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SYNCHRONOSS TECHNOLOGIES INC - Quarter Report: 2021 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2021
 
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)
Delaware06-1594540
(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 x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
 
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 filerx
Non-accelerated filerSmaller 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s)Name of each exchange on which registered
Common Stock, $.0001 par value
 SNCRThe Nasdaq Stock Market, LLC
8.375% $25.00 par value Senior Notes due 2026 SNCRLThe Nasdaq Stock Market, LLC
As of August 06, 2021, there were 88,113,522 shares of common stock issued and outstanding.


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SYNCHRONOSS TECHNOLOGIES, INC.
FORM 10-Q INDEX
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PART I.  FINANCIAL INFORMATION
 
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
 June 30, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$32,570 $33,671 
Accounts receivable, net44,202 47,849 
Prepaid & Other Current Assets41,058 39,847 
Total current assets117,830 121,367 
Non-current assets:
Property and equipment, net9,822 11,732 
Operating lease right-of-use assets29,703 34,538 
Goodwill229,610 232,771 
Intangible assets, net64,887 69,593 
Loan Receivable4,834 4,834 
Other Assets, non-current7,004 7,420 
Total non-current assets345,860 360,888 
Total assets$463,690 $482,255 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$14,539 $12,749 
Accrued expenses58,238 69,326 
Deferred revenues, current39,656 33,045 
Debt, current— 10,000 
Total current liabilities112,433 125,120 
Long-term debt, net of debt issuance costs117,189 — 
Deferred tax liabilities727 1,875 
Deferred revenues, non-current1,439 12,569 
Leases, non-current40,315 44,273 
Other non-current liabilities4,625 4,995 
Redeemable noncontrolling interest12,500 12,500 
Total liabilities289,228 201,332 
Commitments and contingencies
Series A Convertible Participating Perpetual Preferred Stock, $0.0001 par value; 10,000 shares authorized, nil and 250 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
— 237,641 
Series B Non-Convertible Perpetual Preferred Stock, $0.0001 par value; 150 shares authorized, 75 and nil shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
72,506 — 
Stockholders’ equity:
Common stock, $0.0001 par value; 100,000 shares authorized, 88,121 and 51,177 shares issued; 88,121 and 44,015 outstanding at June 30, 2021 and December 31, 2020, respectively
Treasury stock, at cost (nil and 7,162 shares at June 30, 2021 and December 31, 2020, respectively)
— (82,087)
Additional paid-in capital491,660 499,348 
Accumulated other comprehensive loss(29,442)(28,213)
Accumulated deficit(360,271)(345,771)
Total stockholders’ equity101,956 43,282 
Total liabilities and stockholders’ equity$463,690 $482,255 

See accompanying notes to condensed consolidated financial statements.
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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,
2021202020212020
Net revenues$71,532 $76,535 $137,031 $153,657 
Costs and expenses:
Cost of revenues1
27,142 29,480 55,779 64,951 
Research and development17,197 19,096 34,594 38,884 
Selling, general and administrative21,909 24,640 39,837 50,984 
Restructuring charges877 4,493 1,590 5,943 
Depreciation and amortization8,485 10,284 18,352 21,640 
Total costs and expenses75,610 87,993 150,152 182,402 
Loss from continuing operations(4,078)(11,458)(13,121)(28,745)
Interest income25 1,509 30 1,568 
Interest expense(144)(84)(239)(329)
Other Income (expense)1,576 1,367 (1,820)3,058 
Loss from continuing operations, before taxes(2,621)(8,666)(15,150)(24,448)
Benefit for income taxes201 7,972 364 20,404 
Net loss from continuing operations(2,420)(694)(14,786)(4,044)
Net income (loss) attributable to redeemable noncontrolling interests(50)(165)286 (182)
Preferred stock dividend(21,476)(9,289)(32,006)(18,197)
Net loss attributable to Synchronoss$(23,946)$(10,148)$(46,506)$(22,423)
Earnings (loss) per share
Basic$(0.54)$(0.24)$(1.07)$(0.54)
Diluted$(0.54)$(0.24)$(1.07)$(0.54)
Weighted-average common shares outstanding:
Basic44,131 41,697 43,438 41,482 
Diluted44,131 41,697 43,438 41,482 
________________________________
1    Cost of revenues excludes depreciation and amortization which are shown separately.

See accompanying notes to condensed consolidated financial statements.




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SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) (In thousands)

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net loss$(2,420)$(694)$(14,786)$(4,044)
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments120 1,872 (1,768)(2,069)
Unrealized gain on available for sale securities— — — 751 
Net (loss) income on inter-company foreign currency transactions(213)554 539 182 
Total other comprehensive (loss) income(93)2,426 (1,229)(1,136)
Comprehensive (loss) income(2,513)1,732 (16,015)(5,180)
Comprehensive (loss) income attributable to redeemable noncontrolling interests(50)(165)286 (182)
Comprehensive (loss) income attributable to Synchronoss$(2,563)$1,567 $(15,729)$(5,362)

See accompanying notes to condensed consolidated financial statements.
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SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited) (In thousands)
Three Months Ended June 30, 2021
Common StockTreasury StockAdditionalAccumulated OtherTotal
SharesAmountSharesAmountPaid-In CapitalComprehensive Income (Loss)Accumulated deficitStockholders' Equity
Balance at March 31, 202151,331 $(7,162)$(82,087)$491,295 $(29,349)$(357,801)$22,063 
Stock based compensation— — — — 2,221 — — 2,221 
Issuance of restricted stock1,644 — — — — — 
Preferred stock dividend— — — — (9,808)— — (9,808)
Amortization of preferred stock issuance costs1
— — — — (11,668)— — (11,668)
Common stock issuance - Public Offering42,308 — — 109,996 — — 110,000 
Common Stock - Issuance Costs— — — — (8,340)— — (8,340)
Treasury shares used in Public Offering(7,162)— 7,162 82,087 (82,087)— — — 
Net income (loss) attributable to Synchronoss— — — — — — (2,420)(2,420)
Non-controlling interest— — — — 50 — (50)— 
Total other comprehensive income (loss)— — — — — (93)— (93)
Balance at June 30, 202188,121 $— $— $491,660 $(29,442)$(360,271)$101,956 
________________________________
1    Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.

Three Months Ended June 30, 2020
Common StockTreasury StockAdditionalAccumulated OtherTotal
SharesAmountSharesAmountPaid-In CapitalComprehensive Income (Loss)Accumulated deficitStockholders' Equity
Balance at March 31, 202051,758 $(7,162)$(82,087)$522,164 $(36,823)$(338,454)$64,805 
Stock based compensation— — — — 4,754 — — 4,754 
Issuance of restricted stock(138)— — — — — — — 
Preferred stock dividends accrued— — — — (8,454)— — (8,454)
Amortization of preferred stock issuance costs— — — — (835)— — (835)
Shares withheld for taxes in connection with issuance of restricted stock (1)— — — — — — — 
Net income attributable to Synchronoss— — — — — — (694)(694)
Non-controlling interest— — — — 165 — (165)— 
Total other comprehensive income (loss)— — — — — 2,426 — 2,426 
Balance at June 30, 202051,619 $(7,162)$(82,087)$517,794 $(34,397)$(339,313)$62,002 

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Six Months Ended June 30, 2021
Common StockTreasury StockAdditionalAccumulated OtherTotal
SharesAmountSharesAmountPaid-In CapitalComprehensive Income (Loss)Accumulated deficitStockholders' Equity
Balance at December 31, 202051,177 $(7,162)$(82,087)$499,348 $(28,213)$(345,771)$43,282 
Stock based compensation— — — — 5,034 — — 5,034 
Issuance of restricted stock1,798 — — — — — 
Preferred stock dividend— — — — (19,215)— — (19,215)
Amortization of preferred stock issuance costs1
— — — — (12,791)— — (12,791)
Common stock issuance - Public Offering42,308 — — 109,996 — — 110,000 
Treasury shares used in Public Offering(7,162)— 7,162 82,087 (82,087)— — — 
Common Stock - Issuance Costs— — — — (8,340)— — (8,340)
Net income (loss) attributable to Synchronoss— — — — — — (14,786)(14,786)
Non-controlling interest— — — — (286)— 286 — 
Total other comprehensive income (loss)— — — — — (1,229)— (1,229)
Balance at June 30, 202188,121 $— $— $491,660 $(29,442)$(360,271)$101,956 
________________________________
1    Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.

Six Months Ended June 30, 2020
Common StockTreasury StockAdditionalAccumulated OtherTotal
SharesAmountSharesAmountPaid-In CapitalComprehensive Income (Loss)Accumulated deficitStockholders' Equity
Balance at December 31, 201951,704 $(7,162)$(82,087)$525,739 $(33,261)$(334,319)$76,077 
Stock based compensation— — — — 10,070 — — 10,070 
Issuance of restricted stock(83)— — — — — — — 
Preferred stock dividends accrued— — — — (16,612)— — (16,612)
Amortization of preferred stock issuance costs— — — — (1,585)— — (1,585)
Shares withheld for taxes in connection with issuance of restricted stock (2)— — — — — — — 
Net income attributable to Synchronoss— — — — — — (4,044)(4,044)
Non-controlling interest— — — — 182 — (182)— 
Total other comprehensive income (loss)— — — — — (1,136)— (1,136)
Adoption of new credit loss accounting standard— — — — — — (768)(768)
Balance at June 30, 202051,619 $(7,162)$(82,087)$517,794 $(34,397)$(339,313)$62,002 

See accompanying notes to condensed consolidated financial statements.
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SYNCHRONOSS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
Six Months Ended June 30,
20212020
Operating activities:
Net loss continuing operations$(14,786)$(4,044)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization18,352 21,640 
(Gain) loss on Disposals of fixed assets(18)12 
(Gain) loss on Disposals of intangible assets(550)(2,164)
Deferred income taxes(1,471)478 
Stock-based compensation5,066 10,156 
Operating lease impairment1,205 — 
Changes in operating assets and liabilities:
Accounts receivable, net4,743 904 
Prepaid expenses and other current assets(648)(10,031)
Accounts payable686 3,514 
Accrued expenses(4,151)7,002 
Other assets— 502 
Deferred revenues(5,539)(24,613)
Other liabilities5,278 (1,748)
Net cash provided by (used in) operating activities8,167 1,608 
Investing activities:
Purchases of fixed assets(1,250)(424)
Additions to capitalized software(10,959)(8,685)
Proceeds from the sale of intangibles550 2,164 
Maturity of marketable securities available for sale— 11 
Net cash used in investing activities(11,659)(6,934)
Financing activities:
Share-based compensation-related proceeds, net of taxes paid on withholding shares (1)— 
Taxes paid on withholding shares(1)(9)
Debt issuance costs related to long term debt 1
(7,811)— 
Proceeds from issuance of long term debt125,000 — 
Borrowings on revolving line of credit— 10,000 
Repayment of revolving line of credit(10,000)— 
Proceeds from issuance of common stock110,000 — 
Common stock issuance costs 2
(8,340)— 
Proceeds from issuance of preferred stock75,000 — 
Redemption of Series A Preferred stock(278,665)— 
Series B preferred stock issuance costs 3
(2,495)— 
Net cash provided by financing activities2,687 9,991 
Effect of exchange rate changes on cash(296)(895)
Net (decrease) increase in cash and cash equivalents(1,101)3,770 
Cash and cash equivalents, beginning of period33,671 39,001 
Cash and cash equivalents, end of period$32,570 $42,771 
Supplemental disclosures of non-cash investing and financing activities:
Paid in kind dividends on Series A Convertible Participating Perpetual Preferred Stock 4
$31,277 $17,616 
________________________________
1 Includes $0.8 million of issuance costs that were unpaid as of 6/30/2021
2 Includes $0.6 million of issuance costs that were unpaid as of 6/30/2021
3 Includes $0.2 million of issuance costs that were unpaid as of 6/30/2021
4 Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.

