Synchronoss Technologies Inc (SNCR) 2007 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2007 Synchronoss Technologies Incorporated Earnings Conference Call. My name is Betsy, and I'll be your coordinator for today.

At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Larry Irving, Chief Financial Officer. Please proceed, sir.

Thank you, Betsy. Good afternoon, and welcome to the Synchronoss fourth quarter 2007 earnings conference call. We will be discussing the results announced in the press release issued after the market close today. I'm Larry Irving, Chief Financial Officer of Synchronoss Technologies. With me on the call is Steve Waldis, President and CEO.

During this call we will make statements related to our business that may be considered forward-looking statements under Federal Security laws. These statements reflect our views only as of today, and should not be relied upon as representing our views as of any subsequent date. These statements reflect our current views regarding the future, and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion on the material risk and other important factors that could affect our actual results, please refer to our SEC filings.

With that, I'll turn the call over to Steve so he can provide some color on the fourth quarter and full year results, and an update on our strategic initiatives. I'll come back a bit later to provide some further details regarding our financials and forward outlook. Steve?

Thank you, Larry. Good afternoon, and thank you for joining us on our call today to review our fourth quarter results, which were above our expectations, and a strong finish to a record year for the Company.

What was most important in 2007, however, was that we validated the success and scalability of our business model, and our franchise and brand became known on a worldwide basis. We believe almost every communications service provider, both in North America and in Europe, recognize Synchronoss as the software company behind the new revolutionary activation process that will drive fixed and mobile conversions for years to come.

We began the year announcing that we were going to be supporting converged service offerings and the activation of the Apple iPhone, via our expanding relationship with AT&T, and we finished the year announcing that we had signed our second major North American wireless service provider. And in between these very important milestones, we added other leading service providers in the Cable/MSO space.

As a testament to our model and our ability to drive better customer experience and lower costs for our customers, we expanded the number of transaction types we manage across almost all of our customers in both cable and Voice over IP customer base. And from a long-term perspective, we believe Synchronoss is well positioned to benefit from the multiple growth opportunities, including e-commerce, wireless, Voice over IP, and most importantly, the overall trend towards converged services.

We are optimistic about our ability to take advantage of these, and as a result, the Synchronoss unique ConvergenceNow platform, relationships with industry leaders in each of the segments of the market, and our proven and documented ability to deliver business value at the most extreme scalability for our customers, our goal is simple, to become the dominant transaction management platform for any device on any network around the globe.

Now let's take a look at the results for the fourth quarter. We reported record revenues of $36.4 million, an increase of 79% year-over-year, and above the high end of our guidance. From a profitability perspective, we generated a record non-GAAP operating margin of 32%, leading to a non-GAAP EPS of $0.22, an increase of 69% on a year-over-year basis, and also above the high end of our guidance.

On a full year basis, Synchronoss reported revenues of $123.5 million, or growth of 71% year-over-year, while we delivered non-GAAP EPS of $0.77, which was 114% increase on a year-over-year basis. It's also worth pointing out that we delivered a non-GAAP operating margin of 30% for the full year 2007. That's an increase from the 22% level in 2006, and strong evidence of the leverage of our business model.

Now I'd like to turn into the details of what's driving our business momentum, and why we believe we're well positioned for continued strong growth from a long-term perspective.

Let me start with AT&T. During the fourth quarter, our overall relationship with AT&T generated $27.8 million in revenue, representing growth of 129% on a year-over-year basis, and 4% on a sequential basis. For a full year, our AT&T related revenue was $94.5 million, which represented growth of 99% on a year-over-year basis.

2007 was truly a milestone year, partly reflected in significant acceleration in the growth in the highest level in the history of our relationship with AT&T. For 2008, AT&T continues to provide focus and attention to specific growth areas such as converged services, data services growth and mobility, exciting new handsets, and their drive into IPTV services, and further e-commerce adoption, all providing tremendous opportunities for us for growth and expansion of our platform within the new AT&T.

Just this past November, Nielsen ratings ranked AT&T.com as the fourth most visited website on Cyber Monday, November 26, 2007. Ranking only behind eBay, Amazon, and Wal-Mart, AT&T.com was the only communication service provider on the list. This is further validation that e-commerce will play an even more vital role in the future of leading communications service providers. And as AT&T has stated, they will continue to grow this channel by offering more converged services, and will provide customers with the most easy and the most powerful web experience in the industry.

For Synchronoss, we're excited about those opportunities to continue to expand our success in mobility e-commerce transactions by expanding our platform and handling more transactions across multiple lines of network services via AT&T.com. And not only are these a large set of transactions that we haven't managed before, but the group itself is expected to grow significantly in 2008 and beyond.

The trend is equally powerful for the Enterprise customer base as well. Even faster and further adoption of bundled services will be deployed, giving the AT&T Enterprise customers the ability to order Voice over IP, wireless, and high speed data services. We're starting to see opportunities to increase our Enterprise transactions, leading to great growth potential for Synchronoss, to handle large Enterprise accounts.

In the past, it was only for the mobility business customers. Going forward, the opportunities include more and more services that are being bundled into both Voice over IP, and high speed data services.

And as AT&T stated a few weeks ago, they will be spending more time and investments in 2008 streamlining the Enterprise customer user experience. And we see this as an opportunity to further validate our ability to directly to support some of AT&T's core initiatives within the Enterprise market.

And finally, it's very exciting to see the projected ramp and adoption of U-verse and IPTV services at AT&T. Although these initiatives are early on, we expect to begin processing some of these transaction types by the end of 2008.

Since we began our relationship with AT&T, we have expanded our relationship from the small handful of transactions to over 60 activation and customer care transactions by the end of 2007. This now includes support of large retail customers via national distribution, and we expect this trend to continue. For example, just this past quarter, we moved our first very large retail customer onto our platform, and we believe more large retailers will follow.

As pleased as we are with what we've accomplished to date, we still believe that we are only penetrated in roughly 10% of the total AT&T opportunity. And as we continue to prove our value proposition and help AT&T optimize their efficiency and customer experience, we are optimistic that we will continue to expand the use of ConvergenceNow platform across AT&T.

