Synchronoss Technologies Inc (SNCR) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 Synchronoss Technologies earnings conference call. My name is Kathy and I'll 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's call to Mr. Lawrence Irving, Chief Financial Officer. Please proceed.

Thank you. Good afternoon and welcome to the Synchronoss fourth quarter and full year 2011 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, founder and CEO.

During the 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 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 risk 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 10K and quarterly report on Form 10Q. With that, I will turn the call over to Steve and then I'll 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 fourth quarter performance, which was highlighted by revenue and profitability that were above the high end of our guidance expectations. We are extremely proud of our strong performance in 2011. Thought there were a number of highlights to our fourth quarter, we had record performance with our long-standing relationship with AT&T, continued success across our entire customer base, and completed a successful acquisition of Miyowa. Miyowa enables us to provide our large operator customers with a powerful social address book, which on top of our ConvergenceNow Plus+ network address book, creates a unique and personalized social graph experience for their in subscribers.

Now, there is strong momentum and customer interest related to our unique connect, sync, and activate strategy; and we have new and exciting set of opportunities as we increase our software presence on the device itself, which we believe can also deliver a growing number of transactions via personalized Cloud experience for our customers. Our current list of marquee customers provides Synchronoss with global distribution capabilities to potentially reach over 1 billion connected devices over time. Now these same marquee customers are driving more connected device adoption every day. And with our penetration rates at Synchronoss around 10%, we believe that we have many opportunities ahead of us to drive strong growth for many years to come.

Our goal is to be on hundreds of millions of devices as quickly as possible. And as we support more and more devices, and mobile commerce continues to grow at significant rates, our universe of potential transactions will grow as well. And each device we support provides Synchronoss with the equivalent of a royalty stream and then followed by a recurring transaction revenue, when subscribers conduct mobile commerce opportunities like connecting and syncing and activating from the device itself. The expansion of our ConvergenceNow Plus+ platform also strengthens the scalability of our long-term operating model, which we believe will start to become more visible beginning in 2012. And as Larry will detail in a few minutes, we are targeting another year of solid revenue growth and profitability for 2012.

Now, let me provide a summary review of our fourth quarter results. We reported non-GAAP revenues of $62.3 million, which were 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 25%, which was well above our guidance of a 22% operating margin. Our non-GAAP EPS was $0.28, excluding the positive impact of a lower than expected tax rate, and this was also well above the high end of our guidance of $0.23. Now from a full-year perspective, we delivered $230.5 million, an increase of 35% and ahead of our initial guidance of $214 million to $220 million. Our non-GAAP EPS of $0.92, excluding the just mentioned lower tax rates was $0.08 above our initial guidance of $0.80 to $0.84 due to the combination of better-than-expected revenues and increased operating leverage in our business.

Now during 2011, we delivered against each of our key objectives to drive long-term shareholder value. First, we grew our strongest standing relationship with AT&T. We continue to add new capabilities and transaction types, including our recently expanded role with the Apple iPhone 4S. AT&T customers who chose to select and upgrade from the device itself using an AT&T web browser application provide subscribers a quick and easy activation upgrade experienced to any new device. This very popular and easy-to-use activation process initiated on the iPhone 4 itself this past quarter drove very strong transaction volumes. We also ramped the major new channel with AT&T that we previewed at the midpoint of the year, which was an important contributor to our record AT&T quarterly revenue performance. And as we previously shared, we are excited about this new opportunity and hope to be in a position to provide additional details over time.

The second major accomplishment during 2011 was the progress made at scaling our relationship with Verizon Wireless. We made significant investments in infrastructure and our synchronization technology to ensure that it would effectively scale to tens of millions of subscribers. Now, when combining all of our customers, we are currently processing over 7 million synchronizations on a daily basis with excellent reliability, scale, and that number grows every day. During 2011, we also expanded the scope of our relationship with Verizon Wireless as they became the early adopter of our end to end connect, sync, and activate strategy. We were fortunate enough to have Verizon Wireless as a keynote speaker at our exclusive customer event in Napa Valley during the fall, in which they discussed our strategic partnerships and our combined value proposition for their top OEMs.