 See accompanying notes to condensed consolidated financial statements.
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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)


1. Description of Business

General

Synchronoss Technologies, Inc. (“Synchronoss” or the “Company”) Digital, Cloud, Messaging and Total Network Management platforms help the world’s leading companies, including operators, original equipment manufacturers (“OEMs”), and Media and Technology providers to deliver continuously transformative customer experiences that create high value engagement and new monetization opportunities.
The Company currently operates in and markets solutions and services directly through the Company’s sales organizations in North America, Europe and Asia-Pacific. The Company’s platforms give customers new opportunities in the Telecommunications, Media and Technology (“TMT”) space, taking advantage of the rapidly converging services, connected devices, networks and applications.
The Company delivers platforms, products and solutions including:
White Label Personal Cloud: Cloud sync, backup, storage, device set up, content transfer and content engagement for user generated content.
Messaging: White label consumer email solutions. Advanced, multi-channel messaging peer-to-peer (“P2P”) communications and application-to-person (“A2P”) commerce solutions.
Digital: Customer journey and workflow design, development, orchestration and experience management.
Total Network Management (“TNM”): integrated application suite that designs, procures, manages and optimizes telecom network infrastructure.

The Synchronoss Personal Cloud™ platform is a secure and highly scalable white label platform designed to store and sync subscriber’s personally created content seamlessly to and from current and new devices. This allows a carrier’s customers to protect, engage with and manage their personal content and gives the Company’s Operator customers the ability to increase average revenue per user (“ARPU”) through a new monthly recurring charge (“MRC”) and opportunities to mine valuable data that will give subscribers access to new, beneficial services. Additionally, the Company’s Personal Cloud Platform performs an expanding set of value-add services including facilitating an Operator’s initial device setup and enhancing visibility and control across disparate devices within subscribers’ smart homes.
The Synchronoss Messaging Platform powers hundreds of millions of subscribers’ mail boxes worldwide. The Company’s Advanced Messaging Product is a powerful, secure and intelligent white label messaging platform that expands capabilities for Operators and TMT companies to offer P2P messaging via Rich Communications Services (“RCS”). Additionally, the Company’s Advanced Messaging Product powers commerce and a robust ecosystem for Operators, brands and advertisers to execute Application to Person (“A2P”) commerce and data-rich dialogue with subscribers.
The Synchronoss Digital Platform is a suite of technology, tools and solutions that includes digital experience creation and management, automated provisioning, artificial intelligence and financial analytics that service a broad array of TMT markets. The products equip customers with a toolkit of capabilities where they can design, deploy and manage end user customer journeys and workflows easily and quickly from one central platform that also integrates across front end customer engagement channels as well as enterprise business systems (e.g. CRM, POS) allowing non-citizen developers to configure rather than code experiences. The platform sits between customer-facing touch points and a customer’s existing back-office systems to orchestrate data, workflows and processes into digital customer journeys that interface with end user channels creating user experiences that can be centrally managed and coordinated with less resources than is typical in a traditional IT environment.
The Synchronoss Total Network Management application suite provides Operators with the tools and software to design their physical network, streamline their infrastructure purchases, and comprehensive network expense optimization and management for leading top tier carriers around the globe.

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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)

2. Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The accompanying interim unaudited condensed consolidated financial statements have been prepared by Synchronoss and in the opinion of management, include all 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 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.

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. Certain prior year amounts have been reclassified to conform to the current year's presentation.

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, 2020.

Risks and Uncertainties

There continue to be uncertainties regarding the current coronavirus ("COVID-19") pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect the Company’s financial results and business operations for the three and six months ended June 30, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.


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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)

Recently Issued Accounting Standards

Recent accounting pronouncements adopted
StandardDescriptionEffect on the financial statements
Update 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income TaxesThe ASU removes the exception to the general principles in ASC 740, Income Taxes, associated with the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments and interim-period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU improves the application of income tax related guidance and simplifies U.S. GAAP when accounting for franchise taxes that are partially based on income, transactions with government resulting in a step-up in tax basis goodwill, separate financial statements of legal entities not subject to tax, and enacted changes in tax laws in interim periods. Different transition approaches, retrospective, modified retrospective, or prospective, will apply to each income tax simplification provision.
The Company adopted the new standard as of January 1, 2021. The standard did not have a material impact on the Company’s consolidated financial position or results of operations upon adoption.
Date of adoption: January 1, 2021.

Standards issued not yet adopted
StandardDescriptionEffect on the financial statements
Update 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06)The ASU simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2022 on a full or modified retrospective basis, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
The Company does not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

Date of adoption: January 1, 2022.

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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)


3. Revenue

Disaggregation of revenue

The Company disaggregates revenue from contracts with customers into the nature of the products and services and geographical regions. The Company’s geographic regions are the Americas, Europe, the Middle East and Africa (“EMEA”), and Asia Pacific (“APAC”). The majority of the Company’s revenue is from the Technology, Media and Telecom (collectively, “TMT”) sector.
Three Months Ended June 30, 2021Three Months Ended June 30, 2020
CloudDigitalMessagingTotalCloudDigitalMessagingTotal
Geography
Americas$37,071 $10,603 $11,265 $58,939 $40,761 $12,637 $8,500 $61,898 
APAC— 915 6,249 7,164 — 1,019 6,708 7,727 
EMEA1,820 613 2,996 5,429 1,686 1,347 3,877 6,910 
Total$38,891 $12,131 $20,510 $71,532 $42,447 $15,003 $19,085 $76,535 
Service Line
Professional Services$3,884 $2,118 $2,587 $8,589 $4,984 $2,736 $5,972 $13,692 
Transaction Services1,321 945 2,268 1,474 2,215 — 3,689 
Subscription Services33,686 8,546 17,921 60,153 35,989 9,251 11,112 56,352 
License— 522 — 522 — 801 2,001 2,802 
Total$38,891 $12,131 $20,510 $71,532 $42,447 $15,003 $19,085 $76,535 


Six Months Ended June 30, 2021Six Months Ended June 30, 2020
CloudDigitalMessagingTotalCloudDigitalMessagingTotal
Geography
Americas$74,102 $21,843 $14,781 $110,726 $80,083 $23,574 $19,403 $123,060 
APAC— 2,043 12,949 14,992 — 1,577 15,883 17,460 
EMEA3,685 1,222 6,406 11,313 3,408 2,604 7,125 13,137 
Total$77,787 $25,108 $34,136 $137,031 $83,491 $27,755 $42,411 $153,657 
Service Line
Professional Services$7,809 $4,229 $5,198 $17,236 $9,145 $7,272 $11,202 $27,619 
Transaction Services3,296 3,213 6,512 2,781 3,289 — 6,070 
Subscription Services66,682 16,979 28,535 112,196 71,565 16,253 21,729 109,547 
License— 687 400 1,087 — 941 9,480 10,421 
Total$77,787 $25,108 $34,136 $137,031 $83,491 $27,755 $42,411 $153,657 

Trade Accounts Receivable and Contract balances

The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, the Company recognizes a receivable for revenues related to its time and materials and transaction or volume-based contracts. The Company presents such receivables in Trade accounts receivable, net in its Condensed Consolidated Statements
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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)

of Financial Position at their net estimated realizable value. The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other economic indicators.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. For example, the Company would record a contract asset if it records revenue on a professional services engagement but are not entitled to bill until the Company achieves specified milestones. Contract assets balance at June 30, 2021 is $4.3 million.

Amounts collected in advance of services being provided are accounted for as contract liabilities, which are presented as deferred revenue on the accompanying Condensed Consolidated Balance Sheets and are realized with the associated revenue recognized under the contract. Nearly all of the Company's contract liabilities balance is related to services revenue, primarily subscription services contracts.

The Company’s contract assets and liabilities are reported in a net position on a customer basis at the end of each reporting period.

Significant changes in the contract liabilities balance (current and non-current) during the period are as follows:
Contract Liabilities1
Balance - January 1, 2021$45,614 
Revenue recognized in the period(137,006)
Amounts billed but not recognized as revenue132,487 
Balance - June 30, 2021$41,095 
________________________________
1    Comprised of Deferred Revenue

Transaction price allocated to the remaining performance obligations

Topic 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2021. The Company has elected not to disclose transaction price allocated to remaining performance obligations for:

1.Contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty;
2.Contracts for which the Company recognizes revenues based on the right to invoice for services performed;
3.Variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with Topic 606 Section 10-25-14(b), for which the criteria in Topic 606 Section 10-32-40 have been met. This applies to a limited number of situations where the Company is dependent upon data from a third party or where fees are highly variable.

Many of the Company’s performance obligations meet one or more of these exemptions. Specifically, the Company has excluded the following from the Company’s remaining performance obligations, all of which will be resolved in the period in which amounts are known:
consideration for future transactions, above any contractual minimums
consideration for success-based transactions contingent on third party data
credits for failure to meet future service level requirements

As of June 30, 2021, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $258.2 million, of which approximately 80.9 percent is expected to be recognized as revenues within 2 years, and the remainder thereafter.

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Estimates of revenue expected to be recognized in future periods also exclude unexercised customer options to purchase services that do not represent material rights to the customer. Customer options that do not represent a material right are only accounted for in accordance with Topic 606 when the customer exercises its option to purchase additional goods or services.

4. Fair Value Measurements

In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:

Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;
Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets; and
Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.

The following is a summary of assets, liabilities and redeemable noncontrolling interests and their related classifications under the fair value hierarchy:
June 30, 2021
Total(Level 1)(Level 2)(Level 3)
Assets
Cash and cash equivalents1
$32,570 $32,570 $— $— 
Total assets$32,570 $32,570 $— $— 
Temporary equity
Redeemable noncontrolling interests2
$12,500 $— $— $12,500 
Total temporary equity$12,500 $— $— $12,500 
December 31, 2020
Total(Level 1)(Level 2)(Level 3)
Assets
Cash and cash equivalents1
$33,671 $33,671 $— $— 
Total assets$33,671 $33,671 $— $— 
Temporary Equity
Redeemable noncontrolling interests2
$12,500 $— $— $12,500 
Total temporary equity$12,500 $— $— $12,500 
________________________________
1 Cash equivalents includes money market funds.
2 Put arrangements held by the noncontrolling interests in certain of the Company’s joint ventures.

Redeemable Noncontrolling Interests

The redeemable noncontrolling interests recorded at fair value are put arrangements held by the noncontrolling interests in certain of the Company’s joint ventures. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of the noncontrolling interest to the greater of the estimated redemption value, which approximates fair value, at the end of each reporting period or the initial carrying amount.

The fair value of the redeemable noncontrolling interests was estimated by applying an income approach using a discounted cash flow analysis. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Significant changes in the underlying assumptions used to value the redeemable
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noncontrolling interests could significantly increase or decrease the fair value estimates recorded in the Condensed Consolidated Balance Sheets.

The changes in fair value of the Company’s Level 3 redeemable noncontrolling interests during the six months ended June 30, 2021 were as follows:

Balance at December 31, 2020$12,500 
Fair value adjustment286 
Net (income) loss attributable to redeemable noncontrolling interests(286)
Balance at June 30, 2021$12,500 

5. Leases

The Company has entered into contracts with third parties to lease a variety of assets, including certain real estate, equipment, automobiles and other assets. The Company’s leases frequently allow for lease payments that could vary based on factors such as inflation or the degree of utilization of the underlying asset. For example, certain of the Company’s real estate leases could require us to make payments that vary based on common area maintenance charges, insurance and other charges. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company is party to certain sublease arrangements, primarily related to the Company’s real estate leases, where it acts as the lessee and intermediate lessor.

The Company reflects finance leases as a component of Leases, non-current on the Condensed Consolidated Balance Sheet. The finance leases were not material for the period ended June 30, 2021.

