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Synchronoss Technologies, Inc. Announces Third Quarter 2012 Financial Results

Synchronoss Technologies, Inc. (NASDAQ: SNCR), the world’s leading provider of transaction management, cloud enablement and connectivity services for connected devices, today announced financial results for the third quarter of 2012.

“The company’s solid execution during the third quarter led to revenue and profitability that were consistent with our guidance,” said Stephen G. Waldis, Founder and Chief Executive Officer of Synchronoss. “During the third quarter, we focused on the development of our cloud platform deployments with four of the largest mobile operators in the world. We believe we are at the early stages of significant long-term growth opportunities and are making great progress in establishing Synchronoss’ mobile content management cloud platform as the de facto standard for Tier 1 carriers around the globe.”

On a GAAP basis, Synchronoss reported net revenues of $69.0 million, representing an increase of 16% compared to the third quarter of 2011. Gross profit was $39.8 million and income from operations was $11.2 million in the third quarter of 2012. Net income applicable to common stock was $6.2 million, leading to diluted earnings per share of $0.16, compared to $0.09 for the third quarter of 2011.

On a non-GAAP basis, Synchronoss reported net revenues, which adds back the purchase accounting adjustment related to revenues for certain acquisitions, of $69.2 million, an increase of 17% compared to the third quarter of 2011. Gross profit for the third quarter of 2012 was $41.2 million, representing a gross margin of 60%. Income from operations was $18.4 million in the third quarter of 2012, representing a year-over-year increase of 40% and an operating margin of 27%. Net income was $10.7 million in the third quarter of 2012, leading to diluted earnings per share of $0.28, an increase of 22% compared to $0.23 for the third quarter of 2011.

A reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in this press release, as well as nine months year to date results. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

“The combination of solid revenue growth and leverage in our business led to 40% growth in non-GAAP operating income, along with a non-GAAP operating margin of 27% that was at the highest level for the company in the last 4 years,” said Lawrence R. Irving, Chief Financial Officer and Treasurer. “As we look ahead, we are increasing investments in our industry leading activation and cloud-based content management platforms to support deployments and incremental opportunities with our major Tier 1 carrier customers. We believe there will be a significant payback on our investments over the long-term as the fastest growing segment of our business is expected to come from higher margin, cloud-based content management services.”

Other Third Quarter and Recent Business Highlights:

  • Business outside of the AT&T relationship accounted for approximately $37.2 million of non-GAAP revenue, representing approximately 54% of total revenue. Verizon Wireless remained the largest contributor to Synchronoss’ business outside of AT&T, representing over 10% of Synchronoss’ revenue for the quarter. Business related to AT&T accounted for approximately $32.0 million of non-GAAP revenue, representing the other 46% of total revenue.
  • Non-GAAP cash flow provided by operations was $44.9 million for the first nine months of 2012 representing an increase of 19% year-over-year and the Company repurchased $13.9 million of common stock for the same period.

Conference Call Details

In conjunction with this announcement, Synchronoss will host a conference call on Monday, November 5, 2012, at 4:30 p.m. (ET) to discuss the company's financial results. To access this call, dial 800-299-8538 (domestic) or 617-786-2902 (international). The pass code for the call is 95394973. Additionally, a live web cast of the conference call will be available on the “Investor Relations” page on the company’s web site www.synchronoss.com.

Following the conference call, a replay will be available at 888-286-8010 (domestic) or 617-801-6888 (international). The replay pass is 72170879. An archived web cast of this conference call will also be available on the “Investor Relations” page of the company’s web site, www.synchronoss.com.

