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Edited Transcript of SNCR earnings conference call or presentation 5-Aug-19 9:00pm GMT

Q2 2019 Synchronoss Technologies Inc Earnings Call

BRIDGEWATER Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Synchronoss Technologies Inc earnings conference call or presentation Monday, August 5, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David D. Clark

Synchronoss Technologies, Inc. - CFO

* Glenn Lurie

Synchronoss Technologies, Inc. - President, CEO & Director

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Conference Call Participants

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* Richard Kenneth Baldry

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Sahil Dhingra

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Synchronoss Technologies, Inc. Second Quarter 2019 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference to David Clark, Chief Financial Officer. Thank you, please begin.

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David D. Clark, Synchronoss Technologies, Inc. - CFO [2]

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Good afternoon, everyone. Thank you, and welcome to the Synchronoss Technologies Second Quarter 2019 Earnings Call. Joining me on the call is Glenn Lurie, President and Chief Executive Officer of Synchronoss.

During the call, we will make references to our prospects and expectations for 2019 and beyond and other statements relating to our business that may be considered forward-looking statements within the meaning of the federal securities laws, including statements about our financial trends, future results of operations and financial position, business prospects and market opportunities. Generally, forward-looking statements are identified by words such as expects, believes, anticipates, intends and other indications of future expectations. These forward-looking statements are based on the business environment as we currently see it and include certain risks and uncertainties. Please refer to our SEC filings for more information on the specific risk factors that may cause actual results to differ. Any forward-looking statements on this call are based on the assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.

In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to GAAP. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations of GAAP measures to their non-GAAP measures, in addition to description of the non-GAAP measures, can be found in today's earnings press release. I will now turn the call over to Glenn.

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [3]

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Thank you, David. Thank you, everybody, for joining us today. We are pleased to announce a strong second quarter of 2019 as we continue to make solid progress with year-over-year revenue growth, very strong EBITDA improvement and more exciting new deals with major customers worldwide.

Revenue in the second quarter was $77.8 million, up 1.4% from the year ago quarter. As expected, and as David and I told you on our first quarter call, revenue was down sequentially due to typical unexpected seasonality as well as the non-reoccurrence of a large Messaging license revenue that we recognize in the first quarter as well as a few other items. With the new deals, we have announced since our Q1 call, which I will comment on in a moment, we are optimistic about our ability to accelerate revenue growth in the second half of 2019 and continue that trend into 2020.

We are very pleased with the improvement of our overall profitability, and the overall year-over-year financial comparisons continue to give investors a clear and more transparent picture of the progress we have made to improve gross margins, reduce operating cost and drive earnings leverage.

As an example, compared to the second quarter of 2018, adjusted gross profit was up 17.1%, selling general and administrative expenses are down $10.9 million or 32%. Research and development is down $1.2 million or 5.8% and depreciation is down $3.1 million or 13.4%. These results, in turn, drove a significant improvement in overall profitability compared to the year ago quarter.

Adjusted EBITDA was $8.7 million in the second quarter compared to a breakeven in the year ago quarter. And adjusted EBITDA margin was 11.1% compared to 0% in the year ago quarter.

The year-to-date numbers are even better. Revenue is up 3.5% in the 6 months ended in June, and adjusted EBITDA was up 15.3% on a positive note versus an EBITDA loss of $10.8 million in the comparable prior 6-month period, a $26 million swing. These strong improvements are a result of our intense focus on operational efficiency.

Throughout 2018 and 2019, we have significantly reduced costs and matched expenses to our revenue. The entire culture of our company is now geared towards ensuring that every dollar we spend adds shareholder value. And every employee understands they have a responsibility to treat our company's dollars like their own and spend efficiently and effectively at all times.

