Synchronoss finally files some accounts

Having missed the previous deadline cloud services vendor Synchronoss finally filed its restated accounts just before the new deadline passed.

Synchronoss hasn’t filed any accounts since early 2017, when it realised there had been some inconsistencies in its accounts for the previous few years. It resolved to iron out those inconsistencies, then refile historical accounts once that process was complete. That web took a fair bit more untangling than it hoped and as a consequence it missed the Nasdaq-imposed deadline of 10 May 2018 to refile.

Having done so, Synchronoss vowed to finally get the damn things done by the end of June and on the last working day of the month its accountants staggered over the finishing line. The company can be forgiven for using every last bit of time available because it could be sure that when those numbers were finally published a lot of highly-paid bean counters were going to pore over them obsessively.

“We are very pleased to have filed our Form 10-K for 2017 and to have completed the restatement of our financial statements,” said Synchronoss CFO Lawrence Irving. “This was a comprehensive undertaking that involved a detailed and thorough examination of our current and historical financial statements, as well as our accounting policies and work processes. Our next step is to complete the process to resolve any outstanding issues with Nasdaq.

“Our financial performance in the first quarter of 2018 reflects the 2017 impact of transitioning our business, as well as management’s focus on completing the financial statement refiling process. The company wound down its enterprise strategy and re-focused on a TMT strategy that leverages its telecom roots, in addition to transitioning its Digital Cloud business to a premium subscriber model.”

We also had a quick word with Synchronoss CMO Mary Clark who, like the rest of the current leadership team, joined after all this creative accounting took place. “We are really happy to have this important milestone behind us,” she said. “We have a lot of exciting opportunities to pursue and with today’s filings, we can focus on our growth and move forward serving our customers, employees and shareholders.”

There are obviously all the numbers and explanations you could wish for in the full filing, but here’s a summary of the adjustments made to each full year from 2013 to 2016. There were no adjustments to be made to 2017 because no accounts were filed. As you can see the adjustments were pretty significant, but perhaps not as bad as investors were fearing because Synchronoss stock was up 15% at time of writing.

Synchronoss accounts

Synchronoss delivers the bare minimum in its business update call

Telecoms cloud vendor Synchronoss was obliged to offer a business update call in advance of restating historical accounts on 10 May.

The call was a condition of the decision by the NASDAQ to give Synchronoss some extra time to get its historical accounts in order, following its announcement a year ago that it needed to restate at least two years’ worth of accounts because they could no longer be relied upon. It was made clear from the start that 10 May is when the substantial update will come so this one appeared designed to deliver the bare minimum needed to satisfy the NASDAQ.

Having said that CFO Lawrence Irving, who was also Synchronoss CFO from 2001-2014, and whose departure coincided with the start of the more creative approach to accounting, did serve up some reasonably frank admissions at the start of the call.

“We have preliminarily concluded on our accounting positions and are working with our outside auditors as they review our positions and perform audits for our 2015, 2016 and 2017 years and respective quarters,” said Irving.

“In summary, the primary adjustments result in revenue being spread over multiple periods or netted as part of a related M&A transaction. Over the years of 2014 through 2016, we anticipate that approximately $60 million to $80 million of the approximately $1.2 billion of revenue initially recognized will be reversed and recharacterized as part of the consideration paid as part of an M&A transaction, while the revenue timing adjustments will be recognized in different periods, sometimes being spread over a period of years, including 2017 and 2018.”

So it looks like they need to restate 2014 too, around 5-7% of revenues in the period in question were questionable, and even some of the legit revenue will need to be retrospectively moved to different quarters. Irving was keen to stress that none of these adjustments will have an impact on the company’s cash position. In other words, don’t let the past contaminate the present and future.

This temporal containment exercise was taken up enthusiastically by Synchronoss CEO Glenn Lurie, who summarised at length much of what he had said in his interview with Telecoms.com. There was very little reference to the past and a lot of emphasis on all the grand plans he has for taking the business forward. That’s all great, but the whole premise of the call is that the past has to be dealt with properly before the company can move on.

There was at least a Q&A and the first questions came from Tom Roderick, who provided so much insight when we investigated the past few years’ fun at Synchronoss late last year. He focused his questions on trying to get some additional detail behind the company’s signature deals with the big US operators and seemed resigned to hearing nothing more about the accounts until the big reveal in May.

Michael Nemeroff of Credit Suisse seemed a bit exasperated when he asked “don’t even know what your business is anymore. I don’t even know what’s left of your business, I don’t know where the revenue is coming from. Could you just, in real simple terms, tell me what the business is, how many divisions you have?” The long answer seemed to amount to: cloud, digital transformation, messaging and IoT, and that Mary Clark is playing a big part in evaluating the product strategy.

This answer didn’t seem to salve Nemeroff’s frustration, as he followed up with “And I just want to understand what do you want us to take away from this call because we’re not getting any financials. We’re not — I mean, we barely have an idea of what’s going on. What would you like us to take away from this call? And what would you like us to do?”

“The goal of this call was just a business update, and the goal of the call was to make sure we gave yourself, others the opportunity to hear kind of the direction of the company, where I want to take the company as far as strategically,” said Lurie. “We do understand, as we said a couple of times, we really can’t share what we will be able to share hopefully on May 10 and after that. And I think what you’ll hear on May 10 will be a full update that you would expect from a company that obviously has refiled and met the guides that NASDAQ has asked us to meet.”

Sterling Auty from JPMorgan asked about the relationship with AT&T and Lurie indicated he expects to be able to draw heavily on the relationships he has from working there for 27 years which, while probably true, is not really the basis for an ongoing business partnership. Or is it?

And that was that. The easy conclusion to make is that if Synchronoss is able to file clean accounts by 10 May then we’re all good, can put the past behind us and leave Lurie, Clark et al to get on with growing the business again.

That may well turn out to be the case but, to the best of our knowledge the class action civil law suit is still live and will presumably only be assisted by the historical accounting revelations. They might also catch the attention of a regulator such as the SEC, which has a rich history of behaving uncharitably towards people who cook the books.

But Lurie can quite reasonably claim not to be focusing on what he can’t control. The people in charge in the 2014-2016 period will be the focus of any fall out from that period, while he and his new team should be insulated. Equity analysts seem to have given the call a resounding ‘meh’ and are reserving judgment until the grand refiling, so we will too.