GAAP to Non-GAAP
Measures” in this press release.

We report adjusted net loss and adjusted diluted earnings per share
because we believe these measures provide investors with additional
information to assess our financial performance. These measures should
be viewed as supplemental data, rather than substitutes or alternatives
to the comparable GAAP measures. For a reconciliation of our GAAP
Condensed Consolidated Statements of Operations to our adjusted non-GAAP
measures, please refer to the table “Reconciliation of Adjusted
Financial Measures” in this press release.

Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995

“Safe Harbor” statement under the Private Securities Litigation Reform
Act of 1995: This press release contains forward-looking statements
concerning Synacor’s expected financial performance including, without
limitation, its second-quarter 2019 guidance, the statements and
quotations from management and Synacor’s strategic and operational
plans. The achievement or success of the matters covered by such
forward-looking statements involves risks, uncertainties and
assumptions. If any such risks or uncertainties materialize or if any of
the assumptions prove incorrect, the Company’s results could differ
materially from the results expressed or implied by the forward-looking
statements the Company makes.

The risks and uncertainties referred to above include – but are not
limited to – risks associated with: execution of our plans and
strategies, including the loss of a significant customer; execution
against our agreement with AT&T the pace and degree to which the AT&T
portal can be monetized; our ability to obtain new customers; our
ability to integrate the assets and personnel from acquisitions;
expectations regarding consumer taste and user adoption of applications
and solutions; developments in internet browser software and search
advertising technologies; general economic conditions; expectations
regarding the Company’s ability to timely expand the breadth of services
and products or introduction of new services and products; consolidation
within the cable and telecommunications industries; changes in the
competitive dynamics in the market for online search and digital
advertising; the risk that security measures could be breached and
unauthorized access to subscriber data could be obtained; potential
third party intellectual property infringement claims or other legal
claims against Synacor; and the price volatility of our common stock.

Further information on these and other factors that could affect the
Company’s financial results is included in filings it makes with the
Securities and Exchange Commission from time to time, including the
section entitled “Risk Factors” in the Company’s most recent Form 10-K
filed with the SEC. These documents are available on the SEC Filings
section of the Investor Information section of the Company’s website at http://investor.synacor.com/.
All information provided in this release and in the attachments is
available as of May 8, 2019, and Synacor undertakes no duty to update
this information.

 
Synacor, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
             
March 31, December 31,
2019 2018
Assets
Current assets:
Cash and cash equivalents $ 13,494 $ 15,921
Accounts receivable, net 21,007 25,567
Prepaid expenses and other current assets   4,300     3,779  
Total current assets 38,801 45,267
Property and equipment, net 17,688 18,707
Operating lease right-of-use assets 9,041
Goodwill 15,944 15,941
Intangible assets 10,017 10,553
Other assets   906     995  
Total Assets $ 92,397   $ 91,463  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 17,569 $ 19,174
Accrued expenses and other current liabilities 4,610 7,849
Current portion of deferred revenue 5,994 6,672
Current portion of long-term debt and finance leases 2,245 2,328
Current portion of operating lease liabilities   4,578      
Total current liabilities 34,996 36,023
Long-term portion debt and finance leases 824 1,367
Deferred revenue 2,208 2,214
Long-term portion of operating lease liabilities 4,642
Deferred income taxes 250 231
Other long-term liabilities   303     457  
Total Liabilities   43,223     40,292  
Stockholders’ Equity:
Common stock 399 399
Treasury stock (1,899 ) (1,899 )
Additional paid-in capital 145,123 144,739
Accumulated deficit (93,970 ) (91,726 )
Accumulated other comprehensive loss   (479 )   (342 )
Total stockholders’ equity   49,174     51,171  
Total Liabilities and Stockholders’ Equity $ 92,397   $ 91,463  
 
Synacor, Inc.
Condensed Consolidated Statements of Operations
(In thousands except share and per share amounts)
(Unaudited)
           
Three months ended
March 31,
2019 2018
 
Revenue
Software & Services $ 11,158 $ 10,685
Portal & Advertising   20,666     22,230  
Total Revenue   31,824     32,915  
Costs and operating expenses:
Cost of revenue – Software & Services (1) 3,503 3,108
Cost of revenue – Portal & Advertising (1) 13,003 12,427
Technology and development (1)(2) 4,546 6,369
Sales and marketing (2) 5,991 5,936
General and administrative (1)(2) 4,465 5,017
Depreciation and amortization   2,435     2,435  
Total costs and operating expenses   33,943     35,292  
 