The following table presents information about the Company's Right of Use (ROU) assets and lease liabilities at June 30, 2021:

ROU assets:
Non-current operating lease ROU assets$29,703 
Operating lease liabilities:
Current operating lease liabilities1
$8,261 
Non-current operating lease liabilities39,816 
Total operating lease liabilities$48,077 
________________________________
1    Amounts are included in Accrued Expenses on the Condensed Consolidated Balance Sheet.
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The following table presents information about lease expense and sublease income for the three and six months ended June 30, 2021:
Three Months EndedSix Months Ended
June 30, 2021June 30, 2021
Operating lease cost1
$2,433 $5,034 
Other lease costs and income:
Variable lease costs1,2
793 1,568 
Sublease income1
(833)(1,778)
Total net lease cost$2,393 $4,824 
________________________________
1    Amounts are included in Cost of revenues, Selling, general and administrative and/or Research and development based on the function that the underlying leased asset supports which are reflected in the Condensed Consolidated Statements of Operations.
2    As part of the Company’s continued cost savings initiatives, the Company closed certain office spaces and terminated various lease agreements. These actions resulted in a $1.2 million ROU asset impairment charge for the six months ended June 30, 2021, which was determined by the present value of the forecasted future cash flows for the remaining lease term.

The following table provides the undiscounted amount of future cash flows included in our lease liabilities at June 30, 2021 for each of the five years subsequent to December 31, 2020 and thereafter, as well as a reconciliation of such undiscounted cash flows to our lease liabilities at June 30, 2021:
Operating Leases
Remaining 2021$6,145 
202210,946 
20238,600 
20248,346 
20258,224 
Thereafter18,608 
Total future lease payments60,869 
Less: amount representing interest(12,792)
Present value of future lease payments (lease liability)$48,077 

The following table provides the weighted-average remaining lease term and weighted-average discount rates for our leases as of June 30, 2021:

Operating Leases:
Weighted-average remaining lease term (years), weighted based on lease liability balances6.19
Weighted-average discount rate (percentages), weighted based on the remaining balance of lease payments7.6%

The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the six months ended June 30, 2021:

Operating Leases:
Cash paid for amounts included in the measurement of lease liabilities$7,348 
Lease liabilities arising from obtaining right-of-use assets— 

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6. Investments in Affiliates and Related Transactions

Sequential Technology International, LLC

In connection with the divestiture of the exception handling business of the Company in 2017, Synchronoss entered into a three-year Cloud Telephony and Support services agreement (“CTS Agreement”) to grant Sequential Technology International, LLC (“STIN”) access to certain Synchronoss software and private branch exchange systems to facilitate exception handling operations required to support STIN customers.

The CTS agreement expired in the first quarter of 2020. At the time of the expiration, the Company entered into an Asset Purchase Agreement with STIN. As part of the agreement, the Company received $1.6 million in exchange for certain hardware and system assets for the cloud telephony and remaining support service business.

During the second quarter of 2020, the Company entered into an agreement with STIN and AP Capital Holdings II, LLC (“APC”) to divest its remaining equity interest in STIN as well as settle its paid-in-kind purchase money note (“PIK note”) and certain amounts due as of December 31, 2019 in consideration for a $9.0 million secured promissory note (the “Note”), which includes contingent consideration of up to $16.0 million. The Note has an 8% interest rate and a 3-year stated term. As part of the arrangement, APC acquired a majority stake of STIN. Additionally, in the event of a sale of STIN by APC and STIN at a future date, the Company shall receive 5% of such sale proceeds, after reducing the sale proceeds by any outstanding amounts of the above Note, including any earned contingent consideration. The Company determined the fair value of the Note as of the transaction date to be approximately $4.8 million. The Company determined the fair value of the Note using a discounted cash flow analysis, which discounts the expected future cash flows of the asset to determine its fair value. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. No gain or loss was recognized as a result of the transaction. As of June 30, 2021, the Company reassessed the fair value of the Note and there were no material changes.

7. Debt

Offering of Senior Notes

On June 30, 2021, the Company closed its underwritten public offering of $120.0 million aggregate principal amount of 8.375% senior notes due 2026 at a par value of $25.00 per Senior Note (the “Senior Notes”). The offering was conducted pursuant to an underwriting agreement (the “Notes Underwriting Agreement”) dated June 25, 2021, by and among the Company and B. Riley Securities, Inc., as representative of the several underwriters (the “Notes Underwriters”). At the closing, the Company issued $125.0 million aggregate principal amount of Senior Notes, inclusive of $5.0 million aggregate principal amount of Senior Notes issued pursuant to the full exercise of the Notes Underwriters’ option to purchase additional Senior Notes.

The Notes Underwriting Agreement contains customary representations, warranties and covenants of the Company, customary conditions to closing, indemnification obligations of the Company and the Notes Underwriters, including for liabilities under the Securities Act, other obligations of the parties and termination provisions.

On June 30, 2021, the Company entered into an indenture (the “Base Indenture”) and a supplemental indenture (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”) with The Bank of New York Mellon Trust Company National Association, as trustee (the “Trustee”), between the Company and the Trustee. The Indenture establishes the form and provides for the issuance of the Senior Notes.

The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness. The Senior Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables. The Senior Notes bear interest at the rate of 8.375% per annum. Interest on the Senior
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Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on July 31, 2021. The Senior Notes will mature on June 30, 2026, unless redeemed prior to maturity.

The Company may, at its option, at any time and from time to time, redeem the Senior Notes for cash in whole or in part (i) on or after June 30, 2022 and prior to June 30, 2023, at a price equal to $25.75 per Senior Note, plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or after June 30, 2023 and prior to June 30, 2024, at a price equal to $25.50 per Senior Note, plus accrued and unpaid interest to, but excluding, the date of redemption, (iii) on or after June 30, 2024 and prior to June 30, 2025, at a price equal to $25.25 per Senior Note, plus accrued and unpaid interest to, but excluding, the date of redemption, and (iv) on or after June 30, 2025 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed Senior Notes.

The Indenture contains customary events of default and cure provisions. If an uncured default occurs and is continuing, the Trustee or the holders of at least 25% of the principal amount of the Senior Notes may declare the entire amount of the Senior Notes, together with accrued and unpaid interest, if any, to be immediately due and payable. In the case of an event of default involving the Company’s bankruptcy, insolvency or reorganization, the principal of, and accrued and unpaid interest on, the principal amount of the Senior Notes, together with accrued and unpaid interest, if any, will automatically, and without any declaration or other action on the part of the Trustee or the holders of the Senior Notes, become due and payable.

The carrying amounts of the Company’s borrowings were as follows:

Senior NotesJune 30, 2021December 31, 2020
8.375% Senior Notes due 2026
$125,000 $— 
Unamortized discount and debt issuance cost1
(7,811)— 
Carrying value of Senior Notes$117,189 $— 
________________________________
1 Debt issuance are deferred and amortized into interest expense using the effective interest method.

The total fair value of our outstanding senior notes approximates its issued price. The Company is in compliance with its debt covenants as of June 30, 2021.

2019 Revolving Credit Facility

On October 4, 2019, the Company entered into a Credit Agreement with Citizens Bank, N.A., for a $10.0 million Revolving Credit Facility. Borrowings under the Revolving Credit Facility bore interest at a rate equal to, at the Company’s option, either (1) the arithmetic average of the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period (one, three or six months (or 12 months if agreed to by all applicable Lenders)) as selected by the Company relevant to such borrowing plus the applicable margin, or (2) a base rate determined by reference to the greatest of the federal funds rate plus 0.5%, the prime commercial lending rate as determined by the Agent, and the daily LIBOR rate plus 1.0%, in each case plus an applicable margin and subject to a floor of 0.5%.

On November 9, 2020, the Company entered into an amended credit agreement which changes the terms of the Company’s debt covenants.

On June 30, 2021, the Company paid off the outstanding balance and closed the Revolving Credit Facility.
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Interest expense

The following table summarizes the Company’s interest expense:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
2019 Revolving Credit Facility
Amortization of debt issuance costs$72 $12 $84 $28 
Commitment fee— — — 
Interest on borrowings63 68 126 82 
Other1
29 215 
Total $144 $84 $239 $329 
________________________________
1 Mainly finance leases’ related interest expense

Debt issuance costs are deferred and amortized to interest expense using the effective interest method. The interest expense for the Senior Notes was not material for the quarter.


8. Accumulated Other Comprehensive (Loss) / Income

The changes in accumulated other comprehensive (loss) income during the six months ended June 30, 2021 were as follows:
Balance at December 31, 2020Other comprehensive (loss) incomeTax effectBalance at
June 30, 2021
Foreign currency$(26,076)$(1,768)$— $(27,844)
Unrealized loss on intra-entity foreign currency transactions(2,137)807 (268)(1,598)
Total$(28,213)$(961)$(268)$(29,442)

9. Stockholders’ Equity

Common Stock

Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. Dividends on common stock will be paid when, and if, declared by the Company’s Board of Directors. No dividends have ever been declared or paid by the Company.

Common Stock Offering

On June 29, 2021, the Company closed its underwritten public offering of common stock, par value $0.0001 per share. The offering was conducted pursuant to an underwriting agreement (the “Underwriting Agreement”) dated June 24, 2021, by and between the Company and B. Riley Securities, Inc., as representative of the several underwriters (the “Underwriters”) for net proceeds of $102.3 million. At the closing, the Company issued 42,307,692 shares of common stock, inclusive of 3,846,154
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shares of common stock issued pursuant to the full exercise of the Underwriters’ option to purchase additional shares of common stock. The Company used the net proceeds for the redemption of the Series A Convertible Preferred Stock.

Preferred Stock

The Company’s Board of Directors (the “Board”) is authorized to issue preferred shares and has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of preferred stock.

Series B Non-Convertible Preferred Stock

On June 30, 2021, the Company closed a private placement of 75,000 shares of its Series B Perpetual Non-Convertible Preferred Stock, par value $0.0001 per share, with an initial liquidation preference of $1,000 per share (the “Series B Preferred Stock”), for net proceeds of $72.5 million (the “Series B Transaction”). The sale of the Series B Preferred Stock was pursuant to the Series B Preferred Stock Purchase Agreement, dated as of June 24, 2021 (the “Series B Purchase Agreement”), between the Company and B. Riley Principal Investments, LLC (“BRPI”).

In connection with the closing of the Series B Transaction, the Company (i) filed a Certificate of Designation with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series B Preferred Stock (the “Series B Certificate”) and (ii) entered into an Investor Rights Agreement with B. Riley Financial, Inc. (“B. Riley Financial”) and BRPI setting forth certain governance and registration rights of B. Riley Financial with respect to the Company.

Certificate of Designation of the Series B Preferred Stock

The rights, preferences, privileges, qualifications, restrictions and limitations of the shares of Series B Preferred Stock are set forth in the Series B Certificate. Under the Series B Certificate, the holders of the Series B Preferred Stock are entitled to receive, on each share of Series B Preferred Stock on a quarterly basis, an amount equal to the dividend rate, as described in the following sentence, divided by four and multiplied by the then-applicable Liquidation Preference per share of Series B Preferred Stock (collectively, the “Preferred Dividends”). The dividend rate is (1) 9.5% per annum for the period commencing on June 30, 2021 and ending on and including December 31, 2021, (2) 13% per annum for the year commencing on January 1, 2022 and ending on and including December 31, 2022; and (3) 14% per annum for the year commencing on January 1, 2023 and thereafter. The Preferred Dividends will be due in cash on January 1, April 1, July 1 and October 1 of each year (each, a “Series B Dividend Payment Date”). The Company may choose to pay the Series B Preferred Dividends in cash or in additional shares of Series B Preferred Stock. In the event the Company does not declare and pay a dividend in cash on any Series B Dividend Payment Date, the unpaid amount of the Preferred Dividend will be added to the Liquidation Preference. As of June 30, 2021, the Liquidation Value and Redemption Value of the Series B Preferred Shares was $75.1 million.

