It's been a hard road for Synchronoss Technologies (SNCR +0.00%). For more than a year, the company worked through restating financials dating back well into the past, and the company found itself having to list its shares on the bulletin boards after the Nasdaq suspended trading in the stock. Nevertheless, through all of its trials and tribulations, Synchronoss has remained steadfast in its determination to emerge from its difficulties stronger than ever. Announcing financial results was a key step toward getting things back to normal.
That's a big part of why Synchronoss investors were so happy that the company said it would release second-quarter financial results Thursday afternoon. The numbers themselves left a lot to be desired, but at least shareholders have a basis on which to evaluate the stock and its recent efforts to get its business moving in the right direction.
Image source: Synchronoss Technologies.
How Synchronoss fared
Synchronoss' second-quarter results showed considerable weakness in the company's core business. Revenue plunged 36% to $76.7 million, which was generally about in line with what those following the stock had anticipated. Synchronoss lost $19 million on an adjusted basis during the quarter, and that worked out to $0.48 per share. However, that wasn't quite as bad as the consensus forecast among investors for an adjusted net loss of $0.58 per share.
Especially noteworthy was seeing how many of the less-followed business metrics on Synchronoss' financial statements had deteriorated recently. Adjusted gross profit dropped by close to half from year-ago levels, weighing in at $38.5 million. Synchronoss had posted an adjusted operating profit of $18.4 million in last year's second quarter, but that figure swung to a $15 million net adjusted operating loss during the most recent period. Even before accounting for items like depreciation, amortization, taxes, and interest expense, Synchronoss was only able to break even during the second quarter of 2018.
It was also disturbing to see one particular item rise sharply. Stock-based compensation expense nearly tripled from year-ago levels. With the shares having seen a big plunge in that time frame, that wasn't the direction investors wanted to see for the compensation line.
CEO Glenn Lurie tried to put the quarter's performance in context. "We made substantial progress in the second quarter in returning Synchronoss to the path of long-term growth and overall success," Lurie said, "including completing our financial restatement process and meeting our SEC financial report obligations." The CEO pointed to the company's expectations to refocus on its core product lines.
What's next for Synchronoss?
In particular, Synchronoss has several key goals. On one hand, as Lurie put it, "Synchronoss will focus on providing platforms that enable [tech/media/telecom] customers to deliver compelling digital, cloud, messaging and [Internet of Things] experiences for their consumers." At the same time, though, the CEO said that financials should improve considerably as soon as the second half of this year.
Synchronoss didn't issue formal guidance, but it did point to some things it expects. The company should see revenue growth return on a sequential basis during the second half of 2018. It also sees positive free cash flow later this year, as well as positive adjusted pre-tax operating profits. The eventual goal is a "financial profile characterized by significant top-line growth and substantial profitability over time," in Lurie's words.
Perhaps the most interesting news came in the quarterly conference call after the report's release. There, Lurie explained how the model for its cloud computing business has evolved, moving away from the largely free service with premium options that many tech-related services have used in their initial stages of adoption toward the expectation of primarily subscription-based all-premium services. Although that has led to lower customer counts, those who have stuck with the services have generated more revenue for Synchronoss, and that's a trend that the company likes to see.
Synchronoss investors seemed happy with the strategic vision the company laid out, and the stock soared 25% on Friday morning following the Thursday afternoon announcement. There's still a long way to go for Synchronoss, but the second-quarter report was a vital step for the company to get back on track in the long run.
