Annual Report
2019
2019 Revenue and Adjusted EBITDA
Adjusted EBITDA, $Millions
$9.5
$8.5
$2.3
2017
2018
2019
Annual Revenue, $Millions*
$140.0
$144.0
$121.8
2017
2018
2019
* 2019 annual revenue includes revenue from ATT.net portal for the first nine months of the year.
Dear Fellow Shareholders,
Collaboration. Identity. Advertising. These are the
cornerstones of our business.
In 2019, while laying the foundation for go-forward growth in
our Software business, Synacor delivered the highest EBITDA
and highest margin since its IPO in 2012.
Here are just a few examples of our accomplishments, as we
continued to transform our company:
• Collaboration. Zimbra’s growth continues to be fueled by
its differentiation as a highly extensible, open core, feature-
rich and value-driven collaboration platform.
o We closed more than 1,000 new and growth
Zimbra business, government and service-provider
customer deals worldwide.
o We launched Zimbra CloudTM - our Cloud native,
state-of-the-art email and collaboration
product for Consumer and for Business.
• Identity. We further established Cloud ID in the broader
Identity and Access Management market.
o Cloud ID continues to be the benchmark
platform in the TV Everywhere space, supporting
millions of simultaneous sessions and integrating
with an increasing number of connected platforms.
o We expanded Cloud ID developer tools and its
feature set (e.g. customer lifecycle management,
home device integration).
• Advertising. We’ve significantly grown active publishers as
a result of our more diversified advertising product portfolio,
that includes video, mobile browser, native, programmatic and
server-to-server header bidding.
We also began operating the company and reporting
our financial results in two business segments - Portal &
Advertising and Software & Services, to enable deeper
operational focus, improve resource utilization, and create
clarity for our stockholders. We completed the wind-down of
ATT.net and refocused the company on growth areas, while
continuing to deliver strong EBITDA.
Thank you, our shareholders, for your ongoing support
of Synacor. In 2020, we are navigating the impact from
COVID-19, but also believe that our products are well
positioned for the needs of a distributed workforce and
accelerated digital transformation.
Sincerely,
Himesh Bhise
CEO and Director
*We define adjusted EBITDA as net loss plus: provision (benefit)
for income taxes, interest expense, other expense, depreciation
and amortization, asset impairments, loss in equity interest, stock-
based compensation, losses on disposal of property and equipment,
acquisition costs and certain one-time items, and minus gains on sales
of investments. Please see the “Adjusted EBITDA” section for more
information and for a reconciliation of adjusted EBITDA to net (loss)
income, the most directly comparable financial measure calculated
and presented in accordance with GAAP.
SYNACOR, INC. / ANNUAL REPORT 2019
Offices
Boston | Buffalo | Dallas | London
New York | Ottawa | Pune | Singapore | Tokyo
SYNACOR, INC. / ANNUAL REPORT 2019 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________
FORM 10-K
________________________________________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2019
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 001-33843
_________________________________________________________________
Synacor, Inc.
(Exact name of registrant as specified in its charter)
_________________________________________________________________
Delaware
(State or other jurisdiction
of incorporation or organization)
40 La Riviere Drive, Suite 300
Buffalo,
New York
(Address of principal executive offices)
16-1542712
(I.R.S. Employer
Identification No.)
14202
(Zip Code)
Registrant’s telephone number, including area code: (716) 853-1362
____________________________________________________________________________________________
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, $0.01 Par Value
SYNC
(voting)
The Nasdaq Stock Market LLC
(The Nasdaq Global Market)
Securities registered pursuant to Section 12(g) of the Act:
None.
(Title of Class)
_____________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
Based on the closing price of the registrant’s common stock on the last business day of the registrant’s most recently completed
second fiscal quarter, which was June 28, 2019, the aggregate market value of its shares held by non-affiliates was approximately
$49.9 million, based on the last reported sale price of the registrant’s common stock on the Nasdaq Global Market.
As of March 3, 2020, there were 39,288,515 shares of the registrant’s common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement to be used in connection with the registrant’s 2020 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K to the extent stated. That Proxy Statement will be filed within 120
days of registrant’s fiscal year ended December 31, 2019.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements that reflect our current views with
respect to future events or our future financial performance, are based on information currently available to us, and involve
known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. All statements, other than statements of historical fact, are statements that could be
deemed forward-looking statements, including statements containing the words “believes,” “can,” “expects,” “anticipates,”
“estimates,” “intends,” “objective,” “plans,” “possibly,” “potential,” “predicts,” “targets,” “likely,” “may,” “might,” “would,”
“should,” “could,” and similar expressions or phrases (including the negatives of such expressions or phrases). We intend all
such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include, but are not limited to, statements in the sections of this Annual
Report on Form 10-K titled “Trends Affecting Our Business” and “Key Initiatives” as well as statements about:
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our expected future financial performance;
our expectations regarding our operating expenses;
our strategies and business plan;
our ability to maintain or broaden relationships with existing customers and develop relationships
with new customers;
our success in anticipating market needs or developing new or enhanced services and products to
meet those needs;
our expectations regarding market acceptance of our services and products;
our ability to recruit and retain qualified technical and other key personnel;
our competitive position in our industry, as well as innovations by our competitors;
our success in managing growth;
our expansion in international markets;
our ability to successfully integrate assets and personnel from our acquisitions;
our success in identifying and managing potential acquisitions;
our capacity to protect our confidential information and intellectual property rights;
our need to obtain additional funding and our ability to obtain funding in the future on acceptable
terms; and
anticipated trends and challenges in our business and the markets in which we operate.
Any forward-looking statements contained in this Annual Report on Form 10-K are based upon our historical
performance and our current plans, estimates and expectations. The inclusion of this forward-looking information should not be
regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will
be achieved. All forward-looking statements involve risks, assumptions and uncertainties. Given these risks, assumptions and
uncertainties, you should not place undue reliance on any forward-looking statements. The occurrence of the events described,
and the achievement of the expected results, depend on many factors, some or all of which are not predictable or within our
control.
Actual results may differ materially from expected results. See “Risk Factors” and elsewhere in this Annual
Report on Form 10-K for a more complete discussion of these risks, assumptions and uncertainties and for other risks,
assumptions and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that
could cause actual results to differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could harm our results. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this Annual Report on Form 10-K might not occur, and we therefore
qualify all of our forward-looking statements by these cautionary statements. Any forward-looking statement made by us in this
Annual Report on Form 10-K speaks only as of the date on which it is made. Except as required by law, we undertake no
obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
Unless expressly indicated or the context requires otherwise, the terms “Synacor,” “Company,” “we,” “us,” and
“our” in this document refer to Synacor, Inc., a Delaware corporation, and, where appropriate, our wholly-owned subsidiaries.
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PART I
ITEM 1.
Our Business
BUSINESS
We are a digital technology company that provides email and collaboration software, cloud-based identity
management platforms, managed web and mobile portals, and advertising solutions. Our customers include communications
providers, media companies, government entities and enterprises. We are their trusted partner for enterprise software platforms
and monetization solutions that we deliver through public and private cloud software-as-a-service, software licensing, and
professional services. Our platforms enable our clients to deepen engagement with their consumers and users.
Products and Services
Cloud ID Authentication
Synacor develops and operates a cloud-based identity and access management platform for large enterprises that
runs authentication, user lifecycle management and identity security for our customer’s end users when they need to sign-in to
online applications and access their services with networked devices.
Consumers access their online services and subscription content using a myriad of devices where many find the
login process frustrating. Enterprises are challenged to handle the digital identities of tens of millions of consumers and
resiliently unlock access during online events that require thousands of verifications per second, often breaking under the load.
Synacor Cloud ID managed identity services resiliently scale to handle the largest enterprises without requiring
customers to install on-premises identity management systems. Cloud ID simplifies the end user experience by offering native
single sign on, home-based authentication and device management to reduce login friction and improve security.
Email/Collaboration
Our open and extensible Email/Collaboration platform is used by service providers, regulated entities
(government & financial institutions), enterprises, and small and medium sized businesses around the world. Branded as
Zimbra, our open-standards-based Email/Collaboration platform powers hundreds of millions of mailboxes globally through
our network of over 1,900 channel partners (value-added resellers, or VARs, and Business Service Providers, or BSPs) and
about 4,000 licensed customers. Zimbra is delivered as software-as-a-service through public and private cloud infrastructure,
and as licensed software. Our Email/Collaboration Services include white-label hosting, security and migration.
Managed Portals and Advertising
Our Managed Portals and Advertising solutions provide our customers with substantial revenue opportunities
generated by their consumers’ engagement across devices. Our Managed Portals are intended to be daily destinations for
consumers and are delivered across devices and under our customers’ own brand names. To help our customers increase their
consumers’ engagement, we deliver relevant content, such as top news, entertainment, and long and short-form video and apps,
on our Managed Portals. We have licensing and distribution agreements with a wide range of programmers and content and
service providers. In addition, consumers have the ability through our portals to manage their email and messaging, pay bills,
receive special promotions and perform other account management needs.
We monetize the online traffic generated by consumers through search advertising, digital advertising (including
video), and syndicated content on our Managed Portals. As we monetize our customers’ online traffic on our Managed Portals,
we share a portion of this revenue with our customers, resulting in a mutually beneficial partnership.
Our Strategy
Our strategy is, with operational and financial discipline, to:
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increase value for existing customers by optimizing consumer experience and monetization;
innovate on Synacor-as-a-platform for advanced services;
win new customers in current and related verticals; and
extend our product portfolio into emerging growth areas.
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Innovating on Synacor-as-a-platform for advanced services
Our Cloud ID Authentication platform is reported as having some of the highest consumer login success rates in
the industry.
In 2017, we expanded our Cloud ID relationships with content providers, service providers, OTT players, and
device manufacturers. We delivered Authentication services for HBO GO, providing, for example, authentication in connection
with the Game of Thrones’ record-breaking seventh season premiere. Additionally, Apple uses Synacor’s Authentication
services to support Apple Single Sign-On. The current wave of multichannel video programming distributors, or MVPDs,
launched by Apple are almost all running on Synacor’s Cloud ID Advanced Authentication platform. Our Authentication
services also support two of the top four OTT players including Sling TV and YouTube TV, simplifying the consumer log-in
experience.
Winning new customers in current and related verticals
We have an established presence among broadband and pay-TV providers in the U.S. and Canada. Some of these
providers use our complete suite of solutions, and others use only certain components. We view this as a growth opportunity
within our existing customer base.
In 2019, Synacor added 380 new Zimbra Email and Collaboration Suite enterprise and government customers
around the world.
Increasing value for existing customers by optimizing user experience and monetization
With respect to our Managed Portals and Advertising solutions, more than 95% of our customers’ consumers
have upgraded to our latest-generation portal. Our portal, with its engaging user experience and responsive design for desktop
and mobile web, and our mobile apps, have video threaded throughout and is designed to optimize consumer engagement and
monetization. We are also decreasing the implementation time for customers to launch our latest-generation portal.
Extending our product portfolio into emerging growth areas
We plan to capitalize on opportunities such as international expansion and delivery of business services. Through
our acquisition of the Zimbra assets we have expanded our international customer base, and we believe this represents an
opportunity to find new customers for our Managed Portals and Advertising solutions.
Technology and Operations
Technology Architecture
Our products leverage technology that is reliable, fault tolerant and scalable through the addition of more servers
as usage grows. In 2019 we invested heavily in providing these same capabilities using public cloud technologies. In addition
to the existing reliable/fault tolerant infrastructure, cloud technologies enable us to provide self-healing software, auto-scaling,
and automated deployments.
Data Center Facilities
We currently operate and maintain five data centers in regionally diverse locations and have a network operations
center that is staffed 24 hours a day, seven days a week. Our primary data centers are located in shared facilities in Allen,
Texas; Dallas, Texas; Lewis Center, Ohio; Toronto, Canada; and Watertown, Massachusetts. All systems are fully monitored
for reporting continuity and fault isolation. The data centers are each in a physically secure facility using monitoring,
environmental alarms, closed circuit television and redundant power sources. Our network operations center also is located in a
secure facility.
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Customers
Our recurring and fee-based customers consist of high-speed internet service providers along with enterprises,
government and nonprofit organizations, either directly or through resellers. Contracts with these customers typically have an
initial term of one to three years and frequently provide for one or more automatic renewal terms of one to two years each. Our
recurring and fee-based customer contracts also typically contain service level agreements that call for specific system “up
times” and 24 hours per day, seven days per week support. As of December 31, 2019, we had agreements, both directly and
indirectly through resellers, with over 120 high-speed internet service providers and over 4,000 enterprise, government and
nonprofit customers.
Our Managed Portals and Advertising customers principally consist of high-speed internet service providers,
such as Windstream, Mediacom and CenturyLink. Contracts with these customers typically have an initial term of two to three
years from the deployment of our Managed Portals and frequently provide for one or more automatic renewal terms of one to
two years each.
Content and Service Providers
We license the content available in our Managed Portals, as well as premium services, from numerous third-party
content and service partners. These partners provide a variety of content, including news and information, entertainment, video,
games, shopping, travel, and finance. Our relationships with content providers give consumers access to over five hundred
thousand articles and one million short-form videos each month. To obtain this content, we enter into a variety of licensing
arrangements with the content providers. These arrangements are typically one to two years in duration with payment terms that
may be based on traffic, advertising revenue share, number of subscribers, flat fee payments over time, or some combination
thereof. In addition to using licensed content to populate our Managed Portals, we also provide premium services that
subscribers may purchase for additional fees. As of December 31, 2019, we had arrangements with dozens of content providers,
such as The Associated Press, AOL, Gracenote, The Sporting News and Video Elephant.
Sales and Marketing
Email/Collaboration
We market our Email/Collaboration product through both direct and indirect sales channels. Our regional sales
and marketing teams host several events each year with partners and run various campaigns to generate sales leads. Once a lead
has been identified, our internal sales representatives work closely with our regional partners on better identifying the
opportunity and gathering customer requirements.
We sell to internet service providers primarily through a direct sales force consisting of regional account
executives. Sales cycles can be six months or longer. We sell to prospective government, nonprofit and enterprise customers
through a two-tier indirect model via more than 2,500 channel partners (VARs and BSPs). Our VARs sell on-premise licenses
to end customers while our BSPs sell a cloud service to the end customer. Sales cycles can range from thirty days to six months,
depending on size and scope.
Managed Portals and Advertising Solutions
Synacor’s managed portal network and publisher-focused advertising platform reaches over 200 million monthly
unique visitors. Our advertising solutions enable our customers to earn incremental revenue by monetizing media from their
consumers across all popular devices.
Our advertising sales team sells advertising inventory directly to advertisers and/or to advertising agencies
representing those advertisers, as well as employing programmatic ad monetization strategies utilizing ad exchanges via real-
time bidding. These advertisers may be small companies with the advertising locally or regionally focused on the Managed
Portals of one customer, or large companies with nationwide advertising on the Managed Portals of many customers as well as
on our syndicated group of publishers’ sites. We have a team of direct advertising sales employees, independent advertising
sales representatives, and programmatic ad specialists focused on this effort and will continue to develop this team and attempt
to grow the amount of advertising revenue generated with our customers. As of December 31, 2019, we had arrangements with
over 100 advertising partners such as Rubicon, AppNexus, Comcast Spotlight, Criteo, DoubleClick, Progressive Insurance, and
Telaria.
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Managed Portals
Our managed portal network consists of white-labeled browser start pages and iOS/Android start apps that serve
as daily destinations for consumers. Powered by our media and programming library which includes news, entertainment, and
short and long form video, these products increase consumer engagement and generate advertising revenue. They also provide
consumers with self-management capabilities for email and messaging, bill paying and other account management activities.
Syndicated Advertising
Synacor’s syndicated advertising platform works with hundreds of publishers to deliver brand-safe monetization
that leverages scale, premium brands and programmatic technology across desktop and mobile. We help publishers dynamically
target different audiences by matching relevant content to the right users across multiple devices. Publishers also leverage our
demand facilitation services to connect premium advertisers and brands with their target audiences on brand-safe sites.
Government Regulation
We generally are not regulated other than under international, federal, state and local laws applicable to the
internet or e-commerce or to businesses in general. Some regulatory authorities have enacted or proposed specific laws and
regulations governing the internet and online entertainment. These laws and regulations cover issues such as taxation, pricing,
content, distribution, quality and delivery of services and products, electronic contracts, intellectual property rights, user privacy
and information security.
Federal laws regarding the internet that could have an impact on our business include the following: the Digital
Millennium Copyright Act of 1998, which is intended to reduce the liability of online service providers of third-party content,
including content that may infringe copyrights or rights of others; the Children’s Online Privacy Protection Act, which imposes
additional restrictions on the ability of online services to collect user information from minors; and the Protection of Children
from Sexual Predators Act, which requires online service providers to report evidence of violations of federal child
pornography laws under certain circumstances.
There are numerous federal, state and local laws, rules and guidelines around the world regarding privacy and the
collection, storing, sharing, use, processing, disclosure, destruction and security of personal information and other subscriber
data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict
with other rules. For example, the European General Data Protection Regulation (“GDPR”) took effect in May 2018 and applies
to all of our products and services used by people in Europe. The GDPR includes operational requirements for companies that
receive or process personal data of residents of the European Union that are different from those previously in place in the
European Union, and includes significant penalties for non-compliance. Similarly, there are a number of legislative proposals in
the European Union, the United Kingdom, and the United States, at both the federal and state levels, as well as other
jurisdictions that could impose new obligations in areas affecting our business, such as liability for copyright infringement. In
addition, some countries are considering or have passed legislation implementing data protection requirements or requiring
local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our
services.
Additionally, the California Consumer Privacy Act (“CCPA”) took effect on January 1, 2020 and requires
companies to provide new data disclosure, access and deletion rights to California consumers, afford such consumers the ability
to opt-out of certain sales of personal information, and impose significant penalties for non-compliance or data breaches. It
remains unclear how the legislation will be interpreted. The California Attorney General’s office will enforce the statute as of
July 1, 2020.
The United States Department of Commerce designed the EU-US Privacy Shield and the Swiss-U.S. Privacy
Shield with the European Commission and the Swiss Federal Data Protection and Information Commissioner, respectively, in
order to facilitate (but do not, alone, constitute) compliance with certain of the applicable data protection requirements under
the GDPR. We initially certified compliance with the EU-US Privacy Shield in December 2016 and the Swiss-U.S. Privacy
Shield in June 2017 and renew our certifications on an annual basis, but whether Privacy-Shield certification will continue to be
a valid means to transfer European data to the United States is uncertain.
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We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to
privacy and data protection to the extent possible. Laws such as the GDPR, the CCPA or other user privacy or security laws
could require us to incur additional expenditures for compliance, result in governmental enforcement actions, significant fines,
loss of access to data transfer mechanisms or litigation, restrict our and our customers’ ability to market products to their
consumers, create uncertainty in internet usage and reduce the demand for our services and products or require us to make
changes to our data and security practices and our services and products, including Managed Portals.
Intellectual Property
We believe that the protection of our intellectual property is critical to our success. We rely on copyright,
trademark and patent enforcement, contractual restrictions and trade secret, trade dress and domain name laws to protect our
brand and other proprietary and intellectual property rights. We have entered into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements and other agreements containing confidentiality
protections with certain parties with whom we conduct business in order to limit access to, and disclosure of, our proprietary
information and technology, such as trade secrets, confidential information, know-how and technical information. We have
applied for patents to protect certain of our intellectual property. In addition, we have acquired intellectual property, including
patents and trademarks, through our acquisitions including Zimbra, Technorati, NimbleTV and Teknision. We have three
trademark registrations in the United States for SYNACOR (U.S. Registration Numbers 5108679, 2845578 and 2811272).
We endeavor to protect our internally-developed systems and maintain our trademarks. We generally control
access to and use of our proprietary software and other confidential information through the use of internal and external
controls, including contractual protections with employees, contractors, customers and partners, and our software is protected
by United States and international copyright laws.
In addition to legal protections, we believe that factors such as the technological and creative skills of our
personnel, new product developments, frequent product enhancements and reliable product support and services are essential to
establishing and maintaining a technology leadership position.
Competition
The market for internet-based services and products in which we operate is highly competitive and involves
rapidly-changing technologies and customer and consumer requirements, as well as evolving industry standards and frequent
product introductions. While we believe that our technology offers considerable value and flexibility to our customers by
helping them to extend their consumer relationships to a wide variety of internet-based services, we face competition at four
levels:
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When one of our prospective or existing customers considers another supplier, including one of our
partners, for elements of the services or products which we provide.
When consumers choose to rely on other vendors for similar products and services.
When content and service providers prefer to establish direct relationships with one or more of our
customers.
When one of our customers decides to make the significant headcount and technology investment to
develop products and services in-house similar to those that we provide.
Our technology competes primarily with high-speed internet service providers that have internal information
technology staff capable of developing similar solutions in-house.
Email/Collaboration
With respect to our Email/Collaboration solutions, we compete primarily with Google and Microsoft in the
enterprise and government markets, and with Open-Xchange and OpenWave in the internet service provider markets.
We believe the principal competitive factors in the email/collaboration market include a company’s ability to:
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provide customers the ability to perform security and compliance audits of our source code;
deliver anti-spam, anti-phishing, anti-virus and encryption technologies;
provide products and services at lowest possible total cost of ownership (TCO);
provide local partners the ability to store data within the legal jurisdiction of the country where their
customers do business;
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provide an enterprise-ready solution suitable for large-scale deployments including such enterprise
features such as delegated administration, detailed logging, and performance and availability
transparency;
offer access to real-time performance and availability statistics;
afford customers and partners the ability to rebrand their cloud collaboration experience; and
make available to partners both integrations and extensions to the collaboration cloud environment
specific to customers’ needs.
We believe that we distinguish ourselves from potential competitors in several ways. First, we offer our Email/
Collaboration products and services a la carte, enabling customers to buy only the services they need, providing for a much
lower TCO. Second, our Zimbra Email/Collaboration solution is a complete feature-rich, enterprise-ready solution scalable up
to 40 million mailboxes. Finally, our products are customizable and extendable and designed to meet very high standards of
security.
Managed Portals and Advertising Solutions
In addition, with respect to our Managed Portals and Advertising solutions, we compete with companies such as
Facebook, Inc.; Google; Verizon Media; and MSN, a division of Microsoft Corporation, or Microsoft, which have destination
websites of their own or are capable of delivering content, service offerings and search or advertising models similar to ours.
We believe the principal competitive factors in our markets include a company’s ability to:
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reinforce the brands of our cable, satellite, telecom and consumer electronics customers;
produce products that are flexible and easy to use;
offer competitive fees for Managed Portal development and operation;
generate additional revenue for our customers;
enable our customers to be involved in designing the “look and feel” of their online presence;
offer services and products that meet the changing needs of our customers and their consumers,
including emerging technologies and standards;
provide high-quality product support to assist the customer’s service representatives; and
aggregate content to deliver more compelling bundled packages of paid content.
We believe that we distinguish ourselves from potential competitors in three principal ways. First, we provide a
white-label solution that, unlike the co-branded approach of most of our competitors, creates a consumer experience that
reinforces our customers’ and partners’ brands. Second, we give customers control over the sign-on process and billing function
for a wide range of internet services and content by integrating with their internal systems (where applicable) thereby allowing
our customers to “own the consumer.” Finally, our solutions are flexible and neutral, meaning that we allow deliverables that
are customized to our customers’ specific needs.
Employees
As of December 31, 2019, we had 257 employees in the United States and 153 based internationally. Of these
employees, 320 were full-time employees. None of our employees are represented by a labor union, and we consider current
employee relations to be good.
Corporate Information
Synacor’s predecessor company was originally formed as a New York corporation, and in November 2002,
Synacor re-incorporated under the laws of the State of Delaware. Our headquarters are located at 40 La Riviere Drive, Buffalo,
New York 14202, and our telephone number is (716) 853-1362.
8
Available Information
Our internet website address is http://www.synacor.com. We provide free access to various reports that we file
with or furnish to the Securities and Exchange Commission, or SEC, through our website, as soon as reasonably practicable
after they have been filed or furnished. These reports include, but are not limited to, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports. Our SEC reports can be accessed
through the investor relations section of our website, or through http://www.sec.gov. Information on our website does not
constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC. Stockholders may
request copies of these documents from:
Synacor, Inc.
Investor Relations Department
40 La Riviere Drive
Suite 300
Buffalo, New York 14202
9
ITEM 1A.
RISK FACTORS
Our business and financial results are subject to numerous risks and uncertainties, including those described
below, which could adversely and materially affect our business, financial condition or results of operations. You should
carefully consider these risks and uncertainties, including the following risk factors and all other information contained in this
Annual Report on Form 10-K, together with any other documents we file with the SEC.
Risks Related to Our Business
A loss of any significant Portal and Advertising customer could negatively affect our financial performance.
Our future growth and profitability will depend in large part on the effectiveness and efficiency of our efforts to
provide a compelling consumer experience that increases consumer engagement with our Managed Portals. We have made and
will continue to make investments in features and functionality for our technology that are designed to drive consumer
engagement. If the expenses that we incur in connection with these activities do not result in increased consumer engagement
that in turn results in revenue increases that exceed these expenses, our business, financial condition and results of operations
will be adversely affected.
