Synchronoss Technologies Inc  (NASDAQ: SNCR) Q1 2020 Earnings Call Transcript

Synchronoss Technologies Inc  (SNCR) Q1 2020 earnings call dated May 11, 2020

Corporate Participants:

Joe Crivelli — Vice President, Investor Relations

Glenn Lurie — Chief Executive Officer

David Clark — Chief Financial Officer

Analysts:

Sterling Auty — J.P. Morgan — Analyst

Anthony Nemoto — Canaccord Genuity — Analyst

Richard Baldry — ROTH Capital — Analyst

Presentation:

Operator

Greetings and welcome to the Synchronoss Technologies Inc. First Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Joe Crivelli, VP of Investor Relations. Please go ahead, sir.

Joe Crivelli — Vice President, Investor Relations

Thanks Hector. Good morning, everyone. Welcome to Synchronoss Technologies’ first quarter 2020 earnings call. Glenn Lurie, President and CEO; and David Clark, CFO join us on the call.

During the call, we will make statements about expectations for 2020 and beyond. These may be considered forward-looking statements within the meaning of federal securities laws and include statements about financial trends, future results of operations and financial position and market opportunities. Generally, forward-looking statements are identified by words such as expects, believes, anticipates, intends and other indications of future expectations. Forward-looking statements are based on the business environment as we currently see it and include risks and uncertainties. Please refer to our SEC filings for more information on the risk factors that may cause actual results to differ. Forward-looking statements on this call are based on 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 US 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. Reconciliation of the GAAP measures to their non-GAAP measures, in addition to the description of the non-GAAP measures, can be found in today’s earnings release.

I’ll now turn the call over to Glenn Lurie.

Glenn Lurie — Chief Executive Officer

Thanks Joe, and thank you everybody for joining us this morning. The first quarter of 2020 was an incredible test for the Synchronoss and our ability to rise above the global health and economic crisis and the adversity it caused throughout the world. When it became clear that COVID-19 had the potential to cause dramatic changes to our business, we acted swiftly to adjust our daily business practices, found new ways to serve our customers and prospects, while most importantly, keeping our employees safe. I’m incredibly proud of the hard work, continued sense of purpose and determination of the Synchronoss team.

We delivered a strong first quarter with $77.1 million of revenue and $1.8 million of EBITDA, a solid start to the year that was ahead of our internal expectations for the first quarter. In addition, we ended the quarter with $31 million of cash, and our liquidity has grown to $41 million, as David will discuss in a moment.

It is important to note, our recurring revenue business and revenue from new deals we won over the past few years puts us in great shape to weather the economic downturn. Here’s why. We enjoy long-term relationships with some of the most stable, solid TMT companies in the world. This includes Verizon, AT&T, Sprint, British Telecom, Comcast, the three Japanese carriers, Vodafone and others. Approximately 70 plus percent of our revenue from these relationships is recurring in nature, which provides a solid base of revenue even in uncertain times. Of note, we have seen little indication of cancellations or deferrals of deals in our business.

We worked hard over the past few years to renew several long-term customers to multi-year deals, expand our customer base and win new business. This in turn supports our long-term growth objectives. We landed several major new deals in the past year, including the AT&T Cloud, TracFone Cloud, CCMI, advanced messaging joint venture for AT&T, T-Mobile, Verizon and others, which are expected to contribute in 2020 to revenue and accelerate in 2021 and beyond.

That said, we are cognizant that COVID-19 is a major headwind for all companies, and we are carefully monitoring our customers and talking with them daily to stay abreast of any changes they might be seeing in their businesses. When we spoke last March, COVID-19 was on the radar screen for companies worldwide and [Technical Issues].

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Since then, we’ve seen the near complete shutdown of the global economy, and the economic impact has been relentless in its downward pressure. Without clear consensus on the duration of the shutdown, the impact on TMT companies or to what extent of the economic damage will be, we can only manage directly what we control and to remain agile in riding out these severe economic fluctuations. So, while our first quarter results were solid and exceeded our internal plan, we felt it necessary to take unprecedented steps in unprecedented times to shore up our cash and accelerate additional actions to further reduce expenses. We believe these actions are prudent, both short and long-term strategic adjustments to put Synchronoss in an increased position of strength once COVID-19-related uncertainties subside in the marketplace.