Now, we're still in the early stages of developing our full value proposition, but we believe we have set a strong foundation at Verizon Wireless for growth in 2012 and beyond. Now in addition, we made solid progress in our expansion in Europe, and in particular, the strong execution on our early stage relationship with Vodafone. Over the course of the year, we completed our initial deployment of our ConvergenceNow platform, with Vodafone's B2B channel in Germany, and we continue to add customers and new transaction types each quarter. We also deployed our first ConvergenceNow Plus+ platform with the Vodafone Netherlands operating company. And similar to Verizon Wireless, initiatives taken during 2011 have provided the foundation to further grow our relationship with Vodafone in 2012, including opportunities to expand into additional countries and channels with both our ConvergenceNow and our ConvergenceNow Plus+ platforms.

And finally, our acquisition of Miyowa in December, we enhanced the capabilities of ConvergenceNow Plus+ platform and expanded our infrastructure in Europe to help manage and drive anticipated growth in that region of the world. Combining the social network capabilities I discussed earlier and a new promising relationship with Orange and our existing relationship with Vodafone, we are excited about growing momentum in international markets as we begin 2012. Now from an overall perspective, the diversification of our business was an important focus during 2011 and we're very pleased with the progress made. Our non-AT&T related revenue grew to nearly 50% of our total revenue for the year, that's up from 40% of our total revenue during 2010, and we expect continued focus, efforts, and success on customer diversification in 2012.

And the final major competent during 2011 was the significant expansion of our connected device market opportunity. During 2011, we added smart mobility and social networking capabilities to our ConvergenceNow Plus+ platform on top of our scaling synchronization and activation technology. The cumulative impact of these developments put Synchronoss in a strong position to establish and scale our on device presence in very meaningful ways to our customers. Now, this is the strategy we demonstrated just a few weeks ago out at CES in Las Vegas, Nevada, including our social networking capabilities, the natural fade way it fits with our core ConvergenceNow Plus+ platform, and its obvious big benefits for our large operator customers. The feedback from our customers and prospects has been extremely positive.

Now, as we bring our expanded connect, sync, and activation strategy to market, Synchronoss becomes an increasingly strategic and intense vendor with our customers. In addition, we have a very attractive long-term opportunity to continue adding Cloud-based services to our platform and our growing presence on the device itself. Now, we have a number of strategic priorities as we begin 2012 that we will focus on to ensure long-term, continued success. First, continue to add tens of millions of devices to our ConvergenceNow Plus+ platform during 2012, which will provide us with significant recurring transactional revenue opportunities over time. Second, continue our push into adding advanced social graft abilities to connect the devices by combining them into the network address book on the device and at the point of activation.

Third, continue to scale our global presence with promising carrier relationships including Vodafone and Orange. And finally, ensuring that we capitalize on the growth opportunity with our largest customers, AT&T and Verizon Wireless. In conclusion, we had a great 2011, and we're well positioned at the center of a number of powerful growth trends. We have successfully leveraged many foundational investments, and delivered for our customers. We believe we can continue this leverage in 2012 and beyond. So with that, let me turn it over to Larry.

Thanks, Steve. There are several highlights to Synchronoss' financial performance in 2011. First, we delivered against our top line and bottom line guidance in each quarter, along with raising our forecast over the course of the year. Second, our revenues grew to a record level while achieving additional revenue diversification. Finally, we have proved our non-GAAP gross margins throughout the year.

We have invested significantly in building out the capabilities of our ConvergenceNow Plus+ platform both organically as well as through M&A, to deliver the industry's first comprehensive Cloud mobility platform for hundreds of millions of connected devices. Although there have been upfront costs associated with doing so, these investments provided the foundation to improve our long-term gross margin profile and ability to scale overall profitability. With that overview, let me provide additional details on our fourth quarter and full year 2011 financial performance in addition to our guidance for the first quarter and full year of 2012. Starting with the income statement, GAAP revenues were $62.2 million for the fourth quarter. After adding approximately $150,000 of deferred revenue write-downs from FusionOne, non-GAAP revenues were $62.3 million, which is above our guidance of $61 million to $62 million and up 22% on a year-over-year basis.

Our AT&T-related revenue was approximately $32.5 million in the fourth quarter, representing approximately 52% of our total non-GAAP revenue and growth of 19% on a year-over-year basis. Revenue from our relationships outside of AT&T contributed approximately $29.8 million during the fourth quarter, representing the other 48% of our total non-GAAP revenue and year-over-year growth of 25%. The most significant contributor to our non-AT&T revenues was Verizon Wireless, which again represented more than 10% of our revenue for the quarter. In looking at our revenue mix for the fourth quarter, it is important to keep in mind our comments from last quarter. We shared that AT&T would likely increase as a percentage of our business due to the fact that the new channel went into production late in the third quarter, the iPhone 4S was launched early in fourth quarter, and our third quarter non-AT&T in revenues included a nonrecurring patent settlement award.

