Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2017
 
Or
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to
 
Commission file number 000-52049
 
SYNCHRONOSS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
06-1594540
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
200 Crossing Boulevard, 8th Floor
Bridgewater, New Jersey
08807
(Address of principal executive offices)
(Zip Code)
 
(866) 620-3940
(Registrant’s telephone number, including area code)
 
(Former name, former address, and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐  No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☐   No x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☐

 
Accelerated filer
x
Non-accelerated filer
☐
(Do not check if a smaller reporting company)
Smaller Reporting Company
☐
Emerging growth company
☐
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐  No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No x
 
Class
 
Outstanding at June 30, 2018
Common stock, $0.0001 par value
 
42,168,400

1

SYNCHRONOSS TECHNOLOGIES, INC.
FORM 10-Q INDEX
 
 
 
PAGE NO.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

PART I.  FINANCIAL INFORMATION
 
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
 
SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
 
June 30, 2017
 
December 31, 2016
 
 
 
(Restated)
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
216,558

 
$
169,801

Restricted cash**
6,580

 
41,632

Marketable securities
7,165

 
12,506

Accounts receivable, net of allowances of $2,491 and $1,761 at June 30, 2017 and December 31, 2016, respectively
107,270

 
107,474

Prepaid and other current assets
53,088

 
38,277

Assets held for sale, current*
57,106

 
—

Total current assets
447,767

 
369,690

Marketable securities
1,193

 
2,974

Property and equipment, net
136,640

 
158,205

Goodwill
231,941

 
224,651

Intangible assets, net
145,876

 
162,968

Deferred tax assets
36,888

 
13,286

Other assets
9,098

 
8,658

Note receivable from related party
82,099


70,269

Equity method investment
44,023

 
43,650

Assets held for sale, non-current*
901,892

 
—

Total assets
$
2,037,417

 
$
1,054,351

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
8,995

 
17,057

Accrued expenses
61,129

 
76,882

Deferred revenues
97,339

 
57,430

Contingent consideration obligation
2,831

 
2,833

Short-term debt
877,043

 
29,000

Liabilities held for sale, current*
73,208

 
—

Total current liabilities
1,120,545

 
183,202

Lease financing obligation
11,871

 
12,450

Convertible debt, net of debt issuance costs
226,998

 
226,291

Deferred tax liabilities
16,601

 
3,508

Deferred revenues
41,429

 
65,630

Other liabilities
8,871

 
8,193

Liabilities held for sale, non-current*
111,858

 
—

Commitments and contingencies (Note 13)
 
 
 
Redeemable noncontrolling interest
25,280

 
25,280

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized, 51,201 and 50,388 shares issued; 46,142 and 45,292 outstanding at June 30, 2017 and December 31, 2016, respectively
5

 
5

Treasury stock, at cost (5,059 and 5,096 shares at June 30, 2017 and December 31, 2016, respectively)
$
(105,584
)

$
(106,631
)
Additional paid-in capital
588,637

 
571,153

Accumulated other comprehensive loss
(28,255
)
 
(42,350
)
Retained earnings
19,161

 
107,620

Total stockholders’ equity
473,964

 
529,797

Total liabilities and stockholders’ equity
$
2,037,417

 
$
1,054,351

* See Note 4 -Acquisitions and Divestitures for transactions classified as held for sale.
** See Note 6 -Investments in Affiliates and Related Transactions for related party transactions reflected in this account

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
(Restated)
 
 
 
(Restated)
Net revenues
 
$
118,990

 
$
121,101

 
$
205,087

 
$
199,347

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of revenues**
 
47,755

 
48,180

 
93,810

 
94,331

Research and development
 
20,819

 
28,047

 
46,308

 
53,874

Selling, general and administrative
 
29,353

 
29,880

 
68,168

 
55,794

Net change in contingent consideration obligation
 
—

 
3,110

 
—

 
3,115

Restructuring charges
 
6,405

 
1,139

 
9,403

 
4,049

Depreciation and amortization
 
23,552

 
24,093

 
47,639

 
46,875

Total costs and expenses
 
127,884

 
134,449

 
265,328

 
258,038

Loss from continuing operations
 
(8,894
)
 
(13,348
)
 
(60,241
)
 
(58,691
)
Interest income
 
3,026

 
591

 
5,883

 
1,221

Interest expense
 
(11,844
)
 
(1,834
)
 
(22,461
)
 
(3,410
)
Other (expense) income, net
 
(1,556
)
 
668

 
2,630

 
287

Equity method investment income
 
233

 
—

 
981

 
—

Loss from continuing operations, before taxes
 
(19,035
)
 
(13,923
)
 
(73,208
)
 
(60,593
)
(Provision) benefit for income taxes
 
(3,573
)
 
(370
)
 
5,148

 
15,150

Net loss from continuing operations
 
(22,608
)
 
(14,293
)
 
(68,060
)
 
(45,443
)
Net (loss) income from discontinued operations, net of tax*
 
(6,775
)
 
18,985

 
(22,909
)
 
17,799

Net (loss) income
 
(29,383
)
 
4,692

 
(90,969
)
 
(27,644
)
Net loss attributable to redeemable noncontrolling interests
 
(2,815
)
 
(3,140
)
 
(5,704
)
 
(6,147
)
Net (loss) income attributable to Synchronoss
 
$
(26,568
)
 
$
7,832

 
$
(85,265
)
 
$
(21,497
)
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.44
)
 
$
(0.26
)
 
$
(1.40
)
 
$
(0.90
)
Discontinued operations*
 
(0.16
)
 
0.44

 
(0.52
)
 
0.41

 
 
$
(0.60
)
 
$
0.18

 
$
(1.92
)
 
$
(0.49
)
Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.44
)
 
$
(0.26
)
 
$
(1.40
)
 
$
(0.90
)
Discontinued operations*
 
(0.16
)
 
0.44

 
(0.52
)
 
0.41

 
 
$
(0.60
)
 
$
0.18

 
$
(1.92
)
 
$
(0.49
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
44,618

 
43,450

 
44,416

 
43,430

Diluted
 
44,618

 
43,450

 
44,416

 
43,430

 
 
 
 
 
 
 
 
 
* See Note 4 -Acquisitions and Divestitures for transactions classified as held for sale.
**Cost of revenues excludes depreciation and amortization which is shown separately.

