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.
On February 10, 2021, we had entered into a definitive agreement and plan of
merger ("the Merger Agreement") with CLP SY Holding, LLC ("Parent") and SY
Merger Sub Corporation an indirect wholly-owned subsidiary of Parent
("Purchaser") an affiliate of Centre Lane Partners, LLC, a New York-based
private investment firm, to be acquired in an all-cash transaction that values
Synacor, in the aggregate, at approximately $92 million. Pursuant to the terms
of the Merger Agreement, Purchaser and Parent on March 3, 2021 commenced a
tender offer (the "Offer") to acquire all of the outstanding common shares of
Synacor at a purchase price of $2.20 in share payable net to the seller in cash,
without interest, subject to any withholding of taxes required by applicable law
(such consideration as it may be amended from time to time pursuant to the terms
of the Merger Agreement, the "Offer Price"). The Merger Agreement provides that,
subject to the satisfaction or waiver of certain conditions, as soon as
practicable following the acceptance and purchaser by Purchaser of the shares of
Synacor common stock in the Offer, Purchaser will be merged with and into the
Company, with the Company continuing as the surviving corporation (the "Merger")
on the terms and subject to the conditions set forth in the Merger Agreement,
with the Merger to be effected pursuant to Section 251(h) of the General
Corporation Law of the State of Delaware, as amended (the "DGCL"). Because the
Merger will be governed by Section 251(h) of the DGCL, assuming the requirements
of Section 251(h) of the DGCL are met, no vote of the stockholders of the
Company will be required to consummate the Merger. As a result of, and at the
effective time of the Merger, each outstanding share of Synacor common stock not
purchased in the Offer (other than (1) shares of Synacor common stock owned by
Parent, Purchaser or the Company or any direct or indirect wholly-owned
subsidiary of Parent or the Company, including all shares of Synacor common
stock held by the Company as treasury stock, or (2) shares of Synacor common
stock that are held by any stockholder who is entitled to demand and properly
demands appraisal in accordance with, and who complies in all respects with the
provisions of, Section 262 of the DGCL with respect to such shares) will be
converted into the right to receive the Offer Price from Purchaser.
The Company operates its business in two reportable segments: 1) Software &
Services and 2) Portal & Advertising. A summary of the major products and
services of our reportable segments follows:
Software & Services:
Synacor's Software & 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 Over The Top (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.
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Email / Collaboration
Synacor delivers an open and extensible email & collaboration platform used by
service providers, regulated entities (government and 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.
Publisher Focused
Synacor's publisher focused 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.
The Impact of COVID-19 on our Results and Operations
At the beginning of 2020, an outbreak of COVID-19 emerged and by March 11, 2020
was declared a global pandemic by The World Health Organization. Across the
United States and the world, governments and municipalities instituted measures
in an effort to control the spread of COVID-19, including quarantines,
shelter-in-place orders, school closings, travel restrictions and the closure of
non-essential businesses. By the end of March, the macroeconomic impacts became
significant, exhibited by, among other things, a rise in unemployment and market
volatility.
Beginning mid-March 2020, Synacor implemented a work from home policy for nearly
all of its employees other than a few providing on-site customer technical
support. Being in an industry where telecommuting is very common, Synacor has
been able to perform all normal business activities with minimal impact on
productivity. Synacor will continue this work from home policy until it is
determined to be safe for employees to return to work in our offices. Our work
from home requirement will be reassessed on July 5, 2021.
The global macroeconomic impacts due to the pandemic have caused some delays in
closing new software subscriptions and renewals. The delays were largely seen in
our third quarter results of the Software & Services segment. Our Portal &
Advertising segment has been negatively impacted with advertising revenue down
due to a sharp decline in advertising spending, which began in March 2020 and
continued throughout the second quarter of 2020. Although we have seen some
market improvement in advertising spending starting in the third quarter of
2020, our revenues are still significantly lower as compared to the same periods
in 2019. We have, however, seen an improvement in advertising margins as we have
progressed through the last half of the year which have returned back to more
normal levels.