Among the transactions that we were automating, the fourth quarter was the second full quarter of the Apple iPhone's availability, and it was the first holiday season. We are extremely pleased with the continued high level performance that our ConvergenceNow has delivered relative to the activation of the Apple iPhone. And as we commented last quarter, automation rates for these transactions are exceeding even our most aggressive expectations at the outset of this relationship. We are clearly thrilled to be part of the AT&T-Apple relationship, and the high level of acceptance that has been established in such a short period of time is truly amazing.

The success of the iPhone was one of the factors that led to an overall record in wireless handsets sold by AT&T in its most recent quarter. We are pleased to be part of this success, particularly when you consider the record volumes that are now going through the AT&T e-commerce channel. And as we look ahead, in previous years we have typically seen a level of seasonality related to our consumer driven wireless transaction flows, and we currently believe the significant increase in our consumer related business will material increase the seasonality in the first quarter.

This will be further pronounced due to the fact that in the beginning of the first quarter of 2008, we will no longer receive premium pricing for related to certain transaction types in 2007 with superior service level agreements. These higher service level agreements were required to ensure an outstanding customer experience based upon uncertainty of volumes and the exact level of our automation rates achieved through ConvergenceNow platform.

The pricing associated with these transactions were above our typical and average pricing of $7.00 to $10. Going into 2008, our automation rates and volumes are much better understood, and in a moment Larry will discuss these two factors in influencing our updated outlook for 2008.

From a long-term perspective, we believe there are two significant positives for our participation in the AT&T relationship. The first is the development work and business process knowledge that we gained relative to the support of brand new activation processes for handheld devices that we believe will become the standard over time. This opens up an entire new business opportunity for Synchronoss. And second, our success at such a high profile launch has helped to further increase the awareness of Synchronoss' capabilities and value proposition and brand on a global basis.

As we've stated in the past, we believe our solutions and expertise can achieve savings in the several hundreds of millions of dollars for the largest communications service providers in the world, and as a result, have the potential to generate revenue in the range of $40 million to $80 million a year for Synchronoss as the accounts mature over time.

Industry and competitive pressures, combined with the growing awareness are significant drivers to our recently announced relationship with Sprint. With AT&T and now Sprint, we believe we have significant progress in establishing Synchronoss as the standard in the North American wireless market.

We believe strongly that Sprint has a need to realize our service model on a large scale. We have the ability to transform their customer experience and various sales channels in ways that will benefit their overall business. We need to execute and prove our value at Sprint, just like we have with all of our customers. And if we're successful, we believe that Sprint clearly has this type of long-term potential.

From a short-term perspective, however, we have always stated that the initial timing of how new customers and transaction types were ramped can be difficult to predict, given the number of variables at the customer that are beyond our control. Our current expectation is that Sprint will begin to contribute a nominal amount of revenue in this first quarter, and then ramp slowly in becoming more meaningful revenue stream in the second half of the year.

We are beginning to work with Sprint in their consumer group. What is very encouraging to us is the fact that we have an opportunity to deliver our service model and attend to adopt Synchronoss with the vision of dramatically improving the customer service across multiple sales channels.

This is a much broader out-of-the-gate conceptually than we had with our initial adoption of AT&T, but the important decisions still need to be made at a tactical level with respect to how they will move live into production, whether they would test channels simultaneously or serially, to how long it will take. They'll want to test before moving transactions into production.

For these reasons, the initial ramp does have a degree of variability that we do not control. That said, from a long-term perspective, we are optimistic that our relationship with Sprint will scale to significant levels based on their need and conviction to provide better customer service.

It will also take another quarter or two for us to gain improved visibility as to how the deployment will proceed, and we will update investors publicly at the appropriate time. The bottom line is that our view of Sprint is a replication of how we succeeded at AT&T, and we look forward to providing Sprint similar results and adding value to their businesses.

We continue to prove our value and expand our relationship as well with other Cable/MSO customers and Voice over IP related customers. For example, we took additional transactions on from Comcast, we are seeing increased opportunities from Level 3 as we expected and as a result of the expansion of our current agreement that we discussed last quarter, and while Vonage still faces legal pressures, they continue to be a good customer for Synchronoss, and we continue to find additional ways to help Vonage optimize their customer experience.

Collectively, our business outside of AT&T delivered sequential growth that was greater than that of our AT&T relationship, and grew as a percentage of our overall business for the first time in 2007. We expect this trend to continue throughout 2008.

I would like to close with some remarks on our international growth strategy. And as you recall, we accelerated our move into the international markets based roughly a year in advance due to the growing awareness of the Synchronoss brand on a global worldwide basis. In only a short period of time, we have made significant progress.

We have signed two system integration partnerships, Siemens and Group Ohama, that have a high level of domain expertise and knowledge of back office systems for many of the leading Tier 1 service providers throughout Europe. And during the fourth quarter, these integrators successfully deployed our ConvergenceNow platform, and are ready to deploy our complete platform into Tier 1 communication service providers in Germany, France, UK, and Spain.

These partners have made financial, human capital, and physical asset commitments to Synchronoss, and as a result of being selected as a strategic partner, we are excited to leverage their knowledge as we take ConvergenceNow platform to Europe.

We are in active discussions with a number of major international communication service providers, however, similar to the North American market, these take time and require approval of many decision makers. Importantly, while our involvement in the Apple iPhone was a significant factor in raising Synchronoss' awareness internationally, our strategy for going after the international markets was not an Apple-centric strategy.

Our strategy is to identify communication service providers that we can scale with as they adopt our entire platform to automate the growing number of converged service offerings over time, not just for one single transaction type. The volumes associated with a single transaction type would simply not make our model successful, and so our efforts remain focused on those CSP's who wish to deploy our entire platform capabilities.

Our expectations for international revenue contribution are modest in 2008, but we are pleased with the progress we are making towards our goal of establishing a reference customer to serve as an anchor tenant in Europe, similar to AT&T is for us in the United States. There are several opportunities that would fit that description very nicely, and in addition, a handful of other CSP's that we are currently in discussions with to determine the mutual benefits of beginning a relationship.