Although we have diversified our product portfolio and our customer base, we continue to derive a substantial
portion of our revenue from a small number of Managed Portal customers. For 2018, revenue attributable to two customers
each exceeded 10% of our total revenue, and on a combined basis accounted for approximately 24% of our revenue, or
$34.6 million. For 2019, revenue attributable to one customer exceeded 10% of our total revenue, and accounted for
approximately 13% of our revenue, or $16.4 million.
Our contracts with our Managed Portals and Advertising customers generally have an initial term of
approximately two to three years from the launch of their Managed Portals and frequently provide for one or more automatic
renewal terms of one to two years each. If a key contract is not renewed or is otherwise terminated, or if revenue from a
significant customer declines because of competitive or other reasons, including the customer’s desire to reprioritize or
deemphasize monetization of the portal, our revenue would decline and our ability to achieve or sustain profitability would be
impaired. In addition to the loss of recurring and fee-based revenue, we would also lose significant revenue from the related
search and digital advertising services that we provide. In addition to the decline of revenue, we may have to impair our long-
lived assets, to the extent that such assets are used exclusively to support these customers, which would adversely impact our
results of operations and financial position.
Our search advertising partner, Google, accounts for a significant portion of our revenue, and any loss of, or diminution
in, our business relationship with Google would adversely affect our financial performance.
We rely on traffic on our Managed Portals to generate search and digital advertising revenue, a substantial
portion of which is derived from text-based links to advertisers’ websites as a result of internet searches. We have a revenue-
sharing relationship with Google under which we include a Google-branded search tool on our Managed Portals. When a
consumer makes a search request using this tool, we deliver it to Google, and Google returns search results to us that include
advertiser-sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link
and shares a portion of that payment with us. We then typically share a portion of that payment with the applicable customer.
Google may terminate our agreement if we experience a change in control, if we enter into an agreement providing for a change
in control, if we do not maintain certain search and digital advertising revenue levels or if we fail to conform to Google’s search
and advertising policies. Google may from time to time change its existing, or establish new, methodologies and metrics for
valuing the quality of internet traffic. Any changes in these methodologies, metrics and advertising technology platforms could
decrease the advertising rates that we receive and/or the amount of revenue that we generate from digital advertisements. If
advertisers were to discontinue their advertising via internet searches, if Google’s revenue from search-based advertising were
to decrease, if Google’s share of the search revenue were to increase or if our agreement with Google were to be terminated for
any reason or renewed on less favorable terms, our business, financial condition and results of operations would be adversely
affected. Moreover, consumers’ increased use of search tools other than the Google-branded search tool we provide would have
similar effects.
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Our Managed Portals solutions has suffered a loss of users, which may adversely affect our Portal business.
The number of active portal users has declined consistently for several years, and may further contract in the
future.
While we work with our customers to have their consumers’ homepages set to our Managed Portals, a consumer
may easily change that setting, which would likely decrease the use of our Managed Portals. Similarly, consumers who change
their device’s operating system, or internet browser, or acquire new consumer electronics devices may no longer have our
Managed Portals set as their default homepage, and unless they change it back to our Managed Portals, their usage of our
Managed Portals would likely decline and our results of operations could be negatively impacted.
Furthermore, the number of people who access the internet through devices other than PCs, including tablets,
smartphones and connected TVs, has increased dramatically and is projected to continue to increase. Similarly, individuals are
increasingly accessing the internet through apps other than internet browsers. Our Managed Portals include our responsive
desktop and mobile web products and also our mobile native iOS and Android apps. If consumers do not use our mobile
products at all or use these products less frequently than previously, our financial results could be negatively affected.
Additionally, as new devices and new apps are continually being released, it is difficult to predict the problems we may
encounter in developing new versions of our apps and other solutions for use on these alternative devices and apps, and we may
need to devote significant resources to the creation, support and maintenance of such apps and solutions. If users of these
devices and apps do not widely adopt the apps and other solutions we develop, our business, financial condition and results of
operations could be adversely affected.
Consumer tastes continually change and are unpredictable, and sales of our Managed Portals and Advertising solutions
may decline if we fail to enhance our service and content offerings to achieve continued consumer acceptance.
Our business depends on aggregating and providing services and content that our customers will place on our
Managed Portals, including television programming, news, entertainment, sports and other content that their consumers find
engaging, and premium services and paid content that their consumers will buy. Accordingly, we must continue to invest
resources in licensing efforts, research and development and marketing to enhance our service and content offerings, and we
must make decisions about these matters well in advance of product releases to implement them in a timely manner. Our
success depends, in part, on unpredictable and volatile factors beyond our control, including consumer preferences, competing
content providers and websites and the availability of other news, entertainment, sports and other services and content.
If our services are not responsive to the requirements of our customers or the preferences of their consumers, or
the services are not brought to market in a timely and effective manner, our business, financial condition and results of
operations would be harmed. Even if our services and content are successfully introduced and initially adopted, a subsequent
shift in the preferences of our customers or their consumers could cause a decline in the popularity of our services and content
that could reduce our revenue and harm our business, financial condition and results of operations.
We depend on third parties for content that is critical to our business, and our business could suffer if we do not
continue to obtain high-quality content at a reasonable cost.
We license the content that we aggregate on our Managed Portals from numerous third-party content providers,
and our future success is highly dependent upon our ability to maintain and enter into new relationships with these and other
content providers. In some cases, we are required under our contracts, to provide our customers’ consumers access to certain
types of content. In the future, some of our content providers may not give us access to high-quality content, may fail to adapt
to changes in consumer tastes or may increase the royalties, fees or percentages that they charge us for their content, any of
which could have an adverse effect on our operating results. Our rights to the content that we offer to our customers and their
consumers are not exclusive, and the content providers could license their content to our competitors. Our content providers
could even grant our competitors exclusive licenses. In addition, our customers are not prohibited from entering into content
deals directly with our content providers. Any failure to enter into or maintain satisfactory arrangements with content providers
would adversely affect our ability to provide a variety of attractive services and products to our customers. Our reputation and
operating results could suffer as a result, and it may be more difficult for us to develop new relationships with potential
customers.
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Many of our customers are high-speed internet service providers, and consolidation within the cable and
telecommunications industries could adversely affect our business, financial condition and results of operations.
We have significant revenue from high-speed internet service and communications providers, including our
search and digital advertising revenue generated by online consumer traffic on our Managed Portals. The cable and
telecommunications industries have experienced consolidation over the past several years, and we expect that this trend will
continue. As a result of consolidation, some of our customers may be acquired by companies with which we do not have
existing relationships and which may have relationships with one of our competitors or may have the in-house capability to
perform the services we provide. As a result, such acquisitions could cause us to lose customers and the associated revenue.
Under our agreements with some of our customers, they may have the right to terminate the agreement if we are acquired by
one of their competitors.
Consolidation may also require us to renegotiate our agreements with our customers as a result of enhanced
customer leverage. We may not be able to offset the effects of any such renegotiations, and we may not be able to attract new
customers to counter any revenue declines resulting from the loss of customers or their subscribers.
We may not maintain acceptable website performance for our Managed Portals and Advertising customers, which may
negatively impact our relationships with our customers and harm our business, financial condition and results of
operations.
A key element to our continued growth is the ability of our customers’ consumers in all geographies to access
our Managed Portals and other offerings within acceptable load times. We refer to this as website performance. We may in the
future experience platform disruptions, outages and other performance problems due to a variety of factors, including
infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our
technology simultaneously, and denial of service or fraud or security attacks.
In some instances, we may not be able to identify the cause or causes of these website performance problems
within an acceptable period of time. It may become increasingly difficult to maintain and improve website performance,
especially during peak usage times, and as our solutions become more complex and our user traffic increases. If our Managed
Portals and Advertising solutions are unavailable when consumers attempt to access them or do not load as quickly as they
expect, consumers may seek other alternatives to obtain the information for which they are looking, and may not use our
products and services as often in the future, or at all. This would negatively impact our relationships with our customers. We
expect to continue to make investments to maintain and improve website performance. To the extent that we do not effectively
address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture
to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
Our sales cycles and the contracting process with new customers are long and unpredictable and may require us to
incur expenses before executing a customer agreement, which makes it difficult to project when, if at all, we will obtain
new customers and when we will generate additional revenue and cash flows from those customers.
We market our services and products directly to high-speed internet service and communications providers,
consumer electronics manufacturers, and directly and indirectly to enterprises, and governmental and nonprofit organizations.
New customer relationships typically take time to obtain and finalize because of the burdensome cost of migrating from an
existing solution to our platform. Due to operating procedures in many organizations, a significant time period may pass
between selection of our services and products by key decision-makers and the signing of a contract. The length of time
between the initial customer sales call and the realization of significant sales is difficult to predict and can range from several
months to several years. As a result, it is difficult to predict when we will obtain new customers and when we will begin to
generate revenue and cash flows from these potential new customers.
As part of our sales cycle, we may incur significant expenses in the form of compensation and related expenses
and equipment acquisition before executing a definitive agreement with a prospective customer so that we may be ready to
launch shortly following execution of a definitive agreement. If conditions in the marketplace or with a specific prospective
customer change negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any
expenses incurred before a definitive agreement is executed, which would in turn have an adverse effect on our business,
financial condition and results of operations.
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We rely, to a significant degree, on indirect sales channels for the distribution of our Software products, and disruption
within these channels could adversely affect our business, financial condition, operating results and cash flows.
We use a variety of indirect distribution methods for our offerings, including channel partners, such as cloud
service providers, distributors, and value added resellers. A number of these partners in turn distribute our offerings via their
own networks of channel partners with whom we have no direct relationship. These relationships allow us to offer our
technologies to a much larger customer base than we would otherwise be able through our direct sales and marketing efforts.
If our channel partners or a partner in its distribution network violate applicable law or regulatory requirements
or misrepresent the functionality of our offerings, our reputation could be damaged and we could be subject to potential
liability. Furthermore, our channel partners may offer their own products and services that are competitive with our offerings or
may not distribute and market our offerings effectively. Our existing channel partner relationships do not, and any future
channel partner relationships may not, afford us exclusive marketing or distribution rights. In addition, if a channel partner is
acquired by a competitor or its business units are reorganized or divested, our revenue derived from that partner may be
adversely impacted.
Recruiting and retaining qualified channel partners and training them in the use of our technologies requires
significant time and resources. If we fail to devote sufficient resources to support and expand our network of channel partners,
our business may be adversely affected. In addition, because we rely on channel partners for the indirect distribution of our
technologies, we may have little or no contact with the ultimate end-users of our technologies, thereby making it more difficult
for us to establish brand awareness, ensure proper delivery and installation of our software, support ongoing customer
requirements, estimate end-user demand, respond to evolving customer needs and obtain renewals from end-users. If our
indirect distribution channel is disrupted, we may be required to devote more resources to distribute our offerings directly and
support our customers, which may not be as effective and could lead to higher costs, reduced revenue and growth that is slower
than expected.
We have a history of significant pre-tax net losses and may not be profitable in future periods.
We have reported annual pre-tax net losses since 2013. Over the years, we have taken cost saving measures,
including reductions in workforce. However, our expenses have increased and may continue to increase in future periods as we
implement initiatives designed to grow our business including, among other things, the ongoing costs and expenses we must
incur in connection with providing our solutions, acquisitions of complementary businesses, the development and marketing of
new services and products, licensing of content, expansion of our infrastructure and international expansion. If our revenue does
not sufficiently increase to offset these expected increases in operating expenses, or if we are not able to sufficiently reduce
costs in the event our revenue increases fail to materialize, we may incur significant losses and may not be profitable. We may
not be able to return to or maintain profitability in the future. Any failure to achieve or maintain profitability may adversely
affect our business, financial condition, results of operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2019 our cumulative U.S. federal net operating loss carryforward was $48.2 million. A
failure to achieve or maintain profitability may adversely affect our ability to utilize our net operating loss carryforwards. As a
result of our pre-tax cumulative losses, we have established a full valuation allowance against our net deferred income tax asset,
which includes our net operating loss carryforwards.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation
undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards to offset its
post-change income and taxes may be limited. In general, an “ownership change” generally occurs if there is a cumulative
change in our ownership by “five-percent stockholders” that exceeds 50 percentage points over a rolling three-year period. For
these purposes, a five-percent stockholder is generally any person or group of persons that at any time during the applicable
testing period has owned 5% or more of our outstanding stock. In addition, persons who own less than 5% of the outstanding
stock are grouped together as one or more “public groups,” which are also treated as five-percent stockholders. Similar rules
may apply under state tax laws. We may experience ownership changes in the future as a result of future transactions in our
stock, some of which may be outside our control. As a result, our ability to use our pre-change net operating loss carryforwards
to offset United States federal and state taxable income and taxes may be subject to limitations.
13
Our services and products may become less competitive or even obsolete if we fail to respond to technological
developments.
Our future success will depend, in part, on our ability to modify or enhance our services and products to meet
customer and consumer needs, to add functionality and to address technological advancements that would improve their
performance. For example, if our smartphone and tablet products fail to capture the increased search activity on such devices or
if our services and products do not adapt to the increasing video usage on the internet or to take into account evolving
developments in social networking, then they could begin to appear obsolete. Similarly, if we fail to develop new ways to
deliver content and services through apps other than traditional internet browsers, consumers could seek alternative means of
accessing content and services.
To remain competitive, we will need to develop new services and products and adapt our existing ones to address
these and other evolving technologies and standards. However, we may be unsuccessful in identifying new opportunities or in
developing or marketing new services and products in a timely or cost-effective manner. In addition, our product innovations
may not achieve the market penetration or price levels necessary for profitability. If we are unable to develop enhancements to,
and new features for, our existing services and products or if we are unable to develop new services and products that keep pace
with rapid technological developments or changing industry standards, our services and products may become obsolete, less
marketable and less competitive, and our business will be harmed.
Our Zimbra Email/Collaboration solution was developed as an open-source software product. As such, it may be
relatively easy for competitors, some of which may have greater resources than we have, to compete with us.
One of the characteristics of open source software is that anyone may modify and redistribute the existing open
source software and use it to compete with us. Such competition can develop without the degree of overhead and lead time
required by traditional proprietary software companies. In addition, some of these competitors may make their open source
software available for free download and use on an ad hoc basis or may position their open source software as a loss leader. We
cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive
pressure and/or the availability of open source software will not result in price reductions, reduced operating margins and loss
of market share, any one of which could adversely affect our business, financial condition, operating results and cash flows.
Our revenue and operating results may fluctuate, which makes our results difficult to predict and could cause our
results to fall short of expectations.
As a result of the rapidly changing nature of the markets in which we compete, our quarterly and annual revenue
and operating results are likely to fluctuate from period to period. These fluctuations may be caused by a number of factors,
many of which are beyond our control, including but not limited to the various factors set forth in this “Risk Factors” section, as
well as:
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any failure to maintain strong relationships and favorable revenue-sharing arrangements with our
Managed Portals and Advertising partners, in particular Google, including a reduction in the quantity
or pricing of sponsored links that consumers click on or a reduction in the pricing of digital
advertisements by advertisers;
the timing of our investment in, or the timing of our monetization of, our products and services, such
as our end-to-end video solutions portfolio or our Zimbra Email/Collaboration product;
any failure of significant customers to renew their agreements with us;
our ability to attract new customers;
any development by our significant customers of the in-house capacity to replace the solutions we
provide;
the release of new product and service offerings by our competitors or our customers;
variations in the demand for our services and products and the implementation cycles of our services
and products by our customers;
changes to internet browser technology that may render our Managed Portals less competitive;
changes in our pricing policies or those of our competitors;
changes in the prices our customers charge their consumers for email, premium services and paid
content;
service outages, other technical difficulties or security breaches;
limitations relating to the capacity of our networks, systems and processes;
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our failure to accurately estimate or control costs, including costs related to the implementation of
our solutions for new customers;
maintaining appropriate staffing levels and capabilities relative to projected growth;
the timing of costs related to the development or acquisition of technologies, services or businesses
to support our existing customers and potential growth opportunities; and
general economic, industry and market conditions and those conditions specific to internet usage and
online businesses.
For these reasons and because the market for our services and products is relatively new and rapidly changing, it
is difficult to predict our future financial results.
International operations are subject to the economic, political, regulatory, foreign exchange and other risks of
international operations.
We derive a portion of our revenue from, and have operations, outside of the United States. Revenue from
customer outside of the United States was 18% of total revenue in 2019. We plan to continue to expand our product offerings
internationally, particularly in Asia, Canada, Latin America and Europe.
As the international markets in which we operate continue to grow, we expect that competition in these markets
will intensify. Local companies may have a substantial competitive advantage because of their greater understanding of, and
focus on, the local markets. Some of our domestic competitors who have substantially greater resources than we do may be able
to more quickly and comprehensively develop and grow in international markets. International expansion may also require
significant financial investment including, among other things, the expense of developing localized products, the costs of
acquiring foreign companies and the integration of such companies with our operations, expenditure of resources in developing
customer and content relationships and the increased costs of supporting remote operations.
Other risks of doing business in international markets include the increased risks and burdens of complying with
different legal and regulatory standards, difficulties in managing and staffing foreign operations, recruiting and retaining
talented direct sales personnel, limitations on the repatriation of funds and fluctuations of foreign exchange rates, varying levels
of internet technology adoption and infrastructure and our ability to enforce contracts and our intellectual property rights in
foreign jurisdictions. Additionally there are risks associated with fundamental changes to international markets, such as those
that may occur as a result of the United Kingdom's withdrawal from the European Union ("Brexit"). Brexit may adversely
affect global economic and market conditions and could contribute to volatility in the foreign exchange markets, which we may
be unable to effectively manage.
In addition, our success in international expansion could be limited by barriers to international expansion such as
tariffs, adverse tax consequences and technology export controls. If we cannot manage these risks effectively, the costs of doing
business in some international markets may be prohibitive or our costs may increase disproportionately to our revenue. Some of
our business partners also have international operations and are subject to the risks described above. Even if we are able to
successfully manage the risks of international operations, our business may be adversely affected if our business partners are
not able to successfully manage these risks.
Failure to comply with the United States Foreign Corrupt Practices Act and similar foreign laws could subject us to
penalties and other adverse consequences.
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies
from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur with respect to our expansion into
international markets. Our employees or other agents may engage in such conduct for which we might be held responsible. If
our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other
consequences, including adverse publicity and damage to our reputation that may have an adverse effect on our business,
financial condition and results of operations.
15
Our agreements with some of our customers contain penalties for non-performance, which could adversely affect our
financial performance.
We have entered into service level agreements with many of our customers. These agreements generally call for
specific system “up times” and 24 hours per day, seven days per week support and include penalties for non-performance. We
may be unable to fulfill these commitments due to circumstances beyond our control, which could subject us to substantial
penalties under those agreements, harm our reputation and result in a reduction of revenue or the loss of customers, which
would in turn have an adverse effect on our business, financial condition and results of operations. In addition, certain of our
agreements with customers contain penalties for certain types of non-performance which, if not timely rectified, could result in
substantial financial penalties to us.
Increasing regulatory focus on privacy issues and expanding laws could impact our business models, subject us to
additional expenses and expose us to increased liability.
We are subject to laws and regulations that dictate whether, how, and under what circumstances we can transfer,
process and/or receive certain data that is critical to our operations, including data shared between countries or regions in which
we operate and data shared among our products and services. In addition, the interpretation and application of consumer and
data protection laws in the U.S., Europe and elsewhere are often uncertain and in flux. Government regulators, privacy
advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit
personal data. This increased scrutiny may result in new interpretations of existing laws, thereby further impacting our business.
Globally, new and emerging laws, such as the General Data Protection Regulation (“GDPR”) in Europe, state
laws in the U.S. on privacy, data and related technologies, such as the California Consumer Privacy Act (“CCPA”), potential
U.S. federal legislation regarding consumer privacy, as well as industry self-regulatory codes create new compliance
obligations and expand the scope of potential liability, either jointly or severally with our customers and suppliers. For example,
the CCPA may precipitate additional privacy regulation by federal, state and local governments, which may increase our
compliance costs and strain our technical capabilities, and such regulations may conflict with each other making it impossible to
comply with all such regulations. Ensuring compliance with such laws is an ongoing commitment which involves substantial
costs, and it is possible that despite our efforts, governmental authorities or third parties will assert that our business practices
fail to comply. Any failure or perceived failure by us to comply with privacy regulations, our privacy policies or other related
obligations (including in our agreements with customers), or any compromise of security that results in the unauthorized release
or transfer of personal information or other subscriber data, may result in governmental enforcement actions, significant fines,
loss of access to data transfer mechanisms, litigation or public statements against us by consumer advocacy groups or others
and could cause our customers to lose trust in us, or, terminate their agreements with us, all of which would have an adverse
effect on our business.
System failures, security breaches, computer viruses or capacity constraints could harm our business and financial
performance.
The provision of our services and products depends on the continuing operation of our information technology
and communications systems. Any damage to or failure of our systems could result in interruptions in our service. Such
interruptions could harm our business, financial condition and results of operations, and our reputation could be damaged if
people believe our systems are unreliable. Our systems are vulnerable to damage or interruption from terrorist attacks, floods,
fires, power loss, telecommunications failures, security breaches, computer malware, computer hacking attacks, computer
viruses, computer denial of service attacks or other attempts to harm our systems. Our data centers are also subject to break-ins,
sabotage and intentional acts of vandalism and to potential disruptions if the operators of the facilities have financial
difficulties. Although we maintain insurance to cover a variety of risks, the scope and amount of our insurance coverage may
not be sufficient to cover our losses resulting from system failures or other disruptions to our online operations. Any system
failure or disruption and any resulting losses that are not recoverable under our insurance policies may harm our business,
financial condition and results of operations.
Not all of our data centers are on full second-site redundancy, only certain customers require this capability. We
regularly back-up our systems and store the system back-ups. If we were forced to relocate to an alternate site and to rely on our
system back-ups to restore the systems, we could experience significant delays in restoring the functionality of our platform and
could experience loss of data, which could harm our business and our operating results.
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We rely on our management team and need additional personnel to expand our business, and the loss of key officers or
an inability to attract and retain qualified personnel could harm our business, financial condition and results of
operations.
Our future success also depends on our ability to identify, attract and retain highly skilled technical, managerial,
finance, marketing and creative personnel. We face intense competition for qualified individuals from numerous technology,
marketing and media companies, and we may incur significant costs to attract them. We may be unable to attract and retain
suitably qualified individuals, or we may be required to pay increased compensation in order to do so. If we were to be unable
to attract and retain the qualified personnel we need to succeed, our business could suffer.
Volatility or lack of performance in the trading price of our common stock may also affect our ability to attract
and retain qualified personnel. Many of our senior management personnel and other key employees have become, or will
become, vested in company stock or stock options. Employees may be more likely to leave us if the shares they own or the
shares underlying their options have significantly declined in value relative to the original purchase prices of the shares or the
exercise prices of the options or if the exercise prices of the options that they hold are significantly above the trading price of
our common stock. If we are unable to retain our employees, our business, financial condition and results of operations would
be harmed.
We may expand our business through acquisitions of, mergers with, or investments in, other companies or new
technologies, or joint ventures or other strategic alliances with other companies, which may divert our management’s
attention or prove not to be successful.
As part of our growth strategy, we may decide to pursue acquisitions of, mergers with, investments in, or joint
ventures involving other technologies and businesses in the future. Such transactions could divert our management’s time and
focus from operating our business or prove not to be successful.
Integrating an acquired company, business or technology is risky and may result in unforeseen operating
difficulties and expenditures, including, among other things, with respect to:
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incorporating new technologies into our existing business infrastructure;
consolidating corporate and administrative functions;
coordinating our sales and marketing functions to incorporate the new business or technology;
maintaining morale, retaining and integrating key employees to support the new business or
technology and managing our expansion in capacity; and
maintaining standards, controls, procedures and policies (including effective internal control over
financial reporting and disclosure controls and procedures).
In addition, a significant portion of the purchase price of companies we may acquire may be allocated to acquired
goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions
do not yield expected returns, we may be required to take charges to our earnings based on this impairment assessment process,
which could harm our operating results.
Future acquisitions could result in potentially dilutive issuances of our equity securities, including our common
stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development
expenses, any of which could harm our business, financial condition and results of operations. Future acquisitions may also
require us to obtain additional financing, which may not be available on favorable terms or at all.
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We may require additional capital to grow our business, and this capital may not be available on acceptable terms or at
all.
The operation of our business and our growth strategy may require significant additional capital, especially if we
were to accelerate our expansion and acquisition plans. If the cash generated from operations and otherwise available to us is
not sufficient to meet our capital requirements, we will need to seek additional capital, potentially through debt or equity
financings, to fund our growth. We may not be able to raise needed capital on terms acceptable to us or at all. Financings, if
available, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors
would be willing to purchase our securities may cause our existing stockholders to suffer substantial dilution. The holders of
new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our common
stock. As with our credit facility with Silicon Valley Bank, any debt financing obtained by us in the future could contain
financial or other covenants that may potentially restrict our operations, and if we do not effectively manage our business to
comply with those covenants, our business, financial condition and results of operations could be adversely affected.
If new or existing sources of financing are required but are insufficient or unavailable, we could be required to
delay, abandon or otherwise modify our growth and operating plans to the extent of available funding, which would harm our
ability to grow our business.
Our business depends, in part, on our ability to protect and enforce our intellectual property rights.