See accompanying notes to condensed consolidated financial statements.







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Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) (In thousands)
 
Three Months Ended
June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
(Restated)
 
 
 
(Restated)
Net (loss) income
$
(29,383
)
 
$
4,692

 
$
(90,969
)
 
$
(27,644
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
9,064

 
(6,115
)
 
12,724

 
3,348

Unrealized gain (loss) on available for sale securities
10

 
(22
)
 
18

 
(2
)
Net income on intra-entity foreign currency transactions
1,160

 
624

 
1,353

 
362

Total other comprehensive income (loss), net of tax
10,234

 
(5,513
)
 
14,095

 
3,708

Comprehensive loss
(19,149
)
 
(821
)
 
(76,874
)
 
(23,936
)
Comprehensive loss attributable to redeemable noncontrolling interests
(2,815
)
 
(3,140
)
 
(5,704
)
 
(6,147
)
Comprehensive (loss) income attributable to Synchronoss
$
(16,334
)
 
$
2,319

 
$
(71,170
)
 
$
(17,789
)


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Table of Contents

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
 
 
Six Months Ended June 30,
 
 
2017
 
2016
 
 
 
 
(Restated)
Operating activities:
 
 
 
 
Net loss continuing operations
 
$
(68,060
)
 
$
(45,443
)
Net (loss) income from discontinued operations*
 
(22,909
)
 
17,799


 

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 

 

Depreciation and amortization expense
 
47,639

 
46,875

Amortization of debt issuance costs
 
3,147

 
750

Accrued PIK interest
 
(5,643
)
 
—

Earnings from Equity method investments
 
(981
)
 
—

(Gain) loss on disposals
 
(4,947
)
 
68

Discontinued operations non-cash and working capital adjustments*
 
59,278

 
924

Amortization of bond premium
 
177

 
754

Deferred income taxes
 
(13,304
)
 
(6,367
)
Non-cash interest on leased facility
 
533

 
458

Stock-based compensation
 
10,749

 
15,478

Contingent consideration obligation
 
(2
)
 
3,115

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net of allowance for doubtful accounts
 
623

 
(26,313
)
Prepaid expenses and other current assets
 
(14,869
)
 
24,853

Other assets
 
2,353

 
2,599

Accounts payable
 
(9,847
)
 
51

Accrued Expenses
 
(18,746
)
 
(10,762
)
Other liabilities
 
(31
)
 
(28,954
)
Deferred revenues
 
14,539

 
57,171

Net cash (used in) provided by operating activities
 
(20,301
)
 
53,056

 
 
 
 
 
Investing activities:
 
 
 
 
Purchases of fixed assets
 
(5,235
)
 
(18,605
)
Purchases of intangible assets and capitalized software
 
(5,300
)
 
(4,049
)
Proceeds from the sale of Speechcycle
 
13,500

 
—

Purchases of marketable securities available-for-sale
 
(219
)
 
(11,592
)
Maturities of marketable securities available-for-sale
 
7,191

 
20,567

Equity investment
 
608

 
—

Investing activities in Discontinued Operations*
 
(7,213
)
 
—

Investment in note receivable
 
(6,187
)
 
—

Businesses acquired, net of cash
 
(815,008
)
 
(86,482
)
Net cash used in investing activities
 
(817,863
)
 
(100,161
)
 

6
Table of Contents

 
 
Six Months Ended June 30,
 
 
2017
 
2016
 
 
 
 
(Restated)
Financing activities:
 
 
 
 
Proceeds from the exercise of stock options
 
2,460

 
4,945

Debt issuance costs related to the Credit Facility
 
(3,692
)
 
—

Debt issuance costs related to long term debt
 
(19,887
)
 
—

Proceeds from issuance of long term debt
 
900,000

 
—

Repayment of long term debt
 
(2,250
)
 
—

Borrowings on revolving line of credit
 
—

 
50,000

Repayment of revolving line of credit
 
(29,000
)
 
(3,000
)
Repurchases of common stock
 
—

 
(40,025
)
Proceeds from the sale of treasury stock in connection with an employee stock purchase plan
 
1,047

 
955

Repayments of capital lease obligations
 
(1,359
)
 
(1,484
)
Net cash provided by financing activities
 
847,319

 
11,391

Effect of exchange rate changes on cash
 
2,550

 
(1,130
)
Net increase (decrease) in cash and cash equivalents
 
11,705

 
(36,844
)
Cash, restricted cash and cash equivalents at beginning of period
 
211,433

 
147,872

Cash, restricted cash and cash equivalents at end of period
 
$
223,138

 
$
111,028

 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for income taxes
 
$
4,533

 
$
3,208

Cash paid for interest
 
$
11,243

 
$
1,355

 
 
 
 
 
Supplemental disclosures of non-cash investing and financing activities:
 
 
 
 
Issuance of common stock in connection with Openwave acquisition
 
$
—

 
$
22,000

Issuance of common stock in connection with Intralinks acquisition
 
$
4,700

 
$
—

 
 
 
 
 
Cash and cash equivalents per Condensed Consolidated Balance Sheets
 
$
216,558

 
$
89,986

Restricted cash
 
6,580

 
21,042

Total cash, cash equivalents and restricted cash
 
$
223,138

 
$
111,028

 
 
 
 
 
*
See Note 4 - Acquisitions and Divestitures for transactions classified as discontinued operations

 See accompanying notes to condensed consolidated financial statements.