On and after the fifth anniversary of the date of issuance, holders of shares of Series B Preferred Stock will have the right to cause the Company to redeem each share of Series B Preferred Stock for cash in an amount equal to the sum of the current liquidation preference and any accrued dividends. Each share of Series B Preferred Stock will also be redeemable at the option of the holder upon the occurrence of a “Fundamental Change” at (i) par in the case of a payment in cash or (ii) 1.5 times par in the case of payment in shares of Common Stock (such shares being, “Registrable Securities”), subject to certain limitations on the amount of stock that could be issued to the holders of Series B Stock. In addition, the Company will be permitted to redeem outstanding shares of the Series B Preferred Stock at any time for the sum of the then-applicable Liquidation Preference and the accrued but unpaid dividends. Pursuant to the Series B Certificate, the Company will be required to use (i) the first $50.0 million of proceeds from certain transactions (i.e., disposition, sale of assets, tax refunds) received by the Company to redeem for cash, shares of the Series B Preferred Stock, on a pro rata basis among each holder of Series B Preferred Stock and (ii) the next $25.0 million of proceeds from certain transactions received by the Company may be used by the Company to buy back shares of Common Stock and to the extent, not used for such purpose by the Company, to redeem, for cash, shares of the Series B Preferred Stock, on a pro rata basis among each holder of the Series B Preferred Stock.

The Company shall be required to obtain the prior written consent of the holders holding at least a majority of the outstanding shares of the Series B Preferred Stock before taking certain actions, including: (i) certain dividends, repayments and redemptions; (ii) any amendment to the Company’s certificate of incorporation that adversely affects the rights,
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preferences, privileges or voting powers of the Series B Preferred Stock; and (iii) issuances of stock ranking senior or equivalent to shares of the Series B Preferred Stock (including additional shares of the Series B Preferred Stock) in the priority of payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company. Other than with respect to the foregoing consent rights, the Series B Preferred Stock is non-voting stock.

Investor Rights Agreement

On June 30, 2021, the Company, B. Riley Financial and BRPI entered into an Investor Rights Agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, for so long as affiliates of B. Riley Financial beneficially own at least 10% of the outstanding shares of Common Stock (unless such equity threshold percentage is not met due to dilution from equity issuances), B. Riley Financial is entitled to nominate one Class II director (the “B. Riley Nominee”) to the Company’s board of directors (the “Board”), who shall be an employee of B. Riley Financial or its affiliates and is approved by the Board, such approval not to be unreasonably withheld. For so long as affiliates of B. Riley Financial beneficially own 5% or more but less than 10% of the outstanding shares of Common Stock (unless such equity threshold percentage is not met due to dilution from equity issuances), B. Riley Financial is entitled to certain board observer rights.

A summary of the Company’s Series B Perpetual Non-Convertible Preferred Stock balance at June 30, 2021 and changes during the six months ended June 30, 2021, are presented below:
Series B Preferred Stock
SharesAmount
Balance at December 31, 2020— $— 
Issuance of Preferred Stock75 75,000 
Initial discount and issuance costs related to preferred stock— (2,494)
Balance at June 30, 202175 $72,506 

Series A Convertible Preferred Stock

In accordance with the terms of the Share Purchase Agreement dated as of October 17, 2017 (the “PIPE Purchase Agreement”), with Silver Private Holdings I, LLC, an affiliate of Siris (“Silver”), on February 15, 2018, the Company issued to Silver 185,000 shares of its newly issued Series A Convertible Participating Perpetual Preferred Stock (the “Series A Preferred Stock”), par value $0.0001 per share, with an initial liquidation preference of $1,000 per share, in exchange for $97.7 million in cash and the transfer from Silver to the Company of the 5,994,667 shares of the Company’s common stock held by Silver (the “Preferred Transaction”).

Redemption of Series A Preferred Stock

The net proceeds from the common stock public offering, Senior Note offering and the Series B Preferred Stock transaction was used in part to fully redeem all outstanding shares of the Company’s Series A Preferred Stock on June 30, 2021 (the “Redemption”). The Company redeemed in full all of the 268,917 outstanding shares of the Series A Preferred Stock for an an aggregate Redemption Price of $278.7 million and all rights under the Investor Rights Agreement relating to the Series A Preferred Stock were terminated effective with the Redemption. No Series A Preferred Stock remain outstanding or authorized as of June 30, 2021.

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A summary of the Company’s Series A Convertible Participating Perpetual Preferred Stock balance at June 30, 2021 and changes during the six months ended June 30, 2021, are presented below:
Series A Preferred Stock
SharesAmount
Balance at December 31, 2020250 $237,641 
Amortization of preferred stock issuance costs— 12,791 
Issuance of preferred PIK dividend19 18,485 
Payment of preferred dividend— 9,748 
Redemption of Series A preferred shares(269)(278,665)
Balance at June 30, 2021— $— 

The Company and Siris Capital Group, LLC (“Siris”) entered into an Advisory Services Agreement dated as of May 18, 2020 under which Siris may provide consulting and advisory services to the Company on operational, business, financial and strategic matters. All obligations related to this Advisory Services Agreement were paid by the Company and the Advisory Services Agreement was terminated as of June 30, 2021.

Registration Rights

The Investor Rights Agreement entered into June 30, 2021 provides that in the event Synchronoss issues Registrable Securities to the holders of Series B Preferred Stock, such holders will have certain demand and piggy-back registration rights with respect to such Registrable Securities. In addition, on June 30, 2021, in connection with the redemption of the Series A Preferred Stock, the Investor Rights Agreement between the Company and Silver terminated.

Stock Plans

On June 14, 2021 the Company filed a registration statement with the Securities and Exchange Commission to issue 3.0 million shares of common stock under the Company’s 2015 Equity Incentive Plan as approved by the Company’s shareholders at the Annual Meeting of Shareholders on June 10, 2021. There were no significant changes to the Company’s 2017 New Hire Equity Incentive Plan during the three and six months ended June 30, 2021. As of June 30, 2021, there were 0.6 million shares available for the grant or award under the Company’s 2015 Equity Incentive Plan and 0.4 million shares available for the grant or award under the Company’s 2017 New Hire Equity Incentive Plan.

The Company’s performance cash awards granted to executives under the Long Term Incentive (“LTI”) Plans have been accounted for as liability awards, due to the Company’s intent and the ability to settle such awards in cash upon vesting and the Company has reflected such awards in accrued expenses. As of June 30, 2021, the liability for such awards is approximately $0.3 million.

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Stock-Based Compensation

The following table summarizes stock-based compensation expense related to all of the Company’s stock awards included by operating expense categories, as follows:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cost of revenues$379 $642 $857 $1,394 
Research and development696 1,071 1,551 2,502 
Selling, general and administrative1,270 3,274 2,658 6,260 
Total stock-based compensation expense$2,345 $4,987 $5,066 $10,156 

The following table summarizes stock-based compensation expense related to all of the Company’s stock awards included by award type, as follows:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Stock options$893 $1,805 $1,848 $3,588 
Restricted stock awards1,329 2,962 3,039 6,296 
Performance Based Cash Units123 220 179 272 
Total stock-based compensation before taxes$2,345 $4,987 $5,066 $10,156 
Tax benefit $440 $664 $937 $1,588 

The total stock-based compensation cost related to unvested equity awards as of June 30, 2021 was approximately $14.4 million. The expense is expected to be recognized over a weighted-average period of approximately 1.5 years.

The total stock-based compensation cost related to unvested performance based cash units as of June 30, 2021 was approximately $1.3 million. The expense is expected to be recognized over a weighted-average period of approximately 2.3 years.

Stock Options

The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock options. The weighted-average assumptions used in the Black-Scholes option pricing model are as follows: 
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Expected stock price volatility83.1 %76.1 %83.1 %72.0 %
Risk-free interest rate0.6 %0.4 %0.6 %1.4 %
Expected life of options (in years)4.254.454.244.42
Expected dividend yield0.0 %0.0 %0.0 %0.0 %
Weighted-average fair value (PSV) of the options$1.81 $1.73 $1.89 $3.08 

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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 summarizes information about stock options outstanding as of June 30, 2021:
OptionsNumber of
Options
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 20204,423 $9.60 
Options Granted1,903 3.08 
Options Exercised— — 
Options Cancelled(950)11.29 
Outstanding at June 30, 20215,376 $6.99 5.44$1,053 
Vested and exercisable at June 30, 20211,778 $12.84 3.71$

The total intrinsic value of stock options exercisable at June 30, 2021 and 2020 was $0.6 thousand and nil, respectively. The total intrinsic value of stock options exercised during the six months ended June 30, 2021 and 2020 was nil and nil, respectively.

Awards of Restricted Stock and Performance Stock

A summary of the Company’s unvested restricted stock at June 30, 2021, and changes during the six months ended June 30, 2021, is presented below:
Unvested Restricted StockNumber of
Awards
Weighted- Average
Grant Date
Fair Value
Unvested at December 31, 20201,510 $7.05 
Granted1,960 3.12 
Vested(693)7.48 
Forfeited(191)4.92 
Unvested at June 30, 20212,586 $4.07 

Restricted stock awards are granted subject to other service conditions or service and performance conditions (“Performance-Based Awards”). Restricted stock and Performance-Based Awards are measured at the closing stock price at the date of grant and are recognized straight line over the requisite service period.

Performance Based Cash Units

Performance based cash units vest at the end of a three-year period based on service and achievement of certain performance objectives determined by the Company’s Board of Directors.
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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)


A summary of the Company’s unvested performance-based cash units at June 30, 2021 and changes during the six months ended June 30, 2021, is presented below:
Unvested Cash UnitsNumber of
Units
Period End Fair Value
Unvested at December 31, 2020907 $4.70 
Granted1,546 — 
Granted adjustment1
(308)
Vested(30)— 
Forfeited— — 
Unvested at June 30, 20212,115 $3.58 
___________________________
1 Includes changes in the unvested units due to performance adjustments

Performance based cash units are measured at the closing stock price at the reporting period end date and are recognized straight line over the requisite service period. The expense for the period will increase or decrease based on updated fair values of these awards at each reporting date. Unvested units fluctuations are shown as adjustments to units granted in the table above. These fluctuations are based on the percentage achievement of the performance metrics at the end of each reporting period.

10. Income Taxes

The Company recognized approximately $0.4 million and $20.4 million in related income tax benefit during the six months ended June 30, 2021 and 2020, respectively. The effective tax rate was approximately 2.4% for the six months ended June 30, 2021, which was lower than the U.S. federal statutory rate primarily due to pre-tax losses in jurisdictions where full valuation allowances have been recorded, pre-tax losses in jurisdictions which have a zero tax rate, and certain foreign jurisdictions projecting current income tax expense. During the period, the Company also recognized a discrete income tax benefit associated with the release of certain reserves for uncertain tax benefits. The Company’s effective tax rate was approximately 83.5% for the six months ended June 30, 2020, which was higher than the U.S. federal statutory rate primarily due to the Company’s ability to recognize certain loss carrybacks as a result of the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in the first quarter of 2020, the impact of the redemption of the Company’s interest in STIN and valuation allowances recorded in domestic and foreign jurisdictions, partially offset by the impact of permanent book-tax differences. The Company continues to consider all available evidence, including historical profitability and projections of future taxable income together with new evidence, both positive and negative, that could affect the view of the future realization of deferred tax assets. As a result of the assessment, no change was recorded by the Company to the valuation allowance during the six months ended June 30, 2021.

On March 11, 2021 the American Rescue Plan Act ("ARPA") was signed into law which is aimed at addressing the continuing economic and health impacts of the COVID-19 pandemic. This legislation relief, along with the previous governmental relief packages provide for numerous changes to current tax law. The Company does not anticipate that ARPA will have a material impact on its financial statements in the period ending June 30, 2021.

