Business Wire | Aug 11, 2020 04:05PM EDT

Synacor Reports Second Quarter 2020 Financial Results

Aug. 11, 2020

BUFFALO, N.Y.--(BUSINESS WIRE)--Aug. 11, 2020--Synacor, Inc. (Nasdaq: SYNC), a leading provider of cloud-based Collaboration and Identity Management software and services serving global enterprises, video, internet and communications providers, and governments, today announced its financial results for the second quarter ended June 30, 2020.

Second Quarter Highlights

* Second quarter revenue of $18.2 million * Second quarter GAAP net loss of $3.2 million and Adjusted EBITDA of $0.5 million * Software & Services segment revenue of $10.9 million, up 3%, and adjusted EBITDA margins expand to 34% from 26% in the prior year * Delivered double digit growth rates in Cloud ID and Zimbra Enterprise SaaS, expected to sustain, offset by COVID-19 impact on Advertising and consumer Email * Company's cost reduction plan expected to yield $10 million of annual savings

"Our Software business grew 3% this quarter, driven by double digit growth rates in Cloud ID and Zimbra Enterprise SaaS tempered by lower revenue from maintenance and consumer Email as certain customers proactively reduced costs during the COVID-19 pandemic," said Himesh Bhise, Synacor's Chief Executive Officer. "We renewed all Service Provider customer contracts that were up for renewal, added four new Cloud ID customers, booked 197 new and growth Zimbra customers, and expanded our sales pipeline."

"In addition, we remain focused on driving profitability, and are executing on a cost reduction plan that is expected to deliver $10 million in annual savings without impacting our customer commitments and growth initiatives," Bhise added. "These actions will significantly improve our EBITDA margins even at COVID-19-impacted levels of revenue, and position us to generate positive operating cash flow starting in Q4."

Recent Highlights

* 197 new and expansion customers for Zimbra email and collaboration platform delivered through worldwide channel partners * Signed three content streaming networks and one service provider customer to Cloud ID. * Active advertising publishers were 129 in Q2, up 34% from the prior year quarter * Renewed all Service Provider contracts that were up for renewal in North America - seven Cloud ID contracts, six Zimbra contracts, and five Portal contracts * Unallocated corporate G&A declined 23% compared to the year ago quarter as a result of our cost reduction actions

Financial Results:

Revenue

Revenue was $18.2 million, compared to reported revenue of $31.8 million, or $22.2 million when excluding the ATT.net portal business, in the second quarter of 2019. The decline was primarily driven by the COVID-19 impact on our advertising business consistent with the industry-wide decline in media spend.

Revenue in our Software & Services segment totaled $10.9 million, compared with $10.6 million in the second quarter of 2019. Revenue in our Portal & Advertising segment totaled $7.3 million, compared with reported revenue of $21.3 million, or $11.6 million net of the ATT.net portal business, in the prior year.

Net Loss

Net loss was $3.2 million, or $0.08 per share, compared with a net loss of $2.5 million, or $0.06 per share, in the prior year. The current year quarter includes $0.4 million of expenses for legal and professional fees related to our since-terminated merger with Qumu.

Adjusted EBITDA

Adjusted EBITDA was $0.5 million, or 2.5% of revenue, compared with $1.6 million, or 5.1% of revenue, in the second quarter of 2019. Adjusted EBITDA excludes stock-based compensation, other income and expense, asset impairments, restructuring costs, and certain legal and professional fees. The decline was primarily driven by the COVID-19 impact on advertising revenue and margins.

Cash

The Company ended the quarter with $6.0 million in cash and cash equivalents, compared with $8.9 million at the end of the first quarter. The Company continues to have no borrowings on its credit facility and had approximately $5.6 million of availability as of quarter-end. With the cost reduction plan announced today and other actions that the Company has already taken, management believes that beginning with the fourth quarter, Synacor will be cash flow positive on an on-going basis.

Guidance

Due to the continued uncertainty surrounding the duration and pace of recovery from the COVID-19 pandemic, management has decided to continue the suspension of quarterly guidance updates until visibility improves.

