Brian Denyeau - Investor Relations Glenn Lurie - President and Chief Executive Officer David Clark - Chief Financial Officer.

Tom Roderick - Stifel Sahil Dhingra - JPMorgan.

Greetings and welcome to the Synchronoss Technologies’ Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr.

Brian Denyeau, Investor Relations. Thank you. You may begin..

Thank you, Michel. Good afternoon, everyone. Thank you and welcome to the Synchronoss Technologies third quarter 2018 earnings call. We will be discussing the results announced in the press release issued after the market closed today.

Joining on the call is Glenn Lurie, President and Chief Executive Officer of Synchronoss and David Clark, Synchronoss Chief Financial Officer.

During this call, there will be references to our prospects and expectations for the fourth quarter and full year 2018 and beyond and other statements relating to our business that maybe considered forward-looking statements within the meaning of the federal securities laws, including statements about our financial trends, future results of operations and financial position, business prospects and market opportunities and prospects.

Generally, these forward-looking statements are identified by words such as expect, believe, anticipate, intend, and other indications of future expectations. These forward-looking statements are based on the business environment as we currently see it and as such include certain risks and uncertainties.

Please refer to our earnings press release and our SEC filings for more information on the specific risk factors that have caused actual results to differ materially from the forward-looking statements that we make in today’s discussion.

Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to GAAP.

We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation of the GAAP measures to their non-GAAP measures in addition to the description of the non-GAAP measures can be found in today’s earnings press release. With that, I will turn the call over to Glenn.

Glenn?.

Thanks, Brian and thanks to all of you for joining us today. I am pleased to report that Synchronoss returned to growth and profitability in the third quarter driven by improving trends across all parts of our business.

Our business has stabilized and our focus going forward is on generating consistent profitable growth, which we believe we will drive significant value for our shareholders. Before I review the business in more detail, I would like to highlight the progress we have made across the business and capital structure since our last earnings call.

First, we are very happy that we were able to work with NASDAQ to get our suspension lifted and we are actively trading today as you all know. Second, we generated sequential revenue growth in the quarter as promised.

We saw strong performance across each platform with the biggest driver coming from our cloud business, which is generating impressive take rates and strong subscriber growth. Third, we delivered positive adjusted EBITDA of $4.5 million inclusive of a one-time expense of $4.9 million from the prior quarter.

Excluding this one-time expense, normalized adjusted EBITDA was $9.4 million with adjusted EBITDA margin at 11.2%. This puts us on track to achieve our previously stated target of 15% adjusted EBITDA margin exiting 2018 and hitting our adjusted EBITDA guidance.

Fourth, we made significant progress executing on our cost savings initiatives and expect to achieve our previously stated goal of over $20 million in 2018 and are on target to hit an incremental $25 million of annualized cost savings in 2019.

We are committed to investing for growth while maintaining expense discipline and driving greater efficiency across the company. Fifth, we also recently retired approximately $116 million or over 50% of our convertible notes that were due in August of 2019. And as a result, the lawsuit brought from our holders of those convertible notes was dismissed.

This strengthens our balance sheet and shows our confidence and our ability to generate cash going forward. Sixth, we made the decision to pay in cash and not issue additional shares for the payment of the third quarter dividend on our convertible preferred stock underlying our conviction of continued positive cash flow generation.

Finally, we indicated on our last call that we anticipated ending the year with $270 million to $280 million in cash. After adjusting for the note repayment and our decision to pay the interest on our convertible preferred stock and cash, we now expect to end the year with approximately $170 million to $180 million of cash.

We expect to have a number of alternatives including using our own cash to repay or refinance the balance of the convertible debt obligations by the third quarter of 2019. We have made significant progress on our strategic priorities across each area of the business.

Synchronoss has a long history of providing our customers with sophisticated platforms that enable greater engagement and better experiences for our customers and their end users, which improves their overall business performance.

We are building on that history with growing number of platforms across our product and platform portfolios that are targeting sizable market opportunities and represent significant growth opportunities for Synchronoss. I will spend a few minutes reviewing our progress on each of these.

First, our cloud business, we generated strong growth in this business driven by positive trends in subscriber additions across our cloud customer base particularly Verizon.

As we discussed last quarter, carriers are shifting towards a premium subscriber model to deliver a simple compelling customer experience with backup and data integrity across multiple devices and operating systems.