7
Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)


1. Description of Business

General

Synchronoss Technologies, Inc. (referred to herein as “Synchronoss”, the “Company”, “we”, “our” or “us”) is a global software and services company that provides essential technologies for the mobile transformation of business. The Company’s portfolio, which is targeted at the Consumer and Enterprise markets, contains offerings such as personal cloud, secure-mobility, identity management and scalable messaging platforms, products and solutions. These essential technologies create a better way of delivering the transformative mobile experiences that service providers and enterprises need to help them stay ahead of the curve in competition, innovation, productivity, growth and operational efficiency.

Synchronoss’ products and platforms are designed to be carrier-grade, flexible and scalable, enabling multiple converged communication services to be managed across a range of distribution channels including e-commerce, m-commerce, telesales, customer stores, indirect and other retail outlets. This business model allows the Company to meet the rapidly changing converged services and connected devices offered by their customers. Synchronoss’ products, platforms and solutions enable its enterprise and service provider customers to acquire, retain and service subscribers and employees quickly, reliably and cost-effectively with white label and custom-branded solutions. Synchronoss customers can simplify the processes associated with managing the customer experience for procuring, activating, connecting, backing-up, synchronizing and sharing/collaboration with connected devices and contents from these devices and associated services. The extensibility, scalability, reliability and relevance of the Company’s platforms enable new revenue streams and retention opportunities for their customers through new subscriber acquisitions, sale of new devices, accessories and new value-added service offerings in the Cloud. By using the Company’s technologies, Synchronoss customers can optimize their cost of operations while enhancing their customer experience.

The Company currently operates in and markets their solutions and services directly through their sales organizations in North America, Europe, the Middle East and Africa (“EMEA”), and the Asia-Pacific region. Synchronoss delivers essential technologies for mobile transformation to two primary types of customers: service provider and enterprise customers in regulated verticals and use cases.

Service Providers, Retailers, OEMs, Re-sellers and Service Integrators

The Company’s products and platforms provide end-to-end seamless integration between customer-facing channels/applications, communication services, or devices and “back-office” infrastructure-related systems and processes. Synchronoss’ customers rely on these solutions and technology to automate the process of activation and content and settings management for their subscribers’ devices while delivering additional communication services. Synchronoss’ portfolio includes: cloud-based sync, backup, storage and content engagement capabilities, broadband connectivity solutions, analytics, white label messaging, identity/access management that enable communications service providers (“CSPs”), cable operators/multi-services operators (“MSOs”) and original equipment manufacturers (“OEMs”) with embedded connectivity (e.g. smartphones, laptops, tablets and mobile internet devices (“MIDs”) such as automobiles, wearables for personal health and wellness, and connected homes), multi-channel retailers, as well as other customers to accelerate and monetize value-add services for secure and broadband networks and connected devices.

2. Basis of Presentation and Consolidation

The condensed consolidated financial statements as of June 30, 2017 and for the three and six months ended June 30, 2017 and 2016 are unaudited, but in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes for 2017 and 2016 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as they have been filed prior to this quarterly report on Form 10-Q and certain prior year amounts have been restated. Refer to Note 3 - Restatement of Previously Issued Consolidated Financial Statements and Note 14 - Subsequent Events Review for background on the restatement of previously issued financial statements and Nasdaq compliance, respectively. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ended December 31, 2017.


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Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIE”) in which the Company is the primary beneficiary and entities in which the Company has a controlling interest. Investments in less than majority-owned companies in which the Company does not have a controlling interest, but does have significant influence, are accounted for as equity method investments. Investments in less than majority-owned companies in which the Company does not have the ability to exert significant influence over the operating and financial policies of the investee are accounted for using the cost method. All material intercompany transactions and accounts are eliminated in consolidation.

For further information about the Company’s basis of presentation and consolidation or its significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Restricted Cash

Restricted cash includes amounts to various deposits, escrows and other cash collateral that are restricted by contractual obligation. Restricted cash includes amounts to various deposits, escrows and other cash collateral that are restricted by contractual obligation. As of December 31, 2016, the Company held $30 million in escrow related to the Company’s guarantee of STIH’s Third Party Note. As of June 30, 2017, there was a zero balance related to the guarantee. $23.8 million was released upon assignment of certain customer contracts contributed in the sale of our BPO business. $6.2 million distribution was made to Goldman to fulfill the Company’s guarantee obligation to Goldman. Remaining amounts were primarily attributed to cash held in transit (see Note 6 - Investments in Affiliates and Related Transactions), and operating cash held by Zentry, which cannot be used to fulfill the obligations of the Company as a whole.

Recently Issued Accounting Standards

Recent accounting pronouncements adopted
Standard
 
Description
 
Effect on the financial statements
ASU 2017-04 Simplifying the Test for Goodwill Impairment
 
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance which eliminates Step 2 from the goodwill impairment test. Under the amendments in this Update, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Accounting Standard Update (“ASU”) 2017-04 also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
 
The Company elected to early adopt this ASU for annual and interim goodwill impairment testing dates after January 1, 2017. The adoption of this ASU had no impact on the Company’s consolidated financial statements.
Date of adoption: January 1, 2020.
 