For the full year 2011, our business outside of AT&T represented 49% of our total revenue, which is up meaningfully from 40% of our total revenues in 2010. With planned expansion at major carriers such as Verizon Wireless, Vodafone, and Orange, as well as continued progress with our OEM and international expansion strategy, we expect our revenue to further diversify to record levels in 2012. Further on revenue mix, 75% of our fourth quarter non-GAAP revenue came from recurring sources, namely transaction processing and subscription arrangements, while professional services and licenses made up the other 25%.

Turning to costs and expenses, we will review our numbers both on a GAAP and non-GAAP basis. There is a full reconciliation table between the two in our earnings release, which can be located under Investor Relation section of our website. Non-GAAP gross profit in the quarter was $35.4 million, representing a gross margin of 56.8%, which compares to 56.5% in the year-ago quarter, and 55.8% in the third quarter of this year. Non-GAAP SG&A was $7.8 million or 13% of revenues, which compares to 14% of revenues in the year-ago quarter, and 12% in the third quarter of 2011. R&D was $8.7 million or 14% of revenues during the fourth quarter, which compares to 15% in the year-ago quarter, and 16% the last quarter. On an absolute dollar basis, R&D was at its lowest point of the year during the fourth quarter, which was due primarily to the fact that certain joint R&D efforts were slowed during the holiday season. As we look ahead to 2012, we expect R&D to resume growth as we integrate social networking capabilities into our ConvergenceNow Plus+ platform, in addition to executing against an aggressive roadmap of capabilities with our strategic customers.

Non-GAAP income from operations was $15.9 million in the fourth quarter, representing growth of 38% on a year-over-year basis, and an operating margin of 25.5%, which compares to 22.4% operating margin in the year-ago quarter. Our non-GAAP tax rate for the year was 28%, which resulted in a fourth quarter tax rate of 16%, leading to a non-GAAP EPS of $0.34. This was $0.11 above our high end of our guidance of $0.23 with $0.06 due to lower than expected tax rate and $0.05 driven by the combination of revenue out performance and higher leverage in our business model. The weighted average outstanding shares for the quarter was 38.8 million, up from 35.6 million weighted average shares outstanding in the year-ago quarter. On a GAAP basis, fourth quarter gross profit was $33.8 million, and income from operations was $7 million, which includes approximately $8.9 million in charges and expenses that were excluded for non-GAAP purposes. Breaking that down further, there was $5.6 million in stock-based compensation expenses and $3.3 million in various charges related to our recent acquisitions. Finishing out comments on our fourth-quarter GAAP performance, net income was approximately $8.2 million, and GAAP fully diluted earnings per share was $0.21.

Taking a look at our summary results for the full year 2011, it was a record year for Synchronoss. Non-GAAP revenues were $230.5 million, an increase of 35% compared to $170.2 million in the prior year. Non-GAAP gross profit was $129.3 million, representing a gross margin of 56.1% and nearly 250 basis points of margin expansion on a year-over-year basis. Non-GAAP income from operations was $52.7 million for the full year 2011, representing an operating margin of 22.9% and growth of 44% over 2010. Non-GAAP net income was $38 million for the full year of 2011, leading to a diluted earnings per share of $0.98 compared to $0.70 in 2010.

Looking at our cash, total cash, cash equivalents, and marketable securities was $152.6 million, down approximately $37 million from $190 million at the end of last quarter due to the fact that we used $47.8 million in cash to fund the acquisition of the Miyowa during the quarter. We generated $11.4 million in adjusted cash flow from operations for the quarter, contributing to $49.2 million for the full year of 2011, which is up 104% from $24.1 million for the full year 2010. As a reminder, in order to provide a comparable year-over-year view, we adjusted our cash flow for cash earnout payments made as part of the FusionOne acquisition in addition to the tax benefits associated with the stock option exercises.

With that, let me turn to the guidance starting with the full year. We are currently forecasting total non-GAAP revenues in the range of $280 million to $290 million, representing year-over-year growth of approximately 22% to 26% over 2011. Our guidance assumes a contribution of approximately $7 million to $10 million related to the social networking capabilities that we were integrating into our ConvergenceNow Plus+ platform, including our acquisition of Miyowa. We expect each of our strategic customer relationships to generate solid growth during 2012. In addition, we expect our expanding customer base outside of AT&T to continue increasing as a percentage of our revenue.