As you all may remember, we announced $15 million of operationalized cost savings for 2020 in the first quarter. The $15 million of first quarter actions were embedded in our guidance for the year that we provided in March. We are executing an additional $40 million annualized cost savings starting in the second quarter, of which we expect to realize approximately $30 million of those cost savings in-year in 2020. Between these two sets of cost actions, executed savings total approximately $55 million on an annualized basis and approximately $45 million in-year in 2020. We believe these additional cost actions will protect EBITDA and preserve liquidity in 2020, even in the case of material revenue degradation resulting from COVID-19 crisis, based on the information we currently have today.

Here are some of the actions that we have taken. Our senior executives have agreed to a 15% reduction in their base salary, and I will personally take a 20% reduction. We have been definitely deferred merit increases for our entire employee base that were scheduled to take effect in March of 2020. We initiated additional reductions impacting approximately 10% of our workforce, including contractors. I’ll note that many of these reductions were more — where the more highly compensated management ranks as we work to flatten our organizational structure to increase overall efficiency and to increase velocity of execution. We instituted a Company-wide hiring freeze. We initiated additional facilities rationalizations and worked with our landlords to reduce or defer rents in 2020. In addition, we have deferred payments of 2019 bonuses, and we are also taking advantage of government-sponsored COVID-19 relief programs globally to the extent that we qualify.

As we evaluate expenses, we recognize the need to be a leaner organization going forward to drive business more efficiently and increase the speed of execution in 2020 and beyond. A reduction in management layers to flatten the organization was required. As a result, I made a decision to consolidate all revenue-generating teams, product management, marketing, go-to-market and delivery, under Jeff Miller, our Chief Commercial Officer. This will significantly enhance the connectivity between product delivery and our go-to-market initiatives and our delivery to a more traditional model that you see in PaaS and SaaS platform and product companies like Synchronoss. This will also result in fewer gaps in any aspect of the business from the building of our platforms, to the selling and delivering of them to our customers.

As you all know, Jeff is a seasoned industry pro, and prior to joining Synchronoss, led Motorola’s handset business in North America. This is also why we eliminated the Chief Product and Marketing Officer role. As a result, Mary Clark, who some of you have met at investor conferences, departed the Company on May 1. This was an extremely tough decision. I have great respect for Mary, and Synchronoss benefited from her energy and enthusiasm. We will definitely miss her.

We approached the COVID-19 crisis by devoting attention to what we directly control, and all of these actions were taken with the goal to maximize our cash balances and drive EBITDA growth, even with the possibility of pressure on our revenues due to COVID-19. As a result, we are confident in our EBITDA goals for the year, and believe they are achievable. If world gets back to business sooner, we believe we have upside potential as well.

I will also underscore that these actions are not just about COVID-19 pandemic. They are about us continuing to position the Company to drive free cash flow and ultimately refinance our preferred stock. COVID-19 simply became the catalyst for us to accelerate these actions. David will talk more about our expectations for cash shortly.

We continue to have a solid foundation of recurring revenue, and the first quarter results were better than our expectations. However, we are seeing signs that COVID-19 is having an impact on our customers, and in turn, may result in an impact on new deals, contracts and our customers for the remainder of the year, including a high percentage of our carriers globally, as retail stores are closed and there is no clear timeline on [Phonetic] when they will reopen. Transactions of new phone activations and upgrades are down. Some carriers are reporting a decrease in subscriber counts in the first quarter and uncertainty about the trajectory of their own businesses. Countries around the world are extending their stay-at-home rules with no clear timeline when they will reopen. And we are seeing TMT companies defer decisions on new business initiatives until the economic picture becomes clear. We are vigilantly monitoring the global marketplace and talking to our customers daily. They’ve been very receptive to continuing dialog, as we work through the COVID-19 crisis.

David will discuss the impact of our cost actions and our view on revenue environment when he discusses guidance later in the call. Let me turn to an update on our business.

First, our cloud business. We think the cloud business is likely our most resilient business as we provide a service in which customers find great value, even in a challenging economy. For example, as of last week, our largest cloud customers were on target with year-to-date subscriber counts and experiencing continued growth each month. We are also seeing lower-than-expected cloud customer churn during this time and a much higher level of engagement with cloud content than we’ve seen previously. AT&T and TracFone have launched our cloud offerings on their first set of brands, and we are executing on plans to launch additional brands offered by both customers later in 2020. Assurant has launched the cloud on Spectrum Mobile, a US-based MVNO, in the first quarter. And a major carrier in Europe launched our platform early in the second quarter with two more customers in the queue for near-term launches.