 
 
 



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Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Standard
 
Description
 
Effect on the financial statements
ASU 2017-01 Business Combinations (Topic 805), Clarifying the Definition of a Business
 
In January 2017, FASB changed its definition of a business in an effort to help entities determine whether a set of transferred assets and activities is a business. The guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If the threshold is not met, the entity evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenue guidance. The guidance is effective for public business entities for annual periods beginning after 15 December 2017, and interim periods within those periods. For all other entities, it is effective for annual periods beginning after 15 December 2018, and interim periods within annual periods beginning after 15 December 2019. Early adoption is permitted.
 
The Company adopted this ASU on January 1, 2017 on a prospective basis. The adoption of this ASU had no impact on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-18 Statement of Cash Flows (Topic 230)
 
In November 2016, the FASB issued ASU 2016-18, which amends the guidance in ASC 230, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.
 
The Company adopted this ASU on January 1, 2017 to each period presented and applied the changes to the condensed consolidated statements of cash flows.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-17 Consolidation: Interest Held through Related Parties That Are under Common Control
 
In October 2016, the FASB issued ASU 2016-17, to amend the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in the entity held through related parties that are under common control within the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted.
 
The Company adopted this ASU on January 1, 2017 on a prospective basis. The adoption of this ASU had no significant impact on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-16 Intra-Entity Transfers of Assets Other Than Inventory
 
In October 2016, the FASB issued ASU 2016-16, which requires entities to recognize at the transaction date the income tax effects for intra-entity transfers of assets other than inventory. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted.
 
The Company adopted this ASU on January 1, 2017 on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings of $3.2 million as of January 1, 2017.
Date of adoption: January 1, 2017.
 
 
 
 
ASU 2016-15 Statement of Cash Flows
 
In August 2016, the FASB issued ASU 2016-15 which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. ASU 2016-15 will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable.
 
The Company adopted this ASU on January 1, 2017 using a retrospective transition method. The adoption of this ASU had no impact on the Company’s condensed consolidated financial statements.
Date of adoption: January 1, 2017.
 
 
 
 


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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

Standards issued not yet adopted
Standard
 
Description
 
Effect on the financial statements
ASU 2017-09 Stock Compensation (Topic 718), Scope of Modification Accounting
 
In May 2017, FASB issued guidance which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. The guidance also clarifies that a modification to an award could be significant and therefore require disclosure, even if modification accounting is not required. ASU 2017-09 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued. ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date.
 
The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.
Date of adoption: January 1, 2018.
 
 
 
 
ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
In June 2016, the FASB issued ASU 2016-13 which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The ASU is effective for public companies in annual periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018 and interim periods within those years.
 
The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.
Date of adoption: January 1, 2020.
 
 
 
 
ASU 2016-02 Leases (Topic 842)
 
In February 2016, the FASB issued ASU 2016-02 which requires lessees to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted using a modified retrospective approach.
 
The Company is in the process of evaluating the effect of the new guidance on its condensed consolidated financial statements and disclosures.
Date of adoption: January 1, 2019.
 
 
 
 

In May 2014, the FASB issued a new accounting standard related to revenue recognition, ASU 2014-09, “Revenue from Contracts with Customers,” (“ASC 606” or “Topic 606”). The new standard supersedes the existing revenue recognition requirements under U.S. GAAP and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. It also requires increased disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers.

On January 1, 2018, we adopted Topic 606 applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. We recorded a net reduction to opening retained earnings of approximately $10.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606.

The impact of adoption primarily relates to (1) the delayed pattern of recognition under Topic 606 for certain professional services revenue when such professional services involve the customization of features and functionality for subscription services customers and (2) the earlier pattern of recognition under Topic 606 for license revenue when the Company provides hosting services for on-premise license customers.  In the case of professional services that involve the customization of features and functionality for subscription services, under historic accounting policies the professional services were considered to have standalone value, and as a result were recognized as the services were performed.  Under Topic 606, such professional services are not considered to be a distinct performance obligation within the context of the subscription services contract, and as such customization services revenue is recognized over the shorter of the estimated remaining life of the subscription software (typically three years) or the remaining term of the subscription services contract. In the case of license contracts sold in association with hosting, under historic accounting policies the license revenue was recognized over the hosting term due to the lack of vendor specific objective evidence (“VSOE”) of fair value for the hosting services.  Under Topic 606, VSOE is no longer required in order to allocate revenue between the license and the hosting services, and the license revenue is generally recognized upon delivery of the software based on the relative allocation of the contract price based on the established standalone selling price (“SSP”)

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)


Additional impacts of adoption include (1) in certain cases changes in the amount allocated to the various performance obligation in accordance with the relative standalone selling price method required by Topic 606 compared to the amount allocated to the various elements in accordance with the residual method or the relative selling price method, as applicable, under historic accounting policies, (2) the capitalization and subsequent amortization of certain sales commissions as costs to obtain a contract under ASC 340-40, whereas under historic accounting policies all such amounts were expensed as incurred (3) the timing and amount of revenue recognition for certain sales contracts that are considered to involve variable consideration under Topic 606, but were considered to either not be fixed or determinable or to involve contingent revenue features under historic accounting policies, (4) in certain limited cases, the accounting for discounted customer options to purchase future software or services as material rights under Topic 606, as well as (5) the income tax impact of the above items, as applicable.