Conference Call Details

Synacor will host a conference call today at 5 p.m. ET to discuss its second quarter 2020 financial results. The live webcast of the Company's earnings conference call can be accessed at https://www.synacor.com/investor-relations/events-and-presentations. To participate, please dial 1-833-235-2655 (toll free) or 1-647-689-4151 (international) and reference conference ID 3077578.

Following the conclusion of the live call, a replay of the webcast will be available on the Investor Relations section of the Company's website for at least 90 days. A telephonic replay of the conference call will also be available from 8 p.m. ET on August 11, 2020 until 11:59 p.m. ET on August 18, 2020 by dialing 1-800-585-8367 or 1-416-621-4642 and using the pin number 3077578.

About Synacor

Synacor (Nasdaq: SYNC) is a cloud-based software and services company serving global 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, the statements and quotations from management, statements regarding the impact of the Company's cost reduction plan on its future financial results, statements regarding the ability to achieve positive operating cash flow in future periods, 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: the impact of the COVID-19 pandemic on our business, execution of our plans and strategies; 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 August 11, 2020, and Synacor undertakes no duty to update this information.

Synacor, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)



June 30, December 31, 2020 2019



Assets

Current assets:

Cash and cash equivalents $ 5,978 $ 10,966

Accounts receivable, net 13,493 20,532

Prepaid expenses and other current assets 3,977 2,989

Total current assets 23,448 34,487

Property and equipment, net 12,670 14,948

Operating lease right-of-use assets 4,187 4,765

Goodwill 15,940 15,948

Intangible assets 7,340 8,411

Other assets 933 1,319

Total Assets $ 64,518 $ 79,878



Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 10,472 $ 12,583

Accrued expenses and other current liabilities 3,413 5,878

Current portion of deferred revenue 5,349 6,509

Current portion of long-term debt and finance 1,027 2,529 leases

Current portion of operating lease liabilities 2,179 2,165

Total current liabilities 22,440 29,664

Long-term portion debt and finance leases 815 729

Deferred revenue 1,907 2,846

Long-term portion of operating lease liabilities 2,151 2,366

Deferred income taxes 334 275

Other long-term liabilities 348 334

Total Liabilities 27,995 36,214

Stockholders' Equity:

Common stock 404 401

Treasury stock (1,971 ) (1,931 )

Additional paid-in capital 147,233 146,460

Accumulated deficit (108,454 ) (100,747 )

Accumulated other comprehensive loss (689 ) (519 )

Total stockholders' equity 36,523 43,664

Total Liabilities and Stockholders' Equity $ 64,518 $ 79,878

Synacor, Inc.

Condensed Consolidated Statement of Operations

(In thousands except for share and per share data)

(Unaudited)



Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019



Revenue $ 18,176 $ 31,849 $ 38,759 $ 63,673

Costs and operating expenses:

Cost of revenue (1) 9,036 17,152 19,765 33,658

Technology and 2,943 4,577 6,051 9,123 development (1)(2)

Sales and marketing 3,803 5,550 8,171 11,541 (2)

General andadministrative (1) 3,274 3,955 7,740 8,420 (2)

Depreciation and 2,225 2,567 4,439 5,002 amortization

Total costs and 21,281 33,801 46,166 67,744 operating expenses

Loss from (3,105 ) (1,952 ) (7,407 ) (4,071 ) operations

Other income 175 (207 ) 342 9 (expense), net

Interest expense (50 ) (55 ) (109 ) (119 )

Loss before income (2,980 ) (2,214 ) (7,174 ) (4,181 ) taxes

Provision for 202 273 533 550 income taxes

Net loss $ (3,182 ) $ (2,487 ) $ (7,707 ) $ (4,731 )

Net loss per share:

Basic $ (0.08 ) $ (0.06 ) $ (0.19 ) $ (0.12 )

Diluted $ (0.08 ) $ (0.06 ) $ (0.19 ) $ (0.12 )

Weighted average shares used to compute net loss per share:

Basic 39,978,861 39,056,381 39,828,300 39,047,561

Diluted 39,978,861 39,056,381 39,828,300 39,047,561

Notes:

(1) Exclusive of depreciation and amortization shown separately.