The protection of our intellectual property is critical to our success. We rely on copyright and service mark
enforcement, contractual restrictions and trade secret laws to protect our proprietary rights. We have entered into confidentiality
and invention assignment agreements with our employees and contractors, and nondisclosure agreements with certain parties
with whom we conduct business to limit access to and disclosure and distribution of our proprietary information. Additionally,
we have applied for patents to protect certain of our intellectual property. We have registered several marks and filed many
other trademark applications in the United States and internationally. We have not applied for copyright protection in any
jurisdiction including in the United States. However, if we are unable to adequately protect our intellectual property, it may be
possible for a third party to copy or otherwise obtain and use our intellectual property without authorization, and, our business
may suffer from the piracy of our technology and the associated loss in revenue.
Protecting against the unauthorized use of our intellectual property and other proprietary rights is expensive,
difficult and, in some cases, impossible. The steps we take may not prevent misappropriation or infringement of our property
rights. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others. Such litigation could be costly and divert management
resources, either of which could harm our business. Furthermore, many of our current and potential competitors have the ability
to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our
efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.
We are not currently involved in any material legal proceedings with respect to protecting our intellectual
property; however, we may from time to time become a party to various legal proceedings with respect to protecting our
intellectual property arising in the ordinary course of our business.
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Any claims from a third party that we are infringing upon its intellectual property, whether valid or not, could subject
us to costly and time-consuming litigation or expensive licenses or force us to curtail some services or products.
Companies in the internet and technology industries tend to own large numbers of patents, copyrights,
trademarks and trade secrets, and frequently enter into litigation based on allegations of infringement or other violations of
intellectual property rights. From time to time, we have been subject to claims that the presentation of certain licensed content
on our Managed Portals infringes certain patents of various third parties, none of which have resulted in material direct
settlement or payments by us or any determination of infringement by us, and as we face increasing competition, the possibility
of further intellectual property rights claims against us grows. Our technologies may not be able to withstand any third party
claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive
to litigate or settle and could divert management resources and attention. An adverse determination also could prevent us from
offering our services and products to others and may require that we procure substitute products or services for our customers.
In the case of any intellectual property rights claim, we may have to pay damages or stop using technology found
to be in violation of a third party’s rights. We may have to seek a license for the technology, which may not be available to us
on reasonable terms and may significantly increase our operating expenses. The technology also may not be available for
license to us at all. As a result, we may also be required to develop alternative non-infringing technology, which could require
significant effort and expense. If we cannot license or develop technology for the infringing aspects of our business, we may be
forced to limit our service and product offerings and may be unable to compete effectively. Any of these consequences could
harm our operating results.
In addition, we typically have contractual obligations to our customers to indemnify and defend them with
respect to third-party intellectual property infringement claims that arise from our customers’ use of our products or services.
Such claims, whether valid or not, could harm our relationships with our customers, could result in us or our customers having
to enter into licenses with the claimants and could cause us to incur additional costs or experience reduced revenue. Such claims
could also subject us to costly and time-consuming litigation as well as diverting management attention and resources.
Satisfying our contractual indemnification obligations could also give rise to significant liability, and thus harm our business
and our operating results.
We are not currently subject to any material legal proceedings with respect to third party claims that we or our
customers’ use of our products and services are infringing upon their intellectual property; however, we may from time to time
become a party to various legal proceedings with respect to such claims arising in the ordinary course of our business.
Any unauthorized disclosure or theft of personal information we gather could harm our reputation and subject us to
claims or litigation.
We collect, and have access to, personal information of subscribers, including names, addresses, account
numbers, credit card numbers and email addresses. There are numerous federal, state and local laws, rules and guidelines
around the world regarding privacy and the collection, storing, sharing, use, processing, disclosure, destruction and security of
personal information and other subscriber data, the scope of which are changing, subject to differing interpretations, and may be
inconsistent between countries or conflict with other rules. Ensuring compliance with such laws is an ongoing commitment
which involves substantial costs, and it is possible that despite our efforts, governmental authorities or third parties will assert
that our business practices fail to comply.
Unauthorized disclosure of such personal information, whether through breach of our systems by an
unauthorized party, employee theft or misuse, or otherwise, could harm our business. If there were an inadvertent disclosure of
personal information, or if a third party were to gain unauthorized access to the personal information we possess, our operations
could be seriously disrupted and we could be subject to claims or litigation arising from damages suffered by subscribers or our
customers. In addition, we could incur significant costs in complying with the multitude of state, federal and foreign laws
regarding the unauthorized disclosure of personal information. Finally, any perceived or actual unauthorized disclosure of the
information we collect could harm our reputation, substantially impair our ability to attract and retain customers and have an
adverse impact on our business.
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If we are unable to implement and maintain effective internal control over financial reporting, investors may lose
confidence in the accuracy and completeness of our financial reports and the market price of our common stock could
be adversely affected.
As a public company, we are required to maintain internal control over financial reporting and to disclose any
material weaknesses in such internal control. During our assessment of internal control over financial reporting as of December
31, 2018, we identified two material weaknesses in our internal control over financial reporting: (i) ineffective control activities
due to the lack of timeliness and consistency in executing business process controls, and (ii) ineffective monitoring controls to
ascertain whether the components of internal control were present and functioning. We have concluded that we have remediated
these material weaknesses as of December 31, 2019. For more information about these material weaknesses and our
remediation efforts, see Item 9A. “Controls and Procedures.”
If we fail to maintain our remediated internal control environment, investors and other users of our financial
statements could lose confidence in the reliability of our financial information. We could be obligated to incur additional costs
to improve the our internal controls, which may adversely affect our reputation and its operating prospects. Further, if
additional material weaknesses or significant deficiencies in our internal controls are discovered or occur in the future, this
could harm our operating results, cause us to fail to meet our SEC reporting obligations or Nasdaq listing requirements on a
timely basis, adversely affect our reputation, cause our stock price to decline or result in inaccurate financial reporting or
material misstatements in our annual or interim financial statements.
Risks Related to Our Industry
The growth of the market for our services and products depends on the continued growth of the internet as a medium
for content, advertising, commerce and communications.
Expansion in the sales of our services and products depends on the continued acceptance of the internet as a
platform for content, advertising, commerce and communications. The acceptance of the internet as a medium for such uses
could be adversely impacted by delays in the development or adoption of new standards and protocols to handle increased
demands of internet activity, security, privacy protection, reliability, cost, ease of use, accessibility and quality of service. The
performance of the internet and its acceptance as such a medium has been harmed by viruses, worms, and similar malicious
programs, and the internet has experienced a variety of outages and other delays as a result of damage to portions of its
infrastructure. If for any reason the internet does not remain a medium for widespread content, advertising, commerce and
communications, the demand for our services and products would be significantly reduced, which would harm our business.
The growth of the market for our services and products depends on the development and maintenance of the internet
infrastructure.
Our business strategy depends on continued internet and high-speed internet access growth. Any downturn in the
use or growth rate of the internet or high-speed internet access would be detrimental to our business. If the internet continues to
experience significant growth in number of users, frequency of use and amount of data transmitted, the internet infrastructure
might not be able to support the demands placed on it and the performance or reliability of the internet may be adversely
affected. The success of our business therefore depends on the development and maintenance of a sound internet infrastructure.
This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as
timely development of complementary products, such as routers, for providing reliable internet access and services.
Consequently, as internet usage increases, the growth of the market for our products depends upon improvements made to the
internet as well as to individual customers’ networking infrastructures to alleviate overloading and congestion. In addition, any
delays in the adoption of new standards and protocols required to govern increased levels of internet activity or increased
governmental regulation may have a detrimental effect on the internet infrastructure.
The market for internet-based services and products in which we operate is highly competitive, and if we cannot
compete effectively, our sales may decline and our business may be harmed.
Competition in the market for internet-based services and products in which we operate is intense and involves
rapidly changing technologies and customer and subscriber requirements, as well as evolving industry standards and frequent
product introductions. Our competitors may develop solutions that are similar or superior to our technology. Our primary
competitors include high-speed internet service providers with internal information technology staff capable of developing
solutions similar to our technology. Other competitors include: Google; Verizon Media; and MSN, a division of Microsoft.
Advantages some of our existing and potential competitors hold over us include the following:
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significantly greater revenue and financial resources;
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stronger brand and consumer recognition;
the capacity to leverage their marketing expenditures across a broader portfolio of services and
products;
ability to offer their products at significantly lower prices or at no cost;
more extensive proprietary intellectual property from which they can develop or aggregate content
without having to pay fees or paying significantly lower fees than we do;
pre-existing relationships with content providers that afford them access to content while blocking
the access of competitors to that same content;
pre-existing relationships with high-speed internet service providers that afford them the opportunity
to convert such providers to competing services and products;
lower labor and development costs; and
broader global distribution and presence.
If we are unable to compete effectively or we are not as successful as our competitors in our target markets, our
sales could decline, our margins could decline and we could lose market share, any of which would harm our business, financial
condition and results of operations.
Government regulation of the internet continues to evolve, and new laws and regulations could significantly harm our
financial performance.
Over time, we expect state, federal and international legislative bodies to continue to enact more stringent laws
and regulations relating to the internet. The adoption or modification of laws related to the internet could harm our business,
financial condition and results of operations by, among other things, increasing our costs and administrative burden.
Due to the increasing popularity and use of the internet, many laws and regulations relating to the internet are
being debated at the international, federal and state levels, which are likely to address a variety of issues such as:
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user privacy and expression;
ability to collect and/or share necessary information that allows us to conduct business on the
internet;
export compliance;
pricing and taxation;
fraud;
advertising;
intellectual property rights;
consumer protection;
protection of minors;
content regulation;
information security; and
quality of services and products.
Several federal laws that could have an impact on our business have been adopted. For example, the Digital
Millennium Copyright Act of 1998 reduces the liability of online service providers of third-party content, including content that
may infringe copyrights or rights of others, but requires strict compliance with certain provisions to qualify for the safe harbor
provisions; the Children’s Online Privacy Protection Act imposes additional restrictions on the ability of online services to
collect user information from minors under the age of 13; and the Protection of Children from Sexual Predators Act requires
online service providers to report evidence of violations of federal child pornography laws under certain circumstances.
It could be costly for us to comply with existing and potential laws and regulations, and they could harm our
marketing efforts and our attractiveness to advertisers by, among other things, restricting our ability to collect demographic and
personal information from consumers or to use or disclose that information in certain ways. If we were to violate these laws or
regulations, or if it were alleged that we had, we could face private lawsuits, fines, penalties and injunctions and our business
could be harmed.
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Finally, the applicability to the internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain. Any new legislation
or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or
the application of existing laws and regulations to the internet and other online services could also increase our costs of doing
business, discourage internet communications, reduce demand for our services and expose us to substantial liability.
Increased regulation and industry standards related to internet privacy issues may prevent us from, or may increase the
cost of, providing our current products and solutions to our customers, thereby harming our business.
The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the
foreseeable future. Practices regarding the collection, use, storage, sharing, processing, disclosure, destruction and security of
personal information by companies operating over the internet have come under increased public scrutiny and, as a result, there
are an increasing number of regulations and industry standards that affect our business. Regulators, including the Federal Trade
Commission and regulators in the EEA and other countries, have restricted and continue to restrict our ability to use personal
information and therefore may limit or inhibit our ability to operate our business. In addition, many nations and economic
regions have privacy protections that are more stringent or otherwise at odds with those in the United States.
For example, the EEA traditionally has imposed stricter obligations and provided for more onerous penalties than
the United States. The European General Data Protection Regulation (“GDPR”) took effect in May 2018 and applies to all of
our products and services used by people in Europe. The GDPR includes operational requirements for companies that receive or
process personal data of residents of the European Union that are different from those previously in place in the European
Union, and includes significant penalties for non-compliance. Similarly, there are a number of legislative proposals in the
European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new
obligations in areas affecting our business, such as liability for copyright infringement. In addition, some countries are
considering or have passed legislation implementing data protection requirements or requiring local storage and processing of
data or similar requirements that could increase the cost and complexity of delivering our services. Complying with new
privacy and security requirements, whether imposed by regulation, contract or industry standard, will require additional
expenditures and may result in a greater compliance burden for companies with employees or users in the EEA.
The United States and other countries have been looking to the GDPR as precedent for new data protection
regulation. For example, the California Consumer Privacy Act (“CCPA”) which went into effect on January 1, 2020, requires
companies to provide new data disclosure, access and deletion rights to California consumers, afford such consumers the ability
to opt-out of certain sales of personal information, and impose significant penalties for non-compliance or data breaches. The
CCPA may precipitate additional privacy regulation by federal, state and local governments, which may increase our
compliance costs and strain our technical capabilities, and it is possible that such regulations may conflict with each other.
We may incur significant expenses to comply with privacy and security standards and protocols imposed by law,
regulation, industry standards or contractual obligations. Our business, including our ability to operate and expand
internationally, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that
is inconsistent with our current business practices and that require changes to these practices, our services or our privacy
policies.
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Risks Related to the Merger
Qumu shareholders will receive a fixed ratio of 1.61 shares of Synacor common stock for each share of Qumu common
stock regardless of any changes in market value of Qumu common stock or Synacor common stock before the
completion of the merger.
At the effective time of the merger, each share of Qumu common stock will be converted into the right to receive
1.61 shares of Synacor common stock. There will be no adjustment to the exchange ratio (except for adjustments to reflect the
effect of any stock split, reverse stock split, stock dividend, reorganization, recapitalization, reclassification or other like change
with respect to Synacor common stock or Qumu common stock), and the parties do not have a right to terminate the merger
agreement based upon changes in the market price of either Synacor common stock or Qumu common stock. The respective
market value of Synacor’s and Qumu’s common stock since the announcement of the merger has fluctuated and may continue
to fluctuate as a result of a variety of factors, including general market and economic conditions and changes in Synacor’s or
Qumu’s businesses, operations and prospects. Many of these factors are outside the control of Synacor and Qumu.
The market value of Synacor common stock at the time of completion of the merger may be lower or higher than
the closing price of Synacor common stock on the last full trading day preceding the public announcement of the proposed
merger on February 11, 2020 (the date that Synacor and Qumu entered into the merger agreement), the last full trading day
prior to the date that the joint proxy statement/prospectus is filed with the SEC, or the last full trading day prior to the date of
Synacor’s and Qumu’s shareholder meetings. Moreover, completion of the merger may occur some time after the requisite
shareholder approvals have been obtained. Consequently, at the time Qumu shareholders must decide whether to approve the
merger agreement, they will not know the market price of the Synacor common stock they will receive and the market price of
the Qumu common stock they will surrender when the merger is actually consummated. The value of the Synacor common
stock received by Qumu shareholders will depend on the market price of the Synacor common stock at that time the merger
occurs, and the value of the Qumu common stock surrendered by Qumu shareholders will depend on the market price of the
Qumu common stock at that time.
The issuance of shares of Synacor common stock to Qumu shareholders in the merger will substantially reduce the
percentage interests of Synacor stockholders.
If the merger is completed, Synacor stockholders are expected to own approximately 64.4% of the outstanding
shares of Synacor common stock and former Qumu shareholders are expected to own approximately 35.6% of the outstanding
shares of Synacor common stock following the completion of the merger. The issuance of shares of Synacor common stock to
Qumu shareholders in the merger will cause a significant reduction in the relative percentage interest of current Synacor
stockholders in earnings, voting, liquidation value and book and market value.
Whether or not the merger is completed, the announcement and pendency of the merger could impact or cause
disruptions in the businesses of Qumu and Synacor, which could have an adverse effect on the businesses and operating
results of Qumu and Synacor.
Whether or not the merger is completed, the announcement and pendency of the merger could cause disruptions
in or otherwise negatively impact the businesses and operating results of Qumu and Synacor, including among others:
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Qumu and Synacor employees may experience uncertainty about their future roles with the
combined company, which might adversely affect Qumu’s and Synacor’s ability to retain and hire
key personnel and other employees;
the attention of Qumu’s and Synacor’s management may be directed toward completion of the
merger and transaction-related considerations and may be diverted from the day-to-day operations
and pursuit of other opportunities that could have been beneficial to the businesses of Qumu and
Synacor; and
customers, channel partners, vendors or suppliers may seek to modify or terminate their business
relationships with Qumu or Synacor, or delay or defer decisions concerning Qumu’s or Synacor’s
products or services or seek alternatives to the products or services offered by Qumu or Synacor.
These disruptions could be exacerbated by a delay in the completion of the merger or termination of the merger
agreement and could have an adverse effect on the businesses, operating results or prospects of Qumu and Synacor if the
merger is not completed or the business, operating results or prospects of the combined company if the merger is completed.
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Failure to successfully integrate the businesses of Synacor and Qumu in the expected time-frame may adversely affect
the combined company’s future results.
Synacor and Qumu entered into the merger agreement with the expectation that the merger will result in various
benefits, including certain cost savings and operational efficiencies or synergies. To realize these anticipated benefits, the
businesses of Synacor and Qumu must be successfully integrated. Historically, Synacor and Qumu have been independent
companies, and they will continue to be operated as such until the completion of the merger. The integration may be complex
and time consuming and may require substantial resources and effort. The management of the combined company may face
significant challenges in consolidating the operations of Synacor and Qumu, integrating the two companies’ technologies,
procedures, and policies, as well as addressing the different corporate cultures of the two companies. If the companies are not
successfully integrated, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize
than expected.
Customer uncertainties related to the merger could adversely affect the businesses, revenues and gross margins of
Synacor and the combined company.
In response to the announcement of the merger or due to ongoing uncertainty about the merger, customers of
Synacor or Qumu may delay or defer purchasing decisions or elect to switch to other suppliers. In particular, prospective
customers could be reluctant to purchase the products and services of Synacor or the combined company due to uncertainty
about the direction of the combined company’s offerings and willingness to support existing products. To the extent that the
merger creates uncertainty among those persons and organizations contemplating purchases such that customers delay, defer or
change purchases in connection with the planned merger, the revenues of Synacor or the combined company would be
adversely affected. Customer assurances may be made by Synacor and Qumu to address their customers’ uncertainty about the
direction of the combined company’s product and related support offerings, which may result in additional obligations of
Synacor or the combined company. As a result of any of these actions, quarterly revenues and other operating results of the
combined company could be substantially below expectations of market analysts and a decline in the companies’ respective
stock prices could result.
Provisions of the merger agreement may deter alternative business combinations and could negatively impact the stock
prices of Synacor and Qumu if the merger agreement is terminated in certain circumstances.
In connection with the execution and delivery of the merger agreement, each of Qumu and Synacor agreed to
immediately cease all existing activities, discussions or negotiations with any persons previously conducted with respect to
certain acquisition proposals and acquisition transactions relating to Qumu and Synacor. The merger agreement prohibits
Synacor and Qumu from soliciting, initiating, or knowingly encouraging or facilitating certain acquisition proposals with any
third party, subject to exceptions set forth in the merger agreement. The merger agreement does not allow either Qumu or
Synacor to terminate the merger agreement solely due to the receipt of an alternative acquisition proposal. The merger
agreement also provides for the payment by Synacor of a termination fee of $2.0 million if the merger agreement is terminated
in certain circumstances (relating to, among other things, certain breaches of Synacor’s no-shop obligations, failure by the
Synacor board to recommend the merger, and failure by Synacor to bring the merger before a vote to the stockholders) in
connection with a competing third party acquisition proposal for Synacor and for the payment by Qumu of a termination fee of
$2.0 million if the merger agreement is terminated in certain circumstances (relating to, among other things, certain breaches of
Qumu’s no-shop obligations, failure by the Qumu board to recommend the merger, and failure by Qumu to bring the merger
before a vote to the stockholders) in connection with a competing third party acquisition proposal for Qumu. These provisions
limit our ability to pursue offers from third parties that could result in greater value to Synacor stockholders. The obligation to
pay the termination fee also may discourage a third party from pursuing an acquisition proposal. If the merger agreement is
terminated and we determine to seek another business combination, we cannot assure our stockholders we they will be able to
negotiate a transaction with another acquiror on terms comparable to the terms of the merger, or that we will avoid the
termination fee associated with the termination of the merger agreement.
In the event the merger agreement is terminated by Synacor or Qumu in circumstances that obligate either party
to pay the termination fee to the other party, including where either party terminates the merger agreement because the other
party’s board withdraws its support of the merger, our stock price may decline.
We are subject to business uncertainties and contractual restrictions while the proposed transactions are pending, which
could adversely affect our business and operations.
Under the terms of the merger agreement, we are subject to certain restrictions on the conduct of our business
prior to completing the merger, which may adversely affect our ability to execute certain of our business strategies, including
the ability in certain cases to enter into contracts, incur indebtedness or incur capital expenditures, or otherwise pursue actions
that are not in the ordinary course of business, even if such actions would be beneficial to Synacor. Such limitations could
negatively affect each party’s businesses, operations and financial condition prior to the completion of the merger.
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If the proposed merger is not completed, we will have incurred substantial costs that may adversely affect our financial
results and operations and the market price of Synacor common stock.
We have incurred and will incur substantial costs in connection with the proposed merger, even if the merger is
not completed. These costs are primarily associated with the fees of our attorneys, accountants, transaction advisors, and
financial advisors. Also, if the merger agreement is terminated under specified circumstances, we may be required to pay a
termination fee to Qumu of $2 million. In the event that the proposed merger is not completed, these merger related costs may
adversely affect our business, operating results and financial condition, as well as the price of Synacor common stock.
Risks Related to Ownership of Our Common Stock
Concentration of ownership among our directors and officers and their respective affiliates could limit our other
stockholders’ ability to influence the outcome of key corporate decisions, such as an acquisition of our company.
Our directors and executive officers and their respective affiliates, beneficially own or directly or indirectly
control (including by voting proxy), as of March 3, 2020, approximately 25% of our outstanding common stock (including
exercisable options). These stockholders, if they were to act together, would have the ability to significantly influence the
outcome of matters submitted to our stockholders for approval, including the election of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition, these stockholders, if they act together, would have the
ability to influence significantly the management and affairs of our company. Accordingly, this concentration of ownership
might harm the trading price of our common stock by:
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delaying, deferring or preventing a change in our control;
impeding a merger, consolidation, takeover or other business combination involving us;
preventing the election of directors who are nominated by our stockholders; or
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain
control of us.
Our business could be negatively affected as a result of actions of stockholders or others.
There can be no assurance that a third party will not make an unsolicited takeover proposal in the future or take
other action to acquire control of us or to otherwise influence our management and policies. Considering and responding to any
future proposal is likely to result in significant additional costs to us, and future acquisition proposals, other stockholder actions
to acquire control and the litigation that often accompanies them, if any, are likely to be costly and time-consuming and may
disrupt our operations and divert the attention of management and our employees from executing our strategic plan.
Additionally, perceived uncertainties as to our future direction as a result of stockholder activism or actual or
potential changes to the composition of our board of directors, may lead to the perception of a change in the direction of our
business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers,
and make it more difficult to attract and retain qualified personnel. If customers choose to delay, defer or reduce their reliance
on the services we provide or decide to do business with our competitors instead of us because of any such issues, then our
business, operating results and financial condition would be adversely affected.
Future sales of our common stock may cause the trading price of our common stock to decline.
Certain of our stockholders who held shares of our preferred stock before the consummation of our public
offering (and who now hold shares of our common stock) may be able to sell these shares in the public market without
registration under Rule 144.
In addition, the shares that are either subject to outstanding options or warrants or that may be granted in the
future under our equity plans will become eligible for sale in the public market to the extent permitted by the provisions of
various vesting agreements.
If a substantial number of any of these additional shares described are sold, or if it is perceived that a substantial
number of such shares will be sold, in the public market, the trading price of our common stock could decline.
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Some provisions of our certificate of incorporation, bylaws and Delaware law may discourage, delay or prevent a
merger or acquisition or prevent the removal of our current board of directors and management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that
may discourage, delay or prevent a merger or acquisition or prevent the removal of our current board of directors and
management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including:
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our board of directors is classified into three classes of directors with staggered three-year terms;
our directors may only be removed for cause, and only with the affirmative vote of a majority of the
voting interest of stockholders entitled to vote;
only our board of directors and not our stockholders will be able to fill vacancies on our board of
directors;
only our chairman of the board, our chief executive officer or a majority of our board of directors,
and not our stockholders, are authorized to call a special meeting of stockholders;
our stockholders will be able to take action only at a meeting of stockholders and not by written
consent;
our amended and restated certificate of incorporation authorizes undesignated preferred stock, the
terms of which may be established and shares of which may be issued without stockholder approval;
and
advance notice procedures apply for stockholders to nominate candidates for election as directors or
to bring matters before an annual meeting of stockholders.
These provisions and other provisions in our charter documents could discourage, delay or prevent a transaction
involving a change in our control. Any delay or prevention of a change in control transaction could cause stockholders to lose a
substantial premium over the then-current trading price of their shares. These provisions could also discourage proxy contests
and could make it more difficult for our stockholders to elect directors of their choosing or to cause us to take other corporate
actions such stockholders desire.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some
exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is
generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock,
for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the
effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests.
We have not paid cash dividends on our capital stock, and we do not expect to do so in the foreseeable future.
