SYNC - Synacor Reports Third Quarter 2020 Financial Results

--Company delivers 17% growth in Zimbra Enterprise SaaS and Cloud ID SaaS revenue

--Reinstates Financial Guidance for Fourth Quarter 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 third quarter ended September 30, 2020.

Third Quarter Financial Highlights

• Third quarter revenue of $18.5 million
• GAAP net loss of $4.0 million, inclusive of $1.8 million of restructuring and impairment charges
• Adjusted EBITDA of $1.0 million with near break-even operating cash flow
• Portal & Advertising Segment Adjusted EBITDA margin of 7% with sequential revenue growth of 16%, showing solid recovery post the onset of COVID-19
• $8.1 million of recurring software revenue, that included 17% year-over-year growth in our focus areas of Zimbra Enterprise SaaS and Cloud ID SaaS
• Company reinstates financial guidance for the fourth quarter 2020, including expectations for continued double-digit Enterprise SaaS growth, double-digit Adjusted EBITDA margins and positive free cash flow

“Our third quarter results provide real evidence of Synacor’s transformation into a world-class Enterprise SaaS company that is also committed to expanded margins and positive cash flow,” said Himesh Bhise, Synacor’s Chief Executive Officer. “Zimbra Enterprise SaaS plus Cloud ID SaaS delivered 17% year-over-year growth, our second consecutive quarter of double digit Enterprise SaaS revenue growth that we expect will continue into 2021. We have also improved profitability: year-to-date Software Segment adjusted EBITDA margin expanded to 32% from 27% a year ago, and our Portal & Advertising Segment adjusted EBITDA margin was 7% in Q3 and break-even year-to-date, despite the impact of COVID-19.”

Bhise added, “We enter Q4 and 2021 with noteworthy Cloud ID customer launches, a compelling new Zimbra Cloud collaboration platform, a pronounced market recovery underway in Advertising, a robust sales pipeline, and a cost structure that will yield positive free cash-flow.”

Recent Operating Highlights

• Over 200 new and expansion customers for Zimbra email and collaboration platform delivered through worldwide channel partners
• Debuted Zimbra Cloud in North America – an integrated collaboration suite for small business with email, videoconferencing, chat, and cloud storage – for $2.95 per month with a 30-day free trial
• Signed four expansion deals for Cloud ID with content streaming and service provider customers; and pipeline remains robust
• Achieved significant launch milestones with current Cloud ID customers that will grow active users, including smart-speaker enablement for a large digital services provider, doubling of traffic with a Canadian OTT provider, and going live with content network Epix
• Active advertising publishers were 104 at the end of the third quarter, reflecting proactive reduction of less profitable publishers to enhance segment profitability
• Renewed six Zimbra contracts, three Cloud ID contracts, and two portal contracts with service providers in North America
• Unallocated corporate G&A declined 29% compared to the year ago quarter as a result of previously announced $10 million of cost reductions

Financial Results

Revenue

For the third quarter of 2020, revenue was $18.5 million, compared to reported revenue of $31.4 million, or $23.7 million when excluding the ATT.net portal business, in the third quarter of 2019. The decline was primarily driven by the COVID-19 impact on our business.

Revenue in our Software & Services segment totaled $10.1 million, compared with $11.1 million in the third quarter of 2019, as double-digit growth in Enterprise SaaS was offset by COVID-19 related declines in consumer email, maintenance, and enterprise licenses.

Revenue in our Portal & Advertising segment totaled $8.4 million, compared with reported revenue of $20.3 million, or $12.6 million net of the ATT.net portal business, in the third quarter of 2019. Revenue increased 16% sequentially compared to the second quarter of 2020, and continues to improve into the fourth quarter, despite the impact from COVID-19.

Net Loss

Net loss for the third quarter of 2020 was $4.0 million, or $0.10 per share, compared with a net loss of $3.7 million, or $0.10 per share, in the prior year. Adjusted net loss was $2.3 million, or $0.05 per share in the current quarter, compared with an adjusted net loss of $1.0 million, or $0.03 per share, in the third quarter of 2019. Adjusted net loss excludes asset impairments, restructuring charges and certain legal and professional fees.

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2020 was $1.0 million, or 5.3% of revenue, compared with $2.7 million, or 8.7% of revenue, in the third quarter of 2019. Adjusted EBITDA excludes stock-based compensation, other income and expense, asset impairments, restructuring costs, and certain legal and professional fees.

Cash

Cash and cash equivalents at the end of the third quarter was $4.3 million, compared with $6.0 million at the end of the second quarter. The Company continues to have no borrowings on its $12 million credit facility, and expects to be cash flow positive beginning with the fourth quarter of 2020 on a go-forward basis.

Guidance

The Company previously suspended its practice of providing financial guidance on May 6, 2020 given the uncertainties regarding the COVID-19 pandemic. Due to improved visibility, the Company has decided to reinstate financial guidance.

Based on information available as of November 11, 2020, the Company is providing guidance as follows for the fourth quarter 2020:

• Revenue of $20.0 million to $22.0 million
• GAAP net loss of $0.5 million to $1.1 million
• Adjusted EBITDA of $2.5 million to $3.1 million

Conference Call Details

Synacor will host a conference call today at 5 p.m. ET to discuss its third 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 4592597.

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 November 11, 2020 until 11:59 p.m. ET on November 18, 2020 by dialing 1-800-585-8367 or 1-416-621-4642 and using the pin number 4592597.

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, it’s fourth quarter and full year 2020 guidance, the statements and quotations from management, statements regarding the impact of the Company’s cost reduction plan on its future financial results, statements regarding future revenue improvement in the Portal & Advertising segment and the ability to achieve positive 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 November 11, 2020, and except as required by applicable law, Synacor undertakes no duty to update this information.

Synacor, Inc.
Segment Results
(In thousands except for percentages)
(Unaudited)

The Company has two reportable segments which are 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.

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

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.