Synchronoss Technologies Inc (SNCR) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the quarter two 2010 Synchronoss Technologies Incorporated earnings conference call. My name is Michelle and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Lawrence Irving, CFO. Please proceed.

Thank you, Michelle. Good afternoon and welcome to the Synchronoss second quarter 2010 earnings call. We will be discussing the results announced in the press release issued after the market closed today. Again, I am Larry Irving, Chief Financial Officer of Synchronoss.

With me on the call is Steve Waldis, President and CEO. During the call we will make statements related to our business that may be considered forward-looking statements under federal securities law. These statements reflect our views only as of today and should not be reflected 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 of the material risks and other important factors that could affect our actual results, please refer to those listed in our SEC filings including our most recently filed annual report on Form 10-K and quarterly report on Form 10-Q.

With that, I will turn the call over to Steve, and then I will come back a bit later to provide some further details regarding our financials and our forward-looking outlook. Steve?

Thank you, Larry. Good afternoon. And thanks for joining us on our call today to review our second quarter results, which were highlighted by revenue growth and profitability that were above the high-end of our guidance. Our momentum at Synchronoss continues to be driven by progress against all of our core strategic growth initiatives, including the growing adoption of our ConvergenceNow Plus+ platform by connected device customers, our relationship with AT&T, as well as our steady progress moving major tier one cable deployments forward.

Our connected devices strategy and customer diversification efforts will be further accelerated as a result of our closing on our acquisition of FusionOne, the leader in mobile data transfer and synchronization software. We are increasingly optimistic about Synchronoss' long-term outlook. And as Larry will discuss in a moment, we are increasing our guidance relative to Synchronoss' core revenue expectations for 2010 and further so due to the positive expected impact of the FusionOne acquisition.

Now, let me provide a summary review of our second quarter results, followed by an update on some of our core growth initiatives. We reported second quarter revenues of $37.2 million, which was above the high end of our guidance and represents 22% growth on a year-over-year basis. From a profitability perspective, we generated a non-GAAP operating margin of approximately 22%, and a non-GAAP EPS of $0.15, which was also above our guidance.

Now, let me start by saying how pleased we are with the continued momentum of our relationship with AT&T. And while we targeted double-digit growth relative to our AT&T relationship as we entered 2010, we grew this segment of our business 22% during the second quarter. Now, we've made solid progress on boarding the new channels from AT&T, such as AT&T and direct e-commerce channel and we finalized our rollout with AT&T as it relates to their wireline-related transactions. We have also expanded our presence with AT&T's small and medium business group and we are benefiting from the AT&T's focus on increasing the amount of business that is conducted through their e-commerce channel where we manage transactions for all device types that are sold online.

The latest set of newer opportunities in channels like indirect e-commerce, U-verse and AT&T wireline are clear examples of transactions growing every quarter since we started onboarding these new channels last year and under our new long-term contract agreement. And as it relates to scalability and performance, during the second quarter, our ConvergenceNow software platform handled more transactions in a single day than our previous single-day record which was back in June of 2007 when the 2.5 G initial version of the iPhone was launched. We once again proved our ability to handle extreme volumes. We don't know of any platform technology for activations that has handled the volume and scale for the extended periods of time that our platform has achieved. We are truly proud of our performance and our partnership with AT&T.

Now, let me review the progress we're making against one of our key long-term growth initiatives, the emerging devices connected market. Our ConvergenceNow Plus+ offering extends the capabilities of our core activation platform and provides leading OEMs, e-tailers and traditional retail stores with a quick and automated way to monetize their connected device offerings in the marketplace. Evidence of Synchronoss' awareness as the leader in the connected device market space is growing by the number of OEMs that are adopting our ConvergenceNow Plus+ platform.

This is driven by both our expanded global carrier footprint and our increased technology stack around connected devices. As an example, Panasonic has recently began working with Synchronoss to serve the activation platform for all of their wireless-enabled products sold within their enterprise businesses. Another new connected device customer, Lenovo, one of the largest OEM PCs in the world began a relationship with us. With this customer, we started on an indirect basis, focused on the US market.