This is highly differentiated value-added service that is seeing tremendous interest from high-quality subscribers who are finding significant value in this service. For carriers, this represents an exciting new revenue generation opportunity that will also reduce churn and produce higher net promoter scores.

At the same time in a cost effective manner and a capital efficient manner, we are seeing record high take rates of approximately 80% from various free trials with our partners. The conversion rate of these subscribers to paid customers after the free trial ends has also been significantly higher than we expected.

As part of our product portfolio, our out-of-the-box experience, or OOBE provides a consistent device activation process for all Android users in choosing and setting up the carriers cloud product.

We view OOBE as a powerful sales mechanism since every gross add or upgrade from all channels goes through the same process providing for a frictionless and simple selling experience. This will also enable carriers to drive cross-sell and up-sell opportunities for any product or service they desire.

We believe OOBE as an important channel that aligns very well with the digital trends we are seeing in the marketplace. As a result of the adoption and performance of cloud, we over-delivered on our predicted sequential growth in the third quarter.

Turning to our Digital Experience Platform, or DXP, which as a reminder consists of four unique products that each represent exciting growth opportunities.

The four products are our legacy activation product, which provides a powerful complementary data abstraction layer that automates fulfillment and workflows in a unified back-end system; our digital portal which is easy-to-use digital interface that enables self care through a seamless customer experience across channels and touch points; our digital broker is a virtual marketplace, which helps our customers drive additional revenue by offering value-added services from third-party providers, including ISVs, which enriches the experience of their customers; and last but certainly not least, Digital Journeys, which was derived from the honeybee acquisition, is a differentiated unified experience to deliver best-in-class and true omni-channel customer experiences and allows companies to rapidly build and deploy omni-channel customer journey.

We have been very pleased with the reception we are getting from our customers about the products within the DXP platform and particularly around Digital Journeys.

Companies within TMT are increasingly recognizing unique technologies that can support a true omni-channel customer experience that can be simply integrated into legacy IT systems and enable them to build customer journeys and improve the experience at all customer touch points.

With customer expectations increasingly demanding a thing like experience in Facebook, Apple, Amazon, Netflix and Google is critical that companies within TMT ecosystem focused on an improved overall customer experience.

We have put ourselves in a unique position with the acquisition of honeybee and the integration of Digital Journeys into our DXP platform. This is illustrated by the fact that within 120 days of closing on the acquisition we have more than 10 proof-of-concepts up and running.

We are also participating in RFPs who have not have previously been considered or able to compete for.

The reason is Digital Journeys can layer on top of legacy systems of record, leverage the necessary data, deliver new customer journeys rapidly and with agility and less overall integration that other solutions found in the marketplace that are focused on digital transformation.

Our target customers in TMT need to be able to launch new services put new offers into market and drive new experiences faster than ever before due to those changing customer expectations that I mentioned earlier. They cannot wait for legacy systems to catch up.

Our DXP platform and Digital Journeys is proving to be a critical and differentiating part of the solution for meeting or surpassing that ever-changing expectation.

For Synchronoss, DXP provides a number of monetization opportunities across the entire customer lifecycle, including integration fees, monthly maintenance fees, success-based or transactional fees and additional services.

Based on the customer reaction and the business activity we are seeing, we expect DXP to be one of, if not the largest growth driver for our business over the next few years. Looking at our Messaging business, we are pleased with the solid progress made in the quarter.

In particular, we are very excited about the progress we have made in Japan with our new multi-carrier Rich Communication Services, or RCS platform, which is now fully operational and operating at scale.

We are still in the early stages of the rollout and working with our customers to move to the next phase, which delivers a full messaging marketplace experience. This unprecedented solution has achieved early success and is being noticed around the world.

And as a result, we are receiving queries from carriers in a number of countries on how to deliver this interoperable service.

As a reminder, the leading carriers in Japan are partnering together with Synchronoss to provide an RCS platform that delivers on an advanced messaging experience to subscribers, which represents a potential, incremental revenue opportunity for those carriers.

More importantly, they enable the carriers to compete against the OTT over the top revenue-generating applications, like Line in Japan and Korea and WeChat in China and help prevent them from dis-intermediating carriers from their subscribers as well as taking all the value-added revenue opportunities.

We expect this to be a top strategic priority for carriers as well as other potential incremental revenue opportunities in the area of advertising, Blockchain monetization, etcetera which underscores the sizable opportunity and messaging for Synchronoss.