In short, we are doing exactly what we told investors we would do and meeting our commitment to drive improved profitability and overall shareholder value, and we're not done yet. At our Investor Day in June, we outlined several of the initiatives that are underway to further reduce cost, including reducing our data center count to 0 over the next 3 years and plans to reduce the number of software licenses and Java cores used in our operations. These actions are in addition to our day-to-day focus on SG&A expenses as well as optimizing our headcount and office footprint, to name a few.

Earlier this year, we mentioned that we'll be making a $20 million to $25 million investment in the growth of our business. We also told investors that much of this investment will be success-based and timed to match new contracts and their subsequent implementations. Thus far, this year we've spent approximately $7 million of that investment. However, we expect the magnitude of the new deals to accelerate in the second half, so accordingly, we would expect a higher level of investment spending in the second half as well.

In short, we are spending the right amount to enable sustainable revenue and profitable growth, and we are ensuring that expenditures are matched to revenue opportunities and incur at the right time to meet our customer obligations and objectives.

On top of that -- of the financial progress, we have a lot of new exciting deals to talk about this quarter. In the cloud platform, AT&T selected Synchronoss Out of Box Experience product, or OOBE, to provide value-added offers to its subscribers. We also continued to make progress towards launching the new cloud customer we announced last quarter. In our Messaging platform, we continue to move forward in the next phase of our partnership in Japan. In our digital platform, we have announced new deals with Wireless Advocates, a major reseller of wireless products and services in over 600 retail locations. Wireless Advocates will implement digital journeys into its enterprise architecture and delivering a best-in-class customer experience and true omnichannel environment.

We also today announced Telkom Indonesia, the largest telecommunication service provider in Indonesia who will use our DXP Platform to improve its operational agility, speed-to-market and support the expansion of digital services for its customers.

And again in digital, we are moving in the next phase of our partnership with Amazon and have identified a number of carriers around the globe, whom our DXP platform will enable the sale of Amazon services. Also in Smart Buildings, we've announced a partnership that combines Arrow's electronics expertise in supply chain and logistics with Synchronoss' expertise in IoT software platforms. This is a truly global partnership as Arrow has over 200,000 customers, 349 locations in 80 countries worldwide.

And finally, on today's call, we are announcing that we have signed a developer agreement with Tridium, a global leader in Smart Buildings and a subsidiary of Honeywell, to integrate their flagship open framework, Niagara, with our Smart Buildings solution to provide a rich insights for data for enterprise customers and bring new digital solutions to Tridium's partners across the globe.

And last, we provide more details on exciting partnership with Microsoft. We are partnering with Microsoft on a live proof-of-concept at Rackspace's million-square feet headquarters in San Antonio that combines Microsoft Azure back-end with Synchronoss Smart Buildings Platform.

Let me go into more detail for each of these. Let me start with cloud. Cloud continues to be our top revenue-generating platform based on our successful partnership with Verizon and others with our white label cloud platform. Last quarter, we announced that we had signed a material new white label cloud customer, and I'm here to tell you that we're making progress and working with that customer to prepare for launch. As we've noted in previous operators and in previous discussions have recognized the fact that premium cloud services drive material and profitable revenue growth and earnings growth while reducing customer churn.

Accordingly, we are seeing significant interest around the globe in partnering with Synchronoss for a premium cloud offering. Currently, our funnel is the largest it's ever been, and we look forward to more announcements in the near future.

Now this quarter, we announced that AT&T will be using our Out of Box Experience, or OOBE, to integrate additional mobile offerings into its digital customer onboarding process. This makes the process of buying or upgrading a new device, either at home or in-store, into a powerful sales channel for AT&T. OOBE lets AT&T build in value-add offers for add-on products that customers can seamlessly add during the device upgrade or activation process, enabling frictionless, personalized digital journeys as well as the opportunity for AT&T to drive new revenue. We are excited to expand our relationship with AT&T, one of the largest wireless operators in the world.

In the Messaging platform, we continue to work the next phase of our Messaging partnership in Japan. Later this year, we expect to launch enhanced customer engagement functionality and journeys, which will improve overall customer experience and provide the potential for ongoing monetization opportunities.