We have not historically paid cash dividends on our capital stock, and we have agreed not to pay any dividends
or make any other distributions in our loan agreement with Silicon Valley Bank. We anticipate that we will retain all future
earnings and cash resources for the future operation and development of our business, and as a result, we do not anticipate
paying any cash dividends to holders of our capital stock for the foreseeable future. Any future determination regarding the
payment of any dividends will be made at the discretion of our board of directors and will depend on our financial condition,
results of operations, capital requirements, general business conditions, bank covenants and other factors that our board may
deem relevant. Consequently, investors must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any future gains on their investment.
The trading price and volume of our common stock has been and will likely continue to be volatile, and the value of an
investment in our common stock may decline.
The trading price of our common stock has been, and is likely to continue to be, volatile and could decline
substantially within a short period of time. For example, since shares of our common stock were sold in our initial public
offering in February 2012 at a price of $5.00 per share through the close of business on March 6, 2020, our trading price has
ranged from $1.03 to $18.00. The trading price of our common stock may be subject to wide fluctuations in response to various
factors, some of which are beyond our control, including but not limited to the various factors set forth in this “Risk Factors”
section, as well as:
•
•
variations in our financial performance;
announcements of technological innovations, new services and products, strategic alliances, asset
acquisitions, or significant agreements by us or by our competitors;
26
•
•
•
•
•
announcements of acquisitions of, or mergers with companies
announcements regarding our existing customer contracts;
changes in the estimates of our operating results or changes in recommendations or withdrawal of
research coverage by securities analysts;
market conditions in our industry, the industries of our customers and the economy as a whole; and
adoption or modification of laws, regulations, policies, procedures or programs applicable to our
business or announcements relating to these matters.
In addition, if the market for technology stocks or the stock market in general experiences loss of investor
confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or
results of operations. The trading price of our common stock might also decline in reaction to events that affect other companies
in our industry even if these events do not directly affect us. Some companies that have had volatile market prices for their
securities have had securities class actions filed against them. Such a suit filed against us, regardless of its merits or outcome,
could cause us to incur substantial costs and could divert management’s attention.
If securities or industry analysts do not publish research or reports about our company, our stock price and trading
volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry
analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish
inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts
cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might
cause our stock price and trading volume to decline.
The requirements of being a public company, including increased costs and demands upon management as a result of
complying with federal securities laws and regulations applicable to public companies, may adversely affect our
financial performance and our ability to attract and retain directors.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or
the Dodd-Frank Act, and the rules and regulations of The Nasdaq Global Market. The Sarbanes-Oxley Act, as well as rules
subsequently implemented by the SEC and Nasdaq, impose additional requirements on public companies, including enhanced
corporate governance practices. For example, the Nasdaq listing requirements require that listed companies satisfy certain
corporate governance requirements relating to independent directors, audit committees, distribution of annual and interim
reports, stockholder meetings, stockholder approvals, solicitation of proxies, conflicts of interest, stockholder voting rights and
codes of business conduct. Our management team has limited experience managing a publicly-traded company or complying
with the increasingly complex laws pertaining to public companies. In addition, most of our current directors have limited
experience serving on the boards of public companies.
The requirements of these rules and regulations have increased and will continue to increase our legal,
accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and may also place
undue strain on our personnel, systems and resources. Our management and other personnel must devote a substantial amount
of time to these requirements. In particular, we have incurred and expect to continue to incur significant expenses and devote
substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act,
including remediating the material weaknesses described in Item 9A. “Controls and Procedures.” For example, we have
assigned additional personnel within our finance department to the implementation, administration and evaluation of our
internal control over financial reporting, and we engaged an outside public accounting firm to provide us with the services of
accounting support personnel.
Moreover, the rules and regulations applicable to public companies also make it more difficult and more
expensive for us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or
incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and officers’ insurance,
our ability to recruit and retain qualified directors, especially those directors who may be considered independent for purposes
of Nasdaq rules, and officers may be significantly curtailed.
27
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters are located at 40 La Riviere Drive, Buffalo, New York 14202. We lease
approximately 31,000 square feet of office space at this address pursuant to an agreement that expires November 2021.
We also maintain sales, administrative and product development offices in New York, New York; Ottawa,
Ontario, Canada; Westford, Massachusetts; Frisco, Texas; Pune, India; London, United Kingdom; Tokyo, Japan; Paris, France;
and Singapore. Our data centers are located in Allen, Texas; Dallas, Texas; Lewis Center, Ohio; Watertown, Massachusetts;
and Toronto, Ontario, Canada.
We believe that our facilities are adequate to meet our current needs and that suitable additional or substitute
space will be available as needed.
ITEM 3.
LEGAL PROCEEDINGS
We were previously awaiting a decision of an arbitration tribunal following a binding arbitration that took place
on July 30, 2018 between the Company and Maxit Technology Incorporated and Maxit Technology Holdings Limited,
(collectively, “Maxit”), who were formerly our joint venture partner in China. After unsuccessful settlement discussions
between the parties, on January 25, 2016, Maxit requested arbitration under the Rules of the International Chamber of
Commerce. In its request for arbitration, Maxit asserted claims for breach of contract, breach of the covenant of good faith and
fair dealing, breach of fiduciary duty, and negligent misrepresentation, all arising out of our alleged failure to provide capital
and software as required by the joint venture agreement. In its request, Maxit sought an award of money damages based on its
share of the lost potential value of the joint venture, as well as a percentage of revenue from any future sales to customers
originally introduced by Maxit, interest and legal expenses. On March 18, 2019, the arbitral tribunal issued a final award
finding that we had no liability to Maxit. We reversed the reserve of $0.3 million that was previously recorded related to this
arbitration during 2019.
We and our Chief Executive Officer and former Chief Financial Officer were named as defendants in a federal
securities class action lawsuit filed April 4, 2018 in the United States District Court for the Southern District of New York. The
class includes persons who purchased our shares between May 4, 2016 and March 15, 2018. The plaintiff alleged that we made
materially false and misleading statements regarding our contract with AT&T and the timing of revenue to be derived
therefrom, and that as a result class members suffered losses because Synacor shares traded at artificially inflated prices. The
plaintiff sought an unspecified amount of damages, as well as interest, attorneys’ fees and legal expenses. The court appointed a
lead plaintiff and approved plaintiff’s selection of lead counsel on July 6, 2018. On October 16, 2018 the court appointed new
lead counsel and confirmed the lead plaintiff. The plaintiff filed an amended complaint on November 2, 2018, and we filed a
motion to dismiss on December 17, 2018. The plaintiff filed an opposition to the motion to dismiss on January 19, 2019 and we
filed a reply to plaintiff’s opposition on February 15, 2019. On August 28, 2019, the court granted our motion to dismiss but
permitted the plaintiff to seek leave to replead. On October 2, 2019, the plaintiff filed a letter application seeking the court's
leave to file a third amended complaint. We filed a letter in opposition to the plaintiff's motion on October 21, 2019. The court
denied plaintiffs’ application to file an amended complaint and ordered the case closed on November 15, 2019. The Clerk of
the Court entered judgment in favor of Synacor and the individual defendants and closed the case on November 19, 2019.
Plaintiff filed its Notice of Appeal on December 16, 2019. We dispute these claims and intend to defend them vigorously. Any
potential liabilities related to this lawsuit are covered by D&O insurance now that we have reached our deductible.
We do not believe that the outcome of these claims will have a material adverse effect on our consolidated
financial position, results of operations or cash flows based on the status of proceedings at this time. However, regardless of the
outcome, such proceedings can have an adverse impact on us because of defense and settlement costs, diversion of resources
and other factors.
In addition, we are, from time to time, party to litigation arising in the ordinary course of business. For example,
third parties might allege that we are infringing their patent rights or that we are otherwise violating their intellectual property
rights, including trade names and trademarks. Such third parties may resort to litigation. We accrue contingent liabilities when it
is probable that future expenditures will be made and such expenditures can be reasonably estimated.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
28
PART II
ITEM 5.
Market Information
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock has been listed on The Nasdaq Global Market, or Nasdaq, under the symbol “SYNC” since
February 10, 2012. Prior to that time, there was no public market for our stock.
Holders of Record
As of March 3, 2020, there were 93 holders of record of our common stock. The number of holders of record of
our common stock does not reflect the number of beneficial holders whose shares are held by depositors, brokers or other
nominees.
Securities Authorized for Issuance under Equity Compensation Plans
The information required to be disclosed by Item 201(d) of Regulation S-K regarding our equity securities
authorized for issuance under our equity incentive plans is incorporated herein by reference to the section entitled “Securities
Authorized for Issuance Under Equity Compensation Plans” in our definitive Proxy Statement for our Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of fiscal year 2019 pursuant to Regulation 14A.
Recent Sales of Unregistered Securities
None.
Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
None.
29
ITEM 6.
SELECTED FINANCIAL DATA
You should read the following selected consolidated historical financial data below in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements,
related notes and other financial information included in this Annual Report on Form 10-K. The selected consolidated financial
data in this section is not intended to replace the financial statements and is qualified in its entirety by the financial statements
and related notes included in this Annual Report on Form 10-K.
We derived the selected consolidated financial data for the years ended December 31, 2019, and 2018, and as of
December 31, 2019 and 2018 from our audited consolidated financial statements and related notes, which are included in this
Annual Report on Form 10-K. We derived the selected consolidated financial data for the years ended December 31, 2017,
2016 and 2015 and as of December 31, 2017, 2016 and 2015 from our audited consolidated financial statements and related
notes, which are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the
results to be expected in the future.
2019 (5)
Year Ended December 31,
2017
(in thousands except share and per share data)
2018 (5)
2016
2015 (4)
Consolidated Statements of Operations Data:
Revenue
Costs and operating expenses:
Cost of revenue (1)
Technology and development (1)(2)
Sales and marketing (2)
General and administrative (1)(2)
Depreciation and amortization
Total costs and operating expenses
Net loss
Gain on sale of investment
Loss before income taxes
Interest expense
Loss before income taxes
Provision for income taxes
Loss in equity interest
Net loss
Net loss per share:
Basic
Diluted
$
121,845 $
143,879 $
140,027 $
127,373 $
110,245
61,990
18,273
21,790
17,734
9,865
73,304
23,753
24,116
19,454
9,641
70,053
27,642
24,941
17,800
9,820
59,146
25,612
22,846
19,695
9,235
54,423
20,007
16,272
15,543
6,901
129,652
(7,807)
150,268
(6,389)
150,256
(10,229)
136,534
(9,161)
113,146
(2,901)
—
(17)
(268)
(8,092)
929
—
—
(212)
(338)
(6,939)
616
—
1,987
(433)
(2)
(8,677)
1,100
—
—
(318)
(42)
(9,521)
1,219
—
—
(245)
(16)
(3,162)
239
(73)
(9,021) $
(7,555) $
(9,777) $
(10,740) $
(3,474)
(0.23) $
(0.23) $
(0.19) $
(0.19) $
(0.27) $
(0.27) $
(0.36) $
(0.36) $
(0.12)
(0.12)
$
$
$
Weighted average shares used to compute net
loss per share:
Basic
Diluted
Other Financial Data:
Adjusted EBITDA (3)
39,090,239
39,090,239
38,895,301
38,895,301
36,381,299
36,381,299
30,251,685
30,251,685
28,213,838
28,213,838
$
9,503 $
8,464 $
2,337 $
3,179 $
7,593
30
2019 (6)
2018 (5)
As of December 31,
2017
(in thousands)
2016
2015 (4)
Consolidated Balance Sheet Data:
Cash and cash equivalents
Accounts receivable, net
Property and equipment, net
Total assets
Long-term debt and finance lease obligations
Total stockholders’ equity
$ 10,966
$ 15,921
$ 22,476
$ 14,315
$
20,532
14,948
79,878
3,258
43,664
25,567
18,707
91,463
3,695
51,171
31,696
20,505
108,780
5,815
54,345
27,386
14,406
93,399
6,996
39,649
15,697
24,341
14,377
89,026
7,581
46,104
_________________________________
Notes:
(1)
Exclusive of depreciation and amortization shown separately
(2)
Includes stock-based compensation, as follows:
2019
2018
Year Ended December 31,
2017
(in thousands)
2016
2015 (4)
Technology and development
Sales and marketing
General and administrative
$
$
338 $
513
765
$
489
474
841
$
744
636
1,110
$
921
784
1,066
1,616 $
1,804
$
2,490
$
2,771
$
936
942
1,237
3,115
(3)
(4)
(5)
(6)
We define adjusted EBITDA as net income (loss) plus: provision (benefit) for income taxes, interest expense,
other (income) expense, depreciation and amortization, asset impairments, stock-based compensation,
restructuring costs, and and certain legal and professional fees. Please see “Adjusted EBITDA” below for more
information and for a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial
measure calculated and presented in accordance with GAAP.
Results for 2015 include the results of operations relating to the acquired Zimbra assets since the closing of the
acquisition in September 2015.
Results starting in 2018 include the impact of the adoption of the new accounting standard in fiscal year 2018
related to revenue recognition, prior periods have not been restated.
Results for 2019 include the impact of the adoption of the new accounting standard in fiscal year 2019 related to
leases. Refer to Note 1, The Company and Summary of Significant Accounting Policies, of the Notes to the
Consolidated Financial Statements referred to in Item 8 of this report for additional information.
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed within this
Annual Report on Form 10-K adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of
adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
We have included adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by
our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and
approve our annual budget and to develop short and long-term operational plans. In particular, the exclusion of certain expenses
in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business.
Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in
connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA provides
useful information to investors and others in understanding and evaluating our operating results in the same manner as our
management and board of directors.
31
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or
as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•
•
•
•
•
•
•
•
although depreciation and asset impairments are non-cash charges, the assets being depreciated or
impaired may have to be replaced in the future, and adjusted EBITDA does not reflect capital
expenditure requirements for such replacements or for new capital expenditure requirements;
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not reflect the impact of tax payments that may represent a reduction in cash
available to us;
adjusted EBITDA does not reflect the impact of principal or interest payments required to service
our capital leases or long-term debt borrowings (if any);
adjusted EBITDA does not reflect the impact of the cost of merger or other business acquisitions on
the cash available to us;
adjusted EBITDA does not reflect the impact of non-recurring items, such as the costs associated
with reductions in workforce, on the cash available to us: and
other companies, including companies in our industry, may calculate adjusted EBITDA differently,
which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA alongside other financial performance
measures, including net loss and our other GAAP results. The following table presents a reconciliation of net loss to Adjusted
EBITDA for each of the periods indicated:
2019
2018
2016
2015
Year Ended December 31,
2017
(in thousands)
Reconciliation of Adjusted EBITDA:
Net loss
Provision for income taxes
Interest expense
Other expense, net
Depreciation and amortization
Long-lived asset impairment
Stock-based compensation expense
Gain on sale of investment
Loss in equity interest
Restructuring costs *
Acquisition costs
Certain legal expenses **
Certain professional services fees ***
Adjusted EBITDA
$
(9,021) $
(7,555) $
(9,777) $
(10,740) $
(3,474)
929
268
17
11,251
1,751
1,616
—
—
959
—
1,098
635
9,503
$
$
616
338
212
9,832
552
1,804
—
—
1,111
—
1,400
154
8,464
$
1,100
433
2
9,820
256
2,490
(1,987)
—
—
—
—
—
2,337
$
1,219
318
42
9,235
334
2,771
—
—
—
—
—
—
3,179
$
239
245
16
6,901
—
3,115
—
73
—
478
—
—
7,593
*
**
"Restructuring costs" include severance expense, contract termination costs and other exit or disposal costs.
"Certain legal expenses" include legal fees and other related expenses outside the ordinary course of business.
***
“Certain professional services fees” includes fees and expenses related to merger and acquisition activities.
32
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our results of operations and financial condition should be read in conjunction with
the information set forth in “Selected Financial Data” and our financial statements and the notes thereto included in this
Annual Report on Form 10-K. This discussion contains forward-looking statements based upon our current expectations,
estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements due to, among other considerations, the matters discussed under “Risk Factors” and
“Special Note Regarding Forward-Looking Statements.”
Overview
Business Overview
Synacor is a digital technology company that provides email and collaboration software, cloud-based identity
management platforms, managed web and mobile portals, and advertising solutions. Our customers include communications
providers, media companies, government entities and enterprises. We are their trusted partner for enterprise software platforms
and monetization solutions that we deliver through public and private cloud software-as-a-service, software licensing, and
professional services. Our platforms enable our clients to deepen engagement with their consumers and users.
During the first quarter of 2019, we made changes to our reporting structure that resulted in two reportable
segments: Software & Services and Portal & Advertising. A summary of the major products and services of our reportable
segments follows:
Software & Services
Synacor’s software and services segment is comprised of our cloud-based identity management platform and our
Zimbra email & collaboration platform.
Cloud-based Identity Management
Our Cloud ID platform provides secure, scalable authentication and authorization that enables consumers to
easily unlock access to content and services. It enables single sign-on access to services such as OTT video, TV Everywhere
streaming video and audio, email, web access customer account information, and other consumer and enterprise apps. Cloud ID
is delivered as a platform-as-a-service through public and private cloud infrastructure.
Email / Collaboration
Synacor delivers an open and extensible email & collaboration platform used by service providers, regulated
entities (government & financial institutions), enterprises, and small and medium sized businesses around the world. Branded as
Zimbra, our open-standards-based email collaboration platform powers hundreds of millions of mailboxes globally through our
network of more than 1,900 channel partners (value-added resellers, or VARs, and Business Service Providers, or BSPs) and
about 4,000 licensed customers. Zimbra is delivered as software-as-a-service through public and private cloud infrastructure,
and as licensed software.
Portal & Advertising
Synacor’s managed portal network and publisher-focused advertising platform reaches over 200 million monthly
unique visitors. These solutions enable our customers to earn incremental revenue by monetizing media from their consumers
across all popular devices.
Managed Portals
Our managed portal network consists of white-labeled browser start pages and iOS/Android start apps that serve
as daily destinations for consumers. Powered by our media and programming library which includes news, entertainment, and
short and long form video, these products increase consumer engagement and generate advertising revenue. They also provide
consumers with self-management capabilities for email and messaging, bill paying and other account management activities.
Syndicated Advertising
Synacor’s syndicated advertising platform works with hundreds of publishers to deliver brand-safe monetization
that leverages scale, premium brands and programmatic technology across desktop and mobile. We help publishers dynamically
target different audiences by matching relevant content to the right users across multiple devices. Publishers also leverage our
demand facilitation services to connect premium advertisers and brands with their target audiences on brand-safe sites.
33
Financial Highlights
Highlights and significant developments for the twelve months ended December 31, 2019
•
•
•
Adjusted EBITDA* increased to $9.5 million, up from $8.5 million in 2018
Operating expenses, exclusive of depreciation and amortization, decreased 14% from the prior year
to $57.8 million
Cash from operating activities was $2.5 million, compared to $2.1 million of cash from operating
activities in 2018
The initiatives described below under “Key Initiatives” are expected to contribute to our ability to maintain and
grow revenue and return to operating profitability via increases in advertising revenue, increases in customers and our consumer
reach, and increases in availability of products across more devices. We expect the period in which we experience a return on
future investments in each of these initiatives to differ. For example, more direct advertising at higher rates would be expected
to have an immediate and direct impact on profitability while expansion into international markets may require an investment
that involves a longer term return.
*
We define adjusted EBITDA as net income (loss) plus: provision (benefit) for income taxes, interest
expense, other (income) expense, depreciation and amortization, asset impairments, stock-based compensation, restructuring
costs, and and certain legal and professional fees. Please see “Adjusted EBITDA” within Item 6, for more information and for a
reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in
accordance with GAAP. Net loss for the year ending December 31, 2019 was $(9.0) million, and $(7.6) million for the year
ending December 31, 2018.
34
Trends Affecting Our Business
Software & Services
Our current customers and new prospects require authentication services to manage the complexity of new
business rules. With consumers having more choice for video consumption via traditional video packages to a la carte offerings
and direct to consumer offerings, the demand for Cloud ID authentication across multiple platforms and providing a simplified
single sign on solution for the end user is in high demand.
More and more companies are leveraging highly scalable global SaaS solutions to enable staff to use the same
integrated enterprise application in order to achieve massive economies of scale, while maintaining their respective security and
compliance objectives. We have also reached a tipping point in the industry where businesses are more receptive to cloud-based
SaaS solutions than the traditional on-premised software deployments. As such, our success is dependent on our ability to help
these businesses realize improved efficiency, personalization and security brought about by recent technological advancements.
Portal & Advertising
Our customers in the Portal & Advertising segment, predominantly high-speed internet service providers that
also offer television services, are facing increasing competition from companies that deliver video content over the internet,
more commonly referred to as “over-the-top,” or OTT. These competitors include a number of large companies, most notable
being Google. With the increased availability of high-speed internet access and over-the-top programming, consumers’ video
content consumption preferences may shift away from current viewing habits.
Another trend affecting our customers and our business is the proliferation of internet-connected devices,
especially mobile devices. Smartphones, tablets and connected TVs have made it more convenient for consumers to access
services and content online, including television programming. To remain competitive, our customers and potential customers
must have the capability to deliver their services and products to consumers on all devices. Our technology enables them to
extend their presence beyond traditional personal computers.
Our business is also affected by growth in advertising on the internet, for which the proliferation of high-speed
internet access and internet-connected devices have been and will continue to be the principal drivers. We believe we have
experienced a decline in advertising revenue due to consumers’ internet searching habits increasingly transitioning to mobile
devices. However, our focus on publisher based advertising has resulted in an increase in advertising revenue. In addition, we
believe there continue to be growth opportunities for advertising related to the video, images and text on our Managed Portals
and hosted email/collaboration products.
Key Initiatives
Our strategy is supported by four key pillars to drive our business, with operational discipline and sound
financial footing as its base. We plan to:
•
•
•
•
increase value for existing customers by optimizing consumer experience and monetization;
innovate on Synacor-as-a-platform for advanced services;
win new customers in current and related verticals; and
extend our product portfolio into emerging growth areas.
35
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with U.S. GAAP requires estimates and
assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related
disclosures of contingent liabilities in the financial statements and accompanying notes. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable under the circumstances. Our estimates form the
basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information available
at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the
consolidated financial statements.
We believe that of our significant accounting policies, which are described in Note 1, The Company and
Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements, the following accounting
policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most
critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.
Revenue Recognition
Revenue is recognized according to ASC 606, Revenue - Revenue from Contracts with Customers. The Company
generates all of its revenue from contracts with customers. Many of the Company’s contracts with customers contain multiple
performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they
are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price
basis. Standalone selling prices of software licenses are typically estimated using the residual approach. Standalone selling
prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.
The Company usually expects payment within 30 to 90 days from the invoice date (fulfillment of performance obligations or
per contract terms). Differences between the amount of revenue recognized and the amount invoiced are recognized as deferred
revenue. None of the Company’s contracts as of December 31, 2019 or 2018 contained a significant financing component.
The following is a description of principal activities from which the Company generates revenue in each
reportable segment. Revenue is recognized when control of the promised goods or services are transferred to the Company’s
customers, in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.
Software & Services
Synacor’s software and services segment is comprised of our cloud-based identity management platform and our
Zimbra email & collaboration platform. Subscription fees and other fees are received from customers for the use of the
Company’s proprietary technology, including the use of, or access to, email, Cloud ID, security services, games and other
premium services. Monthly subscriber levels typically form the basis for generating recurring and fee-based revenue. This
revenue is typically determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular
services being offered or consumed, except in the case of software licenses and support, which are based on a fixed fee.
Revenue earned as subscription fees and maintenance and support fees is recognized from customers as its obligation to deliver
the service is satisfied, which is when the service is delivered. Revenue is also recognized from the licensing and distribution of
the Company’s Email/Collaboration products and services, including licenses of intellectual property. Software license revenue
is recognized up front upon delivery of the licensed product and the utility that enables the customer to access authorization
keys, provided that a signed contract has been received. The Company typically sells term-based software licenses that expire,
which are referred to as subscription licenses, but also sell perpetual licenses for its Email products. The software is delivered
before related services are provided and is functional without professional services, updates, and technical support.
36
Portal & Advertising
The Company uses internet advertising to generate revenue from the traffic on its Managed Portals and
Advertising solutions, categorized as search advertising and digital advertising. For search advertising, the Company has a
revenue-sharing relationship with Google, pursuant to which the Company includes a Google-branded search tool on its
Managed Portals. For revenue earned under this relationship the Company evaluates whether it is the principal (i.e., report
revenues on a gross basis) or agent (i.e., report revenues on a net basis). When a Google consumer makes a search query using
this tool, the Company delivers the query to Google and they return search results to consumers that include advertiser-
sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a
portion of that payment with the Company. The payment received from Google is recognized as revenue. Digital advertising
includes video, image and text advertisements delivered on its Managed Portals. Advertising inventory is filled with
advertisements sourced by the Company’s direct sales force and advertising network partners. Revenue is generated when an
advertisement displays, otherwise known as an impression, or when consumers view or click an advertisement, otherwise
known as an action. Digital advertising revenue is on a cost per impression or cost per action basis. Digital advertising also
includes advertising fees received for the placement of syndicated digital advertisements with other digital advertising
publishers, for which the Company acquires and pays for the space (inventory) on a cost per impression or cost per action basis.
Revenue is recognized based on amounts received from advertising customers as the impressions are delivered or the actions
occur, according to contractually-determined rates.