(2) Includes stock-based compensation as follows:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019



Technology and $ 56 $ 92 $ 113 $ 195 development

Sales and marketing 103 111 204 226

General and 224 121 443 234 administrative

$ 383 $ 324 $ 760 $ 655

Synacor, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands)

(Unaudited)

The following table presents a reconciliation of net loss to adjusted EBITDAfor each of the periods indicated:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019



Reconciliation of Adjusted EBITDA:

Net loss $ (3,182 ) $ (2,487 ) $ (7,707 ) $ (4,731 )

Provision for 202 273 533 550 income taxes

Interest expense 50 55 109 119

Other (income) (175 ) 207 (342 ) (9 ) expense, net

Depreciation and 2,765 2,986 5,497 5,473 amortization

Asset impairment - - - 226

Stock-basedcompensation 383 324 760 655 expense

Restructuring costs 60 - 120 -

Certain legal andprofessional 352 257 1,798 1,036 services fees

Adjusted EBITDA $ 455 $ 1,615 $ 768 $ 3,319

"Certain legal and professional services fees" includes legal fees and other* related expenses outside the ordinary course of business, as well as fees and expenses related to merger and acquisition activities.

Synacor, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



Six Months Ended June 30,

2020 2019



Cash Flows from Operating Activities:

Net loss $ (7,707 ) $ (4,731 )

Adjustments to reconcile net loss to net cash andcash equivalents provided by (used in) operating activities:

Depreciation and amortization 5,512 5,473

Asset impairment - 226

Stock-based compensation expense 760 655

Provision for deferred income taxes 59 40

Change in allowance for doubtful accounts 20 34

Changes in operating assets and liabilities:

Accounts receivable, net 7,019 3,639

Prepaid expenses and other assets (618 ) (23 )

Operating lease right-of-use assets and (102 ) 36 liabilities, net

Accounts payable, accrued expenses and other (4,170 ) (4,030 ) liabilities

Deferred revenue (1,619 ) 193

Net cash (used in) provided by operating (846 ) 1,512 activities

Cash Flows from Investing Activities:

Purchases of property and equipment (1,972 ) (2,444 )

Net cash used in investing activities (1,972 ) (2,444 )

Cash Flows from Financing Activities:

Repayments on long-term debt and finance leases (1,968 ) (1,585 )

Proceeds from exercise of common stock options - 40

Purchase of treasury stock and shares received to (40 ) (6 ) satisfy minimum tax withholdings

Net cash used in financing activities (2,008 ) (1,551 )

Effect of exchange rate changes on cash and cash (162 ) (21 ) equivalents

Net decrease in Cash and Cash equivalents (4,988 ) (2,504 )

Cash and cash equivalents, beginning of period 10,966 15,921

Cash and cash equivalents, end of period $ 5,978 $ 13,417

Synacor, Inc.

Segment Results

(In thousands except for percentages)

(Unaudited)

The Company has two reportable segments which are determined on the basis ofthe products and services provided to customers, identified as follows:

(i) Software & Services, which includes email / collaboration (Zimbra) andidentity management (Cloud ID).

(ii) Portal & Advertising, which includes managed portals and advertisingsolutions for publishers.

The following table presents the key segment financial measures for the periodsindicated. Please refer to the Reconciliation of GAAP to Non-GAAP Measuresschedule for the reconciliation of Adjusted EBITDA.