On a parallel path, we have been working hard to educate brands about the power of the advanced Messaging as a platform for mobile payments, e-commerce, advertising and A2P and B2C customer experience management. Advanced Messaging is capable of competing with the most widely adopted consumer Messaging platforms in the marketplace today, such as Facebook Messenger, Instagram and WhatsApp. We team with Medialink to conduct a market-shaping initiative to educate, inspire and activate brands in their agencies to trial advance Messaging around the globe in an effort to drive interest and ultimate market demand for this new and exciting engagement channel.

Our brand engagement activities also include conducting primary customer research on Messaging platform preferences. As a result, we will be publishing 2 white papers targeted respectfully -- excuse me, to the mobile operating community as well as the brands and agencies who will be using this channel. We are now establishing pilots with brands to test and learn about the possible engagement that can be gained through the use of advanced Messaging.

Later this year, we will launch an innovation lab to bring together stakeholders to continue to drive the creativity into this new method of communication. This initiative is geared towards ensuring that customers adopt the new Messaging platform and critical mass grows. There is built-in demand for the possible engagement in commerce capabilities it will offer.

In addition, I can tell you that discussions have accelerated with operators and potential operator consortiums in other parts of the world. And we are in advanced talks about replicating the model of our success in Japan and other countries. Expect to hear more about this in the second half of 2019.

In DXP, or our Digital Platform, we announced Wireless Advocates, a leading provider of wireless products and services with more than 600 retail locations in the United States and that they have selected Synchronoss and our DXP Platform to enhance its digital, retail and omnichannel customer journeys. Wireless Advocates will implement DXP into its enterprise architecture, delivering a best-in-class cost customer experience at all touch points. This is a great use case for DXP and specifically, digital journeys, as Wireless Advocates is a reseller of all 4 major U.S. carriers. As such, this deployment shows the flexibility and versatility of digital journeys as well as its ability to seamlessly create compelling customer journeys across a complex multi-carrier environment, minimizing operational complexities, which ultimately lowers costs and eliminates the need to rip and replace legacy systems.

In addition, Wireless Advocates is utilizing all the products within our DXP Platform to optimize their omnichannel sales environment, including Journey Creator, Journey Publisher, Journey Integrator and our Data Analytics across the sales channels in multiple paths.

So this deployment will demonstrate the full capabilities of DXP and create a compelling use case that will open a lot of eyes in the wireless and TMT ecosystems.

We are also pleased that Telekom Indonesia has chosen Synchronoss' Digital Experience Platform to transform its business processes and enhance and unify its customer relationship's management interactions across all channels. Telekom Indonesia will use DXP to improve its overall operational agility and support the expansion of digital services that incorporate new media, content and e-commerce offerings. Telekom Indonesia will use DXP's toolkit to upgrade its current CRM capabilities and quickly develop, connect and integrate its planned new digital services with minimal cost and disruption. It will also use DXP's data-mapping and in-depth analytics capabilities to aggregate and analyze customer data, create cross-selling opportunities through customized offers and provide an overall more personalized customer care. This new relationship with Telekom Indonesia is another important step forward for our strategy to open new revenue and new growth opportunities outside North America. We look forward to working with Telekom Indonesia to help them realize the potential and the digital abilities.

We are also excited, as I stated earlier, about Amazon having jointly identified and begun to work on our first set of carriers that will use DXP to integrate to Amazon's back-end systems. These carriers are all over the globe. The potential for revenue from those exciting partnerships is significant.