Software Development Costs
The Company capitalizes certain costs incurred for the development of internal use software, as well as the costs
of developing software for sale or license to customers. Internal use software includes the Company’s proprietary portal
software and related applications, Cloud ID authentication software, and various applications used in the management of the
Company’s portals. Software for sale or license to customers includes the Company’s proprietary Email/Collaboration
offerings. Costs incurred during the preliminary project stage for internal software programs are expensed as incurred. External
and internal costs incurred during the application development stage (subsequent to the achievement of technological feasibility
on software to be sold or licensed) of new software development, as well as for upgrades and enhancements for software
programs that result in additional functionality are capitalized. Software development costs capitalized for sale or license to
customers and costs capitalized for the development of internal use software are amortized over the estimated useful life of the
applicable software. Impairment charges are taken as a result of circumstances that indicate that the carrying values of the assets
were not fully recoverable. The Company utilizes the discounted cash flow method to determine the fair value of the capitalized
software assets. Impairment charges for the years ended December 31, 2019 and 2018 are included in general and
administrative expense in the consolidated statement of operations.
37
Results of Operations
The following tables set forth our results of operations for the periods presented in amount (in thousands) and as
a percentage of revenue for those periods. The period to period comparison of financial results is not necessarily indicative of
future results.
Revenue
Costs and operating expenses:
Cost of revenue (1)
Technology and development (1) (2)
Sales and marketing (2)
General and administrative (1) (2)
Depreciation and amortization
Total costs and operating expenses
Loss from operations
Other expense, net
Interest expense
Loss before income taxes
Provision for income taxes
Net loss
Notes:
(1)
(2)
Exclusive of depreciation and amortization shown separately.
Includes stock-based compensation as follows:
Technology and development
Sales and marketing
General and administrative
Year Ended December 31,
2018
2019
(in thousands)
$
121,845 $
143,879
61,990
18,273
21,790
17,734
9,865
129,652
(7,807)
(17)
(268)
(8,092)
929
$
(9,021) $
73,304
23,753
24,116
19,454
9,641
150,268
(6,389)
(212)
(338)
(6,939)
616
(7,555)
Year Ended December 31,
2018
2019
(in thousands)
$
$
338 $
513
765
1,616 $
489
474
841
1,804
38
Revenue
Cost of revenue (1)
Technology and development (1) (2)
Sales and marketing (2)
General and administrative (1) (2)
Depreciation and amortization
Total costs and operating expenses
Loss from operations
Other expense, net
Interest expense
Loss before income taxes
Provision for income taxes
Net loss
Year Ended December 31,
2018
2019
100 %
51
15
18
15
8
107
(6)
—
—
(7)
1
100 %
51
17
17
14
7
104
(4)
—
—
(5)
—
(7)%
(5)%
Included in the above results of operations was the following restructuring expense:
Cost of revenue
Technology and development
Sales and marketing
General and administrative
Total restructuring expense
Year Ended December 31,
2018
2019
234 $
370
246
109
—
298
339
474
959 $
1,111
$
$
Comparison of the years ended December 31, 2019 and 2018
Revenue decreased by $22.0 million, or 15%, in 2019 compared to 2018, attributable to an overall decline of
$4.2 million in Software & Services revenue and a decline of $17.8 million in Portal & Advertising revenue.
Cost of revenue decreased $11.3 million, or 15%, in 2019 compared to 2018. The decrease in cost is in line with
the decline in revenue.
Technology and development expenses decreased by $5.5 million, or 23%, in 2019 compared to 2018, primarily
due to lower compensation expense of $4.9 million, lower professional service fees of $0.4 million and lower travel expenses of
$0.3 million. Offsetting these declines was an increase in software licenses of $0.1 million.
Sales and marketing expenses decreased by $2.3 million, or 10%, in 2019 compared to 2018, primarily the result
of lower compensation expenses of $1.2 million, lower marketing expenses of $0.5 million, lower travel expenses of $0.4
million and lower professional services fees of $0.2 million.
General and administrative expenses decreased by $1.7 million, or 9%, in 2019 compared to 2018 due to lower
professional services fees of $2.6 million and lower compensation expense of $1.2 million, offset by higher asset impairment
charges of $1.2 million, higher computer software costs of $0.3 million, higher bad debt expense of $0.3 million and a decline
in investment value of $0.2 million.
Depreciation and amortization increased by $0.2 million or 2%, in 2019 compared to 2018. The increase in
expense is a result of additional finance leases in 2019 compared to 2018.
Other expense, net consists of interest income and foreign currency transaction gains and losses related to our
international operations. The decrease in expense of $0.2 million for the year ended December 31, 2019 compared to the same
period in 2018 was due to unrealized foreign currency transaction gain.
39
Interest expense decreased for the year ended December 31, 2019, when compared to 2018 primarily due to
lower interest incurred on finance leases.
Provision for income taxes of $0.9 million for the year ended December 31, 2019 and $0.6 million for the year
ended December 31, 2018 respectively, is comprised primarily of current foreign income tax expense, including foreign
withholding taxes, offset by deferred income tax benefit.
Segment Results of Operations
During the first quarter of 2019, we made changes to our segment reporting structure that resulted in
two reportable segments: 1) Software & Services and 2) Portal & Advertising. Previously we concluded we had one reportable
segment. All historical amounts have been restated to reflect this change.
The following are Revenue, Segment Adjusted EBITDA (in thousands) and Segment Adjusted EBITDA Margin
by reportable segment for the twelve months ended December 31, 2019 and 2018. Segment Adjusted EBITDA is defined as
EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for certain non-cash items and other
non-recurring income and expenses. Total Segment Adjusted EBITDA is equal to Adjusted EBITDA, which is a metric that is
not presented in accordance with U.S. GAAP. Refer to “Adjusted EBITDA” with Item 6, for a definition of Adjusted EBITDA
and a reconciliation to net loss, the most directly comparable U.S. GAAP measure. Segment Adjusted EBITDA is the primary
performance measure used by our senior management, the chief operating decision-maker and the board of directors to evaluate
operating results and allocate capital resources among segments. Segment Adjusted EBITDA Margin is defined as Segment
Adjusted EBITDA as a percent of Segment Revenue. Net loss for the year ending December 31, 2019 was $(9.0) million, and
$(7.6) million for the year ending December 31, 2018.
Revenue:
Software & Services
Portal & Advertising
Total Revenue
Segment Adjusted EBITDA:
Software & Services
Portal & Advertising
Corporate Unallocated Expense
Total Segment Adjusted EBITDA
Segment Adjusted EBITDA Margin:
Software & Services
Portal & Advertising
Total Segment Adjusted EBITDA Margin
Software & Services
$
$
$
$
Year Ended December 31,
2019
2018
44,485 $
77,360
121,845 $
12,531 $
10,657
(13,685)
9,503 $
28.2 %
13.8 %
7.8 %
48,692
95,187
143,879
14,305
10,788
(16,629)
8,464
29.4 %
11.3 %
5.9 %
Revenue in 2019 decreased by $4.2 million or 9% when compared 2018. Recurring revenue (revenue recognized
over time) decreased $1.9 million, primarily due to $1.2 million of discontinued video product line and lower email revenue of
$0.9 million offset by higher Cloud ID revenue of $0.2 million. Non-recurring revenue (revenue recognized at a point in time)
decreased $2.3 million. This was primarily due to $2.5 million of one-time, non-recurring service revenue recognized in 2018.
Segment Adjusted EBITDA in 2019 decreased by $1.8 million to $12.5 million, or 12%, compared to 2018. The
decrease was primarily due to lower revenue, higher royalty fees and unfavorable mix which were only partially offset by lower
operating expenses. As a result, the Segment Adjusted EBITDA Margin decreased to 28.2% compared to 29.4% in 2018.
40
Portal & Advertising
Revenue in 2019 decreased by $17.8 million, or 19%, when compared to 2018. Recurring revenue was down
$2.1 million primarily due to lower portal fees and the expected, continual decline in premium service fees. Non-recurring
revenue was down $15.7 million primarily due to lower core portal and advertising revenue of $6.6 million and the $15.2
million impact of the loss of a significant portal customer at the end of Q3 2019. This was partially offset by growth in
publisher based advertising of $6.6 million.
Segment Adjusted EBITDA in 2019 decreased $0.1 million, or 1%, compared to 2018. The small decrease was
primarily due to lower operating expenses and improved advertising margins which more than offset the lower revenue. As a
result, the Segment Adjusted EBITDA Margin increased to 13.8% compared to 11.3% in 2018.
Corporate Unallocated Expense
Corporate Unallocated Expense primarily includes corporate overhead costs, such as payroll and related benefit
costs, rent expense and professional services fees which are not directly attributable to any individual segment. Corporate
Unallocated Expense decreased for the year ended December 31, 2019 by $2.9 million, or 18%, compared to the year ended
December 31, 2018. The decrease in Corporate Unallocated Expense is primarily a result of lower professional service fees of
$2.8 million and lower compensation costs of $0.6 million offset by higher computer software costs of $0.3 million and decline
in investment value of $0.2 million.
41
Unaudited Quarterly Results of Operations and Other Data
The following tables present our unaudited quarterly results of operations and other data for the eight quarters
ended December 31, 2019. This unaudited quarterly information has been prepared on the same basis as our audited
consolidated financial statements and, in the opinion of management, the statement of operations data includes all adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This
table should be read in conjunction with our consolidated financial statements and related notes located elsewhere in this
Annual Report on Form 10-K. The results of operations for any quarter are not necessarily indicative of the results of operations
for any future periods.
March 31,
2018
June 30,
2018
September
30, 2018
December
31, 2018
March 31,
2019
June 30,
2019
September
30, 2019
December
31, 2019
For the Three Months Ended
(in thousands, except per-share data)
$
32,915
$
35,923
$
35,643
$
39,398
$
31,824
$
31,849
$
31,366
$
26,806
15,535
6,369
5,936
5,017
2,435
35,292
(2,377) $
(2,375) $
18,506
5,819
6,904
4,320
2,444
37,993
(2,070) $
(2,584) $
18,317
5,886
5,667
5,279
2,437
37,586
(1,943) $
(2,220) $
20,888
5,737
5,609
4,838
2,325
39,397
$
1
(376) $
16,506
4,546
5,991
4,465
2,435
33,943
(2,119) $
(2,244) $
17,152
4,577
5,550
3,955
2,567
33,801
(1,952) $
(2,487) $
15,634
5,545
5,473
5,648
2,605
34,905
(3,539) $
(3,725) $
12,698
3,605
4,776
3,666
2,258
27,003
(197)
(565)
(0.06) $
(0.06) $
(0.07) $
(0.07) $
(0.06) $
(0.06) $
(0.01) $
(0.01) $
(0.06) $
(0.06) $
(0.06) $
(0.06) $
(0.10) $
(0.10) $
(0.01)
(0.01)
Statements of
Revenue
Costs and operating
Cost of revenue (
Technology and
Sales and
General and
Depreciation and
Total costs and
(Loss) income from $
Net loss
$
Net loss per share:
Basic
Diluted
$
$
_________________________________
Notes:
(1)
Exclusive of depreciation and amortization shown separately
42
Liquidity and Capital Resources
Our primary liquidity and capital resource requirements are for financing working capital, investing in capital
expenditures such as computer hardware and software, supporting research and development efforts, introducing new
technology, enhancing existing technology, and marketing our services and products to new and existing customers.
To the extent that existing cash and cash equivalents, cash from operations, cash from short-term borrowings,
and cash from the exercise of stock options are insufficient to fund our future activities, we may need to raise additional funds
through public or private equity offerings or debt financings.
In August 2019, we entered into a new Loan and Security Agreement, the "Loan Agreement", with Silicon
Valley Bank, or the "Lender". The Lender has agreed to provide a $12.0 million secured revolving line of credit, the “credit
facility”. The credit facility is available for cash borrowings, subject to a Borrowing Base formula based upon eligible accounts
receivable. The maturity of the Loan Agreement is two years from the date of the Loan Agreement. Any borrowings under the
Loan Agreement bear interest, based on an interest rate dependent on cash liquidity for the relevant period. Cash liquidity is
defined as cash plus (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the
outstanding principal balance of any Advances. If cash liquidity is greater than $20.0 million then the interest rate is the greater
of the "prime rate” as published in The Wall Street Journal (WSJ) for the relevant period plus 0.50% or 5.50%. If cash liquidity
is less than $20.0 million then the interest rate is the greater of WSJ prime rate plus 1.00% or 6.00%. The Loan Agreement
maintains certain reporting requirements, conditions, and covenants. The financial covenants include that we must maintain a
Minimum Liquidity Coverage greater than or equal to 2.25:1.00. Additionally, when cash liquidity falls below $20.0 million,
the Agreement includes certain trailing six month Free Cash Flow requirements, tested on a quarterly basis. Free Cash Flow is
to be defined as (a) Adjusted EBITDA, minus (b) capital expenditures determined in accordance with GAAP, minus (c)
capitalized software expenses, determined in accordance with GAAP, and minus (d) cash taxes, determined in accordance with
GAAP. As of December 31, 2019, we had no outstanding borrowings under the Loan Agreement, and we had $10.8 million of
availability based upon the borrowing formula under the Loan Agreement.
Our obligations to the Lender are secured by a first priority security interest in all our assets, including our
intellectual property. The Loan Agreement contains customary events of default, including non-payment of principal or interest,
violations of covenants, material adverse changes, cross-default, bankruptcy and material judgments. Upon the occurrence of an
event of default, the Lender may accelerate repayment of any outstanding balance. The Loan Agreement also contains certain
financial covenants and other agreements that are customary in loan agreements of this type, including restrictions on paying
dividends and making distributions to our stockholders. As of December 31, 2019, we were in compliance with the covenants
and anticipate continuing to be so.
As of December 31, 2019, we had approximately $11.0 million of cash and cash equivalents. We believe that our
existing cash and cash equivalents, along with cash flows from operations and availability under our revolving credit line, will
be sufficient to meet our anticipated working capital, interest payments, capital lease payment obligations and capital
expenditure requirements for at least the next 12 months.
43
Cash Flows
Statements of Cash Flows Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Cash Provided by Operating Activities
Year Ended December 31,
2018
2019
(in thousands)
$
$
$
$
2,459
(3,772) $
(3,459) $
2,056
(6,256)
(2,055)
Operating activities provided $2.5 million of cash in 2019. Cash flow from operating activities resulted from our
net loss, adjusted for non-cash items, and changes in our operating assets and liabilities. We had a net loss of $9.0 million which
included non-cash depreciation and amortization of $11.3 million, non-cash stock-based compensation of $1.6 million, non-
cash change in our allowance for doubtful accounts of $0.4 million, and an impairment of long-lived assets of $1.8 million.
Changes in our operating assets and liabilities used $3.5 million of cash, primarily due to a decrease in our accounts payable,
accrued expenses, and other current liabilities of $8.8 million, offset partially by a decrease in accounts receivable of
$4.7 million.
Operating activities provided $2.1 million of cash in 2018. Cash flow from operating activities resulted from our
net loss, adjusted for non-cash items, and changes in our operating assets and liabilities. We had a net loss of $7.6 million which
included non-cash depreciation and amortization of $9.8 million, non-cash stock-based compensation of $1.8 million, non-cash
benefit to our provision for deferred income taxes of $0.2 million, and an impairment of capitalized software of $0.6 million.
Changes in our operating assets and liabilities used $2.5 million of cash, primarily due to a decrease in our accounts payable,
accrued expenses, and other current liabilities of $5.8 million, and deferred revenue by $3.9 million and offset partially by a
decrease in accounts receivable of $6.0 million. The decrease in our deferred revenue was largely a result of the adoption of
ASC 606.
Cash Used in Investing Activities
Our primary investing activities have consisted of purchases of property and equipment. Purchases of property
and equipment vary from period to period due to the timing of the expansion of our operations and internal-use software
development. We expect to continue to make significant investments in property and equipment and development of software in
2020 and thereafter.
Cash used by investing activities totaled $3.8 million in 2019 resulting from cash expenditures for purchases of
property and equipment, primarily related to the replacement of data center hardware and the development of both internal use
software and software for sale or license.
Cash used by investing activities totaled $6.3 million in 2018 resulting from cash expenditures for purchases of
property and equipment, primarily related to the build-out of our data centers and the development of both internal use software
and software for sale or license.
Cash Used in Financing Activities
Net cash used by financing activities totaled $3.5 million in 2019. We made $3.4 million in payments for finance
lease obligations and paid $0.1 million for debt issue costs related to our line of credit.
Net cash used by financing activities totaled $2.1 million in 2018. We made $2.4 million in payments of debt
obligations. Partially offsetting the cash used was $0.4 million received from the exercise of stock options.
44
Off-Balance Sheet Arrangements
At December 31, 2019, we did not have any off-balance sheet arrangements other than the contract commitments
listed below under Contractual Obligations, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that
have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition,
revenue, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Contractual Obligations
We lease office space and data center space under operating lease agreements and certain equipment under
capital lease agreements. We are also obligated to make fixed payments under various contracts with vendors and customers,
principally for revenue-sharing and content arrangements. These fixed payments are reflected in the table below as “contract
commitments.”
The following table sets forth our future contractual obligations as of December 31, 2019 (in thousands):
2020
2021
2022
2023
2024
Total
Operating lease obligations
Finance lease obligations
Contract commitments
Total
$
$
2,396
$
1,615
$
2,611
753
522
—
944
226
—
$
448
$
—
—
5,760
$
2,137
$
1,170
$
448
$
36
—
—
36
$
$
5,439
3,359
753
9,551
Payments Due by Period
Impact of Applicable Recent Accounting Pronouncements
In the normal course of business, we evaluate pronouncements issued by the Financial Accounting Standards
Board (“FASB”), Securities and Exchange Commission (“SEC”), or other authoritative bodies to determine the potential impact
they may have on our consolidated financial statements. Refer to Note 1, The Company and Summary of Significant
Accounting Policies, of the Notes to the Consolidated Financial Statements referred to in Item 8 of this report for additional
information about these recently issued accounting standards and their potential impact on our consolidated results of
operations.
45
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations both within the United States and internationally, and we are exposed to market risks in the
ordinary course of our business. These primarily include interest rate, inflation and foreign currency exchange risk.
Interest Rate Risk
Our cash and cash equivalents primarily consist of cash and money market funds. We currently have no
investments of any type. Our exposure to market risk for changes in interest rates is limited because nearly all of our cash and
cash equivalents have a short-term maturity and are used primarily for working capital purposes.
We have a bank line of credit of $12 million with no outstanding borrowings at December 31, 2019. Any
borrowings under the line of credit bear interest at a variable annual rate, based the “prime rate” as published in The Wall Street
Journal, dependent on cash liquidity for the relevant period. Cash liquidity is defined as cash plus (a) the lesser of (i) the
Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal balance of any
Advances. If cash liquidity is greater than $20.0 million then the interest rate is the greater of the "prime rate” as published in
The Wall Street Journal (WSJ) for the relevant period plus 0.50% or 5.50%. If cash liquidity is less than $20.0 million then the
interest rate is the greater of WSJ prime rate plus 1.00% or 6.00%. The Agreement maintains certain reporting requirements,
conditions, and covenants. The financial covenants include that we must maintain a Minimum Liquidity Coverage greater than
or equal to 2.25:1.00. Additionally, when cash liquidity falls below $20.0 million, the Agreement includes certain trailing six
month Free Cash Flow requirements, tested on a quarterly basis. Free Cash Flow is to be defined as (a) Adjusted EBITDA,
minus (b) capital expenditures determined in accordance with GAAP, minus (c) capitalized software expenses, determined in
accordance with GAAP, and minus (d) cash taxes, determined in accordance with GAAP. This arrangement, if we were to have
borrowings under the line of credit, would subject us to interest rate risk. Refer to Note 5, Long-Term Debt of the Notes to the
Consolidated Financial Statements referred to in Item 8 of this report for additional information about our outstanding debt.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of
operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of
operations.
Foreign Currency Exchange Risk
We are also subject to foreign currency exchange risk relating to our operations in Canada, Europe, India, Japan
and Singapore. Our expenses at these locations are denominated in the local currencies and our results of operations are
influenced by changes in the exchange rates between the U.S. Dollar and these local currencies, principally the Canadian
Dollar, Euro, British Pound Sterling, Yen, Rupee and Singapore Dollar. In addition, certain of our accounts receivable are
denominated in currencies other than the U.S. Dollar, principally the Euro, British Pound Sterling, and Japanese Yen. A 10%
increase or decrease in the applicable currency exchange rates could result in an increase or decrease in our currency exchange
(loss) gain of approximately $0.2 million, calculated based on our foreign currency-denominated accounts receivable as of
December 31, 2019. We have in the past, and we may in the future, enter into contracts to minimize the foreign currency
exchange risk with respect to significant foreign currency denominated accounts receivable balances. We continue to evaluate
our foreign currency rate exposures and may take additional steps to mitigate these exposures.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements are submitted on pages F-1 through F-24 of this Annual Report on Form 10-K.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
46
ITEM 9A.
CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) means controls and other procedures of a company that are designed to provide reasonable assurance that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. Based on that evaluation, our management concluded that our disclosure controls and procedures
were effective as of December 31, 2019.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2019 based upon the framework in “Internal Control—Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). The
Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.
Based on that evaluation, management concluded that our internal control over financial reporting was effective as of
December 31, 2019.
Changes in Internal Control over Financial Reporting
Remediation Efforts to Address the Material Weaknesses
The Company previously reported material weaknesses in its December 31, 2018 Form 10-K. As more fully
described below, we have identified and implemented additional processes, procedures and controls to improve the
effectiveness of our internal control over financial reporting and disclosure controls and procedures. We regularly reviewed our
progress toward remediating these material weaknesses with our audit committee during 2019. Leading this remediation
process was our Chief Financial Officer and our Senior Director of Accounting. Assisting management with the remediation
process was a nationally recognized consulting firm who, under the direction of management, assisted management in testing
processes, procedures and controls to support management’s conclusions surrounding the design and operating effectiveness of
management’s internal controls over financial reporting.
Control Activities & Monitoring
As previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,
management had identified a material weakness in our internal control activities due to the lack of timeliness and consistency in
executing business process controls. In addition, management had identified a material weakness in our internal control
activities due to ineffective monitoring controls to ascertain whether the components of internal control were present and
functioning. As of December 31, 2019 we had completed our remediation of the prior material weaknesses by implementing the
following corrective actions:
•
•
•
We hired four new senior accounting professionals in 2018 who possess the requisite skills and
relevant experience to augment our staff to help us improve our controls and procedures pertaining
to financial reporting and to assist in making other improvements to our internal controls. The
addition of skilled personnel allowed us to select and develop appropriate policies, procedures, and
controls to strengthen our control environment.
We reorganized our accounting staff to delineate distinct roles and responsibilities for external
financial reporting including the application of generally accepted accounting principles (“GAAP”).
We implemented a more structured analysis and timely review process of the application of
generally accepted accounting principles and complex accounting matters.
47
•
•
•
•
•
•
•
•
•
We developed enhanced quantitative and qualitative analytical analysis as part of our financial close
process to help in the early detection of potential material misstatements to our financial statements.
We increased the standardization and automation within accounting processes, as well as the
timeliness in which these processes occur on a regular basis, to improve the consistency and
reliability of information used by existing accounting personnel.
We expanded and enhanced the written documentation of our testing and monitoring of internal
controls.
We implemented a sequence of meetings around our processes to prepare and report on the
consolidated financial statements that promotes cross-functional communication and broadens the
accountability for internal controls.
We have integrated the responsibility for internal controls across business functions to assign
accountability for internal controls beyond the accounting and finance team.
We have developed effective communication plans related to monitoring the effectiveness of our
internal control environment. Management uses an accounting management software to verify
controls have been performed timely. Any exceptions identified during management's testing of
controls are evaluated internally to determine if a control deficiency exists. Management presents
status updates, including any identified deficiencies and recommendations for corrective actions to
our Audit Committee for appropriate oversight, monitoring and evaluation of corrective action.
Executive management and our Audit Committee continues to evaluate the resources of our
accounting and financial reporting functions to ensure appropriate levels of subject matter
knowledge to maintain an effective control environment.
We have conducted training on internal controls over financial reporting and enhanced the sub-
certification process that supports our CEO’s and CFO’s financial statement certifications and
expanded the sub-certification participation population.
We have implemented various channels for which to identify, communicate and properly account for
non-standard terms, including increased information sharing between Sales and other departments on
various transactions.
Management evaluated the design and operational effectiveness of the remediation activities and concluded that
we have sufficient evidence that the previously reported material weaknesses pertaining to the lack of timeliness and
consistency in executing business process controls, as well as ineffective monitoring controls, have been remediated as of
December 31, 2019.
Other Changes in Internal Control over Financial Reporting
Except as noted above in the section “Remediation Efforts to Address the Material Weaknesses”, there were no
other 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 three months ended December 31, 2019 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
48
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the information in our proxy statement for
our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2019.
Our board of directors has adopted a Code of Business Conduct and a Code of Ethics applicable to all officers,
directors and employees, which is available on our website (http://www.synacor.com) under “Investors—Corporate
Governance.” We will provide a copy of these documents to any person, without charge, upon request, by writing to us at
Synacor, Inc., Investor Relations Department, 40 La Riviere Drive, Suite 300, Buffalo, New York 14202. We intend to satisfy
the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of
Business Conduct or Code of Ethics by posting such information on our website at the address and the location specified above.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the information in our proxy statement for
our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2019.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the information in our proxy statement for
our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2019.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated by reference to the information in our proxy statement for
our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2019.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to the information in our proxy statement for
our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2019.