We are in various stages of scoping working relationships, including the analysis of business processes, IT systems integration for our platform, and how to best deploy ConvergenceNow across various transaction types and channels. These decisions must be made with care and on both sides of the equation, but we see the momentum building and we are optimistic that we'll be able to share more specifics in this area during the first half of 2008.

In summary, 2007 was a tremendous year. Looking ahead, we are still at the early stages of penetrating the opportunities within AT&T, we are going live in the first quarter with our second major Tier 1 wireless customer, and we are encouraged by the progress we are making on our international strategy.

The early stages of our new transaction types can be challenging to predict, however we have never been more optimistic about our long-term growth potential, based on the growing awareness of the Synchronoss brand on a global worldwide basis. So, with that, let me turn it over to Larry, to discuss our results in more detail.

Thank you Steve. I would like to provide additional details on the fourth quarter performance in addition to our guidance for the first quarter and full year 2008. Starting with the income statement, revenues reached a record $36.4 million, which represented an increase of 79% over the fourth quarter of last year, and 6% sequentially. Revenues exceeded the high end of our guidance range of $34.8 million to $35.5 million.

As Steve pointed out earlier, our growth compared to the third quarter was well balanced across AT&T, our Cable/MSO's, and Voice over IP related customers. AT&T represented 76% of our total revenues, compared to 78% in the previous quarter. And it grew 129% on a year-over-year basis, and 4% on a sequential basis.

There are a couple of important points relative to the growth of our revenue with AT&T. First, during 2007, we continued to see increased automation rates associated with the AT&T transactions. The impact of this results in volume growth of transactions that exceeds the associated growth of revenues.

High automation rates results in a lower price per transaction for our customers, and a higher gross margin for Synchronoss. We believe we are now closer to peak automation rates for many of the mature transactions, and as such, we expect transaction volume growth to be closer to the revenue growth for a large segment of transactions we're currently working on, particularly with AT&T Mobility.

Second, the fourth quarter represented the first quarter that our iPhone related revenue was on a pure transaction basis. During the second and third quarters, we benefited from the upfront work necessary to help insure that one of the most successful product launches in the history of the wireless industry was done so with the highest levels of quality and customer service.

It is also worth reviewing the three primary drivers for the pricing of transactions for our customers. First, volume discounts. The more transactions we receive for a particular period, the higher the discounts for the period. Second, the complexity of the transaction, and the level of systems required to automate those transactions. And then finally, the service level arrangements.

As we discussed earlier, given the magnitude of the volume for the most publicized and successful launch in years, combined with the revolutionary first-of-a-kind activation process, we not only performed significant testing of simulated transactions, but we also instituted the most stringent SLA arrangements for the launch and the recent holiday season. Given that this is one of the legs to our pricing stool, it will add to premium pricing on these transactions during 2007.

The revenue from our Cable/MSO, Voice over IP, and wireless customers outside of AT&T represented the remaining $8.6 million of our total revenue. The revenue grew 13% on sequential basis, helping to increase the portion of revenue from relationships outside of AT&T to 24% of our revenue for the quarter, which is an increase from 22% for the previous quarter.

This revenue includes wireless revenue from customers other than AT&T, as well as some international revenue as a result of our international relationships that began to contribute a nominal amount of revenue in the quarter. In the future, it will also include revenue from Sprint. From a revenue mix perspective, 83% of our fourth quarter revenue came from transactions processed. The remaining 17% was generated from professional and subscription services.

Turning to cost and expenses, we will review our numbers both on a GAAP and non-GAAP basis. There is a reconciliation table between the two in our earnings release. Our non-GAAP results exclude stock-based compensation expense.

Non-GAAP gross profit in the quarter was $21.1 million, representing a non-GAAP gross margin of 58%. This was an increase from the 55% level in the third quarter due to the mix of transactions along with continued improvement in automation rates related to both the iPhone and other AT&T mobility related transactions.

Now let me move to the fourth quarter operating expenses. Non-GAAP research and development expenses came in at $3 million or 8% of revenue, while non-GAAP's SG&A expenses were $4.9 million, or 14% of revenue. Depreciation and amortization was $1.5 million, a slight increase from the $1.4 million in the previous quarter. Continued revenue growth and strong gross margins led to non-GAAP income from operations of $11.6 million, an increase of 82% on a year-over-year basis, and a record margin of 32%.

The Company's tax rate for the quarter was 42.7%, leading to a non-GAAP EPS of $0.22, which was above our guidance of $0.20 to $0.21. The quarter's effective rate included certain discreet tax adjustments, which led to an increase in our effective tax rate, resulting in a slight impact of $0.01 per share.

On a GAAP basis, including stock compensation expense of $1.1 million, the resulting GAAP income from operations and net income for the quarter was $10.5 million and $6.6 million respectively. The resulting GAAP diluted earnings per share was $0.20.

Turning to our full year results, full year 2007 revenues increased 71%, to $123.5 million. Our non-GAAP gross margins for the full year came in at 56%, compared to 51% in 2006. Non-GAAP operating margins were also strong at 30% for the year, up from 22% in 2006. Full year non-GAAP diluted EPS of $0.77 was up 114% on a year-over-year basis. From a GAAP perspective, we reported gross margins at 55%, operating margins of 27%, and diluted EPS of $0.71.

Looking at our cash, total cash, cash equivalents, and marketable securities totaled $95.9 million at December 31, 2007, an increase of approximately $8.1 million compared to the end of the previous quarter. Now let me turn to the guidance for the full year and the first quarter of 2008.

Let me start with the full year. We currently anticipate the revenue will be in the range of $151 million to $160 million. This is an update relative to our preliminary review of revenue growth, which we have indicated would be in the mid-30% range.

From a macro perspective, there is clearly a level of uncertainty regarding the economy that is evidenced from the economic indicators and commentary from companies that are consumer focused. Although the economy is not a primary driver of our tempered revenue, it does not help our customers in 2008.