Our fourth platform is IoT which we believe will be another long-term pillar of growth for the company.

The explosion of IP-enabled devices has presented significant challenge to carriers and other TMT players on how to activate these non-traditional devices across multiple operating systems, while being able to move and store in the cloud massive amounts of data in a cost effective manner.

These are challenging and complicated problems, but ones that we have helped address at scale for many, many years for carriers and others. We are also able to apply advanced analytics to these capabilities dramatically improving carrier’s ability to leverage data to make real-time business decisions.

To that end in September, Synchronoss and AT&T announced our Smart Buildings platform partnership that adds a new energy and building management offering to AT&T Smart Cities and Professional Services portfolio.

Business owners that currently struggle with disconnected systems in various platforms to manage their building operations will be able to reliably manage their building from nearly anywhere, anytime using a simple mobile dashboard connected to a single cloud-based solution.

Using a new real-time IoT sensor data, our diagnostic and analytics capabilities will power building management systems enabling proactive monitoring, managing and maintaining a buildings energy use, heating, air conditioning, lighting, maintenance security and more even optimizing energy efficiencies and driving cost savings.

Customers can use the solution to analyze a single building or seamlessly link and analyze multiple buildings within the same company or within a smart city ecosystem to create an intelligent network of buildings. This is a perfect example of the type of IoT related solutions we will continue to bring to market.

This smart building solution is immediately accretive to a carriers’ IoT revenue segment and is implemented in such a way that the carrier can bring the solution to market with little integration deliver very rapidly in the market in a complex way.

And now it’s also very, very difficult for buyers to grasp the value and benefit and that’s one of the reasons why AT&T is partnering with Synchronoss.

Synchronoss is delivering these types of solutions that are end-to-end in nature and plug and play as possible to make the complexity go away in many cases in IoT capable of being deployed quickly and easily for the carriers. We are engaged in multiple carriers and technology companies globally, anticipate announcing more partnerships shortly.

While we are excited about the progress we are making to drive faster growth in each part of our business, we are also pleased with the improvements we have made in our cost structure and balance sheet.

During the quarter, we took a number of actions to streamline our cost structure, including completed an extensive review of our technology organization with the aid of an industry-recognized consulting firm, and have identified transformational changes that are expected to generate significant savings over the next two years.

We have already begun implementing many of the cost saving initiatives and create a team dedicated to driving initiatives to completion, so we can fully realize the proposed savings and improvements in efficiency.

We’ve commenced the consolidation of offices worldwide, examining our overall real estate footprint, while still meeting the needs of our global customers and we have executed organizational rightsizing throughout the entire company.

These cost cutting initiatives, along with others in the works have us on track to deliver the targeted $20 million in savings in 2018, and on track for the additional $25 million in savings in 2019 as we discussed earlier on our last earnings call.

These actions have significantly improved our cost structure and help drive our improvements in profitability and cash flow as well, improved our overall operational excellence. We are now in a position to generate substantial leverage in our business as revenue growth accelerates.

We have historically operated at high levels of profitability and cash flow generation, and we are confident in our ability to do so going forward. Before I conclude, I want to provide an update on our senior leadership team. Last month, we hired Jeff Miller as our Chief Commercial Officer.

In this role, Jeff will be responsible for driving revenue growth, overseeing and improving our commercialization infrastructure and organization to encourage market adoption of Synchronoss platforms.

Jeff team will assess and prioritize geographic and market segments for both new and existing customers and continue our strategic and successful emphasis on our partnerships. Jeff comes to Synchronoss from IDEAL Industries, Inc., where he served as Group President responsible for leading the Technology Business Group.

Prior to IDEAL, Jeff progressed through a number of executive-level positions at Motorola Mobility, most notably as Corporate Vice President and General Manager, of their North American Operations. My relationship with Jeff goes back 10 plus years and he is a very well-known and respected person in the telecommunications industry.

We also spent time together on CTIA, which is the Cellular Telecommunications Industry Association Board. We are thrilled to welcome a sales leader with Jeff’s experience and industry expertise to Synchronoss. I’m excited to work with them and take our Group to the next level.

Jeff is taking over CCO from Bob Garcia, who has left the company to pursue other opportunities. Bob has been an integral part of the company’s success over the years and on behalf of everybody at Synchronoss, I like to thank him for his hard work and contributions and wish all the best to him in the future.

