Synchronoss slims down, targets cloud-based future

It's been a busy few weeks for Synchronoss Technologies, and the company believes it is now on track for growth after years of struggling. 

Synchronoss announced the sale of its messaging and network logistics businesses to Lumine Group for $41.8 million. It also signed a new cloud deal with SoftBank, inked renewed cloud agreements with AT&T and Verizon, and laid off an unspecified number of employees.

"This planned strategic move [to sell the businesses] positions Synchronoss as a higher-margin, cloud-only business," said CEO Jeff Miller this week during his company's quarterly conference call, according to Seeking Alpha. "It also fortifies our capital structure and positions our organization for long-term growth with even higher incremental margins and improved cash conversion."

As a result, Synchronoss is now targeting revenue growth of 5% to 8% next year, after seeing revenue decline during the past three years.

Slimming down

During 2022, Synchronoss engaged UBS Investment Bank to evaluate "strategic transactions." In March of this year, the company received an acquisition offer from B. Riley Financial (BRF) for $1.15 per share.

But Synchronoss sidestepped the offer with its new agreement to sell the Messaging and NetworkX businesses to Lumine. The Synchronoss messaging platform powers texting and email services as well as the rich communications services (RCS) standard. 

The sale of the messaging business does not come as a surprise. Verizon, AT&T and T-Mobile in 2019 had planned to move to RCS with Synchronoss Technologies, but that plan fell apart in 2021. AT&T and T-Mobile have subsequently moved to Google's Jibe for RCS.

Synchronoss' NetworkX business offers operators tools to design their physical networks, streamline their infrastructure purchases, and manage and optimize network expenses.

Both of the businesses appear to fit well with Lumine, which has been acquiring struggling businesses in the communications and media industry since 2013. Recent acquisitions include NetEngage, Flash Networks and Netadmin Systems.

But this is just the latest effort by Synchronoss to slim down. This summer the company also incurred restructuring charges of $1 million for "employment termination costs."

Company officials declined to respond to questions from Light Reading about the extent of the layoffs and when they were applied. In May, Synchronoss counted a total of around 1,398 employees, of which 707 were located in India.

Last year, Synchronoss also agreed to sell its Digital Experience Platform and activation business to iQmetrix in a deal worth $14 million.

Eying the future

Synchronoss is now planning to double down on its Personal Cloud offering, a white label platform that allows its customers' subscribers to "backup and protect, engage with, and manage their personal content" in a way that the company said can boost operators' average revenue per user (ARPU).

Verizon remains Synchronoss' top cloud customer, accounting for more than 10% of the company's revenue in 2022 and 2023. 

"Synchronoss Personal Cloud has been instrumental in Verizon's offerings for well over a decade, fostering a strong mutual trust. And our partnership continues to provide significant growth opportunities for Synchronoss and Verizon," Miller said during the earnings call. "And it serves as a strong case study as we work to expand our global customer base, which leads me to our second strategic priority."

Indeed, in the third quarter Verizon inked a seven-year contract extension for the Synchronoss Personal Cloud. AT&T also extended its existing agreement for the product. Other customers of Personal Cloud – which accounts for 68% of Synchronoss' revenue – include Assurant and BT.

According to Miller, the company is working to upgrade, expand and improve the product.

"Today, Synchronoss has more than 75 percent of its cloud revenue secured under contracts with at least 4-year terms," Miller boasted. "We enjoy a highly profitable SaaS [software-as-a-service] business with incremental margins on subscriber expansion of greater than 80 percent, giving us strong visibility into the future and a solid foundation upon which to build."

He added: "Following the sale of Messaging and NetworkX, our management team will be focused on maximizing the operating performance of the Cloud business."