Subsequent to the close of the quarter, the Internal Revenue Service commenced an audit of certain of the Company’s prior year U.S. federal income tax filings, including the 2015, 2016 and 2018 tax years. The Company does not believe that the results of this audit will have a material effect on its financial position or results of 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)

11. Restructuring

The Company continues to execute certain restructurings to identify workforce optimization opportunities to better align the Company’s resources with its key strategic priorities. A summary of the Company’s restructuring accrual at June 30, 2021 and changes during the six months ended June 30, 2021, are presented below:
Balance at December 31, 2020ChargesPaymentsOther AdjustmentsBalance at June 30, 2021
Employment termination costs$1,580 $1,590 $(1,600)$— $1,570 


12. Earnings per Common Share (“EPS”)

Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of the Company’s common stock for the year. The Company includes participating securities (Redeemable Convertible Preferred Stock - Participation with Dividends on Common Stock that contain preferred dividend) in the computation of EPS pursuant to the two-class method. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.

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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 provides a reconciliation of the numerator and denominator used in computing basic and diluted net income attributable to common stockholders per common share from continued and discontinued operations.
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Numerator - Basic:
Net loss from continuing operations$(2,420)$(694)$(14,786)$(4,044)
Net income (loss) attributable to redeemable noncontrolling interests(50)(165)286 (182)
Preferred stock dividend1
(21,476)(9,289)(32,006)(18,197)
Net loss attributable to Synchronoss$(23,946)$(10,148)$(46,506)$(22,423)
Numerator - Diluted:
Net loss from continuing operations attributable to Synchronoss$(23,946)$(10,148)$(46,506)$(22,423)
Denominator:
Weighted average common shares outstanding — basic44,131 41,697 43,438 41,482 
Dilutive effect of:
Shares from assumed conversion of preferred stock2
— — — — 
Shares from assumed conversion of Performance Based Cash Units3
— — — — 
Weighted average common shares outstanding — diluted44,131 41,697 43,438 41,482 
Basic EPS
Earnings per share:
Basic$(0.54)$(0.24)$(1.07)$(0.54)
Diluted$(0.54)$(0.24)$(1.07)$(0.54)
Anti-dilutive stock options excluded— — — — 
Unvested shares of restricted stock awards2,586 2,220 2,586 2,220 
________________________________
1    Includes preferred stock amortization costs accelerated due to Series A Preferred stock redemption.
2    The calculation does not include the effect of assumed conversion of preferred stock of 14,939,846 and 12,956,487 shares for the three months ended June 30, 2021 and 2020, respectively; and 14,679,984 and 12,729,876 shares for the six months ended June 30, 2021 and 2020, respectively; which is based on 55.5556 shares per $1,000 principal amount of the preferred stock, because the effect would have been anti–dilutive.
3    The calculation does not include the effect of assumed conversion of Performance Based Cash Units of 826,742 and nil shares for the three months ended June 30, 2021 and 2020, respectively; and 699,023 and nil shares for the six months ended June 30, 2021 and 2020, respectively; which is based on 1 share per 1 Performance Based Cash Unit, because the effect would have been anti–dilutive.

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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)

13. Commitments, Contingencies and Other

Purchase Obligations

Aggregate annual future minimum payments under non-cancelable agreements are as follows:
YearNon-cancelable agreements
2021$5,529 
202216,471 
202313,807 
2024 and thereafter21,995 
Total $57,802 

Legal Matters

In the ordinary course of business, the Company is regularly subject to various claims, suits, regulatory inquiries and investigations. The Company records a liability for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable, and the loss can be reasonably estimated. Management has also identified certain other legal matters where they believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the Company’s business, financial position, results of operations, or cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company.

On May 1, 2017, May 2, 2017, June 8, 2017 and June 14, 2017, four putative class actions were filed against the Company and certain of its current and former officers and directors in the United States District Court for the District of New Jersey (the “Securities Law Action”). After these cases were consolidated, the court appointed as lead plaintiff Employees’ Retirement System of the State of Hawaii, which filed, on November 20, 2017, a consolidated complaint purportedly on behalf of purchasers of the Company’s common stock between February 3, 2016 and June 13, 2017. On February 2, 2018, the defendants moved to dismiss the consolidated complaint in its entirety, with prejudice. Before that motion was decided, on August 24, 2018, lead plaintiff filed a consolidated amended complaint purportedly on behalf of purchasers of the Company’s common stock between October 28, 2014 and June 13, 2017. On June 28, 2019, the Court granted defendants’ motion to dismiss the consolidated amended complaint in its entirety, without prejudice, allowing lead plaintiff to leave to amend its complaint. On August 14, 2019, lead plaintiff filed a second amended complaint. The second amended complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and it alleges, among other things, that the defendants made false and misleading statements of material information concerning the Company’s financial results, business operations, and prospects. The plaintiff seeks unspecified damages, fees, interest, and costs. On October 4, 2019, the defendants moved to dismiss the second amended complaint in its entirety. On May 29, 2020, the court granted in part and denied in part defendants’ motion to dismiss the second amended complaint, without prejudice. Plaintiff filed its motion for class certification on October 30, 2020, which motion remains pending. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations.

On September 15, 2017, October 24, 2017, October 27, 2017 and October 30, 2017, Company shareholders filed derivative lawsuits against certain of the Company’s current and former officers and directors and the Company (as nominal defendant) in the United States District Court for the District of New Jersey (the “Derivative Suits”). On May 24, 2018, the Court consolidated the Derivative Suits and appointed Lisa LeBoeuf as lead plaintiff. The lead plaintiff designated as the Operative Complaint the complaint she previously had filed on October 27, 2017. On March 11, 2019, the defendants filed a motion to dismiss the Operative Complaint, which the Court granted in substantial part on November 26, 2019. On December 10, 2019,
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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 defendants filed a motion for reconsideration respecting the only claim to survive the motion to dismiss. On June 12, 2020, the Court granted the defendants’ motion for reconsideration and dismissed the remaining claim without prejudice, allowing lead plaintiff leave to amend her complaint. On July 13, 2020, lead plaintiff filed an amended complaint. The amended complaint alleges claims related to breaches of fiduciary duties and unjust enrichment. The amended complaint’s allegations relate to substantially the same facts as those underlying the Securities Law Action described above. On April 30, 2021, the Court dismissed Plaintiff’s amended complaint in its entirety. Plaintiff filed a notice of appeal on May 28, 2021. Due to the inherent uncertainties of litigation, including a potential appeal, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on our financial position or results of operations.

On March 7, 2019, Synchronoss shareholders, Beth Daniel and Juan Solis, filed a separate derivative lawsuit against certain of the Company’s current and former officers and directors and the Company (as nominal defendant) in the Court of Chancery of the State of Delaware, asserting substantially the same allegations as those underlying the Derivative Suits and the Securities Law Action described above. Plaintiffs seek unspecified damages and for the Company to take steps to improve its corporate governance and internal procedures. On May 20, 2019, the parties stipulated to a stay of the action pending a ruling on the pending motion to dismiss in the Derivative Suits. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on our financial position or results of operations.

On June 11, 2020 and June 12, 2020, Company shareholders filed derivative lawsuits against certain of the Company’s current and former officers and directors and the Company (as nominal defendant) in the United States District Court for the District of New Jersey (the “Demand Refused Derivative Complaints”). The Demand Refused Derivative Complaints allege claims related to breaches of fiduciary duty, unjust enrichment, and alleged violations of securities laws. The complaints’ allegations relate substantially to the same facts as those underlying the Securities Law Action described above. The Demand Refused Derivative Complaints further allege that each plaintiff made a demand upon the Company’s Board of Directors to investigate the alleged misconduct and that such demand was wrongfully refused. Plaintiffs seek unspecified damages and for the Company to take steps to improve its corporate governance and internal procedures. On October 20, 2020, the Court consolidated the actions and appointed co-lead plaintiffs. On December 4, 2020, co-lead plaintiffs filed a consolidated amended complaint. On February 3, 2021, the defendants filed motions to dismiss the amended complaint, which remain pending before the Court. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations.

On May 7, 2021, a mediation took place concerning the Securities Law Action and all of the derivative actions. The Company and the parties to those actions are in the process of seeking to finalize a settlement of all claims.

On June 22, 2021, the Securities and Exchange Commission (“SEC”) staff notified the Company that the staff has made a preliminary determination to recommend that the SEC initiate an enforcement action against the Company in connection with certain financial transactions that the Company effected in 2015 and 2016 and its disclosure of and accounting for such transactions, which the Company restated in the third quarter of 2018 in its restated annual and quarterly financial statements for 2015 and 2016. That restatement followed the Company’s announcement, on June 13, 2017 (the “June 2017 Announcement”), that certain of its prior financial statements would need to be restated. Certain individuals, including certain current and former members of Synchronoss' management team, received similar notifications. The Company is in discussions with the SEC staff regarding the prospect of resolving this matter through settlement. If the Company is unable to resolve this matter through settlement then it would expect to receive a “Wells notice” from the SEC staff in connection with this matter. Although a Wells notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law, it is a formal notice that the SEC has made a preliminary determination to bring an enforcement action against the recipient. Upon receipt of a Wells notice, the recipient has the opportunity to respond to the SEC staff’s position before any formal enforcement action is taken.

In the third quarter of 2017, the SEC and Department of Justice initiated investigations in connection with the June 2017 Announcement and certain transactions that the Company restated in the third quarter of 2018. The Company has received subpoenas, produced documents, and provided additional information to the government in connection with those investigations.
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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)

Due to the inherent uncertainties of government investigations, the Company cannot predict the outcome of these government investigations or the SEC staff’s preliminary determination at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position, prospects or results of operations. It is possible that the ultimate amount of the Company’s liability could be higher than its current reserve.

Except as set forth above, the Company is not currently subject to any legal proceedings that could have a material adverse effect on its operations; however, it may from time to time become a party to various legal proceedings arising in the ordinary course of its business. The Company is currently the plaintiff in several patent infringement cases. The defendants in several of these cases have filed counterclaims. Although the Company cannot predict the outcome of the cases at this time due to the inherent uncertainties of litigation, the Company continues to pursue its claims and believes that the counterclaims are without merit, and the Company intends to defend against all of such counterclaims.

14. Additional Financial Information

Other Income, net

The following table sets forth the components of included in the Other Income, net included in the Condensed Consolidated Statements of Operations:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
FX gains (losses)1
$969 $315 $(2,304)$101 
Government refunds552 552 
Income from sale of intangible assets2
550 321 550 2,164 
Other3
52 179 (71)241 
Total$1,576 $1,367 $(1,820)$3,058 
________________________________
1 Fair value of foreign exchange gains and losses
2 Represents gain on sale of certain of the Company’s IP addresses and Patents
3 Represents an aggregate of individually immaterial transactions
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included in Item 1 “Financial Information” of this Form 10-Q.

The words “Synchronoss,” “we,” “our,” “ours,” “us,” and the “Company” refer to Synchronoss Technologies, Inc. and its consolidated subsidiaries. This quarterly report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management based on information currently available to our management. Use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “hopes,” “should,” “continues,” “seeks,” “likely” or similar expressions, indicate a forward-looking statement. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions, including, but not limited to, risks, uncertainties and assumptions relating to the duration and severity of the COVID-19 pandemic and its impact on our business and financial performance. Actual results may differ materially from the forward-looking statements we make. We caution investors not to place substantial reliance on the forward-looking statements included in this quarterly report. These statements speak only as of the date of this quarterly report, and we undertake no obligation to update or revise the statements in light of future developments. All numbers are expressed in thousands unless otherwise stated.