And we are now establishing a direct relationship to deploy our ConvergenceNow Plus+ platform in their international markets. And we recently expanded our relationship with the largest European OEM handset following a successful deployment of our ConvergenceNow Plus+ offering to manage their online channel in the United States. We have agreed to deploy ConvergenceNow Plus+ to power their online initiatives in one of their larger European countries. Now, there are several examples of how Synchronoss is leveraging the investments we have made to build out a truly global platform.

As we continue to execute on our connected device strategy across market segments including consumers and enterprise customers, we will continue to aggressively build out and strategically align with carriers around the world. Synchronoss is currently the only connected device order management and activation company in the industry to have been integrated with all the US carriers for activations, and we are developing a similar footprint in Europe. Now, as we have stated on previous calls, our primary strategy for the connected device market was to capture as many of the leading OEM customer logos this year to set the foundation for future growth. To date, we are very happy with our execution against this strategy.

With respect to Europe, we are excited about our most recent go-live with T-Mobile in the United Kingdom as part of our global deployment with Dell. Now, in addition we are planning on expanding to even more carrier operated partners in Latin America, Canada, and Western Europe, which will more than double the number of countries in which we are deploying our ConvergenceNow Plus+ platform. We anticipate launching many of these countries by the end of 2010.

And while much of the attention for connected devices has been centered on the consumer, it's important not to lose sight of the fact that we are seeing a growing opportunity in the B2B or commercial space. In partnering with the many leading OEMs, Synchronoss will be enabling their channel partners like value-added resellers and business solution providers to provide a wide range of mobility offerings to enterprise customers and government agencies. And as the world of connected devices grows into areas beyond smartphones and tablets, Synchronoss is positioned to enable service offerings beyond the traditional mobile platform. Now, whether you are operating in RIM, Mac, Symbian, Android or Windows mobile environment, Synchronoss is positioned to enable the end-to-end experience from handset transfer, data backup and activation.

We are extending our relationship and value with our recent acquisition of FusionOne, which brings us best-in-class mobile data transfer and synchronization software. As customers determine what mobile devices they want, and the related voice and data services to be activated, the challenges of mobile data transfer, synchronization and data backup become front and center. Contract renewals, carrier mergers and new handsets and services all drive handset upgrades and related activations.

In aggregate, a majority of mobile device users migrate or upgrade a new handset every 12 months. Lost activations often occur at the time of upgrading a mobile device and the perceived pain of getting content back to the device in the way they want it, thus discouraging end users from signing up expanded services or even activating a new device at all. Now, this is where the combination of FusionOne and Synchronoss provides real value to both the OEM and the carrier, enabling them to achieve higher sales and happier customers. Our expanded and integrated value proposition delivers the industry's most comprehensive one-stop shopping approach that streamlines the customer mobility experience.

We look forward to building on solid relationships that FusionOne has established with industry leading customers such as Verizon Wireless and others. And we look forward to taking their solutions and combined capabilities to the growing number of connected device prospects that we are pursuing as well as Synchronoss' existing customer base.

And finally, turning to our business with Tier 1 cable service providers, as we have discussed on prior calls, we are pushing forward with several strategic e-commerce deployments in which transaction volumes are expected to start ramping in the second half of 2010 and more so during 2011. We made steady progress during the second quarter and there are different stages of production that each of our large cable provider deployments are expected to go through as we proceed through the remainder of the year.

We are also very pleased with the recent expansion of our existing business with Comcast, supporting their enterprise segment as they scale our ConvergenceNow platform for their enterprise voice over IP market. Now to summarize, our second quarter results are strong. We are making progress against each of our key growth drivers and we expect the acquisition of FusionOne to further accelerate our connected device strategy. Our optimism is reflected in our increased outlook for 2010 which Larry will discuss with all of you in a few moments. With that let me turn it over to Larry.

Thank you, Steve. I would like to provide additional details on our second quarter 2010 performance, in addition to our guidance for the third quarter and full year of 2010. Starting with the income statement, revenues were $37.2 million, which is above the high end of our guidance range of $36.5 million to $37 million and was up 22% on a year-over-year basis.

Our AT&T-related revenue was approximately $24.5 million in the second quarter, representing 66% of our total revenue and growth of 22% on a year-over-year basis. The revenue from our relationships outside of AT&T contributed approximately $12.7 million during the second quarter, representing approximately 34% of our total revenue and year-over-year growth increased to 22%. We expect revenue from our expanding portfolio of customers outside of AT&T to continue accelerating during the second half of the year, and we continue to expect them to collectively grow in the mid-20% range for the full year.

