Synchronoss Technologies, Inc. Earnings: A Classic "Beat and Raise" Report

By Markets Fool.com

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Synchronoss Technologies (NASDAQ: SNCR) reported second-quarter results last Wednesday. Investors welcomed the report with open arms, and Synchronoss shares closed 8% higher the next day.

Let's have a closer look at this market-moving business update.

Synchronoss' Q2 results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$157.6

$137.8

14.4%

Net income attributable to Synchronoss

($4.4 million)

$15.2 million

N/A

GAAP EPS (diluted)

($0.10)

$0.33

N/A

Data source: Synchronoss.

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What happened with Synchronoss this quarter?

The mobile cloud computing and device activation specialist exceeded the high end of its own revenue and earnings guidance in the second quarter.

  • Synchronoss also reports a non-GAAP revenue line, backing out non-cash adjustments for deferred revenue tied to long-term contracts. Most of these writedowns were tied to the recent acquisition of Openwave Messaging. In that light, sales increased 17% to $161.5 million.
  • The cloud services division saw sales rising 33% year over year, thanks in large part to a lucrative identity management contract with Verizon Communications (NYSE: VZ). Synchronoss is building on that relationship, both by expanding its services to Verizon and by using this success story as a selling point in talks with other large-scale telecoms.
  • In June, the company soft-launched a new secure mobility platform for enterprise clients. Management describes this product as "our next leg of the growth stool on the enterprise front."

Management also provided guidance for the third quarter, along with an updated view of the full year.

  • In the third quarter, Synchronoss expects to deliver non-GAAP earnings of roughly $0.67 per share on something like $178 million in adjusted top-line sales. Hitting both of those targets would work out to approximately 17% to 18% growth over the same period in 2015.
  • Citing a strong cloud services pipeline, management tightened their full-year revenue target around the upper end of the existing projections. The new range is centered around $679 million, up from $670 million in the guidance offered three months ago. The non-GAAP earnings range was lifted from approximately $2.44 per share to $2.52 per share. Free cash flow expectations were held firm at an 18% year-over-year boost.

What management had to say

CEO Steve Waldis underscored the balanced nature of this quarter, as double-digit growth came in from every division and geographic market. Then he turned to the future, where cloud computing services should play an increasingly important role:

We play long ball here at Synchronoss and we feel that our deep customer relationship, significant R&D efforts and success, particularly at Verizon over the past few years, have helped us take our cloud business and pipeline to a whole new level heading into the rest of 2016 and beyond.

I view our second quarter as a major step in the right direction for our cloud initiatives. And the launch of our enterprise products is leading to some exciting opportunities for Synchronoss in the second half of 2016, and in the years to come.

Looking ahead

With Openwave's large Asia-Pacific presence under its belt, Synchronoss now has access to a global market of 3.5 billion mobile users. So far, the company has signed up 160 million subscribers to its mobile cloud services, which works out to less than 5% penetration of the available market.

Management sees this as a long runway toward future growth. The challenge, of course, is to execute on that untapped promise and start digging into the 95% of the market that's still untouched. Launching sales pitches off a Verizon-themed platform will help, and launching new enterprise tools also moves Synchronoss in the right direction.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends both Synchronoss Technologies and Verizon Communications. Try any of our Foolish newsletter services free for 30 days.

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