We also continue to enhance the cloud experience for our customers and have launched photo tag and search functionality on our cloud platform. Our white label cloud is an important product for the carriers we support, who continue to look for incremental revenue streams to propel the investments they are making, particularly in 5 G.

Second, with respect to our Messaging business, we continue to see incremental growth and follow-on contracts related to see CCMI deployment preparations, which again serve the three largest carriers in the US. Over the past several weeks, we have booked incremental new business with CCMI related to expansion and enhancement to the offering. We continue to work with CCMI joint venture with the goal of launching the RCS-based Advanced Messaging service later in 2020. In Japan, +Message subscriber growth continues to outpace expectations beyond the 15 million subscribers the consortium announced in December. We recently booked another contract for additional license purchases by one of the operators and expect more in 2020.

As we collectively figure out what is the new normal post COVID-19, we believe that the world will move faster to a more digital life with more options to live day-to-day digitally, and we expect that communications companies are going to be one of the winners. Based on what we are seeing in the US and Japan, we believe RCS-based Advanced Messaging is going to be an essential part of the new normal and is going to drive new and improved digital interactions between friends, families, co-workers and brands.

In our digital business, we continue to move forward with Amazon, Wireless Advocates, Telkom Indonesia with respect to our DXP Platform. In fact, last week, we successfully launched Amazon service integration for Waoo, a mobile operator in Denmark. We are also seeing increased traction for our Financial Analytics platform and products. We have booked several new customers this year and expanded our existing relationship with customers who are seeking better insights into the way they are spending their dollars and identifying potential savings.

A new development in the digital business is that we are pleased to announce the sale of STI to APC Holdings, a private equity fund co-founded by Richard Powell, a successful serial entrepreneur and investor. APC focuses its investments on bridging gaps between Fortune 500 companies and their strategic diverse suppliers and is working with the National Minority Supplier Development Council to gain Minority Business Enterprise certification for STI. APC has a tremendous track record of success in this space and in recent past built a BPO business to one $1 billion in six years, serving clients like IBM and AT&T. We view this as a strong positive for both Synchronoss and STI. With STI under new ownership, we believe the company can reestablish revenue momentum and growth. In addition, if the MBE certification is achieved, it will open new opportunities for STI, while solidifying current customer relationships and deploying new ones.

In parallel with the sale of STI, we have signed a new commercial agreement with STI APC to resell our digital platforms, continuing to jointly serve the customers we have had agreements with STI in place for many years, while also working with the new ownership group to grow the business and expand to new customers. All told, we are very excited about the new ownership group for STI, their track record of success and the prospect of a turnaround and incremental revenue growth from this customer.

Next, the Internet of Things. We continue to work closely with key customers in our IoT solution and expect our new and existing trials to transition into deployments. For example, our Rackspace trial last year became a deployment, which has now been extended to five locations around the world. I’ll note that our IoT Smart Buildings Platform is not just a US opportunity. We are seeing interest and traction from each region that we do business in globally. We believe smart building initiatives are going to be increased importance as the world returns from COVID-19 as companies and employees demand a healthy, safe and smart workplace. We are exploring opportunities to utilize our Smart Buildings Platform software and analytics to support real-time wellness ratings and to deliver tools for commercial office buildings, which will give building owners property, managers and companies the insights they need to show their employees they are returning to a safe work environment, which will be essential as employees return to work. More to come on this initiative.

