Before diving into its Q3 report in more detail, here is some more background on the company itself. As noted above, SYNT is a provider of IT outsourcing services. It helps business and organizations evolve and improve their efficiency by scaling agile and cloud platforms to build improved application development, management, and testing solutions. It primary targets the following industries: banking and financial services, healthcare and life sciences, insurance, manufacturing, and retail, logistics, and telecom.
The company also provides a range of consulting and implementation services built around enterprise architecture, data warehousing and business intelligence, enterprise application integration, social media, Web and mobile applications, big data, analytics, and Internet of things.
Circling back to its Q3 report. EPS came in at $0.58, easily beating the $0.42 Capital IQ Consensus. That was its widest beat since 3Q15 when it exceed the bottom line estimate by $0.17. SYNT also easily topped the revenue estimate, reporting $231.3 million vs. the $217.4 million consensus. However, revenue was down 4.1%, continuing its streak of quarterly year/year declines in revenue, stretching back to 2Q16. A slight positive here is that the 4% drop is a modest improvement over the 8% drop last quarter, and the 6% drop in 1Q17. In the earnings press release, management noted that it saw particular strength from smaller clients (4 to 50). Also, demand for digital services was strong and its insurance segment was an outperformer. That said, SYNT said it does continue to see headwinds in certain areas.
Gross margin improved sharply from last quarter, coming in at 38.1% compared to 35.9%. Additionally, SG&A costs accounted for 11.7% of revenue as compared to 12.2% in the year ago quarter. These factors, combined with the modest improvement on the topline, help explain where the EPS upside came from.
SYNT also raised its FY16 guidance to EPS of $1.81-$1.88 vs. the $1.72 consensus, and revenue of $890-$902 million vs. the $883.4 million consensus. It is worth nothing, though, that if you take out the $0.16 upside in EPS from this quarter, the guidance would be more 'inline-to-down" at $1.65-$1.72.
All in all, it was a much better performance for SYNT this time around. That said, expectations were rock bottom, and there has been heavy short interest in the name. So, the stage was set for SYNT to shoot higher on a better-than-expected report. But, it would be an overstatement to say that the company is clicking on all cylinders as the topline continues to languish.