Now to the Internet of Things, or IoT platform. As you all know, we've been focusing on our Smart Buildings Platform and it's taken off, and we have announced several exciting new deals in the last week. As we announced last week, we are partnering with Microsoft to deliver an industry-leading Smart Building solution. The collaboration's first initiative is a live proof-of-concept with global technology services provider, Rackspace, deploying a Smart Building service to monitor, control and optimize energy uses -- usage, reduce cost at Rackspace's 1 million square feet facility in San Antonio. Synchronoss and Microsoft will combine our expertise in cloud computing and IoT service enablement to collect, analyze feeds from numerous sources in the Rackspace's headquarters, including heating, air conditioning, lighting, maintenance and security. Synchronoss' Smart Buildings solution will provide Rackspace with a dashboard to create a unified view for all of its energy and building systems.

Our platform will also include predictive fault-detection capabilities and near real-time alerts, which will automatically flag energy usage inefficiencies to Rackspace through persistent diagnostics. The result is an in-depth analysis, and benchmark reporting of business energy patterns and performance will aim to drive cost between -- excuse me, cost savings between 12% and 20% for Rackspace per building.

On today's call, we are also announcing a developer agreement with Tridium, a subsidiary of Honeywell and a global leader in business applications frameworks, that has fundamentally changed the way devices and systems connect. We will integrate their flagship open framework network, called Niagara, with our Smart Buildings solution provide a data-rich insight for enterprise customers and bring new digital solutions to Tridium's partners across the globe. Synchronoss and Tridium will deliver a scalable solution that provides a complete visibility into the buildings, facility systems as well as the ability to act on real-time alerts, resulting in increased efficiencies, cost savings and security.

As a result, enterprise users will have a holistic and single pane of glass view of critical data for the efficient management of their smart building, including HVAC, electricity, security and lighting. By providing integrated system control and a complete view and access to all energy sources, we believe we can deliver up to 20% to 25% cost savings.

We have also announced a partnership with Arrow Electronics, a leading global value-add supply chain and logistics partner to over 200,000 customers worldwide. This partnership will combine Synchronoss' software-driven Smart Buildings Platform with Arrow's expertise in creating and configuring hardware-based in-building management systems. This provides a single integrated package, which telecom operators, system integrators and other service providers can offer to large multinational companies and organizations to remotely manage their premises, on-site and automated features. This Synchronoss-Arrow joint solution will be a truly global in scale and scope, as Arrow today has 349 locations in 80 countries worldwide. The scalability of Synchronoss-Arrow solution means global brands and organizations can use it to remotely manage and monitor their office and facilities in multiple locations worldwide at the same time.

As noted on last quarter's call, we are launching customers throughout our AT&T Smart Buildings partnership and the pace is accelerating. We are excited that there is a great deal of activity with AT&T commercial sales force and see this partnership as a growing source of revenue for Synchronoss for years to come.

In short, we are seeing momentum across the business and traction in each of our platforms. We continue to feel good about the new deals that we announced in Q1 and the revenue contribution they will bring in the second half of the year. In addition to the recently announced Q2 deals, we also have added new opportunities to our pipeline that we expect to close in the back half of this year. I believe we have a clear line of sight to accelerated revenue growth in the second half of 2019 and it improving in 2020. With that, David will now review the financials in more detail. David?

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David D. Clark, Synchronoss Technologies, Inc. - CFO [4]

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Thanks, Glenn, and again, thanks to everyone for joining us. I will review our second quarter results and update guidance for 2019. We are very proud of the second quarter financial results as they indicate we'll continue to meet our promises to shareholders, drive revenue growth and remain prudent with spending, in order to drive earnings leverage and positive EBITDA. An $8.7 million year-over-year EBITDA improvement and $2 million improvement from the first quarter results, despite the expected lower revenue, are a strong testimony to the hard work we've done to improve the earnings profile of the company. As Glenn mentioned, we will continue to take the hard action necessary to move the company toward GAAP profitability and scrutinize every expenditure to ensure that it adds shareholder value in the near term.