To summarize, Synchronoss continued its growth and return to profitability in the third quarter. We made significant progress across each aspect of our business to build our momentum and drive improved growth and profitability in the fourth quarter and in 2019 and beyond.

We have delivered on our commitments and reaffirmed the guidance we have given for the year, we are confident that we can continue to execute on opportunities, we are targeting, Synchronoss can become a significantly larger, more profitable business that generates substantial value for shareholders.

With that, let me turn the call over to David to review our numbers.

David?.

total revenue in a range of $325 million to $335 million, which includes benefit from restated revenue and the adoption of ASC 606 in prior periods. Adjusted EBITDA of $10 million to $20 million, this equates to second half adjusted EBITDA of $17 million to $27 million.

We continue to expect to generate leverage throughout the business in the fourth quarter as our cost initiatives continue to be implemented. We expect to end the year with total cash, cash equivalents, restricted cash and marketable securities of $170 million to $180 million or $55 million to $65 million of net cash.

It reflects our decision to repurchase over 50% of our convertible notes early and paying the third quarter dividend on our preferred stock in cash. So to wrap up, Synchronoss delivered a number of key objectives in the quarter.

We have now successfully returned to revenue growth and adjusted EBITDA profitability, and we are on track to achieve our full-year guidance targets. We are seeing positive trends across the business, which position us well to deliver even better financial performance in the fourth quarter of 2018 and in 2019 and beyond.

We are pleased with our ability to deliver against our goals and believe this will generate significant value for our shareholders. And with that, we’ll be happy to take questions.

Operator?.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Tom Roderick with Stifel. Please proceed with your question..

Yes, hi, gentlemen. Thank you for taking my questions, and congratulations on getting half of the converts sort of cleared up there, so, a nice job on getting that overhang out of the way, and looks like good execution made across multiple facets of business.

Glenn, I wanted to ask you about the cloud business here, in particular, you talked about 80% take rates from various free trials on the Verizon Cloud side, which really kind of seem like very, very high take rates. I’m sure you’re quite pleased with that.

Can you just go into what sort of programs whether they’re marketing programs or training programs in store? What’s driving this take rates to be so high? Are those sustainable? And then what does it take to move from a take – what does the take rate mean relative to converting that customer from a free trial into a fully paid premium customer?.

Perfect, thank you. Great question, Tom, and I appreciate your comments upfront. What’s really driving, there is a couple of things. First of all, I wouldn’t just say Verizon, obviously, Verizon is our largest cloud partner, we have multiple cloud partners.

But when you look at the partners that we have that are getting those type of take rates, really the key is what I talked about, which is our Out-of-Box-Experience or OOBE.

When you think about where customers are buying, how customers are buying, I think you and I both know it’s going more digital, it’s going more with folks doing this in their homes versus sitting in a store, and what OOBE really allows you to do is, every single customer gets offered in the on-boarding process.

And so we are seeing unbelievable take rates.

Now the offer is great and getting a 30-day free trial is kind of being more consistent what people are doing, but because every single gross add and every single upgrade in an – on an Android device that is built into the flow, so every single time the customers offered it, we’re seeing those kinds of take rates, and I think, that is really the biggest piece of what’s driving those great take rates.

Now there are marketing offers, I would say, our – some of our carrier partners do a great job at point-of-sale, because they view cloud as very strategic and one of the key things they want to sell.

But I probably would put it on that on OOBE, and what OOBE is, is actually a product of ours and we work with the handset manufacturers and literally in that on-boarding process, it allows the carrier to decide what they want to offer.

In this case, on cloud, many of the carriers are offering cloud as a part of that start-up and the customer very simply can say they’d like cloud and have all of their content and data then obviously updated and taken into the cloud and that gets the customer started. Now the nice thing is on that – on those take rates as they are world-class.

We have not seen that anywhere else. And we think we – it’s about as high as you can get in and when you think about kind of the world of wireless and how people buy.

Your second part of your question is, is then you have to have a digital experience with the customer at the end of that 30 days, so they can make it this very simple decision on the screen of their device as to if they want to continue and actually pay for the service. And many of our partners are doing it that way.

And all I can tell you at this point is, we are seeing significantly higher conversion to a paying premium customer than we anticipated..

That’s great news. Okay, good. I want to turn over to the comments you made on STI. And I guess if we go back a few years, long before your tenure here, there was a perception in the company that it was time to sort of move up, move on and move away from the activation business, hence the reason to sell the BPO portion of that.