Non-GAAP Financial Measures

Synchronoss has provided in this release selected financial information that has not been prepared in accordance with GAAP. This information includes historical non-GAAP revenues, gross profit, operating income, net income, effective tax rate, earnings per share and cash flows from operating activities. Synchronoss uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Synchronoss’ ongoing operational performance. Synchronoss believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing its financial results with other companies in Synchronoss’ industry, many of which present similar non-GAAP financial measures to investors. As noted, the non-GAAP financial results discussed above add back the deferred revenue write-down associated with acquisitions, fair value stock-based compensation expense, acquisition-related costs, changes in the contingent consideration obligation, deferred compensation expense related to earn outs and amortization of intangibles associated with acquisitions.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures as detailed above. As previously mentioned, a reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in this press release.

About Synchronoss Technologies, Inc.

Synchronoss Technologies (NASDAQ: SNCR) is the mobile innovation company that provides software-based activation and mobile content management solutions for connected devices across the globe. The company’s proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world. For more information visit us at:

Web: www.synchronoss.com

Blog: http://blog.synchronoss.com

Twitter: http://twitter.com/synchronoss

Forward-looking Statements

This document may include certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," “outlook” or words of similar meanings. These statements are based on our current beliefs or expectations and are inherently subject to various risks and uncertainties, including those set forth under the caption "Risk Factors" in Synchronoss’ Annual Report on Form 10-K for the year ended December 31, 2011 and other documents filed with the U.S. Securities and Exchange Commission. Actual results may differ materially from these expectations due to changes in global political, economic, business, competitive, market and regulatory factors. Synchronoss does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

The Synchronoss logo, Synchronoss, ConvergenceNow, InterconnectNow, ConvergenceNow Plus+ and SmartMobility are trademarks of Synchronoss Technologies, Inc. All other trademarks are property of their respective owners.

       
 
SYNCHRONOSS TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
 
September 30, 2012 December 31, 2011
 
ASSETS
Current assets:
Cash and cash equivalents $ 52,736 $ 69,430
Marketable securities 65,260 51,504

Accounts receivable, net of allowance for doubtful accounts of $285 and $356 at September 30, 2012 and December
31, 2011, respectively

65,985 57,387
Prepaid expenses and other assets 15,022 16,061
Deferred tax assets   3,879     3,938  
 
Total current assets 202,882 198,320
Marketable securities 14,599 31,642
Property and equipment, net 49,419 34,969
Goodwill 67,841 54,617
Intangible assets, net 73,770 63,969
Deferred tax assets 11,304 12,606
Other assets   2,118     2,495  
 
Total assets $ 421,933   $ 398,618  
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 5,549 $ 7,712
Accrued expenses 22,413 24,153
Deferred revenues 6,624 8,834
Contingent consideration obligation   3,594     4,735  
 
Total current liabilities 38,180 45,434
Lease financing obligation - long term 9,257 9,241
Contingent consideration obligation - long-term - 8,432
Other liabilities 856 948
Stockholders’ equity:

Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and
  outstanding at September 30, 2012 and December 31, 2011

Common stock, $0.0001 par value; 100,000 shares authorized, 42,150 and 41,063 shares
  issued; 38,826 and 38,394 outstanding at September 30, 2012 and December 31, 2011, respectively

4 4
Treasury stock, at cost (3,324 and 2,669 shares at September 30, 2012 and December 31, 2011, respectively) (57,201 ) (43,712 )
Additional paid-in capital 336,098 307,586
Accumulated other comprehensive loss (279 ) (699 )
Retained earnings   95,018     71,384  
 
Total stockholders’ equity   373,640     334,563  
 
Total liabilities and stockholders’ equity $ 421,933   $ 398,618  
               
 
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF INCOME
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,
  2012     2011     2012     2011  
 
Net revenues $ 68,961 $ 59,238 $ 200,511 $ 166,933
Costs and expenses:
Cost of services (2)(3)(4)* 29,136 27,781 84,388 78,270
Research and development (2)(3)(4) 12,645 10,879 38,091 31,037
Selling, general and administrative (2)(3)(4) 10,278 11,118 31,728 31,913
Net change in contingent consideration obligation (327 ) 480 (5,735 ) 3,311
Depreciation and amortization   6,068     3,949     17,201     11,029  
 