David will now review the financials in more detail. David? Thanks Glenn, and thanks everyone for joining us. And again, apologies for the technical difficulties at the beginning of the call. I will review our first quarter results. Revenue for the quarter was $77.1 million, down 12% compared to $88.1 million in the year-ago quarter. The year-over-year decline is primarily due to changes we’ve made in our digital product area, which I will discuss momentarily. Recurring revenue was 72% of total revenue in the first quarter compared to 69% in the fourth quarter and 73% in the year-ago quarter. Our cloud revenue was $41 million, flat compared to last year’s first quarter and flat sequentially. As we’ve noted in the past, the accounting treatment of our cloud business moves revenue over the life of the contracts, which is why revenue was flat despite the fact that we grew subscribers during the quarter. Digital revenue was $12.8 million in the first quarter. This compares to $22.9 million in last year’s first quarter and $14 million in the fourth quarter of 2019. This year-over-year decline is primarily due to the reduction of revenue from STI and the sunsetting of a legacy product. The sequential quarter decline is due to the completion of a professional services project for a major customer in the fourth quarter of 2019. Messaging revenue was $23.3 million, down 5% from $24.5 million in the year-ago quarter and down 34% from $35.4 million in the fourth quarter. As we’ve mentioned to investors, messaging revenue will vary by quarter based on when we realize license revenue for our Japan and US Advanced Messaging initiatives. This quarter was a difficult comp because the year-ago quarter included the Japan Phase 2 licenses and the fourth quarter included significant license revenue from the CCMI ideal. As the messaging initiatives continue to grow subscribers, we expect there’ll be an opportunity for additional license sales going forward. I’ll now discuss profitability metrics. Total costs and expenses were $94 million in the first quarter compared to $108.4 million in the first quarter of 2019, a decrease of 13.3%. This reduction in total costs and expenses reflects continued cost cutting operational efficiencies and lower costs associated with the data storage, as we continue to migrate to the public cloud. Adjusted profit in the first quarter was $42.4 million compared to $49.8 million in the first quarter 2019, a decrease of 14.9%. And adjusted gross margin was 55% compared to 56.6% in the first quarter 2019. The decrease in gross margin dollars was largely driven by lower revenue in the first quarter of 2020. For the first quarter, non-GAAP loss for continuing operations attributable to Synchronoss was $10.1 million, a decrease of 31.3% compared to $14.7 million loss in the year-ago quarter. The improvement here is largely due to cost cutting efforts in 2019 and early 2020. Our adjusted EBITDA for the quarter was $1.8 million, down from $6.6 million in the first quarter of 2019 and $6.5 million dollars in the fourth quarter of 2019 due to lower revenue/ Turning to the balance sheet and cash flow statement, cash and marketable securities totaled $30.9 million at quarter-end. Note that our $10 million line of credit from Citizens Bank was fully drawn at quarter-end as we drew down the facility solely as precaution to ensure liquidity for unforeseen events as the COVID-19 crisis accelerated. Since quarter-end, our liquidity has grown to $41 million, including cash and availability under our supply chain facility. We further expect to utilize the CARES Act provision that enables companies to carry back net operating losses from tax years 2018, 2019 and 2020 against taxes paid in previous years. As a result, we are filing to receive approximately $9 million of a net refund of taxes paid in previous years, and we would expect this would future — would also bolster our future liquidity. We feel very good about liquidity throughout 2020. As Glenn discussed, we’ve taken several actions to conserve cash in year, and our business plan is calibrated to ensure that we have sufficient liquidity throughout the year. Net cash provided by operating activities in the first quarter was negative $14.9 million compared to a negative $5.7 million in last year’s first quarter, and this decline is almost entirely related to lower messaging license revenue and related payments in Q1 2020 as compared to last year. In conclusion, in the midst of one of the most trying times in economic history, we delivered a solid quarter that was above our internal plan. This was a result of consistent disciplined effort we’ve made to remove cost from the business, which allowed us to maintain our margins. And now, I’ll turn to guidance. While the additional cost cutting was a tough and painful decision, we are confident the additional cost reduction actions we are executing improve our ability to generate sustainable EBITDA and free cash flow growth even in a depressed revenue environment. We believe the actions will also protect our EBITDA guidance if the macroeconomic environment deteriorates further. And as we exit the COVID-19 crisis and the business environment returns to normal, Synchronoss will be stronger, leaner, more efficient in our operations, and we believe more profitable than we were before. Given the ongoing COVID-19-related uncertainties in the market Glenn mentioned, we are withdrawing revenue guidance for the balance of the year, as many of our customers have already done. However, we are reaffirming our EBITDA guidance for the year of $25 million to $35 million. I would like to note before I close that we’re taking advantage of the SEC’s guidance on filing the 10-Qs in the current quarter and anticipate filing our first quarter 10-Q by May 31. This is solely due to logistical challenge to completing all the necessary quarter-end activities in a remote environment. The full financial statements are expected to be available when the 10-Q is filed later this month. Glenn will make a few closing remarks before we open for Q&A. Glenn? Thanks David. The takeaway for customers is that while COVID-19 has clearly impacted the business environment, we are still driving the business forward and have not slowed down. In the new remote work environment, we launched three new clouds, continue to close deals and continue to advance new opportunities with our customers and prospects. And we delivered a very solid first quarter in which we achieved our revenue and EBITDA goals and exited the quarter with strong cash balance, even in this environment. We took decisive and fast actions to further reduce costs in light of COVID-19 pandemic. We believe these cost reduction actions to protect our bottom line in 2020, even if there’s further economic deterioration, and position us as a stronger, leaner, more nimble and more profitable company, while increasing earnings leverage when the macro environment returns to normal and we head into ’21. I’ll also note that we believe there are additional cost actions we can take, if the economy deteriorates further. And as we’ve said in the past, if the revenue does not materialize because of the current environment, we will not spend to deliver that revenue. I want to again thank the Synchronoss team. Within the span of a handful of days in March, 95 plus percent of our employees had to shift to a work-from-home model, including employees in India and other international locations. Our sales teams had to close business without the benefit of face-to-face meetings with customers and hammer out details of the deals. Our delivery teams had to deliver in a new virtual way with our customers. And despite these challenges, we hit the quarter numbers and continue to enjoy solid momentum thus far in the second quarter. I could not be more proud or of the entire team. We have positioned ourselves well to benefit in a post COVID-19 world. First, as a provider of mission-critical platforms and products to the telecommunications industry, we are an essential part of the infrastructure that people need and use, even during this pandemic. Second, we keep people connected through our cloud and messaging platforms and products. So, despite the uncertainty in the macro environment, we are optimistic about our future. With that, operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Sterling Auty with J.P. Morgan. Please proceed with your question.