Overview

Synchronoss Technologies, Inc. (“Synchronoss” or the “Company”) is a global software and services company that provides essential technologies for the mobile transformation of business. The Company’s portfolio 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 the Company’s customers 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 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 its solutions and services directly through its sales organizations in North America, Europe and Asia-Pacific.

Impacts of COVID-19

Although COVID-19 has not significantly affected our business to date, this disclosure discusses the actions the Company has taken in response to the COVID-19 crisis and the impacts that the situation has had on our business, as well as related known or expected trends.

The continued impact of COVID-19 on the macroeconomy and our business will depend significantly on the effectiveness and distribution of the vaccine, the potential cyclicality of the health crisis and the related public policy actions, market or regulatory needs or demands, the length and severity of the global economic slowdown, and whether and how our customers change their behaviors over the longer term. As a result, the demand for our products and services, as well as our overall results
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of operations, may be materially and adversely impacted by the pandemic for the duration of 2021 or longer, and we are unable to predict the duration or degree of such impact with any certainty.

In response to the ongoing COVID-19 pandemic, we continue to execute our business continuity plans and evolve our operations to protect the safety of our employees while continuing to provide critical products and services to our customers. Some of the key initiatives the Company continues to execute include:

Working safely and effectively with new and existing customers to continue to provide our products and services through the pandemic
Continuing to enhance and modify our safety protocols for our employees
Adjusting business operations to address circumstances created by COVID-19
Maintaining effective governance and internal controls in a remote work environment

As the pandemic continues, we may revise our approach to these initiatives or take additional actions to meet the needs of our employees, customers and the Company and to continue to provide our products and services.

Revenues

We generate most of our revenues on a per transaction or subscription basis, which is derived from contracts that extend up to 60 months from execution.

The future success of our business depends on the continued growth of Business-to-Business and Business-to-Business-to-Consumer driving customer transactions, and continued expansion of our platforms into the TMT Market globally through Cloud, Messaging and Digital markets. As such, the volume of transactions and our ability to expand our footprint in TMT and globally may result in revenue fluctuations on a quarterly basis.

Most of our revenues are recorded in U.S. dollars but as we continue to expand our footprint with international carriers, we will become subject to currency translation that could affect our future net sales as reported in U.S. dollars.

Our top five customers accounted for 70.2% and 69.6% of net revenues for the six months ended June 30, 2021 and June 30, 2020, respectively. Contracts with these customers typically run for three to five years. Of these customers, Verizon accounted for more than 10% of our revenues in 2021 and 2020. The loss of Verizon as a customer would have a material negative impact on our company. However, we believe that the costs incurred and subscriber disruption by Verizon to replace Synchronoss’ solutions would be substantial.

Current Trends Affecting Our Results of Operations

As the COVID-19 pandemic continues to evolve, we are actively monitoring the global situation. The extent of the continuing impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, impact on our business operations, impact on our customer, employee or industry events, and effect on our vendors, all of which are uncertain and cannot be predicted. The extent to which the COVID-19 pandemic may continue to impact our business, financial condition or results of operations is uncertain, but may include, without limitation, impacts to our paying user growth as well as disruptions to our business operations as a result of travel restrictions, shutdown of workplaces and potential impacts to our vendors. Additionally, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates relative to U.S. dollars, our reporting currency, as well as changes in interest rates. Volatile market conditions arising from the COVID-19 pandemic have and may continue to negatively impact our results of operations and cash flows, due to a weakening of foreign currencies relative to the U.S. dollar, which may cause our revenues to decline relative to our costs.

Business from our Synchronoss Personal Cloud™ solution has been driven by the growth in mobile devices globally that are becoming content rich. As these devices replace other traditional devices like PCs, the ability to securely back up content from mobile devices, sync it with other devices and share it with family, friends and business associates have become essential needs and subscriber expectations. Such devices include smartphones, connected cars, personal health and wellness devices and
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connected home devices. The need for the contents of these devices to be stored in a common cloud are also expected to be drivers of our business in the longer term.
 
Business from our traditional Synchronoss Messaging business (Email) has been driven by a resurgence in the need for white label secure messaging platforms that favor the Mobile Network Operator’s (“MNO”) business objectives and are not beholden to the objectives of a sponsoring over-the-top (“OTT”) platform. We believe that messaging drives higher subscriber engagement than any other application in the market today and holds the potential to stimulate new revenue from traditional services and third-party brands. OTT global success has driven MNOs to look at opportunities to preempt and compete with the OTTs which has potential opportunity for Synchronoss’ future growth to be driven by the need of TMT companies including (and especially) MNOs to embrace Messaging as a Platform (“MaaP”). MaaP will allow TMT and MNO’s to converse with subscribers in an efficient, automated way by streamlining the costs and increasing the effectiveness of self-care, as well as yielding cross-sell upselling of service plans, devices, bundles, etc. The Synchronoss Advanced Messaging Platform provides state of the art RCS-driven features including the ability to support advanced Peer to Peer communications and introduce new revenue streams driven by commerce and advertising via Application-to-Person capabilities.
 
Companies in the TMT market all face the dilemma of attempting to pivot their businesses to digital execution in order to create experiences that meet the expectations of their subscribers, generate new revenues and streamline costs creating healthier margins at a faster time to market than they have ever operated before. Their challenges feature the lack of skill sets to conceptualize and run day to day digital operations and the lack of resources to integrate their legacy back end systems to enact digital experiences that achieve their business objectives. The growth of Synchronoss Digital Platforms will be driven by the ability to provide TMT companies’ desire to obtain digital transformation solutions as quickly as possible while educating them on the ability to operate a digital business efficiently. Our Platform as a Service (“PaaS”) model provides a desirable alternative to heavy capital expenditure spending options often tried internally. The ability for our platforms to create low/no code, new customer digital journeys, virtually on the fly, gives TMT Companies the ability to operate new experiences and businesses without heavily investing in development resources.
 
To support our growth, which we expect to be driven by these favorable industry trends mentioned above, we will leverage modular components from our existing software platforms to build new products. We believe that these opportunities will continue to provide future benefits and position us for future revenue growth. We are also making investments in research and development of new products designed to enable us to grow rapidly in the mobile wireless market. Our purchase of capital assets and equipment may also increase based on aggressive deployment, subscriber growth and promotional offers for free or bundled storage by our major Tier 1 carrier customers.
 
We continue to expand our platforms into the converging TMT, MNO, and Digital spaces to enable connected devices to do more things across multiple networks, brands and communities. Our initiatives with our customers continue to grow both with regard to our current business as well as our new product offerings. We are also exploring additional opportunities to support our customer, product and geographic diversification strategies.

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Discussion of the Condensed Consolidated Statements of Operations

Three months ended June 30, 2021 compared to the three months ended June 30, 2020

The following table presents an overview of our results of operations for the three months ended June 30, 2021 and 2020 (in thousands):
Three Months Ended June 30, 20212021 vs 2020
20212020$ Change 
Net revenues$71,532 $76,535 $(5,003)
Cost of revenues1
27,142 29,480 (2,338)
Research and development17,197 19,096 (1,899)
Selling, general and administrative21,909 24,640 (2,731)
Restructuring charges877 4,493 (3,616)
Depreciation and amortization8,485 10,284 (1,799)
Total costs and expenses75,610 87,993 (12,383)
Loss from continuing operations$(4,078)$(11,458)$7,380 
________________________________
1    Cost of revenues excludes depreciation and amortization which are shown separately.

Net revenues decreased $5.0 million to $71.5 million for the three months ended June 30, 2021, compared to the same period in 2020. The decrease in revenue is primarily attributable to non-recurring license sales and one-time professional services in the prior period and the accounting treatment of deferred revenue due to a customer renewal as per ASC 606, which was signed in in the third quarter of fiscal 2020. These changes were partially offset by growth in cloud subscribers and the acceleration of subscription revenue from the dissolution of a previous customer.

Cost of revenues decreased $2.3 million to $27.1 million for the three months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to the year over year reduction in revenue and the cost savings from strategic initiatives implemented in the year driven mainly by data center consolidation and operating expense savings.

Research and development expense decreased $1.9 million to $17.2 million for the three months ended June 30, 2021, compared to the same period in 2020. The research and development costs decreased year over year mainly as a result of executed cost savings initiatives to streamline our workforce and reduce vendor spend.

Selling, general and administrative expense decreased $2.7 million to $21.9 million for the three months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to significant cost cutting initiatives executed in year which included headcount reductions, reduced vendor spending and lower facility costs.

Restructuring charges were $0.9 million and $4.5 million for the three months ended June 30, 2021 and 2020, respectively, which primarily related to employment termination costs as a result of the work-force reductions initiated in the current year to reduce operating costs and align our resources with our key strategic priorities.

Depreciation and amortization expense decreased $1.8 million to $8.5 million for the three months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to the expiration of amortizable acquired assets in combination with reduced capital expenditures mainly as a result of the data center consolidation project and efforts to streamline business operations, partially offset by the increased amortization of capitalized software.

Income tax. The Company recognized approximately $0.2 million and $8.0 million in related income tax benefit during the three months ended June 30, 2021 and 2020, respectively. The effective tax rate was approximately 7.7% for the three months ended June 30, 2021, which was lower than the U.S. federal statutory rate primarily due to pre-tax losses in jurisdictions where full valuation allowances have been recorded, and in zero rate jurisdictions, and discrete tax benefits associated with the release of certain uncertain tax benefit reserves, partially offset by certain foreign jurisdictions projecting current income tax expense. The Company’s effective tax rate was approximately 92.0% for the three months ended June 30, 2020, which was
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higher than the U.S. federal statutory rate primarily due to the Company’s ability to recognize certain loss carrybacks as a result of the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in the first quarter of 2020, the impact of the redemption of the Company’s interest in STIN and valuation allowances recorded in domestic and foreign jurisdictions, partially offset by the impact of permanent book-tax differences.

Discussion of the Condensed Consolidated Statements of Operations

Six months ended June 30, 2021 compared to the six months ended June 30, 2020

The following table presents an overview of our results of operations for the six months ended June 30, 2021 and 2020 (in thousands):
Six Months Ended June 30,$ Change
20212020$ Change 
Net revenues$137,031 $153,657 $(16,626)
Cost of revenues1
55,779 64,951 (9,172)
Research and development34,594 38,884 (4,290)
Selling, general and administrative39,837 50,984 (11,147)
Restructuring charges1,590 5,943 (4,353)
Depreciation and amortization18,352 21,640 (3,288)
Total costs and expenses150,152 182,402 (32,250)
Loss from continuing operations$(13,121)$(28,745)$15,624 
________________________________
1    Cost of revenues excludes depreciation and amortization which are shown separately.

Net revenues decreased $16.6 million to $137.0 million for the six months ended June 30, 2021, compared to the same period in 2020. The decrease in revenue is primarily attributable to non-recurring license sales and one-time professional services in the prior period and the accounting treatment of deferred revenue due to a customer renewal as per ASC 606, which was signed in in the third quarter of fiscal 2020. These changes were partially offset by growth in cloud subscribers and the acceleration of subscription revenue from the dissolution of a previous customer.

Cost of revenues decreased $9.2 million to $55.8 million for the six months ended June 30, 2021, compared to the same period in 2020.  The 2021 decrease was primarily due to cost savings initiatives implemented by the Company. These initiatives resulted in a significant decrease in cost of revenues driven mainly by data center consolidation and operating expense savings.

Research and development expense decreased $4.3 million to $34.6 million for the six months ended June 30, 2021, compared to the same period in 2020. The research and development costs decreased year over year mainly as a result of executed cost savings initiatives to streamline our workforce and reduce vendor spend.

Selling, general and administrative expense decreased $11.1 million to $39.8 million for the six months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily driven by cost savings initiatives that resulted in a decrease in employee costs, facilities, and external costs related to outside consultants and legal fees.