It seems like you’re more than just sort of doubling down on the activation business rather – that you’re really kind of going all the way back in.

Does it make sense as you emphasize the importance of activation to your story going forward to ever bring STI back in the fold? I know you’ve written some of that down and having it – having it as a party that hasn’t necessarily paid you for the acquisition, hasn’t really helped me.

Does this seem something that might be fortuitous or fruitful to bring back into the fold at some point or is it best to remain a partner?.

Yes, it’s another – it’s a good question, Tom. So, I’ll answer it this way. At this time, we believe that them as a partner is a better place for us to be. The BPO market is changing dramatically as you know. We’re seeing a lot of consolidation in BPO. And I’d argue there are some commoditization happening there.

The key to our DXP platform and activation is that activation, when we walk into a customer and they’re looking at solving problems, activation tends to come up. And one of the things that people don’t necessarily put two and two together is, that activation comes up not just in smartphones, it comes up in IoT.

And so when you think about the future of IoT and activating tens of millions of devices they need that capability as well. So, we’re looking at activation and in DXP at being able to help people in the multitude of different ways. There’s also a lot of customers out there of ours that are supporting more than one carrier.

So, they’re looking for our help to actually aggregate together into one interface multiple carriers and/or in the IoT world multiple different types of devices. So that’s why activation is so important to us.

And as you know, when we – when the company made the decision to spin out STI, we kept all the activation as still ours, I mean, that IP software is still Synchronoss’. What we really split out was the BPO part.

So, at this time, we really like our partnership with them and we want to continue enhance that, but we would not at this time see that as an option to bring it back in..

Okay, okay, understood. David, quick couple of questions for you. It’s been really helpful in the past couple of quarters here helping us to identify some of the moving parts associated with the restatement in some of the non-cash components.

Do you have the figures to share with us on how much non-cash or cashless revenue was benefited from prior restated revenue that got put or rerecognized on the books this quarter? Do you have any of the 606 data, and also do you have any of the STI revenue contribution this quarter? I know that’s a lot. Sorry..

Let me make sure I’m getting it. So, you’re asking for the –.

The benefit in the quarter, right?.

The benefit in the quarter..

Yes, benefit in the quarter for restated revenue and ASC 606 benefits and then STI revenue contribution this quarter?.

Yes, it’s about $4.6 million –.

In the quarter..

In the quarter..

$4.6 million for all of that combined or $4.6 million for which one?.

Yes, 606 plus restatement, all of that. Yes..

606 plus restatement. Okay.

And then do you have the STI contribution handy?.

Hold on, I’m looking for it. $6.5 million..

$6.5 million. That’s helpful. Okay, very good. Thank you, gentlemen. I appreciate the help..

Welcome..

Thanks for the – thanks for the questions, Tom..

Thank you. Our next question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question..

Hello. Yes. Hi, guys, this is actually Sahil on for Sterling Auty. Thanks for taking my question. So you talked about IoT.

So is that going to be a standalone segment to drive the long-term growth or is that somehow complementary with the messaging part of the business?.

We see it as a standalone segment. We do see there is going to be some interaction with other platforms and that’s – that’s the golden thread we see throughout these platforms. But without a question, we view IoT as a standalone segment.

We plan on growing it as a standalone segment, obviously, getting into the Smart Cities and Smart Buildings business and we plan on doing more of that. But when you look across our platforms there is – like I said earlier, in our digital platform, one of the reasons that we are enhancing activation is to help IoT.

So, we do see DXP playing a role in our IoT business as well and that’s definitely what we’re seeing when we’re sitting down with our customers and talking about how we can help them solve problems..

Alright, that’s helpful.

And on the messaging part of the business, so are there any other expansion plans apart from Japan?.

There is none to announce today. As I stated in my comments, we are very, very pleased with our partnership in Japan. The platform is operating at scale and doing well and we are definitely having conversations with other countries and carriers about this and hopefully, we will have more to discuss here in the next coming quarters..

Alright, that’s a great color. Thanks a lot..

You’re welcome..

Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Lurie for any closing remarks..

Thank you very much. And again, I want to thank everybody for joining us on the call today. I would tell you we are very proud of where we are as a company at this point. And as David said, executing at a very high level and look forward to talking to you all at the end of the fourth quarter and talking more about fourth quarter and about 2019.

I hope you all have a good night..

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..