This expectation is based on additional programs moving into production during the second half of the year as well as initial stages of ramping new customers such as those referenced in Steve's prepared remarks. Importantly, we expect our revenue diversification and growth outside of AT&T to get a further boost with the addition of revenue related to FusionOne's customers and offerings in the third quarter. From a revenue mix perspective, 79% of our second quarter revenue came from transactions process. The remaining 21% was generated from professional services 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 fair value stock-based compensation expense and acquisition related costs. Non-GAAP gross profit in the quarter was $19.1 million, representing a non-GAAP gross margin of 51.4%. This was consistent with our expectation of gross margins being in the low 50% range during the first half of the year.

Non-GAAP income from operations was $8.2 million in the second quarter, above the high end of our expectations and representing growth of 26% on a year-over-year basis and non-GAAP operating margins of 22%. The Company's tax rate for the quarter was 39.8%, leading to a non-GAAP EPS of $0.15, which was up 25% year-over-year and above our guidance of $0.14. Our GAAP basis -- I'm sorry, on a GAAP basis, including fair value stock-based compensation expense of $2.8 million and acquisition related costs of $314,000, the resulting GAAP income from operations and net income for the quarter was $5.1 million and $3 million respectively. The resulting GAAP diluted earnings per share was $0.09.

Looking at our cash, total cash, cash equivalents and markable securities of $102.3 million was essentially flat with the end of last quarter as positive cash from operations was offset by capital expenditures. Of note, our cash balance at the end of the quarter did not include payments related to the FusionOne acquisition which closed during July. The purchase price for the FusionOne acquisition was $40 million, which comprised approximately $32 million in cash and $8 million in Synchronoss stock or approximately 400,000 shares. There's also an earn-out of up to $35 million depending upon FusionOne's ability to meet certain financially oriented criteria. The earn-out will be measured quarterly over six quarters and paid in an equal combination of cash and stock after all earn-out quarters are completed.

Before moving to guidance, let me provide a reminder on the presentation of the financial statements beginning in the third quarter. Non-cash or non-recurring expenses excluded from our non-GAAP results will include stock-based compensation expense, amortization of intangibles associated with acquisitions, non-recurring professional fees associated with closing acquisitions, acquisition related earn-out compensation and consideration, and the purchase accounting reductions of deferred revenue associated with acquired companies. With that let me turn to the guidance for the third quarter and full year 2010.

We are currently forecasting total non-GAAP revenues in the range of $44 million to $45 million for the third quarter, representing year-over-year growth of 34% to 36%. This assumes a revenue contribution of approximately $4 million to $5 million related to FusionOne's offerings. We are targeting non-GAAP gross margins in the mid-50% range during the third quarter. The expected sequential increase in gross margins from the low 50% range is a primary related to the addition of FusionOne's higher margin solutions. We expect further margin expansion in the fourth quarter as a number of our customer deployments progress through additional stages of their production rollouts.

We expect a non-GAAP operating margin in the range of 20%, which assumes continued investment in R&D and sales and marketing. This also includes the expected operating expenses associated with the FusionOne operations. We are forecasting non-GAAP EPS of approximately $0.16 to $0.17 for the third quarter, assuming a tax rate of approximately 39% and diluted share count of approximately 32.5 million shares. As we discussed at the time of the FusionOne acquisition, we expect its impact to be at least neutral to our non-GAAP earnings per share in the second half of 2010. And our forecast for both the third and fourth quarters assumes a neutral impact.

Turning to the full year of 2010, we are increasing our forecast for both non-GAAP revenue and profitability. We are currently targeting non-GAAP revenues in the range of $162 million to $166 million for 2010, which represents annual growth of between 26% and 29%. This assumes a revenue contribution of $8 million to $10 million related to FusionOne's offerings.

The combination of our expanding customer base, ramping deployments with cable service providers and connected device customers and the addition of FusionOne is expected to drive our non-GAAP revenue from non-AT&T customers to approximately 40% of our overall business by the end of the year, representing an all-time high for Synchronoss. From a cost and profitability perspective, we are targeting full-year gross margins in the mid-50% range, which is an increase from our prior guidance of the low 50% range. We are currently targeting full-year non-GAAP operating margin in the low 20% range, with non-GAAP EPS of approximately $0.63 to $0.67, which is an increase of $0.01 compared to prior guidance, and assumes a tax rate of approximately 39% and diluted share count of approximately 32.4 million shares.