49
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
1. Financial Statements: See Financial Statements and Supplementary Data, Part II, Item 8.
2. Financial Statement Schedules: Financial Statement Schedules have been omitted either because they are not
required or because the information required is included in the notes to the financial statements.
3. Exhibits: See the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-
Filed
Herew
ith
X
K.
ITEM 16.
Exhibit
No.
3.1
3.2
3.3
4.1
10.1
10.2.1*
10.2.2*
10.2.3*
10.2.4*
10.2.5*
10.2.6*
10.2.7*
10.2.8*
10.2.9*
10.2.10*
10.2.11*
10.2.12 *
10.3.1*
10.3.2*
10.3.3*
FORM 10- K SUMMARY
Not applicable.
EXHIBITS
The following exhibits are incorporated by reference herein or filed here within:
Description
Incorporated by Reference
Form
File No.
Date of
Filing
Exhibit
Number
Fifth Amended and Restated Certificate of
Incorporation
Amended and Restated Bylaws
Certificate of Designation of Series A Junior
Participating Preferred Stock
Description of Registrant’s Securities
Form of Indemnification Agreement between
Synacor, Inc. and each of its directors and
executive officers and certain key employees
2006 Stock Plan
Amendment No. 1 to 2006 Stock Plan
Amendment No. 2 to 2006 Stock Plan
Amendment No. 3 to 2006 Stock Plan
Amendment No. 4 to 2006 Stock Plan
Amendment No. 5 to 2006 Stock Plan
Amendment No. 6 to 2006 Stock Plan
Amendment No. 7 to 2006 Stock Plan
Form of Stock Option Agreement under 2006
Stock Plan with Jordan Levy
Form of Director Stock Option Agreement under
2006 Stock Plan
Form of Director Stock Option Agreement under
2006 Stock Plan
Form of Stock Option Agreement with Himesh
Bhise under 2006 Stock Plan
Amended and Restated 2012 Equity Incentive
Plan
Form of Stock Option Agreement under 2012
Equity Incentive Plan
Form of Stock Unit Agreement under 2012
Equity Incentive Plan
S-1/A
S-1/A
333-178049
1/30/2012
333-178049
1/30/2012
8-K
001-33843
7/15/2014
S-1
S-1
S-1
S-1
S-1
S-1
S-1
333-178049 11/18/2011
333-178049 11/18/2011
333-178049 11/18/2011
333-178049 11/18/2011
333-178049 11/18/2011
333-178049 11/18/2011
333-178049 11/18/2011
S-1
S-1/A
333-178049 11/18/2011
1/18/2012
333-178049
3.2
3.4
3.1
10.1
10.3.1
10.3.2
10.3.3
10.3.4
10.3.5
10.3.6
10.3.7
10.3.8
S-1/A
333-178049
1/30/2012
10.3.9
S-1/A
333-178049
1/30/2012
10.3.14
S-1/A
333-178049
1/30/2012
10.3.15
10-K
001-33843
3/22/2017
10.2.13
DEF 14A
001-33843
4/7/2017
App A
S-1/A
333-178049
1/30/2012
10.4.2
S-1/A
333-178049
1/30/2012
10.4.3
50
Exhibit
No.
10.3.4*
10.3.5*
10.3.6*
10.3.7*
10.4.1*
10.4.2*
10.4.3*
10.4.4*
10.5*
10.6.1†
10.6.2
10.6.3†
10.7†
10.8.1*
10.8.2*
10.9*
10.10.1*
10.10.2*
10.11.1
10.11.2
10.11.3
Description
Incorporated by Reference
Filed
Herew
ith
Form of Early Exercise Stock Option Agreement
under 2012 Equity Incentive Plan
Form of Stock Option Agreement with William
J. Stuart under 2012 Equity Incentive Plan
Form of Stock Option Agreement with Himesh
Bhise under 2012 Equity Incentive Plan
Form of Stock Option Agreement with William
J. Stuart under 2012 Equity Incentive Plan
Letter Agreement dated August 3, 2011 with
William J. Stuart
Change of Control Severance Agreement with
William J. Stuart
Letter Agreement dated August 26, 2013 with
William J. Stuart
Separation agreement dated August 16, 2018
with William J. Stuart
2007 Management Cash Incentive Plan
Second Amended and Restated Master Services
Agreement between Qwest Corporation and
Synacor, Inc. dated June 1, 2017
Letter Amendment to that certain Second
Amended and Restated Master Services
Agreement between Qwest Corporation and
Synacor, Inc. dated June 1, 2017.
Amendment #1 to Second Amended and
Restated Master Services Agreement between
Synacor, Inc. and Qwest Corporation, effective
as of March 1,2018.
Google Services Agreement between Synacor,
Inc. and Google Inc., effective as of June 1,
2018
Letter Agreement dated March 1, 2008 with
Jordan Levy
Letter Agreement dated June 23, 2009 with
Jordan Levy
Form of Common Stock Repurchase Agreement
Special Purpose Recruitment Plan
Form of Stock Option Agreement (Early
Exercise) under Special Purpose Recruitment
Plan
Loan and Security Agreement between Silicon
Valley Bank and Synacor, Inc. dated
September 27, 2013
First Amendment to the Loan and Security
Agreement between Silicon Valley Bank and
Synacor, Inc. dated October 28, 2014
Joinder to Loan and Security Agreement among
Silicon Valley Bank, Synacor, Inc., and NTV
Internet Holdings, LLC dated April 13, 2015
Form
File No.
Date of
Filing
Exhibit
Number
10-K
001-33843
3/26/2013
10.4.5
10-K
001-33843
3/26/2013
10.4.7
10-K
001-33843
3/22/2017
10.3.7
10-K
001-33843
3/22/2017
10.3.8
S-1
333-178049 11/18/2011
10.8
10-K
001-33843
3/26/2014
10.8.2
10-K
001-33843
3/26/2014
10.8.3
10-K
10-Q
001-33843
3/14/2019
001-33843
5/15/2012
10.4.4
10.1
10-Q
001-33843
5/15/2017
10.3
10-Q
001-33843
5/10/2018
10.3
10-Q
001-33843
8/9/2018
10.2
10-Q
001-33843
8/9/2018
10.1
S-1/A
333-178049
1/30/2012
10.15.1
S-1/A
S-1/A
DEF 14A
333-178049
333-178049
001-33843
1/30/2012
1/30/2012
4/5/2013
10.15.2
10.16
App. A
10-Q
001-33843
8/13/2013
10.5
10-Q
001-33843
11/14/2013
10.1
10-K
001-33843
3/12/2015
10.20.2
10-K
001-33843
3/22/2016
10.16.3
51
Exhibit
No.
10.11.4
10.11.5
10.11.6
10.11.7
10.11.8
10.11.9
10.11.10
10.11.11
10.11.12
10.11.13
10.12.1*
10.12.2*
10.13.1†
10.13.2†
10.13.3†
Description
Incorporated by Reference
Form
File No.
Date of
Filing
Exhibit
Number
Filed
Herew
ith
Second Amendment to Loan and Security
Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated September 25,
2015
Joinder to Loan and Security Agreement among
Silicon Valley Bank, Synacor, Inc., NTV
Internet Holdings, LLC and SYNC Holdings,
LLC dated September 25, 2015
Third Amendment to Loan and Security
Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated October 28, 2015
Consent and Fourth Amendment to Loan and
Security Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated February 25, 2016
Consent and Fifth Amendment to Loan and
Security Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated November 8, 2016
Consent and Sixth Amendment to Loan and
Security Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated March 30, 2017
Seventh Amendment to Loan and Security
Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated June 30, 2017
Eight Amendment to Loan and Security
Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated September 30,
2018
Ninth Amendment to Loan and Security
Agreement among Silicon Valley Bank,
Synacor, Inc., NTV Internet Holdings, LLC and
SYNC Holdings, LLC dated February 1, 2018
Loan and Security Agreement among Silicon
Valley Bank, Synacor, Inc., NTV Internet
Holdings, LLC and SYNC Holdings, LLC dated
August 7, 2019
Employment Letter Agreement with Himesh
Bhise dated July 31, 2014
Stock Option Agreement with Himesh Bhise
granted on August 4, 2014
Portal and Advertising Services Agreement
between Synacor, Inc. and AT&T Services, Inc.
made as of April 1, 2016.
First Amendment to Portal and Advertising
Services Agreement between Synacor, Inc. and
AT&T Services, Inc. effective as of May 4,
2016.
Second Amendment to Portal and Advertising
Services Agreement between Synacor, Inc. and
AT&T Services, Inc. effective as of December 7,
2016
52
10-Q
001-33843
11/17/2015
10.3
10-K
001-33843
3/22/2016
10.16.5
10-K
001-33843
3/22/2016
10.16.6
10-Q
001-33843
5/16/2016
10.2
10-Q
001-33843
11/14/2016
10.2
10-Q
001-33843
5/15/2017
10.4
10-Q
001-33843
8/14/2017
10.2
10-K
001-33843
3/14/2019
10.12.11
10-K
001-33843
3/14/2019
10.12.12
8-K
001-33843
11/6/2019
10.1
10-Q
001-33843
11/14/2014
10.1.1
10-Q
001-33843
11/14/2014
10.1.2
10-Q
001-33843
8/15/2016
10.1.2
10-Q
001-33843
8/15/2016
10.2
10-K/A
001-33843
6/5/2017
10.16.3
Exhibit
No.
10.13.4†
10.13.5
10.13.6†
10.13.7†
10.13.8†
10.13.9†
10.14
10.15*
10.16.1*
10.16.2*
10.16.3*
10.17
10.18
21.1
23.1
24.1
31.1
31.2
32.1 ‡
Description
Incorporated by Reference
Form
File No.
Date of
Filing
Exhibit
Number
Filed
Herew
ith
Third Amendment to Portal and Advertising
Services Agreement between Synacor, Inc. and
AT&T Services, Inc. effective as of March 10,
2017
Fourth Amendment to Portal and Advertising
Services Agreement between Synacor, Inc. and
AT&T Services, Inc. effective as of July 10,
2017
Statement of Work #1 to Portal and Advertising
Services Agreement between Synacor, Inc. and
AT&T Services, Inc. effective as of July 10,
2017
Fifth Amendment to Portal and Advertising
Services Agreement between Synacor, Inc. and
AT&T Services, Inc. effective as of November
20, 2017
Sixth Amendment to Portal and Advertising
Services Agreement between Synacor, Inc. and
AT&T Services, Inc. effective as of December 8,
2017
Seventh Amendment to Portal and Advertising
Services Agreement effective as of August 23,
2018 between Synacor Inc. and AT&T Services,
Inc.
Lease dated August 31, 2017 between D&S
Capital Real Estate III, LLC and Synacor, Inc.
Letter Agreement with Timothy J. Heasley dated
August 1, 2018
Letter Agreement with Steven Davi dated
October 25, 2012
Change of Control Severance Agreement with
Steven Davi
Letter Agreement with Steven Davi dated April
26, 2018
Agreement between Synacor, Inc. and 180
Degree Capital Corp. dated March 1, 2019
Agreement and Plan of Merger and
Reorganization, dated as of February 11, 2020,
by and among Qumu Corporation, Synacor, Inc.
and Quantum Merger Sub I, Inc.
List of subsidiaries
Consent of Deloitte & Touche LLP
Power of Attorney (contained in the signature
page of this Annual Report on Form 10-K)
Certification of the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of the Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certifications of the Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
53
10-Q
001-33843
5/15/2017
10.2
10-Q
001-33843
11/14/2017
10.1
10-Q
001-33843
11/14/2017
10.2
10-K
001-33843
3/16/2018
10.14.7
10-K
001-33843
3/16/2018
10.14.8
10-Q
001-33843
11/9/2018
10.1
10-K
001-33843
3/16/2018
10.15
8-K
001-33843
8/1/2018
10.1
10-Q
001-33843
8/9/2018
10.3.1
10-Q
001-33843
8/9/2018
10.3.2
10-Q
001-33843
8/9/2018
10.3.3
8-K
001-33843
3/5/2019
10.1
8-K
001-33843
2/11/2020
2.1
X
X
X
X
X
X
Exhibit
No.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Description
Incorporated by Reference
Form
File No.
Date of
Filing
Exhibit
Number
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation
Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation
Linkbase
XBRL Taxonomy Extension Definition
Linkbase
Filed
Herew
ith
X
X
X
X
X
X
_____________________________
Notes:
*
†
‡
Indicates management contract or compensatory plan or arrangement.
Confidential treatment has been granted for portions of this document. The omitted portions have been filed with
the Securities and Exchange Commission.
This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise
subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that
Synacor, Inc. specifically incorporates it by reference.
54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SYNACOR, INC.
/s/ HIMESH BHISE
Himesh Bhise
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 6, 2020
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Himesh Bhise and Timothy Heasley, and each of them, his true and lawful attorneys-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the
same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been
signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ HIMESH BHISE
Himesh Bhise
/s/ TIMOTHY HEASLEY
Timothy J. Heasley
President, Chief Executive Officer and Director (Principal Executive
Officer)
March 6, 2020
Chief Financial Officer (Principal Financial and Accounting Officer)
March 6, 2020
/s/ ELISABETH B. DONOHUE
Elisabeth B. Donohue
Director
/s/ MARWAN FAWAZ
Marwan Fawaz
/s/ GARY L. GINSBERG
Gary L. Ginsberg
/s/ ANDREW KAU
Andrew Kau
Director
Director
Director
/s/ MICHAEL J. MONTGOMERY Director
Michael J. Montgomery
/s/ SCOTT MURPHY
Scott Murphy
/s/ KEVIN RENDINO
Kevin Rendino
Director
Director
55
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
INDEX TO THE FINANCIAL STATEMENTS
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
Notes to the Consolidated Financial Statements
Page
2
3
4
5
6
7
8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Synacor, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Synacor, Inc. and subsidiaries (the "Company") as of
December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and
cash flows, for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as
the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of
America.
Change in Accounting Principle
Effective January 1, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Update
2016-02, Leases (“Topic 842”, or the “New Lease Accounting Standard”). Effects of the application of the New Lease
Accounting Standard are further discussed in Note 1 of the financial statements.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Williamsville, New York
March 6, 2020
We have served as the Company's auditor since 2006.
2
SYNACOR, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2018
(In thousands except for share and per share data)
ASSETS
2019
2018
$
$
$
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable—net of allowance of $585 and $225
Prepaid expenses and other current assets
Total current assets
PROPERTY AND EQUIPMENT, net
OPERATING LEASE RIGHT-OF-USE ASSETS, net
GOODWILL
INTANGIBLE ASSETS, net
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses and other current liabilities
Current portion of deferred revenue
Current portion of long-term debt and finance leases
Current portion of operating lease liabilities
Total current liabilities
LONG-TERM PORTION OF DEBT AND FINANCE LEASES
LONG-TERM PORTION OF OPERATING LEASE LIABILITIES
DEFERRED REVENUE
DEFERRED INCOME TAXES
OTHER LONG-TERM LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value—10,000,000 shares authorized, no shares
issued and outstanding at December 31, 2019 and 2018
Common stock, $0.01 par value—100,000,000 shares authorized;
40,075,475 shares issued and 39,201,477 shares outstanding at
December 31, 2019; 39,880,054 shares issued and 39,027,572 shares
outstanding at December 31, 2018
Treasury stock—at cost, 873,998 shares at December 31, 2019 and 852,482
shares at December 31, 2018
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
10,966
20,532
2,989
34,487
14,948
4,765
15,948
8,411
1,319
79,878
12,583
5,878
6,509
2,529
2,165
29,664
729
2,846
2,366
275
334
36,214
—
401
(1,931)
146,460
(100,747)
(519)
43,664
79,878
$
The accompanying notes are an integral part of these consolidated financial statements.
15,921
25,567
3,779
45,267
18,707
—
15,941
10,553
995
91,463
19,174
7,849
6,672
2,328
—
36,023
1,367
—
2,214
231
457
40,292
—
399
(1,899)
144,739
(91,726)
(342)
51,171
91,463
3
SYNACOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2019, AND 2018
(In thousands except for share and per share data)
REVENUE
COSTS AND OPERATING EXPENSES:
Cost of revenue (exclusive of depreciation and amortization shown
separately below)
Technology and development (exclusive of depreciation and amortization
shown separately below)
Sales and marketing
General and administrative (exclusive of depreciation and amortization
shown separately below)
Depreciation and amortization
Total costs and operating expenses
LOSS FROM OPERATIONS
OTHER EXPENSE, net
INTEREST EXPENSE
LOSS BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
NET LOSS
NET LOSS PER SHARE:
Basic
Diluted
2019
2018
$
121,845
$
143,879
61,990
18,273
21,790
17,734
9,865
129,652
(7,807)
(17)
(268)
(8,092)
929
(9,021) $
(0.23) $
(0.23) $
73,304
23,753
24,116
19,454
9,641
150,268
(6,389)
(212)
(338)
(6,939)
616
(7,555)
(0.19)
(0.19)
$
$
$
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET LOSS PER
SHARE:
Basic
Diluted
39,090,239
39,090,239
38,895,301
38,895,301
The accompanying notes are an integral part of these consolidated financial statements.
4
SYNACOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2019, AND 2018
(In thousands)
Net loss
Other comprehensive loss:
Changes in foreign currency translation adjustment
Comprehensive loss
2019
2018
(9,021) $
(7,555)
(177)
(9,198) $
(313)
(7,868)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
5
SYNACOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(In thousands except for share data)
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Accumulat
ed
Other
Comprehe
nsive
Income
(Loss)
Total
Additio
nal
Paid-in
Capital
Accumu
lated
Deficit
BALANCE - January 1,
2018
Impact of the adoption of
ASC 606, net of tax
Exercise of common stock
options
Stock-based compensation
cost
Vesting of restricted stock
units, net of treasury stock
Net loss
Other comprehensive loss
BALANCE - December 31,
2018
Exercise of common stock
options
Stock-based compensation
cost
Vesting of restricted stock
units, net of treasury stock
Net loss
Other comprehensive loss
BALANCE - December 31,
2019
39,625,980 $
396
842,220
$ (1,881) $142,486 $(86,627) $
(29) $ 54,679
—
226,081
—
27,993
—
—
—
2
—
1
—
—
—
—
—
10,262
—
—
—
—
—
(18)
—
—
—
2,456
383
1,871
(1)
—
—
—
—
—
—
—
2,456
385
1,871
(18)
— (7,555)
—
—
— (7,555)
(313)
(313)
39,880,054
399
852,482
(1,899) 144,739
(91,726)
(342)
51,171
39,572
—
155,849
—
—
—
—
2
—
—
—
—
21,516
—
—
—
—
(32)
—
—
60
1,661
—
—
—
—
—
—
—
60
1,661
(30)
— (9,021)
—
—
— (9,021)
(177)
(177)
40,075,475 $
401
873,998
$ (1,931) $146,460 $(100,747)$
(519) $ 43,664
The accompanying notes are an integral part of these consolidated financial statements.
6
SYNACOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(In thousands)
2019
2018
$
(9,021) $
(7,555)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization
Long-lived asset impairment
Stock-based compensation expense
Provision for deferred income taxes
Change in allowance for doubtful accounts
Changes in operating assets and liabilities:
Accounts receivable, net
Prepaid expenses and other assets
Operating lease right-of-use assets and liabilities, net
Accounts payable, accrued expenses and other liabilities
Deferred revenue
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of financing issuance costs
Repayments on long-term debt and finance leases
Proceeds from exercise of common stock options
Purchase of treasury stock and shares received to satisfy minimum tax
withholdings
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
NET DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING TRANSACTIONS:
Property, equipment and service contracts financed under long-term debt
and finance lease obligations
Accrued property and equipment expenditures
Stock-based compensation capitalized to property and equipment
$
$
$
$
$
$
11,251
1,751
1,616
44
360
4,676
526
95
(8,828)
(11)
2,459
(3,772)
(3,772)
(60)
(3,427)
60
(32)
(3,459)
(183)
(4,955)
15,921
10,966
268
706
3,152
408
45
$
$
$
$
$
$
9,832
552
1,804
(248)
126
6,002
879
—
(5,391)
(3,945)
2,056
(6,256)
(6,256)
—
(2,422)
385
(18)
(2,055)
(300)
(6,555)
22,476
15,921
337
812
357
277
67
The accompanying notes are an integral part of these consolidated financial statements.
7
SYNACOR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019 AND 2018, AND
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Synacor, Inc., together with its consolidated subsidiaries (collectively, the “Company” or “Synacor”), is a digital
technology company that provides email and collaboration software, cloud-based identity management platforms, managed web
and mobile portals, and advertising solutions. The Company’s customers include communications providers, media companies,
government entities and enterprises. Synacor is a trusted partner for enterprise software platforms and monetization solutions
that Synacor delivers through public and private cloud software-as-a-service, software licensing, and professional services.
Synacor enables clients to deepen their engagement with their consumers and users.
Basis of Presentation —The consolidated financial statements and accompanying notes have been prepared in
accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
During the first quarter of 2019, the Company made a change to its segment reporting structure which resulted in
two segments: 1) Software & Services and 2) Portal & Advertising. As a result, certain prior year amounts have been restated to
conform to current year’s presentation. Historical Amounts in Note 1 – The Company and Summary of Significant Accounting
Policies, Note 2 – Revenue from Contracts with Customers and Note 7 – Segment Information have been restated to reflect
these changes in reportable segments.
Additionally, the Company has reclassified certain costs and expenses in the consolidated statement of operations
for the year ended December 31, 2018 amounting to $0.8 million, from technology and development to cost of revenue to
conform to the current period presentation. These reclassifications had no effect on previously reported total costs and operating
expenses and net loss. Historical Amounts in Note 1 – The Company and Summary of Significant Accounting Policies have
been restated to reflect this reclassification.
Foreign Currency— The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S.
dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the average
exchange rates prevailing during the period.
Cash and Cash Equivalents and Restricted Cash—The Company considers all highly liquid investments with
an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents that are
contractually restricted from operating use are classified as restricted cash and cash equivalents. The Company had no restricted
cash as of the years ended December 31, 2019 and 2018.
Accounts Receivable —The Company records accounts receivable at the invoiced amount and does not charge
interest on past due invoices. An allowance for doubtful accounts is maintained to reserve for potentially uncollectible accounts
receivable. The Company reviews its accounts receivable from customers that are past due to identify specific accounts with
known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the
creditworthiness of customers based on ongoing credit evaluations.
Property and Equipment —Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Leasehold improvements
Computer hardware
Computer software
Furniture and fixtures
Other
3–10 years
3–5 years
3 years
7 years
3–5 years
Computer hardware under finance leases and leasehold improvements are amortized over the shorter of the lease
term or the estimated useful life of the assets.
8
Long-Lived Assets —The Company reviews the carrying value of its long-lived assets, exclusive of goodwill,
for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be
recoverable. For purposes of evaluating and measuring impairment, the Company groups a long-lived asset or assets with other
assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other
assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the
assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered impaired, the
impairment is measured and recognized as the amount by which the carrying amount of the assets exceeds the fair value of the
assets. See Note 3 - Property and Equipment —Net further details.
Software Development Costs —The Company capitalizes certain costs incurred for the development of internal
use software, as well as the costs of developing software for sale or license to customers. Internal use software includes the
Company’s proprietary portal software and related applications, Cloud ID authentication software, and various applications
used in the management of the Company’s portals. Software for sale or license to customers includes the Company’s
proprietary Email/Collaboration offerings. Costs incurred during the preliminary project stage for internal software programs
are expensed as incurred. External and internal costs incurred during the application development stage (subsequent to the
achievement of technological feasibility on software to be sold or licensed) of new software development, as well as for
upgrades and enhancements for software programs that result in additional functionality are capitalized. Software development
costs capitalized for sale or license to customers and cost capitalized for the development of internal use software are amortized
over the estimated useful life of the applicable software. Impairment charges are taken as a result of circumstances that indicate
that the carrying values of the assets were not fully recoverable. The Company utilizes the discounted cash flow method to
determine the fair value of the capitalized software assets. Impairment charges for the years ended December 31, 2019 and 2018
are included in general and administrative expense in the consolidated statement of operations.
Leases — The Company determines if an arrangement is a lease and classifies that lease as either an operating or
finance lease at inception. Right-of-use (ROU) assets and liabilities are recognized at lease commencement date based on the
present value of remaining lease payments over the reasonably certain lease term. For this purpose, only payments that are fixed
and determinable at the time of commencement are considered. As many of the leases do not provide an implicit rate, the
Company uses its incremental borrowing rate based on the information available at commencement date in determining the
present value of lease payments. The incremental borrowing rate is a hypothetical rate based on factors including the
Company’s credit rating. The ROU asset also includes any lease payments made prior to commencement and is recorded net of
any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain
that the options will be exercised.
Operating leases are included in operating lease right-of-use assets, and current and long-term operating lease
liabilities on our consolidated balance sheets. Finance leases are included in property and equipment-net, and on the current and
long-term portion of debt and finance leases in our consolidated balance sheets.
9
Other Intangible Assets —Other intangible assets consist of customer relationships, trademarks, and purchased
technology. Definite-lived intangible assets are amortized on a straight-line basis. The Company reviews its definite-lived
intangible assets for impairment when impairment indicators exist. The Company uses undiscounted cash flow to determine
whether impairment exists and measures any impairment losses using discounted cash flow.
