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Synchronoss Technologies Takes Another Step Forward

By Dan Caplinger – Nov 8, 2018 at 7:09AM

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The cloud computing company is trying to get back on track.

Many companies that get delisted are never the same again, but Synchronoss Technologies (SNCR 0.87%) is doing its best to beat those odds. The cloud computing specialist got suspended from the Nasdaq Stock Market for an extended period, and only after Synchronoss put together long-delayed financial statements was it able to return to regular trading.

Coming into Wednesday's third-quarter financial report, Synchronoss investors fully expected the company to remain under pressure. Synchronoss' results did show considerable weakness, but there were also some reasons for hope that the company could eventually get back to normal.

Animated dark-colored clouds connect by digital lines.

Image source: Getty Images.

The latest from Synchronoss

Synchronoss' third-quarter results weren't ideal, but they showed some progress. Sales came in at $83.3 million, which was down 8.5% from year-ago levels but slightly better than what most of those following the stock had anticipated. Adjusted net losses came in at $28.6 million, with the resulting $0.72 per share adjusted loss ending up much worse than the $0.53 per share consensus loss forecast among investors.

Most of Synchronoss' fundamental results showed some deterioration. Gross profit was down 13% year over year, and even after adjusting for a one-time expense, it was still lower over the period. Operating losses were narrower than they'd been the year earlier, but red ink was still substantial. One of the only areas of improvement came in adjusted pre-tax operating earnings, which climbed by about $200,000 to $4.5 million.

Fortunately, Synchronoss also made some efforts to rein in costs. Spending on research and development and overhead expenses were both considerably lower than year-earlier levels, and savings on interest expense was also considerable as well.

CEO Glenn Lurie framed things in the context of sequential improvement compared to the second quarter. "Synchronoss delivered on its promise to return to growth and profitability in the third quarter," Lurie said, asserting that the gains in adjusted pre-tax operating earnings "were driven by improving trends across all parts of our business." The CEO also noted that balance-sheet improvement efforts paid off for the company during the period.

Can Synchronoss make more progress?

Specifically, one thing that Synchronoss did during the period stood out. As CFO David Clark explained, the company bought back more than half of its outstanding convertible note debt, which had the dual benefit of reducing leverage and resolving a dispute among bondholders.

Moreover, Synchronoss has high hopes for the future. In Lurie's words, "Our digital, cloud, messaging, and [Internet of Things] platforms are solving some of the most important challenges that [technology, media, and telecom] companies are facing as they compete in an increasingly digital and consumer-centric world." With further advances, Synchronoss hopes to remain on the cutting edge of the high-growth arena.

Synchronoss reaffirmed its expectations for the full year. With revenue growth having come back on a sequential basis, the company will now turn toward sustaining positive free cash flow and adjusted pre-tax operating profit for the rest of 2018. Through collaborations with major telecom partners, Synchronoss is hopeful that it can take its progress thus far and turn it into lasting positive momentum that will extend into 2019 and beyond.

Synchronoss investors responded favorably to the results that the company posted and the comments that key executive team members made, and the stock climbed almost 7% in after-hours trading following the announcement. It's far too early for the company to declare victory, and the stock remains well below where it traded before Synchronoss ran into its biggest difficulties. Yet with tenacity and continued vigilance, Synchronoss has a chance of clawing back more of its former glory in the months and years to come.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Synchronoss Technologies. The Motley Fool has a disclosure policy.

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