To mitigate these impacts on our business, Synacor has taken actions to reduce
costs and preserve liquidity, including instituting a hiring freeze, reducing
discretionary spending and minimizing capital spending. We also took steps
during the second quarter of 2020 to improve our advertising margins with lower
CPMs (or cost-per-thousand-impressions) and an increased number of revenue share
arrangements. Synacor continues to believe that the COVID-19 related impacts on
our business will be temporary.
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Cost Reduction Program
On August 4, 2020, the Company initiated a cost reduction program as a result of
ongoing reviews of our business and operations. These actions are expected to
result in approximately $10 million of annual cost savings when fully
implemented. Of this total, $5.9 million relates to lower headcount and benefits
costs due to position eliminations and a reduction in force, which has already
been implemented. In addition, we expect $1.7 million in savings from data
center closures, $1.4 million from facility reductions, and $1.0 million from
other operating expense and cost of revenue reductions. In the third quarter of
2020, we recognized restructuring charges associated with this cost reduction
program of $1.1 million related to severance and facilities expenses. These
restructuring costs are included in technology and development ($0.6 million),
sales and marketing ($0.4 million) and general and administrative ($0.1
million). In the fourth quarter of 2020, we recognized restructuring charges
associated with this cost reduction program of $0.3 million related to severance
and facility expenses. The cost savings as a result of these actions realized in
the third quarter of 2020 were $0.8 million, and in the fourth quarter of 2020
were $1.2 million. We expect to achieve 90% of the total cost savings by the end
of 2021.
As a result of this program, we did incur impairment charges related to
operating lease right-of-use assets associated with certain leased office spaces
the Company ceased using, as well as furniture and fixtures associated with
those facilities.
Financial Highlights
Highlights and significant developments for the twelve months ended December 31,
2020
•Net loss was $11.6 million for the twelve months ended December 31, 2020
•Adjusted EBITDA* was $5.3 million, or 6.5% of revenue, for the twelve months
ended December 31, 2020
•Operating expenses, exclusive of depreciation and amortization, decreased 28%
from the prior year to $41.7 million
•Cash from operating activities was $1.0 million for the twelve months ended
December 31, 2020
The initiatives described below under "Key Initiatives" are expected to
contribute to our ability to maintain and grow revenue and return Synacor to
operating profitability.
*  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 certain legal and professional services 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. Net loss for the year ended December 31, 2020 was $(11.6)
million, and $(9.0) million for the year ended December 31, 2019.
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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.
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Critical Accounting Policies and Estimates
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, 2020 or 2019 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.
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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 internal use software.The Company utilizes the
net realizable value model to determine the recoverability of software for sale
or license to customers. Impairment charges for the years ended December 31,
2020 and 2019 are included in general and administrative expense in the
consolidated statement of operations.
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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.
                                           Year Ended December 31,
                                             2020               2019
                                               (in thousands)
Revenue                              $      81,362           $ 121,845
Costs and operating expenses:
Cost of revenue (1)                         42,236              61,990
Technology and development (1) (2)          12,007              18,273
Sales and marketing (2)                     15,350              21,790
General and administrative (1) (2)          14,356              17,734
Depreciation and amortization                8,068               9,865
Total costs and operating expenses          92,017             129,652
Loss from operations                       (10,655)             (7,807)
Other income (expense), net                    240                 (17)
Interest expense                              (189)               (268)
Loss before income taxes                   (10,604)             (8,092)
Provision for income taxes                     957                 929
Net loss                             $     (11,561)          $  (9,021)