From a low level perspective, there are two primary reasons for the updated view on the year. First, we have recently been informed that certain transaction types no longer require premium SLA treatment given that we continue to experience better than expected automation rates and minimal exception handling. It is important to note that this has resulted in exceptional levels of customer satisfaction as we continue to improve the end customer experience and service.

As Steve mentioned earlier, the pricing associated with these transactions were above our typical and average transaction price of $7.00 to $10. It also demonstrates to our customers the flexibility of a Synchronoss model.

Second, the recent volume of activations realized in the fourth quarter led us to adjust our expectations for the upcoming year, I would reiterate the point that one of the reasons for the premium SLA was the expectation of high spikes in volumes combined with the recent holiday season.

It is also important to point out that we are at the early stages of relationships with companies such as Sprint, and we are making good progress against our goal of winning a fractured international carrier. In addition, we are in the early stages of newer opportunities with AT&T outside of mobility, as well as other numerous pipeline opportunities that we are pursuing which may influence our view in 2008 at a later point in time.

This is on top of all the same programs we are currently supporting, which will continue into 2008. With all of this activity there is the potential for Synchronoss to still deliver growth in the mid-30% range for the year.

However, as we always do, we have shared our best estimate 2008 based on our beliefs, and the information our customers are sharing with us relative to the expected transaction volumes and timing for moving transactions over to the Synchronoss platform. Based on these discussions, we currently expect to see a sequential uptake of several million dollars in the second quarter, followed by a much stronger second half of the year as new transactions and customers ramp, in addition to the second half seasonality we expect to see in consumer related wireless transactions.

Consistent with prior practice, as we gain additional insight into the timing of the rollout of our services, and the speed with which these transactions will ramp, we will update investors at that time.

From a profitability perspective, we currently expect our full year gross margins to expand to the 56% to 58% range, helping to drive record annual non-GAAP operating margins of 31% to 33%. We believe the Company's attractive financial profile is evidenced by what is still a strong top-line growth and non-GAAP operating margins that are now north of 30%, which is a very unique combination.

We expect the annual improvements in gross and operating margins to lead to non-GAAP diluted EPS of $0.92 to $1.01. This assumes a non-GAAP tax rate of 39%, and shares outstanding of approximately 34.3 million. The tax rate assumes that R&D tax credits are available for the entire year, but the legislation authorizing R&D tax credits beyond December 31, 2007 has yet been enacted. The absence of the tax credits would have the impact of increasing the effective tax rate.

For the first quarter of 2008, we expect total revenues in the range of $30 million to $32 million, which represents growth of approximately 41% to 50% on a year-over-year basis, and non-GAAP EPS between $0.16 and $0.18. Our EPS forecast assumes a non-GAAP tax rate of 39% and 33.7 million shares outstanding. Implicit in this earnings guidance is a gross margin in the mid-50% range. Again, the non-GAAP tax rate assumes that legislation has been enacted to extend the R&D tax credits into 2008.

We expect seasonality in the first quarter due to the significant increase in revenue attributed to the consumer sector of the wireless market. In addition, this is the first quarter we will no longer receive premium SLA's on certain transaction types. These SLA's were above any other transaction with support. Also, our current expectation is that Sprint will have a nominal impact in the first quarter, and begin to ramp in the second quarter and much more so in the second half of the year.

In summary, we have truly validated our business model in 2007. We are in the early stages of what could become very large customer relationships over time, and we have never had a more robust pipeline of new opportunities with Tier 1 communications service providers as we do today.

These are decisions that take time, and the earlier stages of ramping customers are the hardest to predict, but we are more optimistic about the Company's long-term future today than at any point in our history. With that, let me turn it over to Betsy to begin the Q&A.

(OPERATOR INSTRUCTIONS). And the first question comes from Tom Roderick from Thomas Weisel Partners. Please proceed.

Hi, gentlemen, thanks and good afternoon.

Hey, Tom.

Hey, Tom.

So, I want just to dive into a little bit more on the SLA issue since it was certainly something you both emphasized on the call, and I want to clarify - these are certain transaction types.

Can you just walk through in a little bit more detail the role of the renegotiation of the existing contract with AT&T that was up at the end of 2007? The role that that renegotiation played and reclassifying certain transaction types as not qualifying for a premium price? And those transaction types, are they only relative to AT&T or are they more broader based across multiple customers? Thanks.

Hi Tom, this is Steve. Let me address the first part of it. The contract that was renewed in 2007, Evergreen, with all the terms and conditions, there's essentially no change to that contract. I think what we refer to in our call is that we typically on average get in the $7.00 to $10 range for our transactions.

When customers look at our business, they look at the entire flow of the transactions which include fallout, in other words, orders that are touched with certain staffing. And so the automation rates were much higher than anticipated, therefore our ability to deliver a service with fewer people was recognized. And so those are things that are built in to the way that we operate.

The particular SLA's, I can't comment on them because they're proprietary to the customers, but they were clearly above anything that we normally do on the process of handling such transactions. And so to do that without an incredibly high automation rate, you obviously needed some staffing to do that. What we're excited about is we got to those rates. And we got to those rates sooner than expected.

So, Steve, maybe on that point, you guided below your revenue range that you had previously talked about, or your revenue growth, but your earnings here still $0.92 to $1.01 for the full year suggest that there's a lot of leverage inherent in the model. So, can you just walk us through the dynamics of those two?

Yes, absolutely, Tom. So what you end up seeing is, in our model - and this is why the ability for us to have customers that continue to renew and drive business with us is, it's all about driving costs out of our customers business. And so, what we've essentially in our model done is by driving a higher automation rate, you're essentially giving the customer much more savings in their business, but the leverage in our model comes through pretty strong, and you can see that in what we guided to both from a profitability and a gross margin perspective.

That being said, from time to time in our model, if you look at all of our transactions, there's always a period of time in the beginning where the automation rates aren't as high as they are, and over time, they get to a steady state. However, there may be, based upon each individual customer, an opportunity or a desire to make that customer experience appear as automated as possible out of the gate. And in order to do that, that puts us into a higher automation - that puts us into more of a staffing situation to insure that SLA.