From a profitability perspective, we currently expect non-GAAP gross margins in the 60% to 61% range with quarter to quarter variability. This would reflect approximately 400 basis points or better of margin expansion compared to 2011 as our revenue from ConvergenceNow Plus+ continues to grow, reflecting a growing number of highly automated transactions through the Cloud, including the recent social networking capabilities from the Miyowa acquisition. When we went public, our long-term target model had non-GAAP gross margins of 55% to 60%. We have already increased that target to 60% to 62%, reflecting the added functionality and volume of ConvergenceNow Plus+. We are still in the early stages of executing against our goal of gaining a presence on hundreds of millions of devices, including bring our expanded set of Cloud service transactions to the market,. As this develops over the next several years, we believe there will be an upward bias to our long-term targeted non-GAAP gross margin.

Now, let me turn to the operating profitability for 2012. We do plan on continuing to grow investments in our R&D as we are working on an aggressive technology roadmap with strategic customers and integrating social networking capabilities into our platform. We expect to gain leverage on these investments over time, and our ability to do so is enhanced because we were targeting our investments at higher margin revenue sources. All things considered, we expect non-GAAP operating margins in the range of 22% to 23% for the full year of 2012, essentially consistent with 2011. This is expected to drive non-GAAP EPS of approximately $1.07 to $1.11, assuming a tax rate of approximately 32% and a diluted share count of approximately 40 million shares. You will note that our tax rate assumption is relatively consistent with our expectation for 2011, but above what we realized due to the lack of new legislation for R&D tax credits for 2012. We expect our tax rate to be lower than 32% for 2012 if the R&D tax credits are again approved in the US. But it would be speculation on our part.

Turning to the first quarter of 2012, we are currently targeting non-GAAP revenues in the range of $63 million to $65 million, which represents annual growth of approximately 18% to 22%. This assumes a contribution of approximately $1 million associated with the social networking capabilities that we are integrating into our ConvergenceNow Plus+ platform. Consistent with prior practice, we do not intend on breaking out this revenue contribution on a quarterly basis moving forward as social networking will be among a growing number of overall capabilities delivered by our ConvergenceNow Plus+ platform. From a profitability perspective, we are targeting non-GAAP gross margins in the 58% to 59% range. We expect to generate non-GAAP operating margins of approximately 22%, with non-GAAP EPS of approximately $0.24 to $0.25, assuming a tax rate of approximately 32%, and a diluted share count of approximately 39 million shares.

In summary, we have strong momentum entering into 2012. We have an expanding customer base, a growing number of capabilities being delivered by our industry-leading Cloud mobility platform, and a powerful and improving long-term financial profile. With that, let me turn it back to the operator, and we'll begin our Q&A session.

Thank you, sir. (Operator Instructions) And our first question comes from the line of Tom Roderick of Stifel Nicolaus, please proceed.

Sure. Hey. This is actually Goron for Tom. So I was hoping you could talk about the integration roadmap for Miyowa and then how much of that $7 million to $10 million that you talked about for 2012 is already effectively booked?

So a little bit -- in regards to Miyowa, the real fundamental reasons for doing the acquisition in the first place was one, really enhance our network address book capability that's currently on tens of millions of devices and growing each year. And a big part of that obviously, being able to tie that together with our consisting current customer base. Secondly is obviously the ability to leverage a lot of the work that Miyowa had done in integrating into the social providers, particularly some private API work that they've done pretty effectively with Facebook. And then lastly, obviously provides an ability as we expand in Europe with Orange and now Vodafone and other opportunities to expand it there. So again as Larry said, we gave kind of an overview of combination of stuff that's associated with our core base as well as some stuff that we're doing with social, which will include Miyowa going into next year.

And as far as bookings, it's really the number of active users that are going to be building over the course of the year, so it's hard to say that it's booked. But as you get this technology in place, you hope to drive as many active users as possible throughout the course of the year.

Great. And then just switching gears here, with regard to the new channel within AT&T, I know there's only so much you can say; but perhaps you can talk about how much of that has already ramped, and then sort of when you expect that to fully ramp and really any sort of incremental detail you could offer would be very helpful.

So we ended up going through the course of the year, on boarding the majority of the channel. We expect from a transactional perspective that by the end of Q1 we'll have the channel completely on boarded from the existing transactions today. However, keep in mind as any channel is then there's a level of automation work that's done to increase the automation rates on those transactions; and then from time to time, there are new transactions that enter those channels. But collectively I would say that the lion's share of the channel will be -- has been on boarded and the remainder will be done this quarter.