Restructuring charges decreased $4.4 million to $1.6 million for the six months ended June 30, 2021, compared to the same period in 2020, which primarily related to employment termination costs as a result of the work-force reductions initiated in the current year to reduce operating costs and align our resources with our key strategic priorities.

Depreciation and amortization expense decreased $3.3 million to $18.4 million for the six months ended June 30, 2021, compared to the same period in 2020. The 2021 decrease was primarily attributable to the expiration of amortizable acquired assets in combination with reduced capital expenditures mainly as a result of the data center consolidation project and efforts to streamline business operations, partially offset by the increased amortization of capitalized software.

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Income tax. The Company recognized approximately $0.4 million and $20.4 million in related income tax benefit during the six months ended June 30, 2021 and 2020, respectively. The effective tax rate was approximately 2.4% for the six months ended June 30, 2021, which was lower than the U.S. federal statutory rate primarily due to pre-tax losses in jurisdictions where full valuation allowances have been recorded, pre-tax losses in jurisdictions which have a zero tax rate, and certain foreign jurisdictions projecting current income tax expense. During the period, the Company also recognized a discrete income tax benefit associated with the release of certain reserves for uncertain tax benefits. The Company’s effective tax rate was approximately 83.5% for the six months ended June 30, 2020, which was higher than the U.S. federal statutory rate primarily due to the Company’s ability to recognize certain loss carrybacks as a result of the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in the first quarter 2020, the impact of the redemption of the Company’s interest in STIN and valuation allowances recorded in domestic and foreign jurisdictions, partially offset by the impact of permanent book-tax differences. The Company continues to consider all available evidence, including historical profitability and projections of future taxable income together with new evidence, both positive and negative, that could affect the view of the future realization of deferred tax assets. As a result of the assessment, no change was recorded by the Company to the valuation allowance during the six months ended June 30, 2021.

Liquidity and Capital Resources

As of June 30, 2021, our principal sources of liquidity were cash provided by operations and the remaining proceeds from the financing transactions. Our cash and cash equivalents balance was $32.6 million at June 30, 2021. We anticipate that our principal uses of cash and cash equivalents will be to fund our business, including technology expansion and working capital.

At June 30, 2021, our non-U.S. subsidiaries held approximately $6.9 million of cash and cash equivalents that are available for use by our operations around the world. At this time, we believe the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S. However, if these funds were repatriated to the U.S. or used for U.S. operations, certain amounts could be subject to U.S. tax for the incremental amount in excess of the foreign tax paid. Due to the timing and circumstances of repatriation of these earnings, if any, it is not practical to determine the unrecognized deferred tax liability related to the amount.

We believe that our existing cash, cash equivalents, and our ability to manage working capital and expected positive cash flows generated from operations in combination with continued expense reductions will be sufficient to fund our operations for the next twelve months from the filing date of this Form 10-Q based on our current business plans. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. Given the economic uncertainty as a result of the pandemic, we have taken actions to improve our current liquidity position, including, reducing working capital, reducing operating costs and substantially reducing discretionary spending. Even with these actions however, an extended period of economic disruption as a result of the continued global impact of COVID-19 could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition. Our liquidity plans are subject to a number of risks and uncertainties, including those described in the "Forward-Looking Statements" section of this MD&A and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, some of which are outside of our control.

Redemption of Series A Preferred Stock

The net proceeds from our public offering of common stock, Senior Note offering and the Series B Preferred Stock transaction was used in part to fully redeem all outstanding shares of Series A Preferred Stock on June 30, 2021 (the “Redemption”).

For further details, see Note 7. Debt and Note 9. Stockholders’ Equity of the Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

Series B Preferred Stock

On June 30, 2021, we closed a private placement of 75,000 shares of or Series B Preferred Stock, for an aggregate purchase price of $75.0 million. The holders of the Series B Preferred Stock are entitled to receive, on each share of Series B Preferred Stock on a quarterly basis, an amount equal to the dividend rate, as described in the following sentence, divided by four and multiplied by the then-applicable Liquidation Preference (as defined in the Series B Certificate) per share of Series B Preferred
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Stock (collectively, the “Preferred Dividends”). The dividend rate is (1) 9.5% per annum for the period commencing on June 30, 2021 and ending on and including December 31, 2021, (2) 13% per annum for the year commencing on January 1, 2022 and ending on and including December 31, 2022; and (3) 14% per annum for the year commencing on January 1, 2023 and thereafter. The Preferred Dividends will be due in cash on January 1, April 1, July 1 and October 1 of each year (each, a “Series B Dividend Payment Date”). The Company may choose to pay the Series B Preferred Dividends in cash or in additional shares of Series B Preferred Stock. In the event Synchronoss does not declare and pay a dividend in cash on any Series B Dividend Payment Date, the unpaid amount of the Preferred Dividend will be added to the Liquidation Preference.

On and after the fifth anniversary of the date of issuance, holders of shares of Series B Preferred Stock will have the right to cause Synchronoss to redeem each share of Series B Preferred Stock for cash in an amount equal to the sum of the current liquidation preference and any accrued dividends. Each share of Series B Preferred Stock will also be redeemable at the option of the holder upon the occurrence of a “Fundamental Change” (as that term is defined in the Series B Certificate) at (i) par in the case of a payment in cash or (ii) 1.5 times par in the case of payment in shares of Common Stock (such shares being, “Registrable Securities”), subject to certain limitations on the amount of stock that could be issued to the holders of Series B Stock. In addition, the Company will be permitted to redeem outstanding shares of the Series B Preferred Stock at any time for the sum of the then-applicable Liquidation Preference and the accrued but unpaid dividends. Pursuant to the Series B Certificate, Synchronoss will be required to use (i) the first proceeds $50.0 million of proceeds from certain transactions (i.e., disposition, sale of assets, tax refunds) received by the Company to redeem for cash, shares of Series B Preferred Stock, on a pro rata basis among each holder of Series B Preferred Stock and (ii) the next $25.0 million of proceeds from certain transactions received by the Company may be used by the Company to buy back shares of Common Stock, and to the extent, not used for such purpose by the Company, to redeem, for cash, shares of Series B Preferred Stock, on a pro rata basis among each holder of Series B Preferred Stock.

Revolving Credit Facility

We repaid in full and closed our Revolving Credit Facility as of June 30, 2021. For further details, see Note 7. Debt of the Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

Shelf Registration Statement

On August 19, 2020, the Company filed a universal shelf registration statement with the SEC for the issuance of common stock, preferred stock, debt securities, guarantees of debt securities, warrants and units up to an aggregate amount of $250.0 million (“the 2020 Shelf Registration Statement”). On August 28, 2020, the 2020 Shelf Registration Statement was declared effective by the SEC. As of June 30, 2021, except for the Common Stock offering and the issuance of Senior Notes, the Company has not raised additional capital using the 2020 Shelf Registration Statement.


Discussion of Cash Flows

A summary of net cash flows follows (in thousands):
Six Months Ended June 30,Change
202120202021 vs 2020
Net cash provided by (used in):
Operating activities$8,167 $1,608 $6,559 
Investing activities(11,659)(6,934)(4,725)
Financing activities2,687 9,991 (7,304)

Our primary source of cash is receipts from revenue. The primary uses of cash are personnel and related costs, telecommunications and facility costs related primarily to our cost of revenue and general operating expenses including professional service fees, consulting fees, building and equipment maintenance and marketing expense.

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Cash flows from operating activities for the six months ended June 30, 2021 was $8.2 million cash provided by operating activities, as compared to $1.6 million of cash provided by operating activities for the same period in 2020. The increase in cash provided by operations from the prior year is primarily attributable to favorable changes in working capital.

Cash flows from investing for the six months ended June 30, 2021 was $11.7 million cash used in investing, as compared to $6.9 million in cash used in investing activities during the same period in 2020. The cash used for investing in the current year was primarily related to the purchase of fixed assets and investment in capitalized software. The net decrease in cash used for investing in the prior year was primarily related to the investment in capitalized software offset by the sale of certain IP address assets.

Cash flows from financing for the six months ended June 30, 2021 was $2.7 million of cash provided, as compared to $10.0 million of cash provided by financing activities for the same period in 2020. In 2021, the net proceeds from our public offering of common stock, Senior Note offering and Series B Preferred Stock transaction was primarily used to fully redeem all outstanding shares of the Company’s Series A Preferred Stock and repay and close the Revolving Credit Facility on June 30, 2021. The cash provided from financing activities in the prior year was attributable to the drawdown from our Revolving Credit Facility.

Effect of Inflation

Although inflation generally affects us by increasing our cost of labor and equipment, we do not believe that inflation has had any material effect on our results of operations during the three or six months ended June 30, 2021 and 2020. We do not expect the current rate of inflation to have a material impact on our business.

Contractual Obligations
Our contractual obligations consist of contingent consideration, office equipment and colocation services and contractual commitments under third-party hosting, software licenses and maintenance agreements. The following table summarizes our long-term contractual obligations as of June 30, 2021 (in thousands).

Payments Due by Period
Total20212022-20242025-2026Thereafter
Capital lease obligations $804 $131 $599 $74 $— 
Operating lease obligations60,868 6,145 27,892 16,268 10,563 
Purchase obligations1
57,802 5,529 42,574 9,699 — 
8.375% Senior Notes due 2026125,000 — — 125,000 — 
Total$244,474 $11,805 $71,065 $151,041 $10,563 
_______________________________
1    Amount represents obligations associated with colocation agreements and other customer delivery related purchase obligations.

Uncertain Tax Positions

Unrecognized tax positions of $2.6 million at June 30, 2021 are excluded from the table above as we are not able to reasonably estimate when we would make any cash payments required to settle these liabilities, but we do not believe that the ultimate settlement of our obligations will materially affect our liquidity. We anticipate that the balance of unrecognized tax benefits will decrease by approximately $0.6 million over the next twelve months.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements in accordance with U.S. GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities,
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the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during a fiscal period. The SEC considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application.

These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including but not limited to the potential impacts continuing to arise from COVID-19 and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See Part II, “Item 1A. Risk Factors” in this Form 10-Q for certain matters bearing risks on our future results of operations.

During the six months ended June 30, 2021, there were no significant changes in our critical accounting policies and estimates discussed in our Form 10-K for the year ended December 31, 2020. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 for a more complete discussion of our critical accounting policies and estimates.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards see Note 2. Basis of Presentation and Consolidation included in Part I, Item 1. “Notes to Condensed Consolidated Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q.


Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of June 30, 2021 and December 31, 2020 that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The following discussion about market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We deposit our excess cash in what we believe are high-quality financial instruments, primarily money market funds and certificates of deposit and, we may be exposed to market risks related to changes in interest rates. We do not actively manage the risk of interest rate fluctuations on our marketable securities; however, such risk is mitigated by the relatively short-term nature of these investments. These investments are denominated in United States dollars.

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations, while at the same time maximizing the income, we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short- and long-term investments in a variety of securities, which could include commercial paper, money market funds and corporate and government debt securities. Our cash, cash equivalents and marketable securities at June 30, 2021 and December 31, 2020 were invested in liquid money market accounts, certificates of deposit and government securities. All market-risk sensitive instruments were entered into for non-trading purposes.

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Foreign Currency Exchange Risk

We are exposed to translation risk because certain of our foreign operations utilize the local currency as their functional currency and those financial results must be translated into U.S. dollars. As currency exchange rates fluctuate, translation of the financial statements of foreign businesses into U.S. dollars affects the comparability of financial results between years.

We do not hold any derivative instruments and do not engage in any hedging activities. Although our reporting currency is the U.S. dollar, we may conduct business and incur costs in the local currencies of other countries in which we may operate, make sales and buy materials and services. As a result, we are subject to foreign currency transaction risk. Further, changes in exchange rates between foreign currencies and the U.S. dollar could affect our future net sales, cost of sales and expenses and could result in foreign currency transaction gains or losses.