                                                Year Ended December 31,
                                                    2020               2019
Revenue                                                     100  %     100  %
Cost of revenue (1)                                          52         51
Technology and development (1) (2)                           15         15
Sales and marketing (2)                                      19         18
General and administrative (1) (2)                           18         15
Depreciation and amortization                                10          8
Total costs and operating expenses                          114        107

Loss from operations                                        (14)        (6)
Other expense, net                                            1          -
Interest expense                                              -          -
Loss before income taxes                                    (13)        (7)
Provision for income taxes                                    1          1
Net loss                                                    (14) %      (7) %



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Notes:
(1)Exclusive of depreciation and amortization shown separately.
(2)Includes stock-based compensation expense as follows:

                                    Year Ended December 31,
                                       2020                2019
                                         (in thousands)
Technology and development    $        218               $   338
Sales and marketing                    407                   513
General and administrative             831                   765
                              $      1,456               $ 1,616



Included in the above results of operations was the following restructuring
expense:
                                        Year Ended December 31,
                                            2020                 2019
Cost of revenue                  $           12                 $ 234
Technology and development                  533                   370
Sales and marketing                         420                   246
General and administrative                  518                   109
Total restructuring expense      $        1,483                 $ 959


Comparison of the years ended December 31, 2020 and 2019
Revenue decreased by $40.5 million, or 33%, in 2020 compared to 2019,
attributable to an overall decline of $0.2 million in Software & Services
revenue and a decline of $40.3 million in Portal & Advertising revenue.
Cost of revenue decreased $19.8 million, or 32%, in 2020 compared to 2019. The
decrease in cost was primarily due to the decline in revenue, cost reductions
and a change in the mix of revenues.
Technology and development expenses decreased by $6.3 million, or 34%, in 2020
compared to 2019, primarily due to lower compensation expense of $5.2 million,
lower software license cost of $0.8 million, and lower discretionary spending of
$0.3 million.
Sales and marketing expenses decreased by $6.4 million, or 30%, in 2020 compared
to 2019, primarily the result of lower compensation expenses of $4.9 million,
lower travel costs of $0.8 million, and lower professional services fees of $0.4
million.
General and administrative expenses decreased by $3.4 million, or 19%, in 2020
compared to 2019, primarily the result of lower compensation expense of $0.9
million, lower impairment charges of $1.0 million, lower facilities costs of
$0.7 million, lower travel costs of $0.3 million, lower bad debt expense of $0.4
million, and lower professional services fees of $0.4 million, offset by higher
computer software costs of $0.3 million.
Depreciation and amortization decreased by $1.8 million, or 18%, in 2020
compared to 2019, driven by lower costs related to data centers.
Other income (expense), net consists of interest income and foreign currency
transaction gains and losses related to our international operations. The
decrease in expense of $0.3 million for the year ended December 31, 2020
compared to the same period in 2019 was due to unrealized foreign currency
transaction gains.
Interest expense decreased by $0.1 million for the year ended December 31, 2020,
when compared to 2019 primarily due to lower interest incurred on finance
leases.
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Provision for income taxes of $1.0 million for the year ended December 31, 2020
and $0.9 million for the year ended December 31, 2019 respectively, is comprised
primarily of current foreign income tax expense, including foreign withholding
taxes, offset by deferred income tax benefit.
Segment Results of Operations
The Company operates its business in two reportable segments: 1) Software &
Services and 2) Portal & Advertising.
The following are Revenue, Segment Adjusted EBITDA (in thousands) and Segment
Adjusted EBITDA Margin by reportable segment for the twelve months ended
December 31, 2020 and 2019. 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" below 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 ended December 31, 2020 was $(11.6) million, and $(9.0) million for the
year ended December 31, 2019.
                                               Year Ended December 31,
                                                2020              2019
Revenue:
Software & Services                        $    44,280        $  44,485
Portal & Advertising                            37,082           77,360
Total Revenue                              $    81,362        $ 121,845

Segment Adjusted EBITDA:
Software & Services                        $    14,340        $  12,531
Portal & Advertising                             2,168           10,657
Corporate Unallocated Expense                  (11,190)         (13,685)
Total Segment Adjusted EBITDA              $     5,318        $   9,503