Onto the results. Revenue for the quarter was $77.8 million, which is up 1.4% compared to $76.7 million in the year ago quarter, and down 11.6% compared to $88.1 million in the first quarter of 2019. The year-over-year revenue increase was primarily driven by growth in our white label cloud business, in particular, year-over-year growth in the premium subscriber at our major customer, Verizon. Sequential decrease was expected due to a nonrecurrence of the 8-figure licensing revenue we recognized in the last quarter in connection with the Japanese advanced Messaging deal. However, excluding this onetime large license deal from the first quarter revenue, sequential revenue growth would've been in the low single digits.

For the 6 months ended June 30, revenue was $166 million, up 3.4% from $160.5 million in the first 6 months of 2018. This increase was driven by growth in Verizon premium subscribers as well as revenue we recognized in the first quarter from the Japanese Messaging consortium.

As expected, recurring revenue returned to 80% of the total in the second quarter from 73% in the first quarter. As we noted in the last quarter's call, recurring revenue was lower in the first quarter due to the large licensing revenue we realized in the Messaging business and is now back at the expected level of above 80%.

I'll now review revenue by product line. Cloud revenue was $40.4 million, up 4.4% compared to $38.7 million in last year's second quarter, largely due to growth in premium subscribers at our largest cloud partner. Cloud revenue was essentially flat from $40.7 million in the first quarter. Digital revenue was also flat at $22.2 million in the second quarter and down 3% sequentially from $22.9 million in the first quarter. Messaging revenue was $15.2 million, down 4% from $15.8 million in the year ago period and down from the $24.5 million level in the first quarter due to the nonrecurrence of the large first quarter licensing deal.

I'll now discuss profitability metrics: gross margin, operating margin and net loss and EBITDA. The improvement in profitability metrics demonstrates the hard work the entire Synchronoss team has done over the past 18 months to reduce cost and improve earnings leverage across our business, including closing data centers and migrating to a cloud storage model, office consolidations, headcount reductions and other expense reduction initiatives throughout the business. And as Glenn noted, we have more opportunity to further reduce cost over the next 2 years.

Adjusted gross profit was $45.1 million or 57.9% of revenue. This is a 17% improvement compared to $38.5 million or 50.2% in the year ago quarter. Adjusted gross profit was $49.8 million in the first quarter reflecting the Messaging deal, but adjusted gross margin was quite lower at 56.6%.

For the 6-month period, adjusted gross profit was $94.9 million, up 21% from $78.8 million in the first half of 2018. Gross margin was 57.2% compared to 49.1% in the first half of 2018, an increase of 810 basis points. Non-GAAP loss from continuing operations was $4.5 million, a $10.5 million improvement compared to $15 million in the year ago quarter.

For the 6 months period, non-GAAP net loss from continuing operations was $11.9 million, a $24 million improvement from the first 6 months of 2018. GAAP net loss for the quarter was $25 million or $0.61 a share, a $22.2 million improvement from $47.3 million loss or $1.20 per share in the year ago quarter and a $2.6 million improvement from the $27.6 million loss or $0.68 a share in the first quarter. GAAP net loss was $52.6 million or $1.30 per share for the 6 months ended June 30, 2019, a $35 million improvement from an $87.3 million loss in the first 6 months of 2018. EBITDA for the quarter was $8.7 million compared to breakeven for the second quarter 2018 and a 32% increase from $6.6 million in the first quarter of 2019.

Now turning to the balance sheet and cash flow. Cash and marketable securities totaled $78.9 million at our quarter end and the balance on our convertible debt issuance was $47.1 million, down $97.2 million at March 31 -- down from $97.2 million at March 31 as we repurchased over $50 million of these notes in the quarter.

Accordingly, our net cash position is approximately $31.8 million as of June 30, and we expect to have ample liquidity to pay-off the remaining balance of our convertible debt when it comes due in mid-August while continuing to support the company's ongoing cash needs.

We do continue to pursue discussions with capital providers with an eye toward funding available over and above our cash balances. Accounts receivable is $99.9 million at quarter end, down from $108.9 million as of March 31.