Total costs and expenses   57,800     54,207     165,673     155,560  
 
Income from operations 11,161 5,031 34,838 11,373
Interest income 295 216 1,023 472
Interest expense (222 ) (198 ) (702 ) (673 )
Other (expense) income (5)   (207 )   (27 )   586     140  
 
Income before income tax expense 11,027 5,022 35,745 11,312
Income tax expense   (4,825 )   (1,447 )   (12,111 )   (4,394 )
 
Net income $ 6,202   $ 3,575   $ 23,634   $ 6,918  
 
Net income per common share:
Basic (1) $ 0.16   $ 0.10   $ 0.62   $ 0.22  
 
Diluted (1) $ 0.16   $ 0.09   $ 0.60   $ 0.22  
 
Weighted-average common shares outstanding:
Basic   38,107     37,573     38,219     37,285  
 
Diluted   38,872     38,647     39,192     38,610  
 
* Cost of services excludes depreciation which is shown separately.
 
(1) Adjustment to net income for equity mark-to-market on contingent consideration obligation:
Net income $ 6,202 $ 3,575 $ 23,634 $ 6,918
Income effect for equity mark-to-market on contingent consideration obligation, net of tax   -     -     -     1,466  
 
Net income applicable to shares of common stock for earnings per share $ 6,202   $ 3,575   $ 23,634   $ 8,384  
 
(2) Amounts include fair value stock-based compensation as follows:
Cost of services $ 925 $ 1,416 $ 3,061 $ 3,673
Research and development 1,201 1,146 3,856 2,931
Selling, general and administrative   2,511     3,326     7,470     8,511  
 
Total fair value stock-based compensation expense $ 4,637   $ 5,888   $ 14,387   $ 15,115  
 
(3) Amounts include acquisition and restructuring costs as follows:
Cost of services $ - $ - $ - $ 15
Research and development - 4 209 253
Selling, general and administrative   -     59     424     342  
 
Total acquisition and restructuring costs $ -   $ 63   $ 633   $ 610  
 
(4) Amounts include fair value earn-out cash and stock compensation as follows:
Cost of services $ 199 $ 105 $ 199 $ 350
Research and development 353 326 469 759
Selling, general and administrative   183     435     319     2,145  
 
Total fair value earn-out cash and stock compensation expense $ 735   $ 866   $ 987   $ 3,254  
 
(5) Amounts include Fx change of the contingent consideration obligation as follows:
Other (expense) income $ (32 ) $ - $ 82 $ -
 
 
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,   Nine Months Ended September 30,
  2012     2011     2012     2011  
 
Non-GAAP financial measures and reconciliation:
 
GAAP Revenue $ 68,961 $ 59,238 $ 200,511 $ 166,933
Add: Deferred Revenue Write-Down   232     150     748     1,237  
 
Non-GAAP Revenue $ 69,193   $ 59,388   $ 201,259   $ 168,170  
 
GAAP Revenue $ 68,961 $ 59,238 $ 200,511 $ 166,933
Less: Cost of Services   29,136     27,781     84,388     78,270  
 
GAAP Gross Margin 39,825 31,457 116,123 88,663
 
Add: Deferred revenue write-down 232 150 748 1,237
Add: Fair value stock-based compensation 925 1,416 3,061 3,673
Add: Acquisition and restructuring costs - - - 15
Add: Deferred compensation expense - earn-out   199     105     199     350  
 
Non-GAAP Gross Margin $ 41,181   $ 33,128   $ 120,131   $ 93,938  
 
Non-GAAP Gross Margin % 60 % 56 % 60 % 56 %
 
GAAP income from operations $ 11,161 $ 5,031 $ 34,838 $ 11,373
Add: Deferred revenue write-down 232 150 748 1,237
Add: Fair value stock-based compensation 4,637 5,888 14,387 15,115
Add: Acquisition and restructuring costs - 63 633 610
Add: Net change in contingent consideration obligation (327 ) 480 (5,735 ) 3,311
Add: Deferred compensation expense - earn-out 735 866 987 3,254
Add: Amortization expense   1,955     660     5,250     1,980  
 