Segment Adjusted EBITDA Margin:
Software & Services                               32.4   %         28.2  %
Portal & Advertising                               5.8   %         13.8  %
Total Segment Adjusted EBITDA Margin               6.5   %          7.8  %


Software & Services
Revenue in 2020 remained essentially flat when compared to 2019, decreasing by
$0.2 million. Recurring revenue (revenue recognized over time) decreased
$1.0 million, primarily due to COVID-19 related declines in consumer email
accounts and a video product line which was discontinued in the second quarter
of 2019. Non-recurring revenue (revenue recognized at a point in time) increased
$0.8 million primarily due to higher professional services revenue of $1.7
million, which more than offset COVID-19 related impacts on email license and
maintenance revenue.
Segment Adjusted EBITDA in 2020 increased by $1.8 million to $14.3 million, or
14%, compared to 2019. The increase was primarily due to lower operating
expenses due to cost reductions implemented during the year, which more than
offset the impact of lower revenue. As a result, the Segment Adjusted EBITDA
Margin increased to 32.4% compared to 28.2% in 2019.
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Portal & Advertising
Revenue in 2020 decreased by $40.3 million, or 52%, when compared to 2019.
Recurring revenue was down $2.0 million primarily due to the expected decline in
portal and premium service fees. Non-recurring revenue was down $38.2 million of
which $26.6 million was due to the loss of a significant portal customer at the
end of the third quarter of 2019. In addition, advertising revenue declined when
compared to last year due to the impact of the COVID-19 pandemic.
Segment Adjusted EBITDA in 2020 decreased $8.5 million, or 80%, compared to
2019. The decrease was primarily due to the impact of lower revenue which was
only partially offset by lower operating expenses. As a result, the Segment
Adjusted EBITDA Margin decreased to 5.8% compared to 13.8% in 2019.
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 an individual segment. Corporate
Unallocated Expense decreased for the year ended December 31, 2020 by
$2.5 million, or 18%, compared to the year ended December 31, 2019. The decrease
in Corporate Unallocated Expense is primarily a result of lower professional
service fees of $0.7 million, lower facilities costs of $1.0 million, lower
travel costs of $0.2 million and lower compensation costs of $0.8 million,
partially offset by higher computer software costs of $0.2 million.
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.
Our use of adjusted EBITDA has limitations as an analytical tool, and should not
be considered in isolation or as a substitute for analysis of our results as
reported under U.S. GAAP. Some of these limitations are:
•although depreciation and amortization and asset impairments are non-cash
charges, the assets being depreciated, amortized 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 finance leases or long-term debt borrowings (if any);
•adjusted EBITDA does not reflect the impact of the cost of 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.
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Table of Contents Because of these limitations, adjusted EBITDA should be considered alongside other financial performance measures, including net loss and our other U.S. GAAP results. The following table presents a reconciliation of adjusted EBITDA to net loss for each of the periods indicated:



                                                          Twelve Months Ended
                                                             December 31,
                                                          2020            2019
Reconciliation of Adjusted EBITDA:
Net loss                                              $   (11,561)     $ (9,021)
Provision for income taxes                                    957           929
Interest expense                                              189           268
Other income (expense), net                                  (240)           17
Depreciation and amortization                              10,294        11,251
Long-lived asset impairment*                                  806         1,751
Stock-based compensation expense                            1,456         1,616
Restructuring costs**                                       1,483           959
Certain legal and professional services fees***             1,934         1,733
Adjusted EBITDA                                       $     5,318      $  9,503



Notes:

         * "Long-lived asset impairment" includes impairment charges related to property,
           plant and equipment, capitalized software and leased assets.
        ** "Restructuring costs" include severance expense, contract termination costs and
           other exit or disposal costs.
           "Certain legal and professional services fees" includes legal fees and other
           related expenses outside the ordinary course of business, as well as fees and
       *** expenses related to merger and acquisition activities.



