Synchronoss Technologies, Inc. Q1 FY2025 earnings call

• Strategic transformation to a leading global cloud solutions provider has led to a more predictable business model, strengthened financial profile, and improved profitability.
• Revenue for the quarter was $42.4 million with 3.3% subscriber growth across global customer base. Adjusted EBITDA increased to $12.7 million with a margin of 30.2%.
• Over 90% of revenue is recurring, and over 90% of 2025 projected revenue is under long-term contracts with Tier 1 carriers.
• Refinanced $200 million, four-year term loan, retiring prior debt and strengthening capital structure.
• Driven meaningful cost control, cutting overall operational expenses by 11.5% year-over-year.
• Positive performance with AT&T (accelerated adoption through streamlined digital onboarding), SoftBank (positive retail sales momentum for Anshin Data Box), and Verizon (continued progress in cloud offer transition and integration of Cloud Verizon SDK into My Verizon app).
• Growing traction with Capsyl, a Synchronoss branded cloud solution for smaller and international operators.
• Strong sales pipeline with active discussions with new carriers and existing partners.

Revenue for the quarter was $42.4 million. Adjusted EBITDA increased 17% year-over-year to $12.7 million, with an adjusted EBITDA margin of 30.2%. Over 90% of revenue is classified as recurring revenue, and more than 90% of projected 2025 revenue is under long-term contracts with Tier 1 carriers like AT&T, Verizon, and SoftBank. Quarterly recurring revenue was 93.1% of total revenue, and cloud subscriber growth was 3.3%.

• Reiterating 2025 outlook: revenue between $170 million and $180 million, adjusted gross margin between 78% and 80%, recurring revenue at least 90% of total revenue, adjusted EBITDA $52 million to $56 million, and free cash flow between $11 million and $16 million (excluding federal tax refund effect).
• Projections reflect confidence in subscriber growth, cost discipline, and financial flexibility from refinancing and tax refund despite macroeconomic challenges.

• Challenging macroeconomic landscape due to tariffs and global trade uncertainties, which may slow handset upgrades and impact subscriber growth.
• Tariffs could potentially slow phone upgrade cycles but also amplify the need for cloud storage as users accumulate more data over time.

Q: If we look sequentially, the costs have continued to fall, whether that's above the line or on the OpEx side. Can you talk about to what degree do you think you're now sort of getting that cost structure down where you want it to be? Is there any further cost or synergy to come out of there? Or do you think this is a pretty good baseline where we're sitting?

A: Good afternoon Rich and thanks for that question. I think Synchronoss over the last few years, continually looks at our cost structure as optimistically as we can from time-to-time to see if there are any refinements we can make. We think that the major reductions we did at the close of 2023 and again, to a lesser extent at the close of 2024 position us well. We're glad we did it, especially in light of the macroeconomic conditions we're seeing. And we think, in general, the cost structure where it is today is largely where we'd like it to be for this point in our history as a company.

Q: When you talk -- you sort of touched lightly on having some conversations with some new prospects. Can you talk about sort of where do you think those would be? Are those just international of the same sort of customers you have now? Is it something that would expand on existing customers or new opportunities for revenue growth?

A: Yes, you're welcome. It's certainly pleasing to say that those opportunities are kind of many fold and that they cover the geographies around the globe. So, we have active conversations going on in the United States because there are, we believe, a number of emerging mobile and broadband players who are prime candidates to leverage a cloud-based solution to complement their broadband and mobile offerings. Similarly, we have opportunities in the Asia-Pacific region and in Europe. as well, candidly, as in Africa. So, we have our business development activities very actively engaged with a lot of conversations in place, and we hope to be in a position soon to be able to report the next customer to join the platform, but we are making steady progress.

Q: Could you give some color on what kind of free cash flow we can expect this year?

A: Certainly. As we said, we reiterated our guidance. Our free cash flow should be between $11 million and $16 million. If you look at the last couple of years for Synchronoss, that tends to move around from quarter-to-quarter, usually highlighted by a very strong fourth quarter, and we think we'll probably see a consistent performance for that in 2025.

Q: Among AT&T and SoftBank, which one is growing faster?

A: I would say that they're both very much growing in a healthy clip, and they're both meeting our expectations at this time. We really try to avoid divulging any specific information on any individual client. But collectively, they are driving the biggest portion of the growth for the first quarter as reported.

Q: Maybe some color on how should we think about modeling gross margins for the year?

A: I think our gross margins, as we said, will probably be on an adjusted basis between 78% and 80%. We've been very close to that now for the last couple of quarters. And with our expense structure being where we'd like it to be, we expect to continue to perform in that range throughout the rest of this year.