At the end of the day, I think the relationship that we've had on a lot of these transactions are exciting, because you're exactly right, at the end of the day you're left with a highly leverageable model.

Great. Last question from me here, real quick, is you mentioned that the Sprint opportunity here is broader than what AT&T was initially. Can you go into a little bit more detail about what broader means? Does that mean more transaction types, does that mean more revenue exposure or more transactional exposure? Just give us a sense for what that means today and then as you think about ramping it, what that means two years down the road.

Yes, sure, Tom. So, the level of excitement that we have in regards to this relationship, which is at its very early stages, is typically, what our customers do is look to engage Synchronoss in some of the - maybe one or two of their channels in terms of processing transactions.

And so, the scope of what we're looking at, and without giving any of the specifics in our relationship with Sprint, is much broader in the sense that it's not looking at one individual channel, but looking at a more global perspective on how we can improve the overall customer experience regardless of channel.

And so that's a pretty significant opportunity for us. We've still got to go out, prove ourselves, demonstrate the value that we know we're capable of doing, but it just seems to be a very compelling opportunity for us and one that, as Larry indicated, we want to do right and we want to ramp this appropriately.

That's great. Thanks for the help.

Thanks, Tom.

And the following question comes from Shyam Patil from Raymond James. Please proceed.

Hi. Good evening, guys.

Thanks, Shyam.

Hi. More on Sprint's follow up. Could you comment to the extent that you can on the process in terms of who you were up against? Should we still expect the $7.00 to $10 average transaction fee? And after we think about the relationship and the contract --?

Well, we're in the very early stages, and unfortunately we can't discuss a lot of the terms associated with the contract, but we believe that the way that we can make an impact in Sprint is very similar to what we've done at AT&T in terms of putting together the full breadth of the Synchronoss solution set.

And in terms of how we're approaching it, as I said earlier, it is going to be a cross-channel, but unfortunately we can't get into any of the specifics around exactly where we're starting or what they'll look like.

Okay. And when you look over at the Voice over IP side of your business, when you look at 2008, what type of potential do you think this business has? What do you think are going to be the main drivers that kick in in '08 versus '07?

I think the two big drivers -- I think in '07 and frankly even going back a little bit into '06 there was a big -- the consumer obviously drove a lot of that volume. And we see that continuing, maybe not at the same rapid pace, but what we see augmenting that growth significantly are two areas in VoIP

One is small business VoIP, meaning these four to eight line types of services. There's not a customer that we're dealing with today that's not going after that market in 2008. And so those are brand new transactions that we're picking up across almost all of our Cable/MSO customers, and to an extent, with some of the work that we're doing at AT&T. So that's one factor that will add to the current consumer growth.

And then the second is, Voice over IP, obviously for the economy as a scale, on what that provides, is becoming the centerpiece for converged services. And so, as the various different providers bundle Voice over IP in with either wireless or high speed data, that's another contributing factor that sells.

Great. And this is my last question for you, Steve. It looks like there could be an emerging trend toward more open carrier networks where handset OEM's would get - said to get more power. Could you talk about the potential for Synchronoss here and how the Company's positioned? Thanks.

Yes. I think one of the big, big drivers in our business is certainly - and we see it in Europe where the handset manufacturers really have a unique position. What we believe, and this has been a big growth driver for us in our ConvergenceNow platform is, our earlier generations focused on getting the networks all streamlined behind the scenes so-to-speak.

The newer versions that we're working on really allow you to drive the service creation directly into either the handset itself, and so, to the extent that the handsets can become more powerful in the sense of the different features riding on different networks, and that's true both on the handset level, is whether we see -- also for example in cable environments with set top boxes in which a lot of the providers want to go to more of an end commerce or a on demand type of provisioning directly from the set top box.

So those are the two areas I think going forth that create new opportunities for us, and we absolutely intend to leverage that success in 2007 that we've had into 2008 and beyond.

And our next question comes from Liz Grausam from Goldman Sachs. Please proceed.

Great. I wanted to talk about the sequential trend you saw in your non AT&T business, and if you could, kind of drill down into where you're seeing particular areas of strength? And I think you may have mentioned that you actually saw some international revenue come in, and, if that's just from your partners or if you've actually won some business out there already?

Yes, the trends that we've seen. One is, clearly, Liz, this is Steve, is definitely we had some international revenue come in in the quarter. It was nominal but there was revenue associated. We also are seeing our Voice over IP business - that really picked up some momentum towards the latter half of the year.

I think that during the course of the middle of last year with some of the issues that Vonage, for example, experienced in the home market and a lot of the legal ramifications, as that got cleared up, for lack of a better word, or it's begun to get cleared up, we've seen the adoption rates start to increase. And then a driver within that business certainly has been some of the headway that we're starting to make with some of our Cable/MSO folks like Comcast, and the extension of the agreement that we have with Level 3 where we're getting more and more of those transactions as well.

So its kind of a mixed match in those three areas, but we see that trend continuing, and obviously as Larry eluded to in his discussion, as we start to bring on Sprint, it may become much more meaningful in the second half of the year. That'll also contribute to that as well.

Great, and then, when you're looking at your revenue outlook today versus back in early November, obviously this SLA change occurred. How much of the change in your revenue outlook was attributed directly to a pricing change? How much of it was attributed to a pricing change that was triggered by automation rates that were substantially higher potentially than you had expected back in November?

And then, could you layer in some view on how your team is speaking about the consumer and the potentials for some volatility in the air when you think about your guidance?

Yes, Liz, let me try to do this, and I apologize for my voice, I really have one. So, when we began to -- when we gave some guidance back in November and we talked about where we thought the view would be in 2008, we -- that's kind of where we had, as we had mentioned at that call, was we hadn't done the bottom's up view. We hadn't really gotten a lot of the forecasts from our customers.