In connection with the adoption of Topic 606 and the related cost accounting guidance under ASC 340, we are required to capitalize certain contract acquisition costs consisting primarily of commissions and bonuses paid when contracts are signed. As of January 1, 2018, the date we adopted Topic 606, we capitalized $0.7 million in contract acquisition costs related to contracts that were not completed.

3. Restatement of Previously Issued Consolidated Financial Statements

The Company has restated its audited consolidated financial statements for the years ended December 31, 2016 and 2015 for the matters described below.  The effects of these restatement adjustments on (i) the Company’s Consolidated Balance Sheet at December 31, 2016, (ii) the Company’s Consolidated Statement of Operations for the years ended December 31, 2016 and 2015, (iii) the Company’s Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2015,  (iv) the Company’s Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016 and 2015  and (v) the Company’s Consolidated Statement of Cash Flows for the years ended December 31, 2016 and 2015 are presented in the Company’s 2017 Form 10-K.

The effects of the restatement adjustments on the Company’s unaudited Condensed Consolidated financial statements as of June 30, 2016 and for the three and six month periods then ended are reflected in the tables below.

The individual restatement matters that underlie the restatement adjustments are described below.

Revenue Recognition Adjustments Related to Hosting Services

The Company typically sells hosting services to its subscription services customers, as well as to certain software license customers. As part of the Company’s review of its historical accounting, it has determined that adjustments are required related to certain transactions in each of these two categories of customers that purchase hosting services.

It was observed that in certain instances, the Company has historically entered into hosting arrangements that included various components to the fee structure with certain fees accelerated during the initial years of the arrangement. Historically, the Company recognized the accelerated fees as billed and maintenance and support fees were recognized on a straight-line basis through the term of the arrangement. However, the Company has determined to revise its accounting treatment for certain hosting services to reflect revenue recognition on a straight-line basis for such fees over the appropriate period of time during which (i) the benefits of hosting services were provided to the customer or (ii) the customer benefited from the set-up fees. The revised accounting treatment for the revenue recognition is reflected in the restated consolidated financial statements, whereby there has been a deferral of a portion of the accelerated fees out of the initial period of the arrangement, and recognition of those deferred amounts in the later periods of the hosting services arrangement.

In the case of certain perpetual software license customers, the Company historically recognized the perpetual software license fee revenue on an upfront basis. The Company has determined to revise its accounting treatment of that software license fee revenue to recognize it ratably over a period of time due to the inclusion of hosting services, as part of the same multiple element arrangement. In certain of these cases, the Company had entered into a separate hosting services contract with the customer that the Company has now determined should have been combined with the software license agreement and treated as part of a larger multiple element arrangement.

In accordance with the software revenue recognition rules, since the Company cannot establish vendor specific objective evidence of fair value of the hosting services, the software license element cannot be separated from the hosting services. The

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

revised accounting treatment for the revenue recognition is reflected in the restated consolidated financial statements, whereby the bundled arrangement fees have been recognized ratably over the economic life of the hosting services.

Revenue Recognition Adjustments Related to Establishing Persuasive Evidence of an Arrangement and Other Revenue Adjustments

The Company historically has had, and continues to have, contractual arrangements with certain customers whereby there is an established master services agreement that includes general terms and conditions. Such master services agreements contemplate the delivery by the customer of purchasing documentation for purposes of completing orders, indicating the nature, price and quantity of products and services ordered.   In certain cases, the Company historically formed a view that persuasive evidence of an arrangement existed relating to such orders based upon its receipt from a customer of written confirmation of the order and commitment to pay the agreed price, such as a quote approval sent by the customer in response to a quote issued by the Company, but prior to that customer’s subsequent delivery to the Company an executed statement of work or, in some instances, a purchase order, pursuant to a master services agreement.

The Company has determined, in certain situations, to revise the timing of revenue recognition to when it received final formal contract documentation, which occurred in a future period. In those cases where the adjustment to defer revenue has been recorded prior to when cash payment was received from the customer, the balance sheet impact has been to reduce the related accounts receivable balance, whereas the balance sheet impact of these adjustments after the receipt of cash payment from the customer has been to increase accrued liabilities.

The Company also adjusted revenue recognition in connection with certain other transactions, including (i) where the payment obligation on the date of sale was found not to have been fixed and determinable; (ii) where collectability was not reasonably assured; (iii) where the software delivered to the customer was ultimately deemed not to have met acceptance criteria; or (iv) where formal acceptance was not obtained.

In certain situations, these adjustments represent issues related to the timing of revenue recognition, while in other cases, these adjustments represent amounts that had subsequently been written-off to bad debt expense (whereby now both the revenue and the related bad debt expense has been reversed).