Let me finish our discussion on guidance with more details related to GAAP charges that we expect in the third quarter and beyond relative to the FusionOne acquisition. First, we will experience non-cash charges related to the amortization of intangibles, which will be determined by the valuation analysis currently in process by our independent valuation experts. Likewise, we are still determining the purchase accounting adjustment to deferred revenue. Whatever the final determination is in this regard, we expect a deferred revenue write-down to impact the next two to four quarters, though our current plan is to report non-GAAP revenue through at least the end of 2011 to provide year-over-year comparability.

Finally, our GAAP results which include one-time acquisition fees and potential expenses related to the earn-out, a portion of which will be classified as compensation expense and the remainder will be classified as deal expense. Earn-out expenses may vary over time depending upon the performance of FusionOne. The most important factor to consider from our perspective is the earn-out charges or additional purchase price for the acquisition beyond the initial $40 million that we paid. And in the event the earn-out was achieved, the transaction will still be accretive in 2011 and we would clearly be pleased with the momentum of the business.

In summary, our second quarter results were better than our expectations, and we have increased our full-year guidance. The Company is executing well against each of our three key growth drivers, AT&T, our cable service provider relationships, and our connected device strategy. In addition, we expect the momentum of our connected device strategy to further accelerate as a result of our acquisition of FusionOne.

We also expect numerous additional financial benefits related to the FusionOne acquisition over time including diversification of revenue sources and accretion to our bottom line beginning in 2011. With that, let me turn it back to the Operator, and we'll begin our Q&A.

(Operator Instructions) Your first question comes from the line of Tom Ernst with Deutsche Bank. Please proceed.

Good afternoon. This is [Nandal] on behalf of Tom. Thanks for taking my question. On the emerging devices, what class of devices is proving to be most popular early on?

I think out of the gate, obviously, the traditional ones are obviously your netbook, notebook, and e-book reader tablet-type devices. I think over time you are going to start to see more traditional non-devices align here in the next year or two. And we're really seeing a lot of our customers that have signed up initially from some services with us, to have a strategy that goes across most of their electronic product line, which is pretty exciting.

Thanks. And then, over time, do you have a percentage of total revenue that you expect to see from this segment?

When we talk about the metrics associated with any of the groups, we'll talk more about that as this matures better. So, we're going to let the next couple of quarters go by, and then over -- when we provide guidance in 2011, we'll talk about what kind of metrics we can share going forward. But at this point we would like the stuff to mature first.

Okay, thank you.

Your next question comes from the line of Tom Roderick with Stifel Nicolaus.

Hi guys. Good afternoon.

Hello, Tom.

Hello, Tom. How are you doing?

Good, thank you. So, Steve, you laid out three new connected device partners here, and you named two of them, and then one in particular sounded pretty interesting, where you said it was the largest European OEM handset manufacturer. So, I wanted to get a sense, as you start to look at some new wins and new opportunities in connected devices, and these three in particular. How do they stack up relative to what you are already doing with Dell, whether it's the magnitude of the opportunity, the geographic reach, and the layout in terms of how quickly you plan to roll these out. Can you just help us wrap some orders of that magnitude around these three new wins, particularly the large European OEM wins?

Yes, so we expect to have some degree of the rollouts completed by the end of 2010. I think the one element that's provided for us is one of our goals coming out was to really get some anchor clients. And these guys clearly have demonstrated that for us.

That gives us the entree into the various carriers, both in western Europe, Canada, and Latin America. And what's happening is a lot of the carriers are getting behind the initiative with Synchronoss in getting us connected in. And that's really starting to allow multiple OEMs to really show up in both our pipeline and what we're announcing here today is materializing into customers. So, I think one of the big advantages is both of these guys -- our anchor clients are very committed to the space. But equally important is it's giving us the presence in these regions that the carriers are really standing up and supporting us as other OEMs come in and want to do similar types of offers to take advantage of that global carrier footprint that we've built out and that we're banking on to get the leverage that we need in the future. And those are the logos that we're hoping to get in this year and why we feel good about where the strategy's developing.