Now moving to guidance. Our guidance in 2019 is unchanged. We continue to expect revenue to be $340 million to $355 million and EBITDA in the range of $30 million to $40 million for the full year. We believe we are well positioned to meet guidance for the full year as head into the cyclically stronger second half of the year. As a reminder, our guidance includes anticipated investment to support growth in the magnitude of $20 million to $25 million. Just to note, we attained $25 million in EBITDA in the second half of 2018, implying at least a $50 million run rate for the year. But we made the strategic decision to invest in our product platforms in 2019 to support growth in year, in 2020 and beyond. As Glenn and I explained to you on the first quarter call, we continue to feel very good about the new deals that we'd announced and the revenue contribution they will bring to the second half of the year.

In addition to the new deals recently announced, we've added new opportunities to our pipeline, and we expect to close incremental deals on all 4 of our product platforms in the back half of the year. This new business we anticipate to have an immediate impact on revenue in the third and fourth quarter as well as into 2020, as Glenn discussed earlier.

As Glenn noted, we spent approximately $7 million of the aforementioned $20 million to $25 million planned strategic investment on our product platforms. We fully expect, based on the deals announced and the deals we expect to close in the pipeline in the second half of the year, to spend the majority of the remaining success-based investment dollars by year-end.

In closing, it was a very solid quarter with strong year-over-year improvements in profitability due to the hard work and cost-cutting actions we've undertaken over the last 6 quarters. The momentum on the sales front is demonstrated by the exciting new deals we have signed recently and are good indicators of future revenue growth. And we remain well-positioned from a cash standpoint to retire remaining balances on our convertible notes while funding operations and investing in new business. And with that, operator, we'll be happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Richard Baldry with Roth Capital.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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This will be a fairly broad question given the number of new deals you've won, but could you generally like give us an overview of how the revenue motion will work on some of those? Will they be revenue splits with the customers or transaction-based? And then how much of the sales motion will you control with co-selling, et cetera? Or will most of that be led by the partners? And I -- obviously, this will change across your deals but just a general feel for how those things will work.

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [3]

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Well, first of all, thanks, Richard, appreciate the question and it's a good question. And you're right, it does vary based upon the platforms and the deals. I think let me give you kind of high-level, in general. I mean let's start for a second with cloud. We obviously have had a lot of success with cloud. It's our largest revenue product but also our cloud deals are based on subscribers. The majority -- there's always going to be some services revenue, implementation revenue, but the majority of the revenue is based on subscribers. So the deals that we have there that we've announced, the one that we haven't given a name yet, but we continue to work towards getting launched this year, yes, that revenue will come -- we'll have some this year but the majority of that revenue would be in 2020 as they ramp up and bring subscribers onto the platform. If you think about the DXP platform, we kind of have multiple models there, right? You obviously -- we're really excited about -- around Telkom Indonesia, we're really excited around Wireless Advocates. Both of those, we have implementation to go get done that we are in the process of doing today. And in a lot of cases, you'll see deals like that are success-based as well. They are based upon number of APIs, they can be based upon number of transactions. And so you will see again revenue in year and then you'll see that accelerate as we head into 2020. When it comes to the Amazon deal, which we talked about last quarter, that one is one that we will be doing implementations and we will be doing work with them really starting in the third quarter. And so that one is Amazon giving us the opportunity with certain carriers globally to work on implementing and bringing the systems together between the carrier and Amazon's backend and we will see revenue this year. And we actually truly hope that accelerates, obviously going into 2020, as we do a really great job and speed up that process for both sides.

