Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included in Item 1 "Financial Information" of this Form 10-Q.
The words "
Overview
The Company currently operates in and markets its solutions and services
directly through its sales organizations in
Impacts of COVID-19
Although COVID-19 has not significantly affected our business to date, this disclosure discusses the actions the Company has taken in response to the COVID-19 crisis and the impacts that the situation has had on our business, as well as related known or expected trends.
The continued impact of COVID-19 on the macroeconomy and our business will depend significantly on the effectiveness and distribution of the vaccine, the potential cyclicality of the health crisis and the related public policy actions, market or regulatory needs or demands, the length and severity of the global economic slowdown, and whether and how our customers change their behaviors over the longer term. As a result, the demand for our products and services, as well as our overall results
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Table of Contents of operations, may be materially and adversely impacted by the pandemic for the duration of 2021 or longer, and we are unable to predict the duration or degree of such impact with any certainty.
In response to the ongoing COVID-19 pandemic, we continue to execute our business continuity plans and evolve our operations to protect the safety of our employees while continuing to provide critical products and services to our customers. Some of the key initiatives the Company continues to execute include:
•Working safely and effectively with new and existing customers to continue to provide our products and services through the pandemic •Continuing to enhance and modify our safety protocols for our employees •Adjusting business operations to address circumstances created by COVID-19 •Maintaining effective governance and internal controls in a remote work environment
As the pandemic continues, we may revise our approach to these initiatives or take additional actions to meet the needs of our employees, customers and the Company and to continue to provide our products and services.
Revenues
We generate most of our revenues on a per transaction or subscription basis, which is derived from contracts that extend up to 60 months from execution.
The future success of our business depends on the continued growth of Business-to-Business and Business-to-Business-to-Consumer driving customer transactions, and continued expansion of our platforms into the TMT Market globally through Cloud, Messaging and Digital markets. As such, the volume of transactions and our ability to expand our footprint in TMT and globally may result in revenue fluctuations on a quarterly basis.
Most of our revenues are recorded in
Our top five customers accounted for 69.2% and 69.0% of net revenues for the
nine months ended
Current Trends Affecting Our Results of Operations
As the COVID-19 pandemic continues to evolve, we are actively monitoring the
global situation. The extent of the continuing impact of the COVID-19 pandemic
on our operational and financial performance will depend on certain
developments, including the duration and spread of the outbreak, impact on our
customers and our sales cycles, impact on our business operations, impact on our
customer, employee or industry events, and effect on our vendors, all of which
are uncertain and cannot be predicted. The extent to which the COVID-19 pandemic
may continue to impact our business, financial condition or results of
operations is uncertain, but may include, without limitation, impacts to our
paying user growth as well as disruptions to our business operations as a result
of travel restrictions, shutdown of workplaces and potential impacts to our
vendors. Additionally, our results of operations and cash flows are subject to
fluctuations due to changes in foreign currency exchange rates relative to
Business from our Synchronoss Personal Cloud™ solution has been driven by the growth in mobile devices globally that are becoming content rich. As these devices replace other traditional devices like PCs, the ability to securely back up content from mobile devices, sync it with other devices and share it with family, friends and business associates have become essential needs and subscriber expectations. Such devices include smartphones, connected cars, personal health and wellness devices and
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Table of Contents connected home devices. The need for the contents of these devices to be stored in a common cloud are also expected to be drivers of our business in the longer term.
Business from our traditional Synchronoss Messaging business (Email) has been
driven by a resurgence in the need for white label secure messaging platforms
that favor the Mobile Network Operator's ("MNO") business objectives and are not
beholden to the objectives of a sponsoring over-the-top ("OTT") platform. We
believe that messaging drives higher subscriber engagement than any other
application in the market today and holds the potential to stimulate new revenue
from traditional services and third-party brands. OTT global success has driven
MNOs to look at opportunities to preempt and compete with the OTTs which has
potential opportunity for
Companies in the TMT market all face the dilemma of attempting to pivot their businesses to digital execution in order to create experiences that meet the expectations of their subscribers, generate new revenues and streamline costs creating healthier margins at a faster time to market than they have ever operated before. Their challenges feature the lack of skill sets to conceptualize and run day to day digital operations and the lack of resources to integrate their legacy back end systems to enact digital experiences that achieve their business objectives. The growth of Synchronoss Digital Platforms will be driven by the ability to provide TMT companies' desire to obtain digital transformation solutions as quickly as possible while educating them on the ability to operate a digital business efficiently. Our Platform as a Service ("PaaS") model provides a desirable alternative to heavy capital expenditure spending options often tried internally. The ability for our platforms to create low/no code, new customer digital journeys, virtually on the fly, gives TMT Companies the ability to operate new experiences and businesses without heavily investing in development resources.
To support our growth, which we expect to be driven by these favorable industry trends mentioned above, we will leverage modular components from our existing software platforms to build new products. We believe that these opportunities will continue to provide future benefits and position us for future revenue growth. We are also making investments in research and development of new products designed to enable us to grow rapidly in the mobile wireless market. Our purchase of capital assets and equipment may also increase based on aggressive deployment, subscriber growth and promotional offers for free or bundled storage by our major Tier 1 carrier customers.
We continue to expand our platforms into the converging TMT, MNO, and Digital spaces to enable connected devices to do more things across multiple networks, brands and communities. Our initiatives with our customers continue to grow both with regard to our current business as well as our new product offerings. We are also exploring additional opportunities to support our customer, product and geographic diversification strategies.
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