So, in terms of the ability to land new connected device partners, is it fair to say that you feel like you're entering some critical mass juncture where new connected device partners can see that you're operating in big carriers and that shortens the sales cycle on those, or will we see one or two of these connected devices each quarter as new logo wins?

From a technology perspective, it clearly shortens the cycle tremendously. We can have customers up and running in a matter of a few weeks if they choose the carrier connectors that are in place today.

Really, the longest pole in the tent now with our deployment, frankly, is the OEMs developing those business arrangements and carrier agreements directly with those carriers in country. But the ability to leverage has been significant for us because we go through an initial certification process, but it's understood with a lot of the carriers, especially the ones that we're working with in Europe, that they're going to be multiple devices coming through this. And they're starting to look at Synchronoss, for lack of a better word, as a nice channel to aggregate the various different OEMs who may not have the volume of some our initial guys. But when you put them into the same pipeline for us, and we could take advantage of those economics of automation that, obviously, not only helps us out from a bottom line perspective, but it helps us from a pure marketing perspective.

Okay, good. Last one from me. Larry, if I could just turn to the financial impact of some of these new logo wins. Historically, you've had a new logo win and that drops the gross margin profitability for a period of time. How well prepared are you to absorb the development and integration costs associated with these three new wins?

Yes. So, if you recall, Tom, when we were talking about the connected device face, certainly there's a large amount of investment that's going in from an R&D point of view, but from a margin point of view, we expect these types of transactions to have very minimal impact, if any impact, on the gross margins going forward. Because we expect them to use the same platform and the same highway, if you will, that we have already in place. So, we don't expect what you see from the CN world, we don't see -- we don't expect that to happen. But from a development point of view, as we build all these connectors into the various carriers throughout the world, we are going to still see some investments from an R&D perspective.

Okay, great. Nice job. Thank you, guys. I'll jump back in the queue.

Thanks, Tom.

Your next question comes from the line of Scott Sutherland with Wedbush Securities. Please proceed.

Thank you. Good quarter. This is Suhail sitting in for Scott. Two quick questions. In terms of verticals where you see best opportunities. Can you comment on any specific vertical, especially any color on electronic retailers would be very helpful.

I'm sorry, just to make sure I understand the question. You're talking about what channels potentially?

Exactly.

So, one of the things that we're really seeing happen is a lot of the traditional online channels is a nice way for a lot of the existing OEMs to look to launch their own brand and to really set the website up to augment their current product line. And think of it as landing in an area online where you can then enable their entire product that they're selling online. Clearly, a company like Dell, who's got a lot of online presence, has an advantage there. But, what we're also seeing is a lot of the retail channel customers who are selling these devices, such as your big box retailers, are also going to be adding volumes to this, which is why combined with our FusionOne asset and new capabilities that we acquired in, makes this solution a lot more compelling and we think, powerful in a retail store. So, in the past, we traditionally showed well on an online channel perspective, post-FusionOne acquisition, it really allows us from a connected device space to show equally strong in the store.

Okay, great. And second question. In terms of FusionOne, obviously this is extremely complimentary to everything that you guys do. Are you receiving any kind of -- obviously you're probably receiving a lot of positive feedback. Anything in particular from the key customers that FusionOne is delivering to you guys?

One of the components clearly is that we have a good carrier grade background in supporting a lot of the OEMs. And so, FusionOne had a very similar relationship -- with relationships like Verizon Wireless, for example, who are looking to roll out devices in the market and take advantage of their open network. And I think what our customers are seeing is on both sides of the equation, both the carriers and the standardization of getting these OEMs on board, but this ability to really refer to it as a lights-out type of activation process where you can come in and essentially get everything moved over, activated, pick your plan, keep your number and do that in a fashion that you can do it directly from the device, saves significant amount of time that that was done manually. And from a conversion rate perspective, although the data is early, it's very compelling for some of our early customers of the conversion rates jumping significantly because of the ease of the customer experience.

Got it, thank you.

Your next question comes from the line of Shyam Patil with Raymond James and Associates. Please proceed.

Hi, good evening, guys. Congratulations on a strong string of quarters here. First question is, on the FusionOne acquisition, is it realistic for us to expect Synchronoss to be able to up-sell the ConvergenceNow platform in to existing FusionOne customers over the next, say, 12 to 18 months, or is that something that would be longer term than that?

