Synchronoss Technologies' Business Model Gaining Traction

Mid-June was not an easy time for a tech company to hit the public markets, but Synchronoss Technologies (NASDAQ:SNCR) pulled the trigger anyway. The company’s underwriters -- Goldman Sachs (NYSE:GS) and Deutsche Bank Securities -- were able to price the deal at $8 per share, helping the company raise $48.5 million. Now, the stock is trading at $10.39.

This week, I had a chance to talk to the company’s founder and CEO, Stephen Waldis. Since the late 1980s, he has worked in the telecom industry. And, he has leveraged this background into building Synchronoss.

“The IPO process is not only costly,” said Waldis, “but it is also taxing on an organization’s time. It’s a shared experience throughout the organization.”

But the IPO was vitally important to Synchronoss. After all, the company develops high-end ecommerce systems for communications service providers (CSPs). This means heavy investments in technology, as well as infrastructure. So, by having a strong balance sheet, it should make it easier for the company to snag new customers.

Then again, Synchronoss already has an impressive customer list. Some of the biggies include: Cingular Wireless, Vonage (NYSE:VG), Verizon (NYSE:VZ), Clearwire, Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T).

Synchronoss' software allows for things like order processing, transaction management and service provisioning. Like Salesforce.com (NYSE:CRM), the software is delivered on-demand, that is, hosted on Synchronoss’ servers. By outsourcing this function, customers can lower costs (after all, there is no need to make huge upfront IT investments), as well as have cutting-edge functionality.

Synchronoss’ platform has some key differentiators. For example, given the huge amount of volume a CSP generates, it is not uncommon for some of the transactions to have insufficient information or bad data. Such things are known as exceptions and typically require manual solutions. “We can handle exceptions in real-time,” said Waldis. “Also, as time goes by, we can find ways to automate these exceptions.”

The company’s business model is also unique. “While we use an on-demand model to deliver our software,” said Waldis, “we do not use a subscription approach for our business model. Instead, it is based on transactions.”

Often, Synchronoss is the exclusive provider to its customers and establishes contracts with terms of 12 to 48 months. So, the customer will forecast transaction volume and Synchronoss will be guaranteed the higher of (1) a percentage ranging from 75%-90% of the forecast and (2) minimum monthly revenue levels.

And, as seen with the company’s second quarter results, the business model is getting traction. Synchronoss posted 11% sequential revenue growth to $17.4 million (this was the 15th consecutive quarter of sequential revenue growth). Non-GAAP operating income was $2.6 million or $0.06 per share.

As for the long-term, there are certainly positive growth drivers for Synchronoss. For example, CSPs are offering more services, such as VOIP, data, wireless, video and ecommerce. Also, with increased competition, CSPs need to find ways to promote efficiency. No doubt, such things can be greatly improved with intelligent software platforms such as from Synchronoss.

Disclosure: Author does not have a position in Synchronoss

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