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 % Change 2020 2019 % Change



Segment Revenue:

Software & Services $ 10,915 $ 10,588 3.1 % $ 21,977 $ 21,746 1.1 %

Portal & Advertising 7,261 21,261 (65.8 ) % 16,782 41,927 (60.0 ) %

Total $ 18,176 $ 31,849 (42.9 ) % $ 38,759 $ 63,673 (39.1 ) %



Segment Adjusted EBITDA:

Software & Services $ 3,718 $ 2,794 33.1 % $ 7,246 $ 5,588 29.7 %

Portal & Advertising (403 ) 2,534 (115.9 ) % (644 ) 5,155 (112.5 ) %

Unallocated Corporate (2,860 ) (3,713 ) 23.0 % (5,834 ) (7,424 ) 21.4 %Expense

Total $ 455 $ 1,615 (71.8 ) % $ 768 $ 3,319 (76.9 ) %



Segment Adjusted EBITDA margin*

Software & Services 34.1 % 26.4 % 770 bps 33.0 % 25.7 % 730 bps

Portal & Advertising (5.6 ) % 11.9 % -1750 bps (3.8 ) % 12.3 % -1610 bps

Total 2.5 % 5.1 % -260 bps 2.0 % 5.2 % -320 bps



* Adjusted EBITDA as a percent of revenue

The following tables presents a disaggregation of segment revenue for theperiods 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

Synacor, Inc.

Segment Results

(In thousands except for percentages)

(Unaudited)



Three Months Ended June 30, Six Months Ended June 30,

2020 2019 % Change 2020 2019 % Change



Software & Services Revenue:

Recurring $ 8,063 $ 8,388 (3.9 ) % $ 16,393 $ 16,903 (3.0 ) %

Non-recurring 2,852 2,200 29.6 % 5,584 4,483 24.6 %

Discontinued - - - % - 360 (100.0 ) %Products **

Total $ 10,915 $ 10,588 3.1 % $ 21,977 $ 21,746 1.1 %



Portal & Advertising Revenue:

Recurring $ 881 $ 1,202 (26.7 ) % $ 2,105 $ 2,708 (22.3 ) %

Non-recurring 6,380 20,059 (68.2 ) % 14,677 39,219 (62.6 ) %

Total $ 7,261 $ 21,261 (65.8 ) % $ 16,782 $ 41,927 (60.0 ) %



Total Revenue:

Recurring $ 8,944 $ 9,590 (6.7 ) % $ 18,498 $ 19,611 (5.7 ) %

Non-recurring 9,232 22,259 (58.5 ) % 20,261 43,702 (53.6 ) %

Discontinued - - - % - 360 - %Products **

Total $ 18,176 $ 31,849 (42.9 ) % $ 38,759 $ 63,673 (39.1 ) %

** 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 June 30, 2020

Certain Per GAAP Asset Restructuring Legal & Adjusted Statements Impairment Costs Professional Non-GAAP Fees



Revenue $ 18,176 $ 18,176

Costs andoperating expenses:

Cost of 9,036 9,036 revenue (1)

Technology anddevelopment 2,943 2,943 (1)(2)

Sales and 3,803 3,803 marketing (2)

General andadministrative 3,274 (60 ) (352 ) 2,862 (1)(2)

Depreciationand 2,225 2,225 amortization

Total costsand operating 21,281 - (60 ) (352 ) 20,869 expenses

Loss from (3,105 ) - 60 352 (2,693 ) operations

Other income, 175 175 net

Interest (50 ) (50 ) expense

Loss before (2,980 ) - 60 352 (2,568 ) income taxes

Provision forincome taxes 202 202 (3)

Net loss $ (3,182 ) $ - $ 60 $ 352 $ (2,770 )

Diluted EPS $ (0.08 ) $ 0.00 $ 0.00 $ 0.01 $ (0.07 )

Synacor, Inc.