Sterling Auty — J.P. Morgan — Analyst

Yeah, thanks. Hi guys. Glad everybody is safe and healthy. I just wanted to start with, can you give us a sense of what the mix of the cuts are in terms of the areas they’re focused in? In other words, how much of the cuts are coming out of R&D versus sales and marketing versus cost of goods sold, etc.?

Glenn Lurie — Chief Executive Officer

David, why don’t you start that one, please.

David Clark — Chief Financial Officer

Sure. Just by sheer numbers in terms of where — our expenses come from — a lot of it is going to be in — focused on the R&D and IT lines. There are cuts though in sales and marketing and G&A. And Sterling, I can get you more granularity on our follow-up call.

Glenn Lurie — Chief Executive Officer

Sterling, I would add this. As we said, Sterling, the majority — obviously, there’s things such as T&E and all the other things that we listed out when it comes to people’s comp and things that we’ve pushed out and some things that we’ve just decided not to do. The most important thing to take away was the restructuring of the management team; very tough decisions. But when we stepped back, we looked at the fact that we needed to be much more nimble and thin out from a management perspective. And as I said in my comments, the majority of the cuts were in management so that we could flatten the organization. You also saw we made some decisions around our — how we go to market with Jeff and Mary’s exiting the business. So those were key decisions about reducing cost, but also about operating more efficiently going forward.

Sterling Auty — J.P. Morgan — Analyst

That makes sense. And then one follow-up. Can you give us a sense, what is the ability to continue to do implementations and other kind of the professional services component that’s needed to drive longer-term revenue? What limitations are you experiencing in the various geographies due to COVID-19?

Glenn Lurie — Chief Executive Officer

Yeah. I will tell you, we were obviously very concerned as we headed into this and we saw the shutdown. The teams have been able to continue to deliver and we’ve been able to continue to work with our customers. The interesting thing that we’ve seen is that everybody is in the same boat. So this isn’t one of those situations where it’s a regional issue. It’s a global issue. Everybody is dealing with work from home. And I commend our customers. I commend the Synchronoss team. We found a way to be successful and continue to deliver. As I said, we launched three new cloud in the first quarter, which is very, very hard to do in a normal environment, and we were able to accomplish it in this environment and do it. So we’re seeing some things, as we said, slow a bit, but nothing has stopped. And everybody is still working together and everybody is still focused on delivering. So, so far so good. And in fact, now that we’ve been in this for the number of weeks we have, everybody including our customers are actually getting better at it, and we can do — and we’re getting back to that acceleration of trying to act like this is the new normal.

Sterling Auty — J.P. Morgan — Analyst

Thank you.

Glenn Lurie — Chief Executive Officer

Thanks Sterling.

Operator

Your next question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.

Anthony Nemoto — Canaccord Genuity — Analyst

Hi, this is Anthony out for Mike. Congrats on the solid execution in the tough environment. Just had a question on messaging, and several new CCMI agreements; Japan, another contract booked. Any color on the magnitude and timing of associated licensing fees for these for 2020? And then, is there any material licensing in Q1?