Adjustments Related to Accounting for Acquisitions and Divestiture

The Company has identified and corrected errors related to fees received under license agreements entered into with parties of certain historical acquisitions and a divestiture. In each case, the Company had originally treated the license agreement as a separate transaction and recorded the license fees on a gross basis as revenue. The Company has determined to revise its accounting treatment of the license arrangements, to record the license fees as part of the accounting for the acquisition or divestiture, as follows:

•
In certain cases, the Company entered into a license agreement as part of settling prior intellectual property infringement claims against an acquired entity and/or its selling parent company and affiliates. Historically, the Company had recognized these license fees separately as revenue. However, the Company has determined to net these license fees against the consideration paid as part of the acquisitions, resulting in a reduction of the goodwill and/or intangible assets recorded in purchase accounting.
•
The Company’s consolidated joint venture Zentry LLC (“Zentry”) and the Company’s partner in that joint venture entered into a license agreement in December 2015 at the same time as the formation of the joint venture. Historically, the Company recorded the license fees as revenue separately from the Zentry formation. The Company has determined to net these license fees against the cash contributions paid as part of the joint venture formation, resulting in a reduction of the goodwill and intangible assets recorded in purchase accounting.
•
The Company entered into a licensing agreement in December 2016 with Sequential Technology International, LLC (“STIN”) shortly after closing the divestiture of its activation business to Sequential Technology International Holdings, LLC (“STIH”). Historically, the Company recorded the license fees as revenue separately from the accounting for the divestiture. The Company has determined to classify these license fees as additional gain on sale of the activation exception handling business.
•
The Company made adjustments to reduce the contingent consideration payable to shareholders of Razorsight Corporation (“Razorsight”), which was acquired by the Company in August 2015, and the related losses previously recorded to adjust that liability to fair value, as a result of the determination that many of the sales of Razorsight software that had originally been included in the earn-out calculation have now been adjusted as part of the restatement.

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

•
The Company made adjustments to record the fair value of the Company’s guarantee of certain of STIN’s debt as part of the divestiture of its activation exception handling business to STIH in December 2016, to record the sellers note extended in the transaction at fair value, and to adjust certain receivables and other assets sold in the transaction.
•
The Company made certain adjustments to the opening balances of Openwave Messaging, Inc. (“Openwave”) and SNCR, LLC (“SNCR, LLC”); impacting deferred revenue, goodwill and intangibles. Adjustments in deferred revenue and intangibles resulted were reported post-acquisition as revenues and costs were realized.

Other Adjustments and Capitalized Software

The Company also identified and corrected certain errors in the amounts reported as capitalized software development. These adjustments were primarily around (i) the recognition of impairment or immediate expensing of certain previously capitalized software development costs and (ii) revisions of amounts capitalized and the timing of when such capitalized costs are amortized. Adjustments pertaining to capitalized software development were driven primarily due to misalignment on the unit of account being measured in tracking project progress and ultimately general release as well as the appropriateness of the capitalization of certain administrative costs.

The Company also identified and corrected certain other errors, primarily due to timing of recognition of (i) stock-based compensation arrangements, (ii) accruals and reserves, (iii) noncontrolling interests and (iv) impairment charges. Impairment charges were primarily due to long-lived asset impairments realized on SNCR, LLC assets, due to continued delays in product development and sales. Additionally, the Company identified certain prior year balance sheet classification adjustments requiring, the most significant of which, a reclassification between cash and restricted cash due to certain contractual restrictions on cash balances, and reclassifications between treasury stock and additional paid-in-capital due to share issuances from the Company’s common stock pool, rather than its treasury stock.

Income Taxes

The Company recorded adjustments to income taxes to reflect the impact of the restatement adjustments, as well as a discrete tax adjustment to record a valuation allowance at a specific foreign jurisdiction in an earlier year than originally recorded. See Note 11 - Income Taxes for discussion of the related impact to the Company’s effective tax rate.


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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The following table presents the Condensed Consolidated Balance Sheet as previously reported, restatement adjustments and the Condensed Consolidated Balance Sheet as restated at December 31, 2016:
 
 
 
Adjustments
 
 
 
As Previously Reported **
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
 ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
          Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
181,018

 
$
—

 
$
—

 
$
—

 
$
(11,217
)
 
$
—

 
$
169,801

Restricted cash
—

 
—

 
—

 
—

 
41,632

 
—

 
41,632

Marketable securities
12,506

 
—

 
—

 
—

 
—

 
—

 
12,506

Accounts receivable, net
137,233

 
(344
)
 
(36,509
)
 
7,896

 
(802
)
 
—

 
107,474

Prepaid expenses and other assets
33,696

 
—

 
—

 
1,408

 
(1,166
)
 
4,339

 
38,277

          Total current assets                                
364,453

 
(344
)
 
(36,509
)
 
9,304

 
28,447

 
4,339

 
369,690

Restricted cash
30,000

 
—

 
—

 
—

 
(30,000
)
 
—

 
—

Marketable securities
2,974

 
—

 
—

 
—

 
—

 
—

 
2,974

Property and equipment, net
155,599

 
—

 
—

 
(823
)
 
3,429

 
—

 
158,205

Goodwill
269,905

 
—

 
—

 
(41,358
)
 
—

 
(3,896
)
 
224,651

Intangible assets, net
203,864

 
—

 
—

 
(19,830
)
 
(21,066
)
 
—

 
162,968

Deferred tax assets
1,503

 
—

 
—

 
—

 
—

 
11,783

 
13,286

Other assets
7,541

 
—

 
—

 
(70
)
 
1,187

 
—

 
8,658

Note receivable from related party
83,000

 
—

 
—

 
(12,731
)
 
—

 
—

 
70,269

Equity method investment
45,890

 
—

 
—

 
(2,240
)
 
—

 
—

 
43,650

          Total Assets                                        
$
1,164,729

 
$
(344
)
 
$
(36,509
)
 
$
(67,748
)
 
$
(18,003
)
 
$
12,226

 
$
1,054,351


** Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.


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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

 
 
 
Adjustments
 
 
 
As Previously Reported **
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
          Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
15,770

 
$
—

 
$
—

 
$
—

 
$
1,287

 
$
—

 
$
17,057

Accrued expenses
69,435

 
—

 
5,274

 
971

 
246

 
956

 
76,882

Deferred revenues
27,542

 
33,398

 
(151
)
 