If you think about our IoT platform, we made a lot of announcements around Smart Buildings. The team is doing a fantastic job, and we really feel very good about the feedback when you think about really industry leaders like Arrow and Tridium doing deals with us and the kind of volume and global stature they both have and can bring our software platform into. And we fully expect to see implementations of that happening in the backside of this year and again, we have very high hopes of acceleration for many years to come on that. But those are based upon per building and in a SaaS sales model, which you'd expect, and the success will be obviously how quickly we can get our Synchronoss building platform in, within Arrow's case, their hardware and with Tridium, obviously what they're doing around the entire building and the ability to deliver analytics to the building owners and managers. The other one that we talked about this quarter, which was Microsoft and Rackspace, that one's up and working. In real-time we are learning and seeing the capabilities that both Microsoft brings to the table, we bring to the table with a great customer, like Rackspace, and that is an implementation is happening right now. And like I said, that one will be in year.

Last but not least is the Messaging platform. And I think your -- as we've talked about with our relationship in Japan, there are multiple facets to that situation when you think about implementation and service and things that we do on a regular basis as well as there is some success-based in that platform as well. But that one's ongoing and as you know, we've announced we're continuing to the next phase.

So you have a mixture of what you would look at as success-based or recurring revenue models that always will include some level of service and capabilities that we will do ongoing. I can tell you one of the indicators, as David talked about, get -- having our ongoing, reoccurring the 80% of our revenue level, we think is very healthy. We're always going to have those situations where we do a large license deal in a quarter, but really the ongoing we want to have in that low 80 percentile. Does that help, Richard?

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4]

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Yes. And maybe one for David, switching more into the numbers side of it. The SG&A total dollars came at the lower end of what we've seen in the past many quarters. So sort of wondering if that's a new run rate you think is sort of a near-term level to see? Or maybe that's the number that will be coming up on some of the success-based spending in the second half, so maybe more splitting the first 2 quarters as a newer baseline?

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David D. Clark, Synchronoss Technologies, Inc. - CFO [5]

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I mean it's close to run rate but I think we will see a little bit of a tick up in the second half of the year.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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Okay. And then on the COG side, it again sequentially came down pretty significantly. I'm still one of the newer guys here. So maybe I'm not sure if that will have to do with the onetime revenues in the first quarter? Or how do we think about the run rate on COGS line on a go-forward?

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David D. Clark, Synchronoss Technologies, Inc. - CFO [7]

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Rich, do you want to say coms line?

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [8]

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COGS.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [9]

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The cost of goods line.

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David D. Clark, Synchronoss Technologies, Inc. - CFO [10]

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COGS. Okay. All right. I was coming -- it was coming through as coms. Yes, we will -- as we ramp deals in the second half of the year, you will see COGS go up. In fact, you might see a little bit of margin -- a slight margin compression as we do new deals because hosting costs will go up and we'll have other rev share with some of the partners that we offer some of our products through. So I think it's fair we will get -- certainly, can talk further, later today, but certainly, we're going to have expenses also for deployment of any new deals.

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [11]

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Yes. If I can add too to what David said. I think as we said of the $20 million to $25 million we said we are going to invest in our platforms, we've spent approximately $7 million of that. One of the things that we've talked about each quarter is that -- in the first quarter especially, was that is going to be success-based. You can see by the number of deals that we announced in Q1, the number of deals we've announced in Q2, and David and I both noted the expected closure of deals in Q3 that we will continue to ramp up spend based upon delivery of those deals and delivery of the ones that we've talked about as well as delivery of some ones that we haven't as of yet, that will get us back to in that $20 million to $25 million range for the full year.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [12]

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I guess the last one would be, there have been I think a lot more deals than I might have expected, not sure about everyone else. But how do you feel -- because you've been in a careful spending mode, which has been prudent. How do you feel about the amount of resources you have to ramp that many deals sort of simultaneously and the ones you see in your pipeline ahead?