Reconciliation of Adjusted Financial Measures

(In thousands except per share amounts)

(Unaudited)



Three months ended June 30, 2019

Certain Per GAAP Asset Restructuring Legal & Adjusted Statements Impairment Costs Professional Non-GAAP Fees



Revenue $ 31,849 $ 31,849

Costs andoperating expenses:

Cost of 17,152 $ 17,152 revenue (1)

Technology anddevelopment 4,577 $ 4,577 (1)(2)

Sales and 5,550 $ 5,550 marketing (2)

General andadministrative 3,955 (257 ) $ 3,698 (1)(2)

Depreciationand 2,567 2,567 amortization

Total costsand operating 33,801 - - (257 ) 33,544 expenses

Loss from (1,952 ) - - 257 (1,695 ) operations

Other expense, (207 ) (207 ) net

Interest (55 ) (55 ) expense

Loss before (2,214 ) - - 257 (1,957 ) income taxes

Provision forincome taxes 273 273 (3)

Net loss $ (2,487 ) $ - $ - $ 257 $ (2,230 )

Diluted EPS $ (0.06 ) $ - $ 0.00 $ 0.01 $ (0.05 )

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 valuationallowance.

Synacor's management believes that certain non-GAAP measures of Adjusted NetLoss and Adjusted Diluted Earnings per Share provide investors with additionalinformation to assess the Company's financial performance. These measuresshould be viewed as supplemental data, rather than substitutes or alternativesto the comparable GAAP measures.

Synacor, Inc.

Reconciliation of Adjusted Financial Measures

(In thousands except per share amounts)

(Unaudited)



Six months ended June 30, 2020

Certain Per GAAP Asset Restructuring Legal & Adjusted Statements Impairment Costs Professional Non-GAAP Fees



Revenue $ 38,759 $ 38,759

Costs andoperating expenses:

Cost of 19,765 19,765 revenue (1)

Technology anddevelopment 6,051 6,051 (1)(2)

Sales and 8,171 8,171 marketing (2)

General andadministrative 7,740 - (120 ) (1,798 ) 5,822 (1)(2)

Depreciationand 4,439 4,439 amortization

Total costsand operating 46,166 - (120 ) (1,798 ) 44,248 expenses

Loss from (7,407 ) - 120 1,798 (5,489 ) operations

Other income, 342 342 net

Interest (109 ) (109 ) Expense

Loss before (7,174 ) - 120 1,798 (5,256 ) income taxes

Provision forincome taxes 533 533 (3)

Net loss $ (7,707 ) $ - $ 120 $ 1,798 $ (5,789 )

Diluted EPS $ (0.19 ) $ - $ - $ 0.05 $ (0.15 )

Synacor, Inc.

Reconciliation of Adjusted Financial Measures

(In thousands except per share amounts)

(Unaudited)



Six months ended June 30, 2019

Certain Per GAAP Asset Restructuring Legal & Adjusted Statements Impairment Costs Professional Non-GAAP Fees



Revenue $ 63,673 $ 63,673

Costs andoperating expenses:

Cost of 33,658 33,658 revenue (1)

Technology anddevelopment 9,123 9,123 (1)(2)

Sales and 11,541 11,541 marketing (2)

General andadministrative 8,420 (226 ) (1,036 ) 7,158 (1)(2)

Depreciationand 5,002 5,002 amortization

Total costsand operating 67,744 (226 ) - (1,036 ) 66,482 expenses

Loss from (4,071 ) 226 - 1,036 (2,809 ) operations

Other income, 9 9 net

Interest (119 ) (119 ) Expense

Loss before (4,181 ) 226 - 1,036 (2,919 ) income taxes

Provision forincome taxes 550 550 (3)

Net loss $ (4,731 ) 226 $ - $ 1,036 $ (3,469 )

Diluted EPS $ (0.12 ) $ 0.01 $ - $ 0.03 $ (0.09 )



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 valuationallowance.

Synacor's management believes that certain non-GAAP measures of Adjusted NetLoss and Adjusted Diluted Earnings per Share provide investors with additionalinformation to assess the Company's financial performance. These measuresshould be viewed as supplemental data, rather than substitutes or alternativesto the comparable GAAP measures.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200811005794/en/

CONTACT: FNK IR Rob Fink +1.646.809.4048 rob@fnkir.com

CONTACT: Meredith Roth VP, Marketing & Corporate Communications Synacor +1.770.846.1911 mroth@synacor.com