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Synchronoss Technologies Gets Back to Growth Mode

By Dan Caplinger – May 9, 2019 at 8:47PM

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Narrower losses also helped bolster confidence in the cloud computing specialist.

It's always hard to mount a comeback from serious problems. For Synchronoss Technologies (SNCR 2.61%), problems with financial statements created such long delays in making required disclosures that its stock stopped trading for an extended period when the Nasdaq Stock Market suspended its listing. Synchronoss is back on the Nasdaq, but the cloud computing company has had to work hard to try to right the ship and win back investors' confidence.

Coming into Thursday's first-quarter financial report, Synchronoss investors had low expectations, including flat sales projections and anticipated losses. Synchronoss did lose more money, but revenue picked up some steam, potentially pointing the way toward what could eventually become a full recovery for the cloud specialist.

Animated buildings with icons indicating various smart-building functions.

Image source: Synchronoss Technologies.

Top-line growth returns to Synchronoss

Synchronoss' first-quarter results tried to keep laying the groundwork for a longer-term recovery. Revenue came in at $88.1 million, up 5% from the year-ago quarter, topping the flat performance that most of those following the stock had anticipated. Synchronoss posted adjusted net losses from continuing operations of $14.7 million, but the per-share loss of $0.36 was still less of a hit than the $0.43 per share of red ink in the consensus forecast among investors.

Synchronoss did manage to bring in positive results in adjusted pre-tax operating earnings three quarters in a row. The company posted $6.6 million on that metric, reversing a year-ago loss of $10.8 million.

Operational efficiency also played a role in Synchronoss' recovery. Gross margin rose by a whopping 8.5 percentage points, and operating expenses fell 17%. That freed up capital that the cloud company used to keep paying down convertible notes at a discount, taking advantage of low prices and avoiding the potential dilution that allowing that debt to convert into stock would bring. With a healthy balance sheet that includes plenty of liquidity, Synchronoss feels as if it's in a good position to look at growth-producing initiatives.

CEO Glenn Lurie was happy with how the company did. "The first quarter was another positive step for Synchronoss," Lurie said, "as we continue to deliver on our commitments to shareholders and execute on our financial and operational objectives." The CEO also pointed to particular strength in the company's messaging business.

Can Synchronoss keep picking up speed?

Synchronoss also believes that new customer agreements and partnerships could be the key to a full turnaround. A major new customer for its white-label cloud program will come aboard starting in the third quarter, and key partnerships with tech giants Amazon.com and Microsoft could bring more clients Synchronoss' way. Moreover, the launch of the second phase of its advanced messaging platform in Japan will help users improve communication as well as provide a model for Synchronoss to use in markets across the globe.

In particular, the Microsoft partnership is already starting to pay dividends. As part of the Internet of Things Accelerate Program, Synchronoss intends to offer enterprise solutions to create top-quality smart buildings. Privately held global technology services provider Rackspace will be Synchronoss' first client, with a proof-of-concept project at the company's San Antonio headquarters.

Synchronoss investors seemed pleased with the progress that the cloud computing company has made so far, and the stock picked up about 4% in after-hours trading following the announcement. To be clear, Synchronoss still has a long way to go before it will show that it has fully recovered, and there's plenty of competition in cloud computing that could threaten its growth path. For now, though, shareholders are hopeful that the worst could finally be behind Synchronoss.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Microsoft. The Motley Fool recommends Synchronoss Technologies. The Motley Fool has a disclosure policy.

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