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [13]

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Yes. It's a great question. And what we've tried to do, our strategy has been and I think we've been relatively consistent the last 18 months that we wanted the number 1, get the baseline cost structure right. And I feel good about that. The team's done a phenomenal job. I give David and his team a lot of credit for getting us there. At the same time, we've been very, very cautious, is one word; cognizant, another word, around, as we get deals done where is that next investment need to go? And really we've been doing it, I'll call it real-time very, very carefully. We'd literally spend every week looking at the deals we had, the deals that we believe we're going to get, the spend we have and then Pat Doran, our CTO, working very closely with Mary Clark who is our CMO, making sure that as we look where we need to go put more investment. And I think the team's done an excellent job of that.

Now to your point, we're seeing the contracts come through, the deals get done and now we're looking at where those next investments need to go. One of the nice things also about being in a SaaS business or Platform-as-a-Service business is some of these deals, really the incrementality of your spend is really delivery. Because the software is there, the customers -- as you know we've spent a lot of time white labeling our software to make it so it can be sold and the acceleration of the sale can go up, and then it really falls back to Pat and his team and the ability to deliver these things and do a fantastic job from our customers. So at this point, we feel good. I think we're always going to be a little nervous. That's just kind of how we operate and that's how we feel all the time because we want to make sure we're doing the right thing for our customers as well as for our shareholders. But right now, we feel we're in a very good place as we see the deals coming down the pipeline and getting now closed.

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Operator [14]

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Our next question comes from the line of Sterling Auty with JP Morgan.

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Sahil Dhingra, JP Morgan Chase & Co, Research Division - Research Analyst [15]

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This is actually Sahil on for Sterling. Congratulations on the quarter. So my question is the data center shift that's been done. So do you think that will impact your costs in the coming 3 years as your gradual reliance on the public cloud increases and at the same time you have to pay for maintaining your internal data centers as well?

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [16]

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Yes. I mean -- so I think what you're asking around our data center closures. Is that what you're asking about?

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Sahil Dhingra, JP Morgan Chase & Co, Research Division - Research Analyst [17]

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Yes. Right, right.

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [18]

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Yes. So absolutely, this will -- again when I first came in about 18 months ago, one of the very first things we looked at and we looked at the trends in the industry is that we want to get out of the data center business. And we've started that process immediately and as you guys have seen, we've made very, very good progress. At our Investor Day, in June, we laid out a plan -- Pat actually -- Pat Doran, our CTO, a plan over the next 3 years to get to 0. And so candidly, it is the plan and the process and actually, the transition has been incredibly smooth. I give credit where credit's due. We've got a great partners obviously in the cloud companies out there that are working with us and Rackspace working with us. Pat and his team have done very, very nice planning with our customers to make those transitions as smooth as possible. But ultimately, what those have done is those have improved quality and reduced costs and actually improved customer experience for our customers from the B2B perspective. So it's kind of been the perfect storm for us where it worked very well, all around. The one thing we can't do is rush them. We have to plan them and do them in the right way each time to make sure we bring that quality to the end user. But overall, yes, we are seeing cost reductions and in fact, as you know what's happening in the storage space, the cost continues to come down, which has been advantageous to us and our cost structure.

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David D. Clark, Synchronoss Technologies, Inc. - CFO [19]

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And it not only is showing up in the margin improvement, it obviously is reducing the overall capital spend the company has to do on a year-to-year basis since we don't need to deploy new hardware.

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Operator [20]

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We've reached the end of the question-and-answer session. Allow me to hand the floor back over to Glenn Lurie for closing remarks.

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Glenn Lurie, Synchronoss Technologies, Inc. - President, CEO & Director [21]

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Thank you very much. And I just want to again thank everybody for joining us today. I want to really again thank the Synchronoss team. Each and every person inside of this company is working incredibly hard and has been doing a lot of very, very good work around cost, around taking care of our customers and obviously around growing. We are very proud of the deals we've gotten accomplished in Q1, the ones we've announced in Q2. We have nice momentum in all 4 platforms, and we fully expect to continue and accelerate that momentum into the second half of the year. So again, appreciate everybody's interest and have a great day.

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Operator [22]

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Thank you. This concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.