(3,360
)
 
1

 
—

 
57,430

Contingent consideration obligation
11,860

 
—

 
—

 
(9,027
)
 
—

 
—

 
2,833

Short-term debt
29,000

 
—

 
—

 
—

 
—

 
—

 
29,000

          Total current liabilities                           
153,607

 
33,398

 
5,123

 
(11,416
)
 
1,534

 
956

 
183,202

Lease financing obligation - long term
12,121

 
—

 
—

 
41

 
288

 
—

 
12,450

Long-term debt
226,291

 
—

 
—

 
—

 
—

 
—

 
226,291

Deferred tax liability
49,822

 
—

 
—

 
—

 
—

 
(46,314
)
 
3,508

Deferred revenues
12,134

 
52,965

 
531

 
—

 
—

 
—

 
65,630

Other liabilities
3,783

 
—

 
—

 
—

 
1,679

 
2,731

 
8,193

Redeemable noncontrolling interests
49,856

 
—

 
—

 
(28,813
)
 
4,237

 
—

 
25,280

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
          Stockholder's equity
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
5

 
—

 
—

 
—

 
—

 
—

 
5

Treasury stock
(95,183
)
 
—

 
—

 
—

 
(11,448
)
 
—

 
(106,631
)
Additional paid-in capital
575,093

 
—

 
—

 
(7,667
)
 
3,727

 
—

 
571,153

Accumulated other comprehensive loss
(43,253
)
 
—

 
658

 
—

 
138

 
107

 
(42,350
)
Retained earnings
220,453

 
(86,707
)
 
(42,821
)
 
(19,893
)
 
(18,158
)
 
54,746

 
107,620

          Total stockholders' equity                          
657,115

 
(86,707
)
 
(42,163
)
 
(27,560
)
 
(25,741
)
 
54,853

 
529,797

          Total liabilities & stockholders' equity            
$
1,164,729

 
$
(344
)
 
$
(36,509
)
 
$
(67,748
)
 
$
(18,003
)
 
$
12,226

 
$
1,054,351


** Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

The following table presents the Condensed Consolidated Statement of Operations as previously reported, restatement adjustments and the Condensed Consolidated Statement of Operations as restated for the three months ended June 30, 2016:
 
 
 
 
 
Adjustments
 
 
 
 
 
As Previously Reported**
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
Net revenues
 
 
$
118,255

 
$
(12,840
)
 
$
16,211

 
$
(525
)
 
$
—

 
$
—

 
$
121,101

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues*
 
 
48,467

 
—

 
—

 
(171
)
 
(116
)
 
—

 
48,180

Research and development
 
 
26,170

 
—

 
—

 
—

 
1,877

 
—

 
28,047

Selling, general and administrative
 
 
29,952

 
153

 
(472
)
 
296

 
(49
)
 
—

 
29,880

Net change in contingent consideration obligation
 
 
6,386

 
—

 
—

 
(3,276
)
 
—

 
—

 
3,110

Restructuring charges
 
 
1,139

 
—

 
—

 
—

 
—

 
—

 
1,139

Depreciation and amortization
 
 
25,262

 
—

 
—

 
(1,111
)
 
(58
)
 
—

 
24,093

Total costs and expenses
 
 
137,376

 
153

 
(472
)
 
(4,262
)
 
1,654

 
—

 
134,449

Loss from continuing operations
 
 
(19,121
)
 
(12,993
)
 
16,683

 
3,737

 
(1,654
)
 
—

 
(13,348
)
Interest income
 
 
591

 
—

 
—

 
—

 
—

 
—

 
591

Interest expense
 
 
(1,834
)
 
—

 
—

 
—

 
—

 
—

 
(1,834
)
Other expense, net
 
 
865

 
—

 
(197
)
 
—

 
—

 
—

 
668

Loss from continuing operations, before taxes
 
 
(19,499
)
 
(12,993
)
 
16,486

 
3,737

 
(1,654
)
 
—

 
(13,923
)
Benefit (provision) for income taxes
 
 
2,074

 
—

 
—

 
—

 
—

 
(2,444
)
 
(370
)
Net (loss) income from continuing operations
 
 
(17,425
)
 
(12,993
)
 
16,486

 
3,737

 
(1,654
)
 
(2,444
)
 
(14,293
)
Net income from discontinued operations, net of tax
 
 
10,122

 
—

 
(1,188
)
 
—

 
1

 
10,050

 
18,985

Net (loss) income
 
 
(7,303
)
 
(12,993
)
 
15,298

 
3,737

 
(1,653
)
 
7,606

 
4,692

Net loss attributable to redeemable noncontrolling interests
 
 
(2,864
)
 
—

 
—

 
—

 
(276
)
 
—

 
(3,140
)
Net (loss) income attributable to Synchronoss
 
 
$
(4,439
)
 
$
(12,993
)
 
$
15,298

 
$
3,737

 
$
(1,377
)
 
$
7,606

 
$
7,832

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.34
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.26
)
Discontinued operations
 
 
0.24

 
 
 
 
 
 
 
 
 
 
 
0.44

 
 
 
$
(0.10
)
 
 
 
 
 
 
 
 
 
 
 
$
0.18

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.34
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.26
)
Discontinued operations
 
 
0.24

 
 
 
 
 
 
 
 
 
 
 
0.44

 
 
 
$
(0.10
)
 
 
 
 
 
 
 
 
 
 
 
$
0.18

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
43,450

 
 
 
 
 
 
 
 
 
 
 
43,450

Diluted
 
 
43,450

 
 
 
 
 
 
 
 
 
 
 
43,450

*
Cost of services excludes depreciation and amortization which is shown separately.