Non-GAAP income from operations $ 18,393   $ 13,138   $ 51,108   $ 36,880  
 
GAAP net income attributable to common stockholders $ 6,202 $ 3,575 $ 23,634 $ 6,918
Add: Deferred revenue write-down, net of tax 148 78 486 861
Add: Fair value stock-based compensation, net of tax 2,954 3,877 9,334 10,520
Add: Acquisition and restructuring costs, net of taxes - 30 414 424
Add: Net change in contingent consideration obligation, net of Fx change, net of tax (295 ) 265 (5,817 ) 2,304
Add: Deferred compensation expense - earn-out, net of tax 476 544 641 2,264
Add: Amortization expense, net of tax   1,252     427     3,408     1,378  
 
Non-GAAP net income $ 10,737   $ 8,796   $ 32,100   $ 24,669  
 
Diluted non-GAAP net income per share $ 0.28   $ 0.23   $ 0.82   $ 0.64  
       
Weighted shares outstanding - Diluted   38,872     38,647     39,192     38,610  
       
 
SYNCHRONOSS TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
 
Nine Months Ended September 30,
  2012     2011  
 
Operating activities:
Net income $ 23,634 $ 6,918
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 17,199 11,029
Loss on disposal of asset 198
Amortization of bond premium 1,000 326
Deferred income taxes 32 (2,920 )
Non-cash interest on leased facility 690 688
Stock-based compensation 14,387 16,173
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts (6,733 ) (10,291 )
Prepaid expenses and other current assets 7,022 3,376
Other assets (122 ) (26 )
Accounts payable (2,665 ) (698 )
Accrued expenses (3,042 ) 2,973
Contingent consideration obligation (8,396 ) 2,640
Excess tax benefit from the exercise of stock options (6,592 ) (7,335 )
Other liabilities (146 ) (281 )
Deferred revenues   (1,707 )   5,314  
Net cash provided by operating activities 34,759 27,886
 
Investing activities:
Purchases of fixed assets (25,377 ) (12,042 )
Purchases of marketable securities available-for-sale (13,082 ) (35,757 )
Maturity of marketable securities available-for-sale 15,531 3,670
Business acquired, net of cash   (26,572 )   (7,913 )
Net cash used in investing activities (49,500 ) (52,042 )
 
Financing activities:
Proceeds from the exercise of stock options 7,330 14,163
Payments on contingent consideration obligation (2,268 ) (8,286 )
Excess tax benefit from the exercise of stock options 6,592 7,335
Repurchase of common stock (13,898 ) (19,999 )
Proceeds from the sale of Treasury Stock in connection with an employee stock purchase plan 612
Proceeds from capital obligations 38
Payments on capital obligations   (750 )   (721 )
Net cash used in financing activities (2,344 ) (7,508 )
Effect of exchange rate changes on cash   391     (92 )
Net decrease in cash and cash equivalents (16,694 ) (31,756 )
Cash and cash equivalents at beginning of year   69,430     180,367  
Cash and cash equivalents at end of period $ 52,736   $ 148,611  
       
 
SYNCHRONOSS TECHNOLOGIES, INC.
Reconciliation of GAAP to Non-GAAP Cash Provided by Operating Activities
(in thousands)
(Unaudited)
 
Nine Months Ended September 30,
  2012   2011
Non-GAAP cash provided by operating activities and reconciliation:
 
Net cash provided by operating activities (GAAP) $ 34,759 $ 27,886
Add: Tax benefits from stock options exercised 6,592 7,335
Add: Cash payments on settlement of Earn-out   3,533   2,578
 
Adjusted cash flow provided by operating activities (Non-GAAP) $ 44,884 $ 37,799

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