Glenn Lurie — Chief Executive Officer

Yeah, let me — David, why don’t you start, and then I will pick them [Phonetic] behind you.

David Clark — Chief Financial Officer

There was some license revenue from CCMI in Q1. Right now, we’re really looking to when they launch to see that how they ramp on subscribers before we see meaningful license revenue, but there’s still some meaningful revenue for the year from CCMI just based on ProServ [Phonetic] and some minimums we have in the contract.

Glenn Lurie — Chief Executive Officer

Yeah. And I would add that, like I said, we’re seeing obviously the three Japanese carriers performing ahead of expectation. We said, we do expect further licenses from them based upon the growth that they’re seeing. Obviously, in this environment with people being in their homes, obviously, the messaging is a very, very important part of what people are utilizing to stay in touch. And I would also tell you that on the CCMI front, like we said, we continue to work very closely with them and continue to see nice progress as we head towards a launch in 2020.

Anthony Nemoto — Canaccord Genuity — Analyst

Great. And then, Amazon DXP, have you seen any potential benefits with your carrier engagements from strength we’re maybe seeing with their services offerings due to the pandemic?

Glenn Lurie — Chief Executive Officer

Yeah. Obviously, we talked about the carrier in Denmark we just launched, and we are working with numerous others. But as far as our engagement, our engagement has continued with those carriers. Our focus has with those carriers obviously been on getting the Amazon business launched. And as we discussed when we first talked about it, our hope is, once they obviously see our tools, our platforms, the things that we can do, that we’ll see increased business with those carriers in other areas, but nothing that I can talk about at this time.

Anthony Nemoto — Canaccord Genuity — Analyst

Great. Thank you.

Operator

Your next question comes from the line of Richard Baldry with ROTH Capital. Please proceed with your question.

Richard Baldry — ROTH Capital — Analyst

Thanks. Can you talk about sort of how rapidly the cost cuts should hit the P&L? Is it sort of a partial Q2 and then mostly in for the second half? Or does it phase in sort of more gradually through the year as things like facilities are maybe not immediate hits but second half or something?

Glenn Lurie — Chief Executive Officer

David?

David Clark — Chief Financial Officer

Yeah, it’s going to ramp up through the course of the year, which we’re implementing them right now as we speak. So I would expect to see a ramp as they get implemented for second, third and fourth quarter. So, yeah, there’s going to be a little bit of a lag. In our remarks, we indicated that in-year — in addition to the $15 million we mentioned back when we announced fourth quarter 2019, that $30 million would be realized in-year is our — is the target we put out there.

Richard Baldry — ROTH Capital — Analyst

And can you talk about how much of a cash cost component to that there is sort of upfront, so we kind of — and when the timing on some of those related cash kind of payments to make those cuts would hit?

David Clark — Chief Financial Officer

Yeah. Initially, there will be termination costs and severance that will indeed impact the amount of cash we realize. I would say that we would expect there to be, of the $30 million, we’re probably going to lay out about $10 million in cash to realize the $30 million. So it’ll be a net cash of $20 million.

Richard Baldry — ROTH Capital — Analyst

Okay. And when I think about the licensing, is it more on the messaging side? Is it more sub-driven or usage or both? And how does — is some of the step-ups because of dramatic increase in usage more than the sub side? Or is it breakthrough to higher sub counts earlier than you thought?

David Clark — Chief Financial Officer

Is your question oriented toward going forward or looking backwards into the first quarter?

Richard Baldry — ROTH Capital — Analyst

Sort of first quarter and then if you can think about forward.

David Clark — Chief Financial Officer

Yeah. First quarter — any license revenue recognized in the first quarter was really percent complete of getting the initial licenses to CCMI. But going forward, and Glenn, you can add some color, that’s based both on users and also on messages sent.

Glenn Lurie — Chief Executive Officer

Yeah. And I would just add, obviously, in Japan, we’re seeing growth in both. But the key metric, obviously, for us is messages. And obviously, we want to watch customers and we watch customer engagement, and we’re seeing both of those grow in that marketplace.

Richard Baldry — ROTH Capital — Analyst

Then, to the extent you can talk about it, on the three new clouds have been launched, do some or all of them have active marketing support and subs being added? Or is it launched, available to them, but sort of subject to their ability in this very odd environment to try to do some sort of marketing launch?