I would think when we refer to -- where we definitely see strong synergies is our ConvergenceNow Plus+ product line, absolutely, where a lot of our OEMs who have gone online and are using us to do all their activations, also say, "Well you guys can now add handset transfer and backup functionality." A lot of the devices that are coming out are non-traditional, in which there's complete software and information that gets backed up with the devices. And so, we're clearly seeing that customers who have made that committment to activate see these peripheral services as very compelling.

Okay. And now that the acquisition is closed, could you guys share any additional color in terms of specific customer concentration, number of customers over 10% of revenue, or specifically how large Verizon is. And any color on pricing as well?

So, a lot of it, it's early on. We haven't disclosed any of the specifics. But it's clear to say that Verizon Wireless is a material customer to FusionOne. In terms of the pricing, it's too early to tell how that will roll out, but we believe that customers will consume it in a very similar transaction-based model as they go to activate by adding these peripheral services. And our focus has really been about adding the technology stack so that customers will get higher ASPs total with Synchronoss, and what I mean by ASPs are average transaction price, because we're providing more value. And I caution chime because it's early. But what we're seeing in some of our customers that are under contract today, as well as our pipeline, that we're getting definitely higher price points for the additional functionality that we're doing since we're not just doing pure activation anymore.

Great. And then just one last question. The second half, organic, non-AT&T revenue growth. It looks like you guys are expecting a pretty big ramp versus the first half of this year. Just wondering, how much of that is cable versus connected-devices-related, and what kind of confidence do you guys have in that right now? Does that assume, for example, any new customers wins or is that just based on what you guys have currently? Thank you.

Sure, Shyam. So, it's based on a couple things. One is, one of the things that we factored in going into the year is our new big cable wins that we had won at the very end of last year, beginning of this year, would start to factor in. And that's happening. And so, that's contributing to the diversification. Secondly is, although it's a smaller number, as Larry had indicated earlier, the connected device wins that we're looking for next year that we thought would materialize a little bit later from a revenue perspective in '11 are starting to materialize a little bit earlier. And so, that's contributing very favorably. And then on top of it obviously, as Larry had mentioned, on top of the good strong growth from our core business, the overlap of customers from FusionOne are different than those today and that will continue to accelerate that revenue growth in the latter half of the year.

Great. Thank you, guys.

Your next question comes from the line of Greg Burns with Sidoti & Company. Please proceed.

Good afternoon. Just a question in regards to Sprint. Seems like they're turning their business around here, putting up some incrementally better numbers. I was just wondering if you could maybe give us a little update on how your relationship with them is progressing?

Sure. So, we have a relationship that is -- with a certain subset of transactions with Sprint. And we certainly have not closed any additional business other than what we spoke before. But we are, as we do with our customers, actively having discussions with them and others. I think that they are committed to the connected device marketplace as well. And we think that the traction that we've got both at Verizon -- or with AT&T now with some of the work that we're getting through our FusionOne relationship with Verizon positions us really well in that market as the de facto standard. And I guess the third element of it is that we are getting connections into Sprint at a faster pace from a transaction perspective, but that's being driven by the OEMs, who are doing carrier agreements and are requiring Sprint and others to connect into us in order for them to get the transaction.

Okay, thanks. And last one. Larry, the gross margin guidance you gave in the mid-50s, could you just break out what the -- your organic or core business margins assumptions are there?

The best way to answer that is that as we came in this quarter, we came in at 51%. We're not going to break out FusionOne versus core business, but what I will say is that the core businesses begin the scale as we had intended it to do. It's slightly going up here in the third quarter and certainly going up more in the fourth quarter. But certainly as you look at the gross profits, the makeup of the way the FusionOne revenue is coming in, there's a much higher gross margin percentage for that business.

Okay, thank you.

Your next question comes from Tom Kucera with Avondale Partners. Please proceed.

Thank you. Tom Kucera for John Bright here. First, I wanted to touch on FusionOne, and correct me where my logic is wrong here, but it looks like you are guiding for $4 million to $5 million in revenues next quarter. I think you closed that on July 20, or was it July 19? So, it looks like you missed a couple weeks of revenues there. And with $8 million to $10 million annual revenue guidance, looks like you're guiding for that to decline sequentially, or is there something else going on there?

