Synchronoss Technologies' Turnaround Work Leaves Investors Wanting More

Losses still abound, but the cloud computing specialist still thinks it's making progress.

Dan Caplinger
Dan Caplinger
Mar 13, 2019 at 9:26AM
Technology and Telecom

Synchronoss Technologies (NASDAQ:SNCR) has gone through a tough couple of years. After seeing its stock suspended from the Nasdaq Stock Market due to delays in amending and preparing financial statements, the cloud computing company has undergone some big internal moves in order to get itself moving in the right direction again.

Coming into Tuesday's fourth-quarter financial report, Synchronoss investors were prepared for further weakness in the company's financials. The results that the company posted had some encouraging signs, although they also included troubling numbers that investors will have to come to grips with in order to have full confidence in the cloud-specialist's future.

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Synchronoss deals with falling sales

Synchronoss' fourth-quarter results showed some of the same trends that investors have seen in recent quarters. Revenue of $82.1 million was down 23% from the fourth quarter of 2017, accelerating in its pace of decline compared to the company's results from last quarter. Synchronoss posted a net loss of $101.9 million, which worked out to $2.56 per share.

As it did in November, Synchronoss pointed out that on an adjusted pre-tax operating earnings basis, the company was more successful. That metric came in at $15.4 million, marking the second-straight quarter of positive results. Yet even judging the company on that generous measure, Synchronoss brought in less than half the adjusted pre-tax operating earnings for the period that it did the same time a year ago. The big culprit for Synchronoss' losses was a massive asset impairment charge, which added up to $109.1 million on a pre-tax basis.

Synchronoss did try to point to some other positives. The company reported adjusted operating cash flow of almost $30 million, with the positive number indicating progress on its strategic initiatives. It also noted the rise in adjusted pre-tax operating margin resulting from its efforts to improve efficiency.

CEO Glenn Lurie highlighted the areas in which Synchronoss sees the most promise. "Our success is being driven by the significant value our platforms deliver," Lurie said, "in solving some of the most complex challenges facing the telecommunications, media, and technology industry, including the risk of disintermediation from over-the-top applications, managing the increasing complexity to deliver a true digital consumer experience and journey that end-users expect while reducing costs and driving incremental revenue." The CEO also noted its ongoing efforts to boost key financial metrics.

Check out the latest earnings call transcript for Synchronoss Technologies.

What's ahead for Synchronoss?

Synchronoss is also optimistic about the future. As Lurie pointed out, "Thus far in early 2019, we are winning a growing number of new customers while expanding engagements with existing customers." CFO David Clark also chimed in with his belief that there's more room to cut costs and boost profitability.

Some key wins during the quarter helped to build momentum for Synchronoss. The company made a partnership with Rackspace under which it will use the Synchronoss DXP platform internally, as well as reselling it to its customers. Synchronoss also renewed a key agreement with BT Group, formerly known as British Telecom, and it continued to make progress in expanding and developing advanced messaging capabilities with three major mobile operators in the Japanese market.

But what will be essential is whether Synchronoss can make good on its expectations for the coming year. Clark gave guidance for full-year revenue of $340 million to $355 million, which would represent growth of 5% to 9% from final 2018 figures. Further cost savings should help bring adjusted pre-tax operating earnings for the year to $30 million to $40 million.

Synchronoss investors weren't happy with the report, and the stock dropped 12% in premarket trading Wednesday following the Tuesday night announcement. Until the cloud computing specialist can demonstrate that it has truly turned things around, some shareholders will remain skeptical that the company will ever be able to recapture the full potential it once had.