We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and financial condition. To the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase and hedging activities may be considered if appropriate.

Interest Rate Risk

We are exposed to the risk of interest rate fluctuations on the interest income earned on our cash and cash equivalents. A hypothetical 100 basis point movement in interest rates applicable to our cash and cash equivalents outstanding at June 30, 2021 would increase interest income by approximately $0.3 million on an annual basis.
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ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this quarterly report, that ensure that information relating to the registrant which is required to be disclosed in this report is recorded, processed, summarized and reported within required time periods using the criteria for effective internal control established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the registrant’s disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

For a discussion of our material pending legal proceedings that could impact our results of operations, financial condition or cash flows see Note 13. Commitments, Contingencies and Other included in Part I, Item 1. “Notes to Condensed Consolidated Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

Other than set forth below, there have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Risks Related to our Senior Notes, Series B Preferred Stock and Common Stock

We are subject to investigations relating to certain transactions in 2015 and 2016 that resulted in the restatement of our financial statements in 2018, and the Securities and Exchange Commission staff has preliminarily determined to recommend the initiation of an enforcement action against us in connection with that matter.

On June 22, 2021, the SEC staff notified us that it has made a preliminary determination to recommend that the SEC initiate an enforcement action against us in connection with certain financial transactions that we effected in 2015 and 2016 and our disclosure of and accounting for such transactions, which we restated in the third quarter of 2018 in our restated annual and quarterly financial statements for 2015 and 2016. That restatement followed our announcement on June 13, 2017 (the “June 2017 Announcement”), that certain of our prior financial statements would need to be restated. Certain individuals, including certain current and former members of our management team, received similar notifications. We are in discussions with the SEC staff regarding the prospect of resolving this matter through settlement. If we are unable to resolve this matter through settlement then we would expect to receive a “Wells notice” from the SEC staff in connection with this matter. Although a Wells notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law, it is a formal notice that the SEC intends to bring an enforcement action against the recipient. Upon receipt of a Wells notice, the recipient has the opportunity to respond to the SEC staff’s position before any formal enforcement action is taken.

In the third quarter of 2017, the SEC and Department of Justice initiated investigations in connection with the June 2017 Announcement and certain transactions that we restated in the third quarter of 2018. We have received subpoenas, produced documents, and provided additional information to the government in connection with those investigations.

At this time, we cannot predict with certainty what the outcome of these government investigations or the SEC staff’s preliminary determination might be, but they could have a material adverse impact on our financial position, prospects and results of operations.

Downgrades in our credit ratings may increase our future borrowing costs, limit our ability to raise capital, cause our stock price to decline or reduce analyst coverage, any of which could have a material adverse impact on our business.

Credit rating agencies review their ratings periodically and, therefore, the credit rating assigned to us by each of the rating agencies may be subject to revision at any time. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, our financial position, conditions in and periods of disruption in any of our principal markets and changes in our business strategy. If weak financial market conditions or competitive dynamics cause any of these factors to deteriorate, we could see a reduction in our corporate credit rating. Since investors, analysts and financial institutions often rely on credit ratings to assess a company’s creditworthiness and risk profile, make investment decisions and establish threshold requirements for investment guidelines, our ability to raise capital, our access to external financing, our stock price and analyst coverage of our stock could be negatively impacted by a downgrade to our credit rating.

Our current or future debt securities or preferred equity securities, which would be senior to our common stock, may adversely affect the market price of our common stock.

Our Senior Notes and Series B Preferred Stock are senior to our common stock. In addition, in the future, we may attempt to increase our capital resources by offering debt or preferred equity securities, including medium term notes, senior or
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subordinated notes and classes of preferred stock. Debt securities or shares of preferred stock will generally be entitled to receive interest payments or distributions, both current and in connection with any liquidation or sale, prior to the holders of our common stock. We are not required to offer any such additional debt or preferred equity securities to existing common stockholders on a preemptive basis, and we may generally issue any such debt or preferred equity securities in the future without obtaining the consent of our common stockholders. As a result, any such future offerings of debt securities or preferred equity securities may adversely affect the market price of the common stock.

B. Riley Securities, Inc. and its affiliates (“BRS”) have significant influence over us and may have conflicts of interest that arise out of future contractual relationships it or its affiliates may have with us.

As of June 30, 2021, BRS owned 19.2% of our outstanding common stock and all of our Series B Preferred Stock. As a result, BRS holds significant influence over us as a significant shareholder and may have conflicts of interest that arise out of current or future contractual relationships it or its affiliates may have with us. In addition, for so long as BRS and its affiliates beneficially own at least 10% of our outstanding common stock, BRS will have the right to nominate one member of our board of directors pursuant to an investor rights agreement.

As a result of the foregoing arrangements, BRS has significant influence over our management and policies and over all matters requiring shareholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. Further, if BRS and other significant shareholders of the Company were to act together on any matter presented for shareholder approval, they could have the ability to control the outcome of that matter. BRS can take actions that have the effect of delaying or preventing a change of control of us or discouraging others from making tender offers for our shares, which could prevent shareholders from receiving a premium for their shares. These actions may be taken even if other shareholders oppose them.

We may be able to incur substantially more debt, which could have important consequences to investors.

We may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing the Senior Notes does not prohibit us from doing so. If we incur any additional indebtedness that ranks equally with the Senior Notes, the holders of that debt will be entitled to share ratably with you in any proceeds distributed in connection with any insolvency, liquidation, reorganization or dissolution. This may have the effect of reducing the amount of proceeds paid to investors. Incurrence of additional debt would also further reduce the cash available to invest in operations, as a result of increased debt service obligations. If new debt is added to our current debt levels, the related risks that we now face could intensify.

Our level of indebtedness could have important consequences to investors, because:
it could affect our ability to satisfy our financial obligations, including those relating to the Senior Notes;
a substantial portion of our cash flows from operations would have to be dedicated to interest and principal payments and may not be available for operations, capital expenditures, expansion, acquisitions or general corporate or other purposes;
it may impair our ability to obtain additional debt or equity financing in the future;
it may limit our ability to refinance all or a portion of our indebtedness on or before maturity;
it may limit our flexibility in planning for, or reacting to, changes in our business and industry; and
it may make us more vulnerable to downturns in our business, our industry or the economy in general.

Our operations may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on the Senior Notes, we could be in default on the Senior Notes, and this default could cause us to be in default on other indebtedness, to the extent outstanding. Conversely, a default under any other indebtedness, if not waived, could result in acceleration of the debt outstanding under the related agreement and entitle the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder. In addition, such default or acceleration may result in an event of default and acceleration of other indebtedness of the Company, entitling the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder. If a judgment is obtained by any such holders, such holders could seek to collect on such judgment from the assets of the Company. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us.

However, no event of default under the Senior Notes would result from a default or acceleration of, or suit, other exercise of remedies or collection proceeding by holders of, our other outstanding debt, if any. As a result, all or substantially all of our
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assets may be used to satisfy claims of holders of our other outstanding debt, if any, without the holders of the Senior Notes having any rights to such assets.

The Senior Notes are unsecured and therefore are effectively subordinated to any secured indebtedness that we currently have or that we may incur in the future.

The Senior Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the Senior Notes are effectively subordinated to any secured indebtedness that we or our subsidiaries have currently outstanding or may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. The indenture governing the Senior Notes does not prohibit us or our subsidiaries from incurring additional secured (or unsecured) indebtedness in the future. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness and may consequently receive payment from these assets before they may be used to pay other creditors, including the holders of the Senior Notes.

The Senior Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The Senior Notes are obligations exclusively of Synchronoss Technologies, Inc. and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Senior Notes, and the Senior Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Therefore, in any bankruptcy, liquidation or similar proceeding, all claims of creditors (including trade creditors) of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Senior Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Senior Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. The indenture governing the Senior Notes does not prohibit us or our subsidiaries from incurring additional indebtedness in the future. In addition, future debt and security agreements entered into by our subsidiaries may contain various restrictions, including restrictions on payments by our subsidiaries to us and the transfer by our subsidiaries of assets pledged as collateral.

The indenture under which the Senior Notes were issued contains limited protection for holders of the Senior Notes.

The indenture under which the Senior Notes were issued offers limited protection to holders of the Senior Notes. The terms of the indenture and the Senior Notes does not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Senior Notes. In particular, the terms of the indenture and the Senior Notes do not place any restrictions on our or our subsidiaries’ ability to:

issue debt securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Senior Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Senior Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Senior Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Senior Notes with respect to the assets of our subsidiaries;
pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities subordinated in right of payment to the Senior Notes;
sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);
enter into transactions with affiliates;
create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;
make investments; or
create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

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In addition, the indenture does not include any protection against certain events, such as a change of control, a leveraged recapitalization or “going private” transaction (which may result in a significant increase of our indebtedness levels), restructuring or similar transactions. Furthermore, the terms of the indenture and the Senior Notes will not protect holders of the Senior Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity. Also, an event of default or acceleration under our other indebtedness would not necessarily result in an Event of Default under the Senior Notes.

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Senior Notes may have important consequences for you as a holder of the Senior Notes, including making it more difficult for us to satisfy our obligations with respect to the Senior Notes or negatively affecting the trading value of the Senior Notes.

Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Senior Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Senior Notes.

An increase in market interest rates could result in a decrease in the value of the Senior Notes.

In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value. We cannot predict the future level of market interest rates.

An active trading market for the Senior Notes may not develop, which could limit the market price of the Senior Notes or your ability to sell them.

The Senior Notes are listed on Nasdaq under the symbol “SNCRL”. We cannot provide any assurances that an active trading market will develop for the Senior Notes or that you will be able to sell your Notes. If the Senior Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. The underwriters of our Senior Note offering have advised us that they may make a market in the Senior Notes, but they are not obligated to do so. The underwriters may discontinue any market-making in the Senior Notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop for the Senior Notes, that you will be able to sell your Senior Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for the Senior Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Senior Notes for an indefinite period of time.

In addition, there may be a limited number of buyers when you decide to sell your Senior Notes. This may affect the price, if any, offered for your Notes or your ability to sell your Notes when desired or at all.

We may issue additional Senior Notes.

Under the terms of the indenture governing the Senior Notes, we may from time to time without notice to, or the consent of, the holders of the Senior Notes, create and issue additional notes which will be equal in rank to the Senior Notes. We will not issue any such additional Notes unless such issuance would constitute a “qualified reopening” for U.S. federal income tax purposes.

The rating for the Senior Notes could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency.

We have obtained a rating for the Senior Notes. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold the Senior Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and the rating of the Senior Notes may not reflect all risks related to us and our business, or the structure or market value of the Senior Notes. We may elect to issue other securities for which we may seek to obtain a rating in the future. If we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the Senior Notes.
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ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On June 30, 2021, we issued and sold 75,000 shares of Series B Preferred Stock, par value $0.0001 per share, with an initial liquidation preference of $1,000 per share, for an aggregate purchase price of $75.0 million (the “Series B Transaction”). The sale of the Series B Preferred Stock was pursuant to the Series B Preferred Stock Purchase Agreement, dated as of June 24, 2021 (the “Series B Purchase Agreement”), between Synchronoss and B. Riley Principal Investments, LLC (“BRPI”). The sale was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.  OTHER INFORMATION
None.

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ITEM 6.  EXHIBITS
Exhibit No.Description
3.1 
3.2 
3.3 
3.4 
3.5 
3.6 
4.1 
4.2 
4.3 
10.1†
10.2 
31.1 
31.2 
32.1 
32.2 
101.INSXBRL Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Labels Linkbase Document
101.PREXBRL Presentation Linkbase Document

__________________________________________________________
† Compensation Arrangement.

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SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Synchronoss Technologies, Inc.
/s/ Jeff Miller
Jeff Miller
Chief Executive Officer
(Principal Executive Officer)
/s/ David Clark
David Clark
Chief Financial Officer

August 9, 2021
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