I think the -- is it John? I'm sorry?

It's Tom for John Bright.

I'm sorry, Tom. So, the way to look at it is we give a range of $4 million to $5 million for both quarters, yet the deal did close on the 19 of July. So, there is a proration of some recurring revenue that probably won't be part of Synchronoss, but again, as part of the range of $4 million to $5 million, we believe we've covered that difference.

Okay, so is it -- is the deal -- I guess the revenues might be lumpy also across the quarter, so there might be a recurring component, but there might be --

There's a piece of license revenues that are in the FusionOne business that actually gets closed during the quarter.

Okay.

So, it doesn't have an impact on the current quarter.

Okay, and also on FusionOne, and this was touched on a little bit before, but I was also wondering, really, how big a priority was cross-selling ConvergenceNow services as part of that transaction. And really, is it really a matter of focusing on connected devices, or are you really trying to penetrate the whole portfolio there?

I think what you refer to is clearly one of the strategy benefits that we had is our ConvergenceNow Plus+ platform supporting devices. A lot of our OEM customers are looking to, if they spend the time working with us to get the device activated, there's a lot of other things they would like to do with it.

You combine that with the fact that Synchronoss has a very strong carrier-grade background, and the way to make the connected device story works is to get as many of the logos as you can, which we've been executing this year, but also have deep relationships with the carriers that allows you, for lack of a better word, to not necessarily bet on every horse, but own the racetracks that enable that. And the FusionOne customer base with Verizon Wireless and our AT&T long-standing relationship provides us a really neat situation to leverage assets that we can do to bring to market that really creates an ultimate win-win for everybody. The OEM can provide more choice to the consumer, and we're able to provide an outstanding service for both a Verizon and AT&T customer.

Got it. And the last thing I want to touch on, as you are getting more visibility into connected devices and getting some additional deals there, any update on -- thoughts on where margins and where ASPs, if your $8 to $10 transaction rate, you think it's sustainable, or if that might be headed up or down?

So, it really depends. There's so many different drivers that ultimately drive the price, and one is volume. So, when you look at that range of $8 to $10 price, it's certainly going to be in the higher end of that, and in some cases, actually over the $10 range. But it is the basic same concept of how we price, is really three drivers. And volume is a big part of it, and complexity is another part of it. And then the service level. So, depending upon what those three categories are and what they're requesting, will ultimately drive the transaction price. But it's fair to say at this point that the transaction prices will definitely be north of the highest end of that range that we've got right now.

That's right, and to add a little bit more color mark around to Larry's comments, if you keep in mind there are things that our core ConvergenceNow Plus+ platforms in part of our R&D have been doing. Customers cannot only get access to multiple carriers to connect, but we allow them to monetize it if they want to connect into Chase payment tech, for the payment of it, we allow them to manage insurance if they want to connect into Asurion for [devices syncs]. We're really providing this end-to-end, a way for them to monetize their connected device go-to-market strategy.

So, if you are a very strong consumer electronic company with no real D&A, for lack of a better word in the telecom industry, you can write to Synchronoss, get our platform, and we'll provide you this end-to-end monetization that you need to go to market. That adds a lot of power to them. That allows them to obviously connect indirectly into these carriers, and in return, because we're providing a wider breadth, we're seeing that there's a propensity to absolutely pay a higher price for the transaction because the functionality that we're providing is much more extensive.

Got it, thank you.

We have a follow-up question from Tom Roderick with Stifel Nicolaus. Please proceed.

Hello, guys. Just a quick follow-up question from me. In thinking about the AT&T revenue contribution. And Steve, you highlighted that you had one single day where transactions were your highest single-day transaction level since '07, so I'm guessing that had to do with the iPhone 4G launch there, but -- the iPhone 4 launch. But if we look at the sequential uptick in AT&T revenues, it's maybe not as dramatic as those type of anecdotal pieces and numbers around the iPhone launch itself might have seen. So, can you help us maybe just understand the impact of a launch like the iPhone 4 and think about next quarter, how you replicate what you've done with AT&T this last quarter and the quarter before?