Since that call, we have talked to a lot of the customers, we've got some sort of view of where that's going to be. As we've pointed out, when we look at pricing, and we keep talking about pricing adjustment, it's really not necessarily a pricing adjustment. It's really three drivers that drive the individual price from our transaction.

And one has got to do with volume, the second in component is complexity, and the third is the service levels. We've always talked about those are the three drivers in our price. And as we mentioned, there has been a view of dropping the service level associated with some certain transactions because of the automation.

Well, the automation rates that we saw really wasn't validated until we completed the fourth quarter. So that's kind of the drivers in the revised view when we looked at 2008, is understanding where our automation rates were, the level of savings that we wanted to provide our customers, and ultimately the new view for 2008.

Yes, and if I could add to that, too, Liz. When we looked at the percentage of labor mix associated with the transaction, to do the handling, in order to meet an SLA, had a certain price component to it in which it had additional costs. You'll see in the leverage that we have going forth, what we were able to achieve is such high automation rates that we could achieve the same SLA essentially without having the extra exception handling staff available. And so, that's how it ended up being a win-win going forward for us.

So, I guess, to put it differently, was it really a pricing change, such that a customer came back to you and put pressure on your pricing? You had to renegotiate a contract? Or is this simply how we should expect to see you running your business, that when you start hitting extremely high gross margins, and you hit automation rates, that you are going to proactively go back to your customers and put in some of these pricing changes, and also, effectively it looks like, lift your margins going into 2008?

No, absolutely. The one way to look at it, Liz, is this has always been a part of our business in the early stages with our clients. We get a lot of questions around customers and Synchronoss and how they view us over time. The reason why we have all of our customers and they renew each year, and we're not competitively priced down that path is because we've built in ways to improve their business.

It just so happens to be, without giving any specifics, we had a certain transaction type that was very large, and so that was more visible in terms of how that process went down, but this is very analogous to the way that Synchronoss model is incredibly flexible with our customers, is you can go to market in a matter of a few weeks, and provide an outstanding customer experience, and yet there's still motivation from a company like us to drive automation and essentially the exception handling out of the process, so that at the end of the day you're far better.

And that ends up being, to be quite honest with you, how we get additional transactions. That's how you go from a few transactions to over 60 at AT&T. And how we're doing in all of our other accounts. So, it's absolutely a part of our model. I think it was more accentuated for a couple of reasons given the size and scope of these particular transactions in such a short period of time. But it's very much in line with the way we've been conducting business with our clients for years.

And when you think about AT&T, I think you've spoken about a 10% number of the total transactions that you made touch right now. And you think about evolving that customer through 2008 and 2009. You won the Unity contract, you did convergence on wireless and Wireline, and the Company has specifically spoken in their own analyst meetings about wanting to streamline their self service, or their online sales service. How does Synchronoss play into that, and when may we get an update on your total market potential at AT&T?

Yes, I think it plays well. It's driving these types of results into their business that allows us to get additional transaction types. We see this year the opportunity, and again we can't get into the specifics because we're under NDA, but we're already looking at transaction types and different services that we don't support today, and we believe that that trend would continue.

I think in terms of - as that becomes more clear, and we get closer to moving some of these new transaction types into production not associated with what we're doing today, we'll be able to share more of that on the call. But that is a very positive trend, and they're looking to leverage some of the successes they've had with us in some of these other opportunities, and we believe that will go down a very similar path.

Great. Thanks a lot guys.

Thanks Liz.

And the following question comes from Tom Ernst from Deutsche Bank. Please proceed.

Good afternoon, gentlemen. Thanks for taking my question.

Hi, Tom.

Hello, Tom, how are you?

The nominal revenues you mentioned in Europe, are those from your partners or are those from end carrier customers?

Yes, the revenues that we saw was with our partners in terms of implementing our platform in Europe. So that was the fees associated with putting that into Europe.

And that's implementing their own environments? Not for carrier customers at this point yet? Is that correct?

That's correct.

Okay, great. And, I would assume that in Q4 we're still very much in investment mode in Europe? Or, are those revenues enough to offset your investment? And then, the same question in terms of what's embedded in your guidance in '08.

Tom, can I ask you to repeat the question again? I'm sorry.

Sure. So, the question is, are you spending more in Q4 in Europe at this point still than those revenues? And the same question for your guidance in 2008, are we still in investment mode in Europe, or do you expect revenues to out-strip costs?

We are - in the fourth quarter we are in investment mode in Europe. So we are actually, as we had mentioned early on, that we're starting to put feet in the street in Europe, and understanding how we could drive our business in Europe in 2008. As we go into 2008, we are expecting a contribution of revenue from Europe that is certainly not material, but certainly less than 10% of revenue. So, as far as what investment we make to do that, it's embedded in our guidance that we've provided, and that's kind of how we see it right now.

And one other point too, Tom, in terms of the partners, for clarity, is -- we are currently -- we're not obviously -- we don't discuss our pipeline in Europe, but we have a targeted program to work with some of these very large name brand CSP's in Europe. And a lot of the integrators that work with us are really helping us enable so that when we do get our goal of getting one of these international folks -- and when we talk about it publicly that we'll be able to move much more quicker than we would without these implementations in place.

There's a specific approach that we've had around specific accounts. We're pleased with the progress that we're making on those accounts, and we look forward to updating you guys hopefully in the first half of 2008.

Okay, great. And shifting -- just to follow up on previous questions, with regards to Sprint, how much opportunity have you had at this point to test out technology in the Sprint environment? And what was your performance? Are you achieving strong performance within the Sprint environment at this point?

And then flipping to looking forward, anything you can share with us? You mentioned the timing of expected revenue ramp there. What's your dependency on external technology or external services that Sprint may be rolling out? In other words, how complex is the rest of what they're doing to enable what you do?

Well, I think to answer your first question, Tom, we're at the very early stages of our relationship there, and we can't get into a lot of specifics of it, but I can tell you that we will have an opportunity to give you a better answer at the end of this quarter in terms of how exactly we believe we'll be deployed and what that would look like.