Glenn Lurie — Chief Executive Officer

Yeah, absolutely. It’s a great question. Yeah, we are seeing active and we are seeing marketing activities taking place. So all three are moving the ball forward. Obviously, there’s a lot going on for the carriers right now. And I talked about, for example, in the US, majority of the stores are closed. We do rely on — even though we have our Out of Box, our OOBE product, with some of our partners and that is really — as you know, OOBE is a digitized — and every customer is offered on gross add an upgrade cloud in this instance, based upon your question. We do still rely on these folks in the stores to sell the product as well, depending on the carrier. So we are seeing marketing. We are seeing growth. We are seeing, as we said, that cloud is incredibly important in this environment, people keeping track and people being able to take that very, very valuable content and utilize it. So we’re seeing folks utilizing the cloud at a higher level. So we are optimistic around those three launches. And as we said, our largest cloud customers, the numbers continue to grow, and the churn has been lower than we expected. And we’re seeing nice results there.

Richard Baldry — ROTH Capital — Analyst

Then last, with things like Mobile World Congress shutdown, obviously large market opportunity. Can you talk about what you can, what you have been able to do to sort of readjust to having to specifically sell from home, maybe a little bit about operations, but more about selling without those types of big events, face-to-face that can kind of help keep pushing the ball forward?

Glenn Lurie — Chief Executive Officer

Yeah, I can. Like I said, and it’s really, really important, we made that transition quickly. The team understood the second that we saw that Mobile World Congress was — we actually said we weren’t going to go and then obviously it was overall canceled. We knew we were going to have to operate differently. One of the advantages we have is the number of deals and the number of big customers that we did in 2018, 2019 and leading into 2020. If you recall, on the call coming out of 2019, we felt very strongly that we had the business in hand to be able to deliver on our revenue growth. And obviously, that works very well for us when you think about how solid our recurring revenue is and the comments I made today. So yeah, we have been able to adjust. We have been able to continue to move the ball forward. The fact that everybody is in the same boat — our customers have been very engaging and very willing to continue to move and continue to do business in this new environment. It is harder. There’s no question. But again, Jeff and his team have just done a phenomenal job continuing both to sell, continuing both to renew contracts and continuing obviously on the delivery front, which we’ve been able to deliver business as we’ve discussed. So again, the fact that everybody is in the same environment, it’s just a matter of stepping back and continuing to work with your customers, just doing it a lot more on Zoom calls and in a different way than getting on an airplane, but the team has really done a phenomenal job continuing to move the ball.

Richard Baldry — ROTH Capital — Analyst

Maybe last to tag on to that would be aside from Japan and the US, have you seen or do you feel any perception that RCS demand for — plans for — have been altered, may be accelerated by sort of a recognition that messaging is becoming more important post COVID world than pre?

Glenn Lurie — Chief Executive Officer

Yeah, we have. And our engagement with carriers around the world has not slowed down at all. And I think it’s really important that we step back and think about what the new normal is going to be. And when you look at an environment that you see, whether you talk about what’s happening in Japan and we talk about what’s happening in China, this is about digital experiences. It’s going to be more about people doing more in a digital world. And we view Advanced Messaging on top of RCS as a great opportunity. In fact, we, to your point, believe this will accelerate folks wanting to get into that business and the opportunity for carriers to participate, working with customers, working with brands in that environment. So no, we have not seen a slowdown. We’re having lots of conversations. We’re seeing a lot of discussions around this and believe that the carriers will have an opportunity to be winners in this post COVID environment by delivering on that promise of what RCS and Advanced Messaging can deliver.

Richard Baldry — ROTH Capital — Analyst

Okay, thanks.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Mr. Glenn Lurie, CEO, for closing remarks.

Glenn Lurie — Chief Executive Officer

Thank you. First of all, I apologize again, folks, for the technical difficulties. I really want to thank everybody for being on the call this morning. Incredible times, and again, I will reiterate, I’m incredibly proud of the Synchronoss team and what we’ve been able to accomplish in these times. And as David and I talked about, we’ve really had to take some tough actions. We believe those actions will solidify us in the short term, but also those actions will be very, very important to the long-term strategy of the Company, the strength of the Company, our ability to operate more efficiently and with higher velocity. I hope everybody has a great day, and everybody please stay safe.

Operator

[Operator Closing Remarks]