Sure. So, there's a bunch of drivers associated with that, Tom. It's a good question. One is just a lot of the transaction growth is indicated from other channels, unrelated to the 4G iPhone. When you look at that phone, that also crossed over the end of Q2 into Q3. And then there were certain functions that we provided both on a pre-order and post-order process, which obviously has different revenue ramifications to it. I think the component that we tried to emphasize is that, as these devices go online and more and more folks are driving those types of devices through channels that we support, that is a favorable trend for Synchronoss to look for on a go-forward basis.

Okay. And maybe just extending on that, just briefly. If we think about the possibility that someday the iPhone itself is not exclusive to AT&T, what do you feel like your ability to support that device through other channels, and you just hinted at it a little bit, but as that device potentially goes to other channels, what's the potential to support those channels either directly through the carrier or through the handset manufacturer itself?

So, I would think it's a reminder we have a direct relationship with Apple that we're happy with, and we have a relationship obviously with AT&T, and are establishing other relationships with firms such as Verizon Wireless and others. It would be really hard for me to speculate. It would be hard to imagine how that would hurt us. Probably a lot of ways how that would actually help us, if they diversified the product. But again, Tom, I would be speculating.

Okay. Last one from me. In thinking about the opportunity on the 4G side, thinking about perhaps Clearwire itself, can you talk a little bit about that opportunity a little bit more, and perhaps how that might intersect with the cable opportunity that you have going on?

So, we have -- we're getting a lot of exposure, obviously specifically with the deep relationship that we have with Time Warner Cable and supporting their Road Runner Mobile offer, and obviously their 4G connections into Clearwire. And we had a traditional business lined up, as you know, with Clearwire for their voice-over IP transactions.

I think that what I feel is a positive trend is as they build out more and more markets, and you are seeing that from a Clearwire perspective, it's becoming apparent in the converged world that a lot of the cable operators will begin, over the next year or so, to really start to actively promote wireless as a true quad play, for lack of a better word. And when that starts to happen, we believe that those transactions will be more -- that will be wind at our back, for lack of a better word, to participate that, based upon the head start that we believe we've got with the deployments already in place with Time Warner today into Clearwire.

Okay. Very good. Thank you.

Thanks, Tom.

You have a follow-up question from Shyam Patil with Raymond James and Associates.

Hello, guys. Just quick follow-up or two. When you look at AT&T in general, how penetrated do you think you are there with your current portfolio of offerings? And I think originally entering this year you were expecting, I think, low teens, mid-teens type of growth. Is that a number you feel comfortable with going forward beyond this year?

It's hard to predict. We haven't obviously given any guidance for 2011. One of the things that's clearly driven the growth higher than our expectations this year was, as part of our new contract arrangement a year or so ago, was the ability to on-board more channels in a more standardized process. You are starting to see the fruits of that labor.

One of the things that we do, as you know, when we on-board new transactions, is we may start with the first few months and maybe only have 15% or 20% of those transactions, and over the period of a year or so, start to really get 100% of those transactions as we work with AT&T and partner on both automation in regions that we support. And you start to see a lot of that. Fact is, I mentioned on my remarks that finishing up our wireline work via att.com. So, I think that from a channels perspective, there are clearly ways in which we believe we'll continue to work with AT&T. It's hard to put an exact number, Shyam, on what the penetration rate is, but we feel that with the success that we've had and the demonstrated value with them that we'll be able to on-board new transactions and to service new markets. And I think as you hear from us over time, us getting into those new areas, those are indicators that that growth would be sustainable. But at this point, we haven't really given any firm guidance beyond 2010.

Okay, then just another quick follow-up. And I apologize, Larry, if you mentioned this, but I think on the last call you gave us a range to think about as being reasonable for FusionOne next year. Should we continue to think of you guys being comfortable with that range you provided for next year for FusionOne?

Yes. Again, what we did is try to give you a little bit of flavor in terms of what we were expecting for FusionOne as it continues to grow. We expected their growth rate in 2011 to be greater than our growth rate, so that's as much as we can give at this point in time. We certainly are going to be prepared to talk about 2011 guidance later on in the year, but certainly we are expecting FusionOne to continue to grow.

Okay, thank you.

There are no further questions at this time. I would now like to turn the call over to Mr. Steve Waldis for closing remarks.

I would like to thank everybody for joining us today on our Q2 2010 conference call. We look forward to speaking with all of you soon.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.