The components and original estimated economic lives of our amortizable intangible assets were as follows as of
December 31, 2019 and 2018:
Gross amortizable intangible assets:
Customer and publisher relationships
Technology
Trademark
Total gross amortizable intangible assets
Accumulated amortization:
Customer and publisher relationships
Technology
Trademark
Total accumulated amortization
Amortizable intangible assets, net
Original
Estimated
Economic Life
2019
2018
(Dollars in thousands)
10 years $
5 years
5 years
$
14,780
2,330
300
17,410
(6,809)
(257)
(1,933)
(8,999)
8,411
$
$
14,780
2,330
300
17,410
(5,193)
(197)
(1,467)
(6,857)
10,553
Amortization of intangible assets was $2.1 million in the years ended December 31, 2019 and 2018. Future
amortization expense of amortizable intangible assets will be as follows: $2.0 million in the year ending December 31, 2020,
$1.4 million in the year ending December 31, 2021, $1.3 million in the year ending December 31, 2022, and 2023, $0.4 million
in the year ending December 31, 2024, and $1.9 million thereafter.
Goodwill —The Company evaluates goodwill for impairment for each of its reporting units at least annually on
October 1st, and whenever events occur or circumstances change, such as changes in the business climate, poor indicators of
operating performance or the sale or disposition of a significant portion of a reporting unit. The Company is required to
evaluate goodwill for impairment when there is a change in reporting units. During the first quarter of 2019, the Company made
changes to its segment reporting structure that resulted in two reportable segments: 1) Software & Services and 2) Portal &
Advertising. Previously the Company concluded that it had one reportable segment. This change resulted in two reporting units
for the purpose of impairment analysis for goodwill.
Companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing
process for all or selected reporting units. Companies are also allowed to bypass the qualitative analysis and perform a
quantitative analysis if desired. Economic uncertainties and the length of time from the calculation of a baseline fair value are
factors that we consider in determining whether to perform a quantitative test.
When the Company evaluates the potential for goodwill impairment using a qualitative assessment, the Company
considers factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment,
changes in the market for our products and services, regulatory and political developments, entity specific factors such as
strategy and changes in key personnel and overall financial performance. If, after completing this assessment, it is determined
that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative
test.
Quantitative testing requires a comparison of the fair value of each reporting unit to its carrying value. The fair
value of each reporting unit is determined using a combination of an income approach and a market approach. If the carrying
value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss is measured as the difference
between the carrying value and fair value of the reporting unit.
10
The income approach uses a discounted cash flow method to estimate the fair value of our reporting units. The
discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates,
operating margins and cash flows, the terminal growth rate and the discount rate. The Company projects revenue growth rates,
operating margins and cash flows based on each reporting unit's current business, expected developments and operational
strategies typically over a five-year period.
The market approach determines fair value based on available market pricing for comparable assets. Valuation
multiples were calculated utilizing actual transaction prices and revenue or EBITDA data from target companies deemed
similar to the reporting unit. Valuation multiples were then applied to certain operating statistics such as revenue or EBITDA,
and an estimated control premium was applied.
If the carrying amount of the reporting unit exceeds the reporting unit’s fair value as determined using the two
valuation methodologies described above, an impairment loss is recognized in the amount by which the carrying value of the
reporting unit exceeds the fair value of the reporting unit. The determination of our assumptions is subjective and requires
significant estimates. Changes in these estimates and assumptions could materially affect the results of our reviews for
impairment of goodwill.
During the year ended December 31, 2019, in addition to the annual assessment done as of October 1st, we
performed a quantitative test as of the first quarter for both reporting units due to change in segment reporting, as discussed
above, and both reporting units fair value exceeded carrying value.
Furthermore, in accordance with ASC 350-20-35, the Company assesses goodwill of an entity (or a reporting
unit) for impairment if an event occurs or circumstances change that indicate that the fair value of the entity (or the reporting
unit) may be below its carrying amount (a triggering event). As a result of the such assessment of relevant events and
circumstances, the Company performed a quantitative test for the Portal & Advertising segment as of June 30, 2019 for which
the fair value exceeded the carrying value.
There were no impairment losses were recorded for goodwill during the years ended December 31, 2019, and
2018.
As noted above, in 2019, we changed our segment reporting structure which resulted in two reportable segments:
1) Software & Services and 2) Portal & Advertising.. As a result, all prior period balances for those segments were restated to
reflect this change. The change in goodwill is as follows for the years ended December 31, 2019 and 2018 (in thousands):
Software &
Services
Portal &
Advertising
Total
Balance as of Balance as of January 1, 2018
Balance as of Effect of foreign currency translation
Balance as of December 31, 2018
Effect of foreign currency translation
Balance as of December 31, 2019
$
$
$
11,811 $
(14)
11,797 $
7
11,804 $
4,144 $
—
4,144 $
—
4,144 $
15,955
(14)
15,941
7
15,948
Revenue Recognition — The Company recognize revenues when we transfer control of promised goods or
services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those
goods or services. See Note 2, Revenue from Customers for further discussion on Revenue.
Cost of Revenue —Cost of revenue consists primarily of revenue sharing, content acquisition costs, co-location
facility costs, royalty costs and product support costs. Revenue sharing consists of amounts accrued and paid to customers for
the internet traffic on Managed Portals where the Company is the primary obligor, resulting in the generation of search and
digital advertising revenue. The revenue-sharing agreements with customers are primarily variable payments based on a
percentage of the search and digital advertising revenue.
11
Content-acquisition agreements may be based on a fixed payment schedule, on the number of subscribers per
month, or a combination of both. Fixed-payment agreements are expensed on a straight-line basis over the term defined in the
agreement. Agreements based on the number of subscribers are expensed on a monthly basis. Co-location facility costs consist
of rent and operating costs for the Company’s data center facilities. Royalty costs consist of amounts due to third parties for the
license of their applications or technology sold with or embedded in our email software. Product support costs consist of
employee and operating costs directly related to the Company’s maintenance and professional services support.
Concentrations of Risk — As of December 31, 2019 and 2018, the Company had concentrations equal to or
exceeding 10% of the Company’s accounts receivable as follows:
Portal & Advertising Customer A
Accounts Receivable
2019
2018
14 %
15 %
For the years ended December 31, 2019 and 2018, the Company had concentrations equal to or exceeding 10%
of the Company’s revenue as follows:
Google search
Google advertising affiliate
Portal & Advertising Customer A
* - Less than 10%
Revenue
2019
2018
*
*
13 %
13 %
11 %
*
For the years ended December 31, 2019 and 2018, the following customers received revenue-share payments
equal to or exceeding 10% of the Company’s cost of revenue.
Portal & Advertising Customer B
Cost of Revenue
2019
2018
19 %
29 %
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents. The Company places its cash primarily in checking and money market accounts with
high credit quality financial institutions, which, at times, have exceeded federally insured limits of $0.25 million. Although the
Company maintains balances that exceed the federally insured limit, it has not experienced any losses related to these balances
and believes credit risk to be minimal.
Technology and Development —Technology and development expenses consist primarily of compensation-
related expenses incurred for the research and development of, enhancements to, and maintenance and operation of the
Company’s products, equipment and related infrastructure.
Sales and Marketing —Sales and marketing expenses consist primarily of compensation-related expenses to the
Company’s direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional
materials, and other sales and marketing programs. Advertising costs are expensed as incurred. Advertising costs totaled
$0.4 million in 2019, and 2018 respectively.
General and Administrative —General and administrative expenses consist primarily of compensation related
expenses for executive management, finance, accounting, human resources, legal, and Corporate IT as well as professional fees
and facilities costs.
Earnings (Loss) Per Share —Basic earnings (loss) per share (“EPS”) is calculated in accordance with the
Financial Accounting Standards Board (“FASB”) ASC 260, Earnings per Share, using the weighted average number of
common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential
common stock equivalents unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation,
stock options, warrants, performance based stock units ("PSUs"), and restricted stock units (“RSUs”) are considered to be
potential common shares and are only included in the calculation of diluted earnings (loss) per share when their effect is
dilutive.
12
Stock-Based Compensation —The Company records compensation costs related to stock-based awards in
accordance with FASB ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of
ASC 718, the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the
award. Compensation cost is recognized ratably over the requisite service period of the award. The Company utilizes the Black-
Scholes option-pricing model to estimate the fair value of stock options granted. The amount of stock-based compensation
expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company
estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent
periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for
those awards that ultimately vest.
Employee Benefit Plan —The Company sponsors a 401(k) profit sharing plan that covers substantially all
employees. Under the plan, eligible employees are permitted to contribute a portion of gross compensation not to exceed
standard limitations provided by the Internal Revenue Service. The Company maintains the right to match employee
contributions, and contributed $0.2 million for the years ended December 31, 2019, and 2018.
Income Taxes — Deferred income tax assets and liabilities are determined based on temporary differences
between the financial statement and income tax bases of assets and liabilities and net operating loss (“NOL”) and credit
carryforwards using enacted income tax rates in effect for the year in which the differences are expected to reverse. A valuation
allowance is established to the extent necessary to reduce deferred income tax assets to amounts that more likely than not will
be realized.
The Company accounts for uncertain tax positions using a more-likely-than-not recognition threshold based on
the technical merits of the tax position taken. Tax benefits that meet the more-likely-than-not recognition threshold should be
measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to
be realized upon ultimate settlement in the financial statements. It is the Company’s policy to recognize interest and penalties
related to income tax matters in income tax expense. As of December 31, 2019 and 2018, accrued interest or penalties related to
uncertain tax positions was insignificant.
Accounting Estimates —The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial
statements and the accompanying notes. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying
values of assets and liabilities. Actual results may differ from estimated amounts.
Fair Value Measurements —Fair value measurement standards apply to certain financial assets and liabilities
that are measured at fair value on a recurring basis at each reporting period. The fair value of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and other current liabilities approximates their carrying value due to
their short-term nature.
The provisions of FASB ASC 820, Fair Value Measurements and Disclosures , establishes a framework for
measuring the fair value in accounting principles generally accepted in the U.S. and establishes a hierarchy that categorizes and
prioritizes the sources to be used to estimate fair value as follows:
Level 1 —Level 1 inputs are defined as observable inputs such as quoted prices in active markets.
Level 2 —Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for
the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable
market data by correlation or other means (market corroborated inputs).
Level 3 —Level 3 inputs are unobservable inputs that reflect the Company’s determination of assumptions that
market participants would use in pricing the asset or liability. These inputs are developed based on the best information
available, including the Company’s own data.
13
Applicable Recent Accounting Pronouncements —
Not Yet Adopted
In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, Customer’s Accounting
For Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which
aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirements for
capitalizing implementation costs incurred for an internal-use software license. Adoption of this guidance is required for fiscal
years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted. Entities
are permitted to choose to adopt the new guidance (1) prospectively for eligible costs incurred on or after the date this guidance
is first applied or (2) retrospectively. The Company is evaluating the impact of this new accounting standard on its financial
statements.
Recently Adopted
On January 1, 2019 the Company adopted ASU No. 2016-2, Leases (Topic 842) (ASU 2016-2), as amended,
which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU)
assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows
arising from leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted
Improvements, which provides an additional, optional transition method with which to adopt the new leases standard. This
additional transition method allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period
of adoption, rather than in the earliest period presented in the financial statements, as originally required by ASU 2016-2. The
Company adopted the standard using the additional transition method introduced by ASU 2018-11. The most significant impact
was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained
substantially unchanged. For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies -
Leases and Note 9 — Leases. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are
presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with
our historical accounting under Topic 840.
The Company elected the package of practical expedients permitted under the transition guidance, which allowed
for the carryforward of historical lease classification, on whether a contract was or contains a lease, and of the assessment of
initial direct costs for any leases that existed prior to January 1, 2019. The Company also elected to combine lease and non-
lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated
lease payments in the consolidated statements of income on a straight-line basis over the lease term.
On January 1, 2019, the Company recognized ROU assets of $10.2 million, with corresponding lease liabilities
of $10.4 million on the consolidated balance sheet. The difference between the lease liability and the ROU asset represents the
existing deferred rent liabilities balances before adoption, resulting from historical straight-lining of rent expense, which was
reclassified upon adoption to reduce the measurement of the initial ROU asset. This was in addition to the $3.4 million of
finance lease ROU assets previously reported in property and equipment, net as capital leases. The adoption did not impact our
beginning stockholders’ equity, and did not have a material impact on the condensed statement of operations and statement of
cash flows for the year ended December 31, 2019.
The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and
determined to be either not applicable, or had or are expected to have minimal impact on the Company’s financial statements
and related disclosures.
14
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue is recognized according to ASC 606, Revenue - Revenue from Contracts with Customers. The Company
generates all of its revenue from contracts with customers. Many of the Company’s contracts with customers contain multiple
performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they
are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price
basis. Standalone selling prices of software licenses are typically estimated using the residual approach. Standalone selling
prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.
The Company usually expects payment within 30 to 90 days from the invoice date (fulfillment of performance obligations or
per contract terms). Differences between the amount of revenue recognized and the amount invoiced are recognized as deferred
revenue. None of the Company’s contracts as of December 31, 2019 or 2018 contained s significant financing component.
The following is a description of principal activities from which the Company generates revenue in each
reportable segment. Revenue is recognized when control of the promised goods or services are transferred to the Company’s
customers, in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.
Software & Services
Synacor’s software and services segment is comprised of our cloud-based identity management platform and our
Zimbra email & collaboration platform. Subscription fees and other fees are received from customers for the use of the
Company’s proprietary technology, including the use of, or access to, email, Cloud ID, security services, games and other
premium services. Monthly subscriber levels typically form the basis for generating recurring and fee-based revenue. This
revenue is typically determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular
services being offered or consumed, except in the case of software licenses and support, which are based on a fixed fee.
Revenue earned as subscription fees and maintenance and support fees is recognized from customers as its obligation to deliver
the service is satisfied, which is when the service is delivered. Revenue is also recognized from the licensing and distribution of
the Company’s Email/Collaboration products and services, including licenses of intellectual property. Software license revenue
is recognized up front upon delivery of the licensed product and the utility that enables the customer to access authorization
keys, provided that a signed contract has been received. The Company typically sells term-based software licenses that expire,
which are referred to as subscription licenses, but also sells perpetual licenses for its Email products. The software is delivered
before related services are provided and is functional without professional services, updates, and technical support.
Portal & Advertising
The Company uses internet advertising to generate revenue from the traffic on its Managed Portals and
Advertising solutions, categorized as search advertising and digital advertising. For search advertising, the Company has a
revenue-sharing relationship with Google, pursuant to which the Company includes a Google-branded search tool on its
Managed Portals. For revenue earned under this relationship the Company evaluates whether it is the principal (i.e., report
revenues on a gross basis) or agent (i.e., report revenues on a net basis). When a Google consumer makes a search query using
this tool, the Company delivers the query to Google and they return search results to consumers that include advertiser-
sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a
portion of that payment with the Company. The payment received from Google is recognized as revenue. Digital advertising
includes video, image and text advertisements delivered on its Managed Portals. Advertising inventory is filled with
advertisements sourced by the Company’s direct sales force and advertising network partners. Revenue is generated when an
advertisement displays, otherwise known as an impression, or when consumers view or click an advertisement, otherwise
known as an action. Digital advertising revenue is on a cost per impression or cost per action basis. Digital advertising also
includes advertising fees received for the placement of syndicated digital advertisements with other digital advertising
publishers, for which the Company acquires and pays for the space (inventory) on a cost per impression or cost per action basis.
Revenue is recognized based on amounts received from advertising customers as the impressions are delivered or the actions
occur, according to contractually-determined rates.
15
Disaggregation of revenue
The following table provides information about disaggregated revenue for the years ended December 31, 2019,
and 2018 by the timing of revenue recognition, and includes a reconciliation of the disaggregated revenue by reportable
segment (in thousands):
Software & Services
Products and services transferred over time
Products transferred at a point in time
Total Software & Services
Portal & Advertising
Products and services transferred over time
Products transferred at a point in time
Total Portal & Advertising
Total revenue
Year Ended December 31,
2018
2019
$
$
$
$
$
34,029 $
10,456
44,485 $
5,168 $
72,192
77,360 $
121,845 $
35,938
12,754
48,692
7,254
87,933
95,187
143,879
Revenue disaggregated by geography, based on the billing address of our customer, consists of the following (in
thousands):
Revenue
United States
International
Total revenue
Year Ended December 31,
2019
2018
$
$
99,845 $
22,000
121,845 $
119,912
23,967
143,879
Remaining Performance Obligations
Deferred revenue is recorded when cash payments are received or due in advance of revenue recognition from
software licenses, professional services, and maintenance agreements. The timing of revenue recognition may differ from the
timing of billings to customers. The changes in deferred revenue, inclusive of both current and long-term, are as follows (in
thousands):
Beginning balance - January 1, 2019
Recognition of deferred revenue
Deferral of revenue
Effect of foreign currency translation
Ending balance-December 31, 2019
$
$
8,886
(11,814)
11,759
44
8,875
The majority of the deferred revenue balance above relates to the maintenance and support contracts for Email
software licenses. These are recognized straight-line over the life of the contract, with the majority of the balance being
recognized within the next twelve months.
Practical Expedients
The Company generally expenses sales commissions when incurred because the amortization period would have
been one year or less. These costs are recorded within sales and marketing expenses.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original
expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has
the right to invoice for services performed.
16
3. PROPERTY AND EQUIPMENT—NET
As of December 31, 2019 and 2018, property and equipment-net consisted of the following (in thousands):
2019
2018
Computer equipment
Computer software
Furniture and fixtures
Leasehold improvements
Work in process (primarily software development costs)
Other
Property and equipment, gross
Less accumulated depreciation
Property and equipment, net
$
$
25,392
31,037
1,315
1,116
187
136
59,183
(44,235)
14,948
$
$
27,294
27,422
1,618
1,256
4,584
179
62,353
(43,646)
18,707
Depreciation expense totaled $9.1 million and $7.5 million for the years ended December 31, 2019, and 2018,
respectively.
Property and equipment includes computer equipment held under finance leases and long-term debt obligations
of $10.8 million and $8.4 million as of December 31, 2019 and 2018, respectively. Accumulated depreciation of computer
equipment and software held under finance leases amounted to $6.2 million and $5.0 million as of December 31, 2019 and
2018, respectively.
The Company capitalized a total of $2.3 million and $3.6 million of costs that occurred during the application
development phase, related to the development of internal-use software for the years ended December 31, 2019, and 2018,
respectively. The Company capitalized a total of $1.5 million and $1.3 million of costs related to the development of software
for sale or license for the years ended December 31, 2019 and 2018, respectively, that occurred after technological feasibility
had been achieved.
Amortization of software for sale or license was $1.4 million and $0.2 million for the years ended December 31,
2019 and 2018, respectively, and is included in cost of revenue in the consolidated statement of operations.
During the year ended December 31, 2019, there was a loss of a major portal customer which caused the
Company to assess the recoverability of certain long-lived assets. When the carrying value of long-lived assets is not
recoverable from future undiscounted cash flows, the Company utilizes the discounted cash flow to determine the fair value of
the assets and impairment charges are recognized when the fair value of the assets is less than their carrying value, which use
unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Impairment charges related to the following
assets were included in general and administrative expenses in the consolidated statement of operations for the years ended
December 31, 2019, and 2018 (in thousands):
Year Ending December 31,
Computer equipment
Computer software
Furniture and fixtures
Leasehold improvements
Total
2019
2018
$
$
2 $
1,557
102
90
1,751 $
—
552
—
—
552
The following table sets forth long-lived tangible assets by geographic area as of December 31, 2019 and
December 31, 2018 (in thousands):
Long-lived tangible assets:
United States
International
Total long-lived tangible assets
2019
2018
$
$
14,629
319
14,948
$
$
18,217
490
18,707
17
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of December 31, 2019 and 2018, accrued expenses and other current liabilities consisted of the following
(in thousands):
Accrued compensation
Accrued content fees and other costs of revenue
Accrued taxes
Other
Total
2019
2018
4,209
151
192
1,326
5,878
$
$
5,801
342
206
1,500
7,849
$
$
Included in accrued compensation are accrued severance costs. In 2018, the Company initiated a cost reduction
program ("2018 plan") to drive overall efficiency while adding capacity and streamlining the organization. The plan involved a
reduction in the Company’s workforce by approximately 25 employees. In 2019, the Company initiated a similar cost reduction
program ("2019 plan") in order to further streamline the organization after the loss of a major portal customer. These actions
resulted in workforce reductions of approximately 50 employees, office consolidations and consolidating operations.
In the year ended December 31, 2018, the pre-tax severance charge and outplacement services resulting from the
reduction in workforce, combined with the Company’s separation from its former Chief Financial Officer, amounted to
$1.1 million. Severance costs charged to sales and marketing and general and administrative expenses were each $0.4 million,
and $0.3 million was charged to technology and development expenses. For the year ended December 31, 2019 the pre-tax
severance charge and outplacement services resulting from the reduction in workforce amounted to $0.6 million. Severance
costs charged to sales and marketing was $0.2 million and $0.4 million was charged to technology and development expenses.
The following is a roll forward of the accrued severance liability for the years ended December 31, 2019 and
2018 (in thousands):
Balance at beginning of the year
Charged to expense
Cash payments related to 2018 plan
Cash payments related to 2019 plan
Balance at end of year
2019
2018
274 $
607
(268)
(557)
56 $
21
1,111
(858)
—
274
$
$
18
5. LONG-TERM DEBT
On August 7, 2019, the Company entered into a new Loan and Security Agreement, the "Loan Agreement", with
Silicon Valley Bank, or the "Lender". The Lender agrees to provide a $12.0 million secured revolving line of credit, the “credit
facility”. The credit facility is available for cash borrowings, subject to a Borrowing Base formula based upon eligible accounts
receivable. The maturity of the Agreement is two years from the date of the Agreement.
Any borrowings under the Loan Agreement bear interest, based on an interest rate dependent on cash liquidity
for the relevant period. Cash liquidity is defined as cash plus (a) the lesser of (i) the Revolving Line or (ii) the amount available
under the Borrowing Base minus (b) the outstanding principal balance of any Advances. If cash liquidity is greater than
$20.0 million then the interest rate is the greater of the "prime rate” as published in The Wall Street Journal (WSJ) for the
relevant period plus 0.50% or 5.50%. If cash liquidity is less than $20.0 million then the interest rate is the greater of WSJ
prime rate plus 1.00% or 6.00%. The Loan Agreement maintains certain reporting requirements, conditions, and covenants. The
financial covenants include that the Company must maintain a Minimum Liquidity Coverage greater than or equal to 2.25:1.00.
Additionally, when cash liquidity falls below $20.0 million, the Agreement includes certain trailing six month Free Cash Flow
requirements, tested on a quarterly basis. Free Cash Flow is to be defined as (a) Adjusted EBITDA, minus (b) capital
expenditures determined in accordance with GAAP, minus (c) capitalized software expenses, determined in accordance with
GAAP, and minus (d) cash taxes, determined in accordance with GAAP.
As of December 31, 2019, there were no borrowings outstanding under the Loan Agreement, and subject to the
operation of the borrowing formula, $10.8 million was available for draw under the Loan Agreement.
The Company’s obligations to the Lender are secured by a first priority security interest in all our assets,
including our intellectual property. The Loan Agreement contains customary events of default, including non-payment of
principal or interest, violations of covenants, material adverse changes, cross-default, bankruptcy and material judgments. Upon
the occurrence of an event of default, the Lender may accelerate repayment of any outstanding balance. The Loan Agreement
also contains certain financial covenants and other agreements that are customary in loan agreements of this type, including
restrictions on paying dividends and making distributions to our stockholders. As of December 31, 2019, the Company was in
compliance with the financial covenants.
19
6. INCOME TAXES
Income (loss) before income tax expense was attributable to the following jurisdictions (in thousands):
United States
Foreign
Total
2019
2018
$
$
(8,799) $
707
(8,092) $
(8,064)
1,125
(6,939)
The provision (benefit) for income taxes for the years ended December 31, 2019 and 2018, was comprised of the
following (in thousands):
Current:
United States Federal
State
Foreign
Total current provision for income taxes
Deferred:
United States Federal
State
Foreign
Net deferred provision for income taxes
Total provision for income taxes
2019
2018
— $
35
850
885
24
61
(41)
44
929
$
—
42
822
864
(310)
62
—
(248)
616
$
$
The income tax effects of significant temporary differences and carryforwards that give rise to deferred income
tax assets and liabilities as of December 31, 2019 and 2018 are as follows (in thousands):
2019
2018
Deferred income tax assets:
Stock and other compensation expense
Net operating losses
Research and development credits
Other federal, state and foreign carryforwards
Intangible assets
Other
Gross deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred income tax liabilities:
Fixed assets
Intangible assets and other
Gross deferred tax liabilities
Subtotal
Less unrecognized tax benefit liability related to deferred items
Net deferred tax liabilities
$
$
$
2,252
11,787
1,676
2,424
1,765
620
20,524
(14,025)
6,499
(5,139)
(1,007)
(6,146)
353
(628)
(275) $
2,118
9,310
1,676
1,858
1,045
694
16,701
(11,984)
4,717
(3,492)
(829)
(4,321)
396
(627)
(231)
There have been no additions or reductions to the unrecognized tax benefit of $0.6 million in any of the years
ended December 31, 2019 and 2018. The unrecognized tax benefits at the end of December 31, 2019 and 2018 were primarily
related to research and development carryforwards.