Loss from operations (2,119 ) (2,377 )
Other income – net 216 119
Interest expense   (64 )   (97 )
Loss before income taxes (1,967 ) (2,355 )
Provision for income taxes   277     20  
Net loss $ (2,244 ) $ (2,375 )
 
 
Net loss per share:
Basic $ (0.06 ) $ (0.06 )
Diluted $ (0.06 ) $ (0.06 )
 
Weighted average shares used to compute net loss per share:
Basic   39,038,642     38,794,165  
Diluted   39,038,642     38,794,165  
 
Notes:
(1) Exclusive of depreciation and amortization shown separately.
(2) Includes stock-based compensation as follows:
Three months ended
March 31,
2019 2018
Technology and development $ 103 $ 134
Sales and marketing 115 138
General and administrative   113     281  
$ 331   $ 553  
 
Synacor, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
             

Three months ended

March 31,
2019 2018
Cash Flows from Operating Activities:
Net loss $ (2,244 ) $ (2,375 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,487 2,435
Capitalized software impairment 226
Stock-based compensation expense 331 553
Provision for deferred income taxes 20 (39 )
Change in allowance for doubtful accounts 38
Change in operating assets and liabilities:
Accounts receivable, net 4,522 7,517
Prepaid expenses and other assets (521 ) (942 )
Other long-term assets 89
Operating lease right-of-use assets, net 1,231
Accounts payable, accrued expenses and other liabilities (4,598 ) (9,821 )
Deferred revenue (684 ) (872 )
Operating lease liabilities   (1,202 )    
Net cash used in operating activities   (305 )   (3,544 )
Cash Flows from Investing Activities:
Purchases of property and equipment   (1,325 )   (1,924 )
Net cash used in investing activities   (1,325 )   (1,924 )
Cash Flows from Financing Activities:
Payments on long-term debt and finance leases (694 ) (520 )
Proceeds from exercise of common stock options   37     18  
Net cash used in financing activities   (657 )   (502 )
Effect of exchange rate changes on cash and cash equivalents   (140 )   (81 )
Net decrease in Cash and Cash Equivalents (2,427 ) (6,051 )
Cash and Cash Equivalents at beginning of period   15,921     22,476  
Cash and Cash Equivalents at end of period $ 13,494   $ 16,425  
 
Synacor, Inc.
Segment Results
(In thousands except percentages)
(Unaudited)
                 
Effective March 31, 2019, the Company concluded that we now have two
reportable segments which were determined on the basis of the
products and services provided to customers, identified as follows:
(i) Software & Services, which includes email / collaboration
(Zimbra) and identity management (Cloud ID).
(ii) Portal & Advertising, which includes managed portals and
advertising solutions for publishers.
 
The following table presents the key segment financial measures for
the periods indicated. Please refer to the Reconciliation of GAAP to
Non-GAAP Measures schedule for the reconciliation of Adjusted EBITDA.
 
Three months ended
March 31,
2019 2018 % Change
Segment Revenue:
Software & Services $ 11,158 $ 10,685 4.4 %
Portal & Advertising   20,666     22,230   -7.0 %
Total $ 31,824   $ 32,915   -3.3 %
 
Segment Adjusted EBITDA:
Software & Services $ 2,794 $ 2,497 11.9 %
Portal & Advertising 2,621 3,048 -14.0 %
Unallocated Corporate G&A Expense   (3,711 )   (4,934 ) -24.8 %
Total $ 1,704   $ 611   178.9 %
 
Segment Adjusted EBITDA margin*:
Software & Services 25.0 % 23.4 % 160 bps
Portal & Advertising   12.7 %   13.7 % -100 bps
Total   5.4 %   1.9 % 350 bps
 
*Adjusted EBITDA as a percent of revenue
 
The following tables presents a disaggregation of segment revenue
for the periods indicated based upon the accounting definition of
revenue recognition:
(i) Recurring = revenue recognized over time
(ii) Non-recurring = revenue recognized at a point in time
 
Three months ended
March 31,
2019 2018 % Change
Software & Services Revenue:
Recurring $ 8,514 $ 8,324 2.3 %
Non-recurring 2,284 1,899 20.3 %
Discontinued Products**   360     462   -22.1 %
Total $ 11,158   $ 10,685   4.4 %
 
Portal & Advertising Revenue:
Recurring $ 1,506 $ 2,087 -27.8 %
Non-recurring   19,160     20,143   -4.9 %
Total $ 20,666   $ 22,230   -7.0 %
 
Total Revenue:
Recurring $ 10,020 $ 10,411 -3.8 %
Non-recurring 21,444 22,042 -2.7 %
Discontinued Products**   360     462   -22.1 %
Total $ 31,824   $ 32,915   -3.3 %
 