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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 Loan and Security Agreement, (the
"Agreement"), with Silicon Valley Bank (the "Lender"). The Lender 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 Agreement is two years from the date of the Agreement. Any borrowings under
the 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,
(each as defined in the Agreement). 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%, which as of
December 31, 2020 would be 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% which as of
December 31, 2020 would be 6.00%. The Agreement requires compliance with certain
reporting requirements, conditions, and covenants. The financial covenants
require that we must maintain a Minimum Liquidity Coverage (as defined in the
Agreement) 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
defined in the Agreement 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, 2020, we had no outstanding borrowings
under the Agreement, and we had $8.2 million of availability based upon the
borrowing formula under the Agreement.
On April 30, 2020, the Company entered into the First Amendment (the
"Amendment") to the Agreement. The Amendment changed the date from April 30,
2020 to May 31, 2020 for which the minimum Free Cash Flow target proposed by the
Lender is to be agreed upon by the Company, as defined by the Agreement, with
respect to any period from September 30, 2020 through and including December 31,
2020. On May 27, 2020, we entered into the Second Amendment to the Agreement,
which reset the Free Cash Flow covenant level for the period ended June 30, 2020
and set the Free Cash Flow covenant levels for the periods ending September 30,
2020 and December 31, 2020.
Our obligations to the Lender are secured by a first priority security interest
in all our assets, including our intellectual property. The 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 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, 2020, we were in
compliance with the covenants and anticipate continuing to be so.
We began taking advantage of the option to defer remittance of the employer
portion of social security tax at the end of April 2020 as provided for under
the Coronavirus Aid, Relief, and Economic Security Act, ("CARES Act"). This
deferral enabled us to retain approximately $0.6 million in cash during 2020,
which would otherwise have been remitted to the federal government. Under the
terms of the CARES Act, half of the cumulative deferred tax payment amount for
2020 will be remitted at the end of 2021 with the remaining half at the end of
2022.
As of December 31, 2020, we had approximately $5.7 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.
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Cash Flows
                                                   Year Ended December 31,
                                                      2020                2019
                                                        (in thousands)
Statements of Cash Flows Data:
Net cash provided by operating activities    $       1,038             $  2,459
Net cash used in investing activities        $      (3,053)            $ (3,772)
Net cash used in financing activities        $      (3,159)            $ (3,459)


Cash Provided by Operating Activities
Net cash provided by operating activities for the fiscal year 2020 of
$1.0 million was primarily driven by a net loss of $11.6 million, cash used in
working capital and other net assets of $0.1 million offset by $12.7 million of
non-cash charges including depreciation, amortization, and stock-based
compensation expense.
Net cash provided by operating activities for the fiscal year 2019 of
$2.5 million was primarily driven by a net loss of $9.0 million, cash used in
working capital and other net assets of $3.5 million offset by $15.0 million of
non-cash charges including depreciation, amortization, and stock-based
compensation expense.
Cash Used in Investing Activities
Our primary investing activities have consisted of capitalized software and
purchases of computer equipment. We expect to continue to make significant
investments in software development and computer equipment in 2021 and
thereafter. Net cash used in investing activities totaled $3.1 million in 2020,
as compared to $3.8 million in 2019.
Cash Used in Financing Activities
Net cash used by financing activities totaled $3.2 million in 2020. We made
$3.1 million in payments for finance lease obligations and used $0.1 million
related to the purchase of treasury stock and shares received to satisfy minimum
tax withholdings.
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.

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Off-Balance Sheet Arrangements
At December 31, 2020, 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 finance lease agreements.
The following table sets forth our future contractual obligations as of
December 31, 2020 (in thousands):

                                                    Payments Due by Period
                                2021         2022        2023       2024      2025       Total
Operating lease obligations   $ 2,290      $ 1,134      $ 446      $ 38      $  -      $ 3,908
Finance lease obligations       1,070          765        328        29         2        2,194
Total                         $ 3,360      $ 1,899      $ 774      $ 67      $  2      $ 6,102

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.


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