I would say that the opportunity in terms of where we believe we can add value is pretty significant. And has an opportunity for us to get there, but that being said, what we wanted to make all of you aware of is that it does take some time to navigate through that process and to make sure that, although the opportunity that we think is in front of us is quite large, to make sure that we attack this in a way that makes sense that can scale as quick as we can.

And perhaps just on the forward question, I know you can't talk about Sprint's specific plan, can you help characterize for us your degree of uncertainty to other events or issues that Sprint has to work through in order for Synchronoss to go live, or is this entirely just a Synchronoss focused project, and the uncertainty is just with your rollout and their timing and plans for that rollout?

As any new client, as we're learning along the way with any customer - and the only thing that I can say, Tom, in my opinion - and this is information is that's public - is obviously there's a lot of issues around opportunities that Sprint wants to improve in their overall businesses. And obviously, always showing up in the top one or two, is certainly the area that our platform and our services have an opportunity to influence. And so, those are the global trends going into 2008 that we're excited about.

We're just not at the point yet where we get a flavor for exactly how that would roll out. We expect, as Larry indicated, to get a lot smarter in terms of that, and translating that back to all of you on the call. But as I sit here today, we're giving our best guidance on where we see that developing in terms of the opportunity, it's as big and significant as we had thought.

Okay, one final question. Larry, you mentioned a 43% non-GAAP tax rate that was hit by an adjustment, and the forward guidance is 30%. Would the --?

(inaudible)

If we didn't have the adjustment?

Say that one more time, Tom, the final part of your question.

How big was the adjustment this quarter?

Yes, this quarter had - if you take the difference between the 42.7% and what we expect to be our effective rate as roughly 39%, it was about $0.01 per share. And going forward, as I mentioned on my prepared statement, we expect the effective rate in 2008 to be roughly 39%.

Okay, thank you.

And we have a question from John Bright from Avondale Partners. Please proceed.

Thank you, good evening. Larry and Steve, first you guys talked about in your forward guidance, contribution, modest contribution from an international front, and you also alluded to a flagship international carrier. How much of your guidance has built in this flagship international carrier?

So when we, John, when we look at our guidance we take into consideration our existing customers. We again, as we always alluded to, we take our existing customers, and we take our pipeline activity as well, and we factor that in. Obviously we weight that across the board to come up with the overall guidance that we provide. And when looking at the international market, certainly that is one of the opportunities in our pipeline that we're using in providing our guidance in 2008.

So, I'm to take that you're fairly confident that you're going to get this customer? So, there is some contribution from it?

We have factored a number of opportunities in our pipeline, which includes international opportunities. And we've factored that into our guidance.

Got it. So then, also on your guidance for 2008, the SLA's were the primary aspect of it. How much of that, if you can break it down in any way, relative 35% to what, 26% type growth? Order of magnitude? The difference there, how much of that was SLA related, how much of that was concern over a slowing consumer environment?

So, in terms of putting it in percentages, and that would be difficult to do, but what I will say is that with all those areas in consideration, certainly the overall economy as it relates to consumers, from a high level we considered that. From a SLA perspective, as we mentioned, we factored that into the view as well.

Now, I think it's important to note that we've always mentioned that our average price per transaction is in that $7.00 to $10 range, and going to 2008, we still expect it to be in the $7.00 to $10 range. It does vary between that $7.00 to $10, but we did factor that. And lastly, I think as important is, we looked at the volume of activity that we had in the fourth quarter. Without talking about specific transactions, we looked at that, and we factored that into our guidance in 2008 as well.

On SLA's, Larry then, are there other agreements of this nature that you have outstanding as well that might have the same dynamic take place? And how unexpected was this dynamic to take place? Were you - did you have some anticipation that this might happen?

John, I think it's a good question, and again, I just want to clarify that whole process, alright? As I mentioned, there's really three drivers in our overall price. This is not about coming back and adjusting pricing. It's more about three elements that drive the overall price for target for a specific transaction.

The first is being volumes. The more volume you put into the platform, the bigger the discount. The second is the complexity. How complex is that transaction? And the third is the service levels. Okay, all of those drivers have an impact on the overall price. Now, if you change the service levels, and you can change the service levels, it's not about revisiting the contract, its about changing the specific service level you want for a specific transaction.

Also it depends upon in terms of how automated that transaction - so the more automated a particular transaction is, the less fallout or the less exceptions that you need, and the better predictability you have in terms of your forecasting. And so that all is driven in the overall price, so in terms of, did we foresee that, we expected certain pieces of it, but not all of it.

And the efficiencies, John, if I can add, this is Steve, to it, is that we have transactions today that are typically well above the $7.00 to $10 range, but typically when that happens, as Larry said, the factor or the complexity, there's a level of automation that may not be at its prime. And it's our primary job with our clients to drive that process to as highly automated as possible for two reasons. They'll scale that number over time and that's where you'll start to see the leverage and the model.

Okay. Two final questions, gentlemen. One, Steve, with the Sprint turnover at the management level, you alluded to this being a potential opportunity going forward. How have the discussions - have you had discussions from that standpoint of any change of urgency associated with it, or has it just been steady status quo?

Yes, I can't provide any of the particulars of, John, as you would imagine the relationship, but what I can tell you is you certainly can't ignore the environment that they are going through as a company.

However, there hasn't been, especially with some of the newer management that's over there, especially their new CEO is formerly from AT&T, the need to focus on areas to improve their business, but I think they've been pretty open about - and they'd fit right into our sweet spot. So on one hand, we're not nave to the fact that you can have types of changes in a business. I feel pretty good about we could be a big part of helping them grow and move forward.

All right. Last question, you mentioned in your prepared remarks, I believe, Steve, you talked about a first large retail customer coming onto the platform. Can you elaborate a bit more on that and what that may mean or not mean financially?

Yes. So, what's ended up happening is one of the goals that we've had, not only to expand service - it's a good question - to expand service types at AT&T, for example, wireless mobility, Voice over IP, high speed data, but was to break into other channels.