** VAM video product line which was discontinued during Q1 2019.
 
Synacor, Inc.
Reconciliation of Adjusted Financial Measures
(In thousands except per share amounts)
(Unaudited)
                       
Three months ended March 31, 2019

Per GAAP
Statements

Capitalized
Software
Impairment

Certain Legal
&
Professional Fees

Adjusted
Non-GAAP

Revenue
Software & Services $ 11,158 $ 11,158
Portal & Advertising   20,666         20,666  
Total Revenue $ 31,824           $ 31,824  
Costs and operating expenses:
Cost of revenue – Software & Services (1) 3,503

 

3,503
Cost of revenue – Portal & Advertising (1) 13,003 13,003
Technology and development (1)(2) 4,546

 

4,546
Sales and marketing (2) 5,991 5,991
General and administrative (1)(2) 4,465 (226 ) (779 ) 3,460
Depreciation and amortization   2,435         2,435  
Total costs and operating expenses   33,943     (226 )   (779 )   32,938  
Loss from operations (2,119 ) 226 779 (1,114 )
Other income – net 216 216
Interest expense   (64 )       (64 )
Loss before income taxes (1,967 ) 226 779 (962 )
Provision for income taxes (3)   277         277  
Net loss $ (2,244 ) $ 226   $ 779   $ (1,239 )
Diluted EPS $ (0.06 ) $ 0.01 $ 0.02 $ (0.03 )
 
 
 
Three months ended March 31, 2018

Per GAAP
Statements

Capitalized
Software
Impairment

Certain Legal
&
Professional Fees

Adjusted
Non-GAAP

Revenue
Software & Services $ 10,685 $ 10,685
Portal & Advertising   22,230         22,230  
Total Revenue $ 32,915           $ 32,915  
Costs and operating expenses:
Cost of revenue – Software & Services (1) 3,108 3,108
Cost of revenue – Portal & Advertising (1) 12,427 12,427
Technology and development (1)(2) 6,369 6,369
Sales and marketing (2) 5,936 5,936
General and administrative (1)(2) 5,017 5,017
Depreciation and amortization   2,435         2,435  
Total costs and operating expenses   35,292             35,292  
Loss from operations (2,377 ) (2,377 )
Other income – net 119 119
Interest expense   (97 )       (97 )
Loss before income taxes (2,355 ) (2,355 )
Provision for income taxes (3)   20         20  
Net loss $ (2,375 ) $   $   $ (2,375 )
Diluted EPS $ (0.06 ) $ $ $ (0.06 )
 
Notes:
(1) Exclusive of depreciation and amortization shown separately.
(2) Includes stock-based compensation
(3) No income tax effects to adjustments presented due to full
valuation allowance.
 

 

Synacor’s management believes that certain non-GAAP measures of Adjusted
Net Loss and Adjusted Diluted Earnings per Share provide investors with
additional information to assess the Company’s financial performance.
These measures should be viewed as supplemental data, rather than
substitutes or alternatives to the comparable GAAP measures.

 
Synacor, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(In thousands)
(Unaudited)
             
The following table presents a reconciliation of net loss to
adjusted EBITDA for each of the periods indicated:
 
Three months ended
March 31,
2019 2018
 
Reconciliation of Adjusted EBITDA:
Net loss $ (2,244 ) $ (2,375 )
Provision for income taxes 277 20
Interest expense 64 97
Other income – net (216 ) (119 )
Depreciation and amortization 2,487 2,435
Capitalized software impairment 226
Stock-based compensation expense 331 553
Certain legal expenses* 266
Certain professional services fees**   513      
Adjusted EBITDA $ 1,704   $ 611  
 
* “Certain legal expenses” includes legal fees and other related
expenses associated with legal proceedings outside the ordinary
course of our business, including the class action securities
litigation, and arbitration costs related to the dissolution of a
former joint venture.
** “Certain professional services fees” includes fees and expenses
related to merger and acquisition activities.
 

Guidance Reconciliation

(In millions)
      Q2-2019       FY 2019
 
Net Loss $(1.6) – $(2.1) $(2.2) – $(4.2)
 
Taxes, Interest & Other Income/Expense 0.3 1.2
Depreciation & Amortization 2.5 10.0
Stock-based Compensation 0.4 2.0
Certain Legal & Professional Fees 0.8
Capitalized Software Impairment 0.2
         
Adjusted EBITDA $1.1 – $1.6       $10.0 – $12.0

Contacts

Investor Contact:
David Calusdian
Sharon Merrill Associates
ir@synacor.com
617-542-5300

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