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SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

**
Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.
The following table presents the Condensed Consolidated Statement of Operations as previously reported, restatement adjustments and the Condensed Consolidated Statement of Operations as restated for the six months ended June 30, 2016:
 
 
 
 
 
Adjustments
 
 
 
 
 
As Previously Reported**
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
Net revenues
 
 
$
222,474

 
$
(10,721
)
 
$
(1,875
)
 
$
(10,531
)
 
$
—

 
$
—

 
$
199,347

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues*
 
 
94,915

 
—

 
—

 
(172
)
 
(412
)
 
—

 
94,331

Research and development
 
 
50,267

 
—

 
—

 
—

 
3,607

 
—

 
53,874

Selling, general and administrative
 
 
56,875

 
153

 
(472
)
 
380

 
(1,142
)
 
—

 
55,794

Net change in contingent consideration obligation
 
 
6,727

 
—

 
—

 
(3,612
)
 
—

 
—

 
3,115

Restructuring charges
 
 
4,049

 
—

 
—

 
—

 
—

 
—

 
4,049

Depreciation and amortization
 
 
49,317

 
—

 
—

 
(2,222
)
 
(220
)
 
—

 
46,875

Total costs and expenses
 
 
262,150

 
153

 
(472
)
 
(5,626
)
 
1,833

 
—

 
258,038

Loss from continuing operations
 
 
(39,676
)
 
(10,874
)
 
(1,403
)
 
(4,905
)
 
(1,833
)
 
—

 
(58,691
)
Interest income
 
 
1,221

 
—

 
—

 
—

 
—

 
—

 
1,221

Interest expense
 
 
(3,410
)
 
—

 
—

 
—

 
—

 
—

 
(3,410
)
Other expense, net
 
 
(19
)
 
—

 
306

 
—

 
—

 
—

 
287

Loss from continuing operations, before taxes
 
 
(41,884
)
 
(10,874
)
 
(1,097
)
 
(4,905
)
 
(1,833
)
 
—

 
(60,593
)
Benefit for income taxes
 
 
2,435

 
—

 
—

 
—

 
—

 
12,715

 
15,150

Net loss from continuing operations
 
 
(39,449
)
 
(10,874
)
 
(1,097
)
 
(4,905
)
 
(1,833
)
 
12,715

 
(45,443
)
Net income from discontinued operations, net of tax
 
 
21,063

 
—

 
(3,299
)
 
—

 
1

 
34

 
17,799

Net loss
 
 
(18,386
)
 
(10,874
)
 
(4,396
)
 
(4,905
)
 
(1,832
)
 
12,749

 
(27,644
)
Net loss attributable to redeemable noncontrolling interests
 
 
(5,993
)
 
—

 
—

 
—

 
(154
)
 
—

 
(6,147
)
Net loss attributable to Synchronoss
 
 
$
(12,393
)
 
$
(10,874
)
 
$
(4,396
)
 
$
(4,905
)
 
$
(1,678
)
 
$
12,749

 
$
(21,497
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.77
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.90
)
Discontinued operations
 
 
0.48

 
 
 
 
 
 
 
 
 
 
 
0.41

 
 
 
$
(0.29
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.49
)
Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
$
(0.77
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.90
)
Discontinued operations
 
 
0.48

 
 
 
 
 
 
 
 
 
 
 
0.41

 
 
 
$
(0.29
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.49
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
43,449

 
 
 
 
 
 
 
 
 
 
 
43,430

Diluted
 
 
43,449

 
 
 
 
 
 
 
 
 
 
 
43,430

*
Cost of services excludes depreciation and amortization which is shown separately.

18
Table of Contents
SYNCHRONOSS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
(Amounts in tables in thousands, except for per share data or unless otherwise noted)

**
Certain amounts reflected in this column have been adjusted for retrospective application of discontinued operations.
The following table presents the Condensed Consolidated Statement of Comprehensive (Loss) as previously reported, restatement adjustments and the Condensed Consolidated Statement of Comprehensive (Loss) as restated for the three months ended June 30, 2016:
 
 
 
Adjustments
 
 
 
As Previously Reported**
 
Revenue - Hosting
 
Revenue - Evidence of Arrangement and Other Revenue
 
Acquisitions & Divestiture
 
Capitalized Software and Other
 
Income Taxes
 
As Restated
Net (loss) income
$
(7,303
)
 
$
(12,993
)
 
$
15,298

 
$
3,737

 
$
(1,653
)
 
$
7,606

 
$
4,692

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(6,224
)
 
—

 
109

 
—

 
—

 
—

 
(6,115
)
Unrealized loss on available for sale securities
(22
)
 
—

 
—

 
—

 
—

 
—

 
(22
)
Net income (loss) on intra-entity foreign currency transactions
624

 
—

 
—

 
—

 
—

 
—

 
624

Total other comprehensive loss, net of tax
(5,622
)
 
—

 
109

 
—

 
—

 
—

 
(5,513
)
Comprehensive loss
(12,925
)
 
(12,993
)
 
15,407

 
3,737

 
(1,653
)
 
7,606

 
(821
)
Comprehensive loss attributable to redeemable noncontrolling interests
(2,864
)
 
—

 
—

 
—

 
(276
)
 
—

 
(3,140
)
Comprehensive (loss) income attributable to Synchronoss
$
(10,061
)
 
$
(12,993
)