This year there's obviously been a lot of market that's opened up with a lot of third party, I'll call it wireless service bureau types that used to service a lot of large retailers, and so, we've partnered with AT&T without getting into the specifics of the accounts. And actually driven our technology directly out to some very name brand large retailers who will then choose to interact and get the features and functionalities to their customers directly into AT&T. And so our platform has been chosen to do that.

We moved our first big retailer in the fourth quarter, and we see that as a growth opportunity for us very similar to the e-commerce channel where we can go and partnership with AT&T to these other large retailers and find a way for them to have, for example, a kiosk or a website in the store that deals directly to us, no different than when you're using the Apple iTunes product and you're really interacting with us behind the scenes. It's a very similar concept, but it provides us, John, with a growth opportunity at new transactions.

Got it, thank you.

Thanks, John.

And we have a question from Rich Church from Collins Stewart. Please proceed.

Oh, thank you, good afternoon guys.

Hello, Rich, how are you doing?

Hello, Rich.

Good, thanks. And just a follow up on the retail side, is the pricing in the same range, the $7.00 to $10 range there?

Yes.

Okay, and in terms of the - do you know, for example, what percentage of activations are through retail branches that are non-AT&T, or how significant of an opportunity that distribution is?

We think that from a longer term perspective it's a good growth driver to our transaction because we don't essentially manage those transactions today. We haven't broken out, obviously for NDA purposes, the percentage of transactions that come from different channels. But this to us feels a lot like the early days with e-commerce where we had an opportunity to get in there, demonstrate that at the end of the day, if we can automate and drive efficiencies in the business, our customers can scale it. And there's no better proof than what we saw on Cyber Monday with AT&T about [delta], about really taking a channel and taking it to the next level.

And so, we believe that these retailers who sell wireless devices have a very similar need to drive a lot of transaction volume. I think where we play part of that value prop is, can we make those channels as efficient, as powerful as the web? That will in turn drive adoption rates higher.

Okay, great. And Steve, on the comments about the macro uncertainty level, are you hearing directly from your carrier customers about this, or is it more in response to what we're all seeing with Sprint?

I think that, without getting into specifics, it's a combination of things, Rich. It's clearly looking forward at opportunities. I think we're at a period of time where there's slight uncertainty across the board. And by the way, once the uncertainty, in a market that puts more cost pressures, that'll help Synchronoss, and we think that that gives us opportunities to grow a - to potentially grow even faster.

But it's the combination of those elements as well as looking at these forecasts that we've received in some high level discussions with customers. And really just taking a look at it, being prudent about looking at 2008. And it's something that, as we do on every call, we absolutely will guide and update that as we see that change throughout the year.

Okay, and then with regards to international, outside of Europe, are there any of those elements, are you pursuing efforts in Asia with service provider partners or integration partners, or so forth?

We have. Our focus, I'll say the short answer is yes, however, I'll caveat, Rich, by saying our primary focus has been in Europe. We have really been focused on - it's no different than what we've done here in the U.S. We need to find one or two very big large anchor clients that want to deploy this platform to scale, and we're excited about the progress we're making in that regard.

We are looking at opportunities in AsiaPac as well. They're not a centerpiece of our focus, but when they come to us from an opportunistic perspective for a lack of a better word, we have been in discussions with some of those CSP's as well, but just to reiterate, we really are staying focused, and I'm happy with where we're headed in that direction to achieve that first goal I stated earlier.

And then, on Clearwire, has there been any new developments? I think they rolled out some VoIP packages recently, and of course they've reignited discussions with Sprint. Just wondering where that relationship stands.

It's been -- it's a good relationship. We continue to be a big part. We manage all of the Voice over IP transactions related to Clearwire, so you're absolutely right, Rich, as that business starts to expand and then get more focused around their bundles, that's a great opportunity for Synchronoss.

As that becomes a centerpiece to a WiMAX deployment with a converged offer, you can imagine that would help us. So indirectly, to the extent that they are able to move to many more markets that much quicker, and the extent that they're using Voice over IP both as stand-alone and as a converged element, that would have very positive impacts for us.

Okay, great. Thanks, guys.

Thanks, Rich.

And we have time for one more question. (OPERATOR INSTRUCTIONS). And we have our final question from Tom Roderick from Thomas Weisel. Please proceed.

Hi, guys, I had a couple of quick follow ups. First, Larry, could you just repeat what the Q1 earnings guidance was, and the parameters around that? And then second, Steve, on the issue of Sprint, you indicated that, it was a little bit unclear with respect to whether they'll test simultaneously or (inaudible) with the rollout. Can you just confirm that that means we should expect to see some testing revenues in the first half of the year, and were there any testing revenues in Q4? Thanks.

Sure.

Let me, Tom, I'll go first and talk about the first quarter. We had indicated that the revenues for the first quarter would be between $30 million and $32 million. That's again 41% to 50% growth on a year-over-year basis, and we expect our GAAP EPS to be roughly -- I'm sorry, our non-GAAP EPS roughly between $0.16 and $0.18. And that's based on an effective tax rate of 39%, and 33.7 million shares outstanding. Again, on just a qualifier on the effective tax rate, that's assuming the R&D tax credit legislation is approved going forward.

And then I'll talk to your second point of your question. Let me answer it more generically in terms of how our typical customers engage us, and help you through that. What I meant by testing and serial processing is, as we look at multiple channels with customers, typically they'll look at, do we send a portion of a region, or do we shut down a few centers and have you guys process those transactions?

And then as you scale it out, all of those components, do we go deeper in one particular channel, say e-commerce, or wider but not as deep across multiple channels to test out different ways that we operate? And so those are the areas that when I refer to testing, meaning the customer side and how they would like to essentially deal out those transactions to Synchronoss.

Okay, okay, thank you guys.

And that's a process Tom that we are in the process of working out, hopefully this quarter, and we can give you guys a better update.

Okay, and then just on Q4, real briefly, was there testing revenue in Q4?

No, there was not.

No.

Okay, thanks.

There are no further questions, and back to you, Mr. Steve Waldis, for closing remarks.

Well, I'd like to thank everybody again today for joining us, and we look forward to updating you throughout the year on the happenings at Synchronoss. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.