Synchronoss Technologies, Inc. Q3 FY2025 earnings call

• Revenue was slightly below expectations but profitability was strong with net income of $5.8 million and diluted EPS of $0.51. Recurring revenue was over 93% of total revenue. - Completed a $200 million 4-year term loan refinancing, retiring senior notes and prior term loan. - Completed CARES Act refund process, receiving $33.9 million and making a $25.4 million prepayment on the term loan. - Exploring new product adjacencies. - Made progress with key customers like AT&T, Verizon, SoftBank, and Capsyl. - Achieved AI-driven transformation advancements, including end-to-end encryption using AI, open source AI model adoption, and hybrid cloud AI model deployment for the core personal cloud platform

Revenue for the third quarter was $42 million. Recurring revenue represented more than 93% of total revenue. Adjusted EBITDA was $12 million, resulting in an adjusted EBITDA margin of 28.5% in the quarter. Total revenue was slightly down from the prior year period due to delayed new customer contracts and lower subscriber growth at certain customers. Adjusted gross profit was $33.4 million, which was 79.5% of total revenue

• Adjusted full-year revenue guidance to between $169 million and $172 million. - Lowered adjusted EBITDA guidance to between $50 million and $53 million and free cash flow guidance to between $6 million and $10 million. - Recurring revenue still expected to be at least 90% of total revenue, and adjusted gross margin between 78% and 80%

• Subscriber growth weakness among certain customers and delayed timing of new customer contracts. - Economic environment changes affecting business operations. - Transition challenges with some carrier customers

Q: So I'm just curious with the growth that you are seeing, is that mainly then driven by higher wallet share rather than the subscriber growth, which seems to be a little bit challenged? 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?

A: Jeffrey Miller: First off, we had a slight growth in our subscriber and subscription growth revenue category this quarter. One of the major contributors was a long sales cycle for new customer contracts. We are seeing new customer prospects progress well, just taking time to get through contracts. On the subscriber side, initiatives with existing customers and momentum with AT&T will help get back to mid-single-digit subscriber growth, complemented by new customers for 2026 and beyond.

Q: And you're talking about 2 rather important customers in the pipeline that you think you're going to sign one by the end of the year and one early next year it sounded like. But how does the rest of the pipeline look like?

A: Jeffrey Miller: The pipeline has two dimensions. Continued growth with existing customers, e.g., less than 2% penetration at AT&T with much growth potential. Also, strong pipeline for branded clouds like Capsyl in various regions. Expect new customer launches this year and next year.

Q: With the improved balance sheet and your positive cash flow, how should we think about capital allocation priorities, and are you -- and potential share buybacks?

A: Lou Ferraro: First, using additional cash from tax refund for offensive opportunities. Pronged approach: additional investment in current products/platform or inorganic growth opportunities, rather than immediate share buybacks.

Q: Can you elaborate a little bit on the 2 line items, the expense -- the interest income and the interest expense? Both of those were affected by your IRS payment. Is that what you said?

A: Lou Ferraro: Interest income is from federal tax refund interest. Interest expense is related to term loan interest and issuance costs. Jon Hickman: How much on the interest expense side? Lou Ferraro: $1.7 million, which was deferred issuance cost. Jon Hickman: Regarding the $33.9 million refund, Lou Ferraro: $28.6 million was pure refund balance, $5.2 million was retrospective interest, total proceeds $33.9 million inclusive of interest.

Q: Can you elaborate on 1% subscriber growth year-over-year and sequential change?

A: Jeffrey Miller: Went from 3% subscriber growth last quarter to 1% this quarter due to factors mentioned. Year-over-year, we grew subscribers but at 1% due to 11+ million subscriber base. Jon Hickman: Why were revenues down sequentially? Jeffrey Miller: Subscription growth grew slightly Q3 over Q2, but less onetime license or professional services fees, e.g., SoftBank contract closed in Q2 for license, new business revenue in Q3 not as large as Q2