The Company does not expect any material changes to its unrecognized tax benefits within the next twelve
months.
20
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of
December 31, 2019 and 2018, penalties and interest were insignificant.
The Company files income tax returns in the U.S. federal jurisdiction as well as many U.S. states and foreign
jurisdictions. The tax years 2016 to 2019 remain open to examination by the major jurisdictions in which the Company is
subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes
generated in those early years which have been carried forward and may be audited in subsequent years when utilized.
Income tax expense for the years ended December 31, 2019 and 2018 differs from the expected income tax
benefit calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands):
Federal income tax (benefit) expense at statutory rate
$ (1,699)
21 % $ (1,457)
21 %
2019
2018
State and local taxes—net of federal benefit
Foreign taxes
Valuation allowance
Permanent differences
Other
Total
76
569
1,818
117
48
(1)
(7)
(21)
(2)
(1)
82
620
1,250
164
(43)
(1)
(9)
(18)
(2)
—
$
929
(11)% $
616
(9)%
No additional U.S. income taxes or foreign withholding taxes have been provided for any additional outside basis
differences inherent in the Company’s foreign entities as the Company does not have any material unremitted earnings of the
subsidiaries outside of the United States.
At December 31, 2019 and December 31, 2018, the Company has federal and state NOL carryforwards of
$48.2 million and $36.6 million, respectively, including $2.2 million of NOL carryforwards created by windfall tax benefits
relating to stock compensation expense. The NOL generated December 31, 2017 and prior, will begin to expire in 2028. The
Company has weighed all the available evidence both positive and negative and has determined that the Company more likely
than not will not be able to generate sufficient taxable income in the future to be able to utilize the entire NOL in future periods.
Therefore, a full valuation allowance has been recorded against the net deferred income tax asset as of December 31, 2019 and
2018. The deferred income tax provision is primarily due to the recognition of deferred tax liabilities relating to indefinite-lived
goodwill that cannot be predicted to reverse for book purposes during the Company’s loss carry forward periods.
Utilization of certain NOLs and credit carryforwards may be subject to an annual limitation due to ownership
change limitations set forth in the Internal Revenue Code of 1986, as amended, or the Code, and comparable state income tax
laws. Any future annual limitation may result in the expiration of NOLs and credit carryforwards before utilization. A prior
ownership change and certain acquisitions resulted in the Company having NOLs subject to insignificant annual limitations.
Additionally, for tax years beginning after December 31, 2017, the Tax Act limits the NOL deduction to 80% of taxable
income, repeals carryback of all NOLs arising in a tax year ended after 2017, and permits indefinite carryforward for all such
NOLs. NOLs arising in a tax year ended on or before 2017 can offset 100% of taxable income, are available for carryback, and
expire 20 years after they arise.
21
7. SEGMENT INFORMATION
During the first quarter of 2019, the Company made changes to its segment reporting structure that resulted in
two reportable segments: 1) Software & Services and 2) Portal & Advertising. All historical amounts have been restated to
reflect this change in reportable segments. Software & Services generates revenue by providing cloud-based identity
management solutions and email/collaboration products. Portal & Advertising generates managed portal fees and advertising
revenue from its traffic on its Managed Portals and other advertising solutions it provides for publishers.
The Company’s operations are organized and managed by type of products and services and segment information
is reported accordingly. The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer. The
CODM reviews financial performance and allocates resources by reportable segment. There have been no operating segments
aggregated to arrive at the Company’s reportable segments.
The accounting policies of each segment are the same as those described in the summary of significant
accounting policies, refer to Note 1— Summary of Significant Accounting Policies, for further details. The Company evaluates
the performance of its segments and allocates resources to them based on Segment Adjusted EBITDA. Segment Adjusted
EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for certain
non-cash items and other non-recurring income and expenses.
Revenue for all operating segments include only transactions with unaffiliated customers and there is
no intersegment revenue.
The Company does not account for, and does not report to management, its assets or capital expenditures by
segment other than goodwill and intangible assets used for impairment analysis purposes.
The tables below summarize the financial information for the Company’s reportable segments for the years
ended December 31, 2019 and 2018 (in thousands). The “Corporate Unallocated Expenses” category, as it relates to Segment
Adjusted EBITDA, primarily includes corporate overhead costs, such as rent, payroll and related benefit costs and professional
services which are not directly attributable to any individual segment.
Software & Services
Portal & Advertising
Corporate Unallocated Expenses
Total Company
Software & Services
Portal & Advertising
Corporate Unallocated Expenses
Total Company
Year Ended
December 31, 2019
Revenue
Cost of revenue (1)
Segment Adjusted
EBITDA
44,485 $
12,669 $
77,360
—
49,321
—
121,845 $
61,990 $
12,531
10,657
(13,685)
9,503
Year Ended
December 31, 2018
Revenue
Cost of revenue (1)
Segment Adjusted
EBITDA
48,692 $
13,244 $
95,187
—
60,060
—
143,879 $
73,304 $
14,305
10,788
(16,629)
8,464
$
$
$
$
Notes:
(1) Exclusive of depreciation and amortization shown separately on the consolidated statements of operations
22
The following table reconciles total Segment Adjusted EBITDA to Net loss:
Total Segment Adjusted EBITDA
Less:
Provision for income taxes
Interest expense
Other expense, net
Depreciation and amortization
Long-lived asset impairment
Stock-based compensation expense
Gain on Sale of investment
Restructuring costs *
Certain legal expenses **
Certain professional services fees ***
Net loss
Year Ended December 31,
2019
2018
$
(in thousands)
9,503 $
(929)
(268)
(17)
(11,251)
(1,751)
(1,616)
—
(959)
(1,098)
(635)
$
(9,021) $
8,464
(616)
(338)
(212)
(9,832)
(552)
(1,804)
—
(1,111)
(1,400)
(154)
(7,555)
*
**
"Restructuring costs" include severance expense, contract termination costs and other exit or disposal costs.
"Certain legal expenses" include legal fees and other related expenses outside the ordinary course of business.
***
“Certain professional services fees” includes fees and expenses related to merger and acquisition activities.
23
8. COMMITMENTS AND CONTINGENCIES
Contract Commitments —The Company is obligated to make payments under various contracts with vendors
and other business partners, principally for revenue-share arrangements. Contract commitments as of December 31, 2019 are
$0.8 million in 2020.
Litigation —The Company was previously awaiting a decision of an arbitration tribunal following a binding
arbitration that took place on July 30, 2018 between the Company and Maxit Technology Incorporated and Maxit Technology
Holdings Limited, (collectively, “Maxit”), who were formerly the Company’s joint venture partner in China. After unsuccessful
settlement discussions between the parties, on January 25, 2016, Maxit requested arbitration under the Rules of the International
Chamber of Commerce. In its request for arbitration, Maxit asserted claims for breach of contract, breach of the covenant of
good faith and fair dealing, breach of fiduciary duty, and negligent misrepresentation, all arising out of the Company’s alleged
failure to provide capital and software as required by the joint venture agreement. In its request, Maxit sought an award of
money damages based on its share of the lost potential value of the joint venture, as well as a percentage of revenue from any
future sales to customers originally introduced by Maxit, interest and legal expenses. On March 18, 2019, the arbitration
tribunal issued a final award finding that the Company has no liability to Maxit. The Company reversed the reserve of
$0.3 million that was previously recorded related to this arbitration during the year ended December 31, 2019.
The Company and its Chief Executive Officer and former Chief Financial Officer were named as defendants in a
federal securities class action lawsuit filed on April 4, 2018 in the United States District Court for the Southern District of New
York. The class includes persons who purchased the Company’s shares between May 4, 2016 and March 15, 2018. The plaintiff
alleged that the Company made materially false and misleading statements regarding its contract with AT&T and the timing of
revenue to be derived therefrom, and that as a result, class members suffered losses because Synacor shares traded at artificially
inflated prices. The plaintiff sought an unspecified amount of damages, as well as interest, attorneys’ fees and legal expenses.
The plaintiff filed an amended complaint on August 2, 2018, a second amended complaint on November 2, 2018, and the
Company filed a motion to dismiss on December 17, 2018. The plaintiff filed an opposition to the motion to dismiss on January
19, 2019 and the Company filed its reply to plaintiff’s opposition on February 15, 2019. On August 28, 2019, the court granted
the Company's motion to dismiss but permitted the plaintiff to seek leave to replead. On October 2, 2019, the plaintiff filed a
letter application seeking the court's leave to file a third amended complaint. The Company filed a letter in opposition to the
plaintiff's motion on October 21, 2019. The court denied plaintiffs’ application to file an amended complaint and ordered the
case closed on November 15, 2019. The Clerk of the Court entered judgment in favor of the Company and the individual
defendants and closed the case on November 19, 2019. Plaintiff filed its Notice of Appeal on December 16, 2019. The
Company disputes these claims and intends to defend them vigorously. The Company cannot yet determine whether it is
probable that a loss will be incurred in connection with this complaint, nor can the Company reasonably estimate the potential
loss, if any. Legal fees and liabilities related to this lawsuit are covered by our D&O insurance policy after the Company
reaches its deductible.
In addition, the Company is, from time to time, party to litigation arising in the ordinary course of business. It
does not believe that the outcome of these claims will have a material adverse effect on its consolidated financial position,
results of operations or cash flows based on the status of proceedings at this time. However, these matters are subject to
inherent uncertainties and the Company’s view of these matters may change in the future.
24
9. Leases
The Company enters into various noncancelable operating lease agreements for certain of our offices, data
centers, colocations and network equipment. The Company’s leases have original lease periods expiring between 2020 and
2024. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the
lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company’s variable lease
payments are immaterial and its lease agreements do not contain any material residual value guarantees or material restrictive
covenants. Operating lease costs are included in cost of revenue and general and administrative costs in the Company’s
consolidated statements of operations. Finance lease amortization costs are included in depreciation and amortization, and
finance lease interest costs are included in interest expense in the Company’s consolidated statements of operations.
The components of lease costs, lease term and discount rate are as follows (lease cost in thousands):
Finance lease cost
Amortization of right-of-use assets
Interest
Operating lease cost
Total lease cost
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
Year Ended
December 31, 2019
$
$
3,590
237
3,666
7,493
2.0
1.2
Years
Years
6.0 %
5.0 %
The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2019 (in thousands):
Year Ending December 31,
2020
2021
2022
2023
2024
Total undiscounted cash flows
Less imputed interest
Present value of lease liabilities
Operating Leases
Finance Leases
$
$
$
2,396 $
1,615
944
448
36
5,439 $
(428)
5,011 $
2,611
522
226
—
—
3,359
(101)
3,258
Supplemental cash flow information related to leases are as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
Operating cash outflows from finance leases
Financing cash outflows from finance leases
Lease liabilities arising from obtaining right-of-use-assets:
Operating leases
Finance leases
25
Year Ended
December 31, 2019
$
$
$
$
$
3,671
237
3,427
175
3,152
As of December 31, 2018, prior to the adoption of Topic 842, future minimum payments under operating leases
having initial or remaining non-cancelable lease terms in excess of one year, net of sublease income amounts, were as follows
(in thousands):
Year Ending December 31,
2019
2020
2021
2022
2023
2024
Total lease commitments
Rent expense for operating leases was $4.6 million for 2018.
Operating Lease
Commitments
$
$
5,276
3,101
1,594
782
250
33
11,036
26
10. EQUITY
Stock Repurchases —In February 2014, the board of directors approved a Stock Repurchase Program, which
authorizes a repurchase of up to $5.0 million worth of the Company’s outstanding common stock. The Stock Repurchase
Program has no expiration date, and may be suspended or discontinued at any time without notice. There were no repurchases
under this program during the years ended December 31, 2019 or 2018. The Company has repurchased $0.6 million of its
outstanding stock under this authorization to date.
Withhold to Cover —During the years ended December 31, 2019 or 2018, certain employees, in lieu of paying
withholding taxes on the vesting of certain shares of restricted stock awards, authorized the withholding of shares of the
Company’s common stock to satisfy their minimum statutory tax withholding requirements related to such vesting. These
shares were recorded as treasury stock using the cost method at the per share closing price on the date of vesting.
Warrants —Warrants to purchase 600,000 shares of common stock were issued as a component of the
consideration transferred for an acquisition that occurred in 2015. These warrants expired unexercised as of August 2018.
27
11. STOCK-BASED COMPENSATION
The Company has stock-based employee compensation plans for which compensation cost is recognized in its
financial statements. The Company is authorized to grant key employees and members of our board of directors stock-based
incentive awards, including options to purchase common stock, stock appreciation rights, RSUs, PSUs or other stock units. The
cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s
requisite service period (generally the vesting period of the equity award). The Company utilizes the Black-Scholes option-
pricing model to value stock option awards. The Company measures RSUs and PSUs using the fair market value of the
restricted shares of common stock on the day the award is granted. Stock-based awards granted to employees and members of
our board of directors include stock options and restricted stock units.
The following table presents the weighted-average assumptions used to estimate the fair value of options granted
(excluding replacement options in conjunction with modifications described below) during the periods presented:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options (in years)
Years Ended December 31,
2019
2018
— %
66.7 %
2.0 %
5.27
— %
49.0 %
2.8 %
6.25
The Company determines expected volatility uses historical volatility based on daily closing prices of the
Company's common stock over periods that correlate with the expected terms of the awards. The risk-free rate is based on the
United States Treasury yield curve at the time of grant for the appropriate expected term of the awards granted. Expected
dividends are based on our history and expectation of dividend payouts. The Company has never declared or paid any cash
dividends and does not presently plan to pay cash dividends in the foreseeable future. The expected life assumption represents
the weighted-average period awards are expected to remain outstanding. The expected life assumptions are established through
a review of historical exercise behavior of stock-based award grants with similar vesting periods.
The Company recorded $1.6 million and $1.8 million of stock-based compensation expense for the years ended
December 31, 2019,and 2018, respectively. Expense related to stock option grants of non-qualified stock options (“NSOs”)
results in a temporary tax difference, which gives rise to a deferred income tax asset.
Total stock-based compensation expense included in the accompanying consolidated statements of operations for
the years ended December 31, 2019 and 2018, is as follows (in thousands):
Technology and development
Sales and marketing
General and administrative
Total stock-based compensation expense
Years Ended December 31,
2018
2019
338
513
765
1,616
$
$
489
474
841
1,804
$
$
Equity Incentive Plans —The Company has two stock option plans (the 2006 Stock Plan and the Amended and
Restated 2012 Equity Incentive Plan), which, as of December 31, 2019, authorize the Company to grant up to 15.5 million
stock options (ISOs and NSOs), stock appreciation rights, restricted stock, RSUs and PSUs. The ISOs and NSOs will be
granted at a price per share not less than the fair value of the Company’s common stock at the date of grant. Options granted to
date generally vest over a four-year period with 25% vesting at the end of one year and the remaining 75% vesting monthly
thereafter. Options granted generally are exercisable up to 10 years. RSUs generally vest over a 3 year period with one-sixth
vesting at the end of each six-month period. PSUs vest annually over a 4 year period with the number of shares earned
dependent upon the Company's achievement of certain financial performance targets.
Special Purpose Recruitment Plan —During 2013, our shareholders approved the Special Purpose Recruitment
Plan from which equity compensation awards are granted to newly-hired employees. One million shares of common stock were
reserved for issuance and have all been granted under this plan.
28
Stock Option Activity —A summary of stock option activity for the year ended December 31, 2019 is as
follows:
Number of
Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (in
thousands)
Weighted
Average
Remaining
Contractual
Term (years)
Outstanding at January 1, 2019
Granted
Exercised
Forfeited
Expired
Outstanding—December 31, 2019
Expected to vest—December 31, 2019
Vested and exercisable—December 31, 2019
7,669,093
461,400
(39,572)
(314,748)
(479,427)
7,296,746
7,251,440
6,036,172
$
$
$
$
2.51
1.61
1.49
2.25
2.37
2.48
2.48
2.53
$
$
$
36
35
32
5.40
5.37
4.78
Aggregate intrinsic value represents the difference between the closing stock price of the Company’s common
stock and the exercise price of outstanding, in-the-money options. The Company’s closing stock price as reported on the
Nasdaq as of December 31, 2019 was $1.52. The total intrinsic value of options exercised was $10 thousand and $91 thousand
for the years ended December 31, 2019 and 2018, and respectively. The weighted-average grant date fair value of options
granted was $0.97 per share and $1.02 per share for the years ended December 31, 2019 and 2018, respectively.
As of December 31, 2019, total unrecognized compensation cost, adjusted for estimated forfeitures, related to
unvested stock options was $1.4 million, which is expected to be recognized over a weighted-average period of 2.12 years.
RSU Activity —A summary of RSU activity for the year ended December 31, 2019 is as follows:
Unvested—January 1, 2019
Granted
Vested
Forfeited
Unvested—December 31, 2019
Number of Shares
11,346
845,361
(155,849)
(23,504)
677,354
Weighted Average
Fair Value
$
$
3.60
1.56
2.04
1.76
1.54
As of December 31, 2019, total unrecognized compensation cost, adjusted for estimated forfeitures, related to
RSUs was $0.7 million. This cost is expected to be recognized over a weighted-average remaining period of 2.31 years.
PSU Activity — During the year ended December 31, 2019, certain employees were granted PSUs with an
aggregate target award of 297,789 shares of our common stock at a weighted average fair value of 1.36. The PSUs vest
annually over four years from the grant date based on continuous service, with the number of shares earned dependent upon the
Company's achievement of certain financial performance targets measured over the period from January 1, 2019 through
December 31, 2022. The number of shares earned can range from 0% to 150% of the target award.
As of December 31, 2019, total unrecognized compensation cost, adjusted for estimated forfeitures, related to
PSUs was $0.3 million. This cost is expected to be recognized over a weighted-average remaining period of 3.01 years.
29
12. NET LOSS PER COMMON SHARE DATA
Basic net loss per share is computed using the weighted-average number of common shares outstanding during
the period. Diluted net loss per share is computed using the weighted-average number of common shares and, if dilutive,
potential common shares outstanding during the period. The Company’s potential common shares consist of the incremental
common shares issuable upon the exercise of stock options, warrants, and to a lesser extent, shares issuable upon the release of
RSUs and PSUs. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of
the treasury stock method.
The following equivalent shares were excluded from the calculation of diluted net loss per share because their
effect would have been antidilutive for the periods presented:
Anti-dilutive equity awards:
Stock options
Restricted stock units
Performance based stock units
Warrants
Year Ended December 31,
2018
2019
7,553,379
447,886
119,116
—
8,400,936
34,150
—
400,000
30
13. SUBSEQUENT EVENTS
On February 11, 2020, the Company, Qumu Corporation, a Minnesota corporation (“Qumu”), and Quantum
Merger Sub I, Inc., a Minnesota corporation and a direct, wholly owned subsidiary of Synacor (“Merger Sub”), entered into an
Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) for a proposed “merger of equals” transaction,
pursuant to which, and subject to the conditions in the Merger Agreement, Merger Sub will merge with and into Qumu (the
“Merger”), with Qumu surviving the Merger as a wholly owned subsidiary of the Company. The respective boards of directors
of the Company and Qumu have each unanimously approved the Merger Agreement. The Company expects the Merger will be
completed in the second quarter of calendar year 2020.
Pursuant to the Merger Agreement, each issued and outstanding share of common stock, par value $0.01 per
share, of Qumu will be converted into the right to receive 1.61 newly issued shares of common stock, par value $0.01 per share,
of Synacor. No fractional shares of Synacor Common Stock will be issued in the Merger, and Qumu stockholders will receive
cash in lieu of fractional shares as part of the Qumu Common Stock Merger Consideration, as specified in the Merger
Agreement.
The Merger Agreement provides that, upon the closing of the Merger, the board of directors of Synacor (the
“New Synacor Board”) will initially be set at seven authorized directors. Two directors will come from Qumu’s existing board
of directors and four directors, including Synacor Chief Executive Officer Himesh Bhise, will come from Synacor’s existing
board of directors. It is anticipated that one additional director with software experience relevant to the operations of Synacor
will be selected by the New Synacor Board, which such director will be subject to the approval of the New Synacor Board
including at least one of the two directors from Qumu.
The closing of the Merger is subject to customary closing conditions, including (i) the absence of any adverse
law or order promulgated, entered, enforced, enacted or issued by any governmental entity that makes illegal or prohibits the
Merger, (ii) the Securities and Exchange Commission (the “SEC”) shall have declared effective the Form S-4 Registration
Statement of Synacor which will contain the joint proxy statement/prospectus of the parties in connection with the Merger, (iii)
the approval of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Qumu
Common Stock entitled to vote thereon, (iv) the approval of the issuance of shares of Synacor Common Stock pursuant to the
Merger Agreement by the affirmative vote of a majority of votes present or represented by proxy at Synacor’s stockholder
meeting in connection with the Merger, (v) the authorization for listing on The Nasdaq Stock Market, subject to official notice
of issuance, of the shares of Synacor Common Stock to be issued in the Merger, (vi) the receipt of certain opinions from legal
counsel regarding the intended tax treatment of the Merger, (vii) subject to certain materiality exceptions, the accuracy of
certain representations and warranties of each of Qumu and Synacor contained in the Merger Agreement and the compliance by
each party with the covenants contained in the Merger Agreement, and (viii) the absence of a material adverse effect with
respect to each of Qumu and Synacor.
The Merger Agreement also contains a non-solicitation provision pursuant to which neither Qumu nor Synacor is
permitted to solicit, initiate, induce or knowingly encourage or facilitate, any acquisition proposal from third parties or to
engage in discussions or negotiations with third parties regarding any acquisition proposal. Notwithstanding this limitation,
prior to a party’s requisite shareholder approval, such party may under certain circumstances provide information to and
participate in discussions or negotiations with third parties with respect to an acquisition proposal that its board of directors has
determined in good faith constitutes or is reasonably likely to lead to a superior proposal. Each party’s board of directors may
change its recommendation to its shareholders (subject to the other party’s right to terminate the Merger Agreement following
such change in recommendation) in response to a superior proposal or an intervening event if the board of directors determines
in good faith that the failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary
duties under the Minnesota Business Corporation Act or the General Corporation Law of the State of Delaware, as applicable.
If the Merger Agreement is terminated under certain circumstances as indicated in the Merger Agreement Qumu
or Synacor may be required to pay the other party a termination fee of $2.0 million.
******
31
Corporate Information &
Safe Harbor Statement
Board of Directors
KEVIN RENDINO
Interim Chairman of the Board
HIMESH BHISE
Chief Executive Officer
Corporate Information
TRANSFER AGENT:
American Stock Transfer
& Trust Company
6201 15th Avenue
Brooklyn, NY 11219
www.astfinancial.com
LISA DONOHUE
MICHAEL MONTGOMERY
MARWAN FAWAZ
SCOTT MURPHY
GARY GINSBERG
ANDREW KAU
CORPORATE COUNSEL
Gunderson Dettmer Stough
INVESTOR RELATIONS
For further information on the
Villeneuve Franklin &
Hachigian, LLP
220 West 42nd Street, 17th Floor
New York, NY 10036
Company, please visit
investor.synacor.com
STOCK LISTING
The Company’s Common Stock is
traded on the Nasdaq Global
REGISTERED PUBLIC
ACCOUNTING FIRM
Grant Thornton, LLP
Market under the symbol “SYNC”
Cincinnati, OH
Safe Harbor Statement
“Safe Harbor” statement under the Private Securities Litigation
Reform Act of 1995: This annual report contains forward-
looking statements concerning Synacor’s expected financial
performance, as well as Synacor’s strategic and operational
plans. The achievement or success of the matters covered by
such forward-looking statements involves risks, uncertainties
and assumptions. If any such risks or uncertainties materialize or
if any of the assumptions prove incorrect, the company’s results
could differ materially from the results expressed or implied by
the forward-looking statements the company makes.
The risks and uncertainties referred to above include - but are
not limited to - risks associated with: execution of our plans
and strategies, including execution against our agreement
with AT&T; the pace and degree to which the AT&T portal can
be monetized; the loss of a significant customer; our ability to
obtain new customers; our ability to integrate the assets and
personnel from acquisitions; expectations regarding consumer
taste and user adoption of applications and solutions;
developments in internet browser software and search advertising
technologies; general economic conditions; expectations
regarding the Company's ability to timely expand the breadth
of services and products or introduction of new services and
products; consolidation within the cable and telecommunications
industries; changes in the competitive dynamics in the market
for online search and digital advertising; the risk that security
measures could be breached and unauthorized access to
subscriber data could be obtained; potential third party
intellectual property infringement claims or other legal claims
against Synacor; and the price volatility of our common stock.
Further information on these and other factors that could affect
Synacor’s financial results is included in filings it makes with the
Securities and Exchange Commission from time to time, including
the section entitled “Risk Factors” in this annual report. Synacor’s
SEC filings are available on the SEC Filings section of the Investor
Information section of Synacor’s website at http://investor.synacor.com/.
SYNACOR, INC. / ANNUAL REPORT 2019
SYNACOR, INC. / ANNUAL REPORT 2019