Great. One last question. Could you perhaps give an update on smart mobility? I know you launched on a few devices last quarter. Any sort of incremental detail on smart mobility would be fantastic. Thank you very much.

Thank you. So we launched last quarter on a couple of devices. We're just starting to roll that out in Q1, and we expect that to continue to be a big part of our connect, sync, activate story. Obviously our two accounts that we're in production with today are both US Cellular as well as Verizon Wireless, and so things are tracking as expected.

Great. Thank you very much and nice job on the quarter.

Your next question comes from the line of Tom Ernst of Deutsche Bank, please proceed.

Yes, good afternoon. Thanks for taking my question.

Hi Tom.

First question. For you, Larry, we're used to Synchronoss providing a relatively conservative outlook first time out of the gate. And the observation on your guidance would be that your organic growth for 2012 is roughly what you put up in Q4. Is there a change to the way you're looking at future guidance, or do you see visibility to the growth ramp that you've got this year? How does it look?

I'm sorry, Tom, do you want to further ask the question?

No, go ahead. I was just going to say, how does it look from here?

We use the same principles that we've always used, Tom, as we go through kind of a bottoms up view from all of our customers, based on what we're seeing from them in terms of how they're seeing their business. And we use that in building what we believe the guidance is. It's early in the year. I'll caution you with that, so we start out with what data we have based on what we're getting from our customers, and we look at that and we come up with our guidance. We're certainly taking into consideration that it's still a very tough environment out there. And we certainly give that significant consideration, but it's really the same principles that we've always used, which is the bottoms up build up from all our customer forecast and give some visibility to that as well as some of the new initiatives that we have for 2012.

Okay. Sticking with the revenue side, so matching the bullish relative to what the series is looking for top line next year, although you beat your revenue range this year, I think some people might have expected a little bit bigger boost from smartphone activations in Q4. Any thoughts in terms of how smart phones, iPhone in particular helped drive the top line this quarter and what did show up, didn't show up?

I think they definitely -- smartphones as a percentage of business across the industry had I think one of its strongest quarters in a long time. As it relates to Synchronoss, it isn't a zero sum game in the sense that for those that are upgrading to do smart phones, typically have bought some feature phone in the past and so that is a transaction as well that we process. So very strong growth and I think going forward, the smartphone as well as connected devices that have advanced computing capabilities associated are going to continue to drive forward, and that's been a big part of why I think we believe in some of the R&D investments that we're making around CN Plus that that will start to create new -- net new transactions in new spaces that currently we're not seeing today.

Last question if you'll permit one more. The -- you mentioned the R&D cost savings in Q4 related to joint R&D efforts. We didn't see that last year in the Q4 timeframe. What was the nature of those joint R&D efforts, and should we expect that R&D effort to come back here as we look into the future quarters?

Yes. I think what I had said in my prepared remarks is that we do expect this to lever up the R&D spend here in 2012, and in the fourth quarter -- I think it's really testamental to what our model is all about where we have a lot of control in terms of how we spend R&D. In the fourth quarter during the holiday season, it's a lot more difficult to spend R& D and do some of the R&D work. And so what we did was we scaled back the R&D where we could, where we have external contractors that are doing some of that work, and we scaled that back but we expect to scale it back up in 2012.

Okay. Thanks again.

Our next question comes from the line of Scott Sutherland of Wedbush Securities, please proceed.

Great. Thank you. Congratulations on the quarter and good afternoon.

Hey, Scott.

First of all, if I have the numbers right, your percentage of revenue from transactions or subscriptions was still at 75%, same with Q3. Was there something more about the mix of transactions or just the overall revenue leverage that benefited the gross margin?

I think it was up a couple of percentage points, but the mix of transactions, we have a certain amount of work that is professional services but they're related to transactions. So there is a certain amount of work that is being classified as professional services that could be classified as transactions in a normal sequence, so there's a little bit of that. There is also a little bit more license in the fourth quarter in terms of revenue, so that kind of takes down the transaction revenue a bit. But nothing out of the ordinary for us, Scott.

Okay. When you look at kind of what you're doing with the ConvergenceNow Plus+, with guys like Verizon, Vodafone Netherlands, can you talk about the progress you're making from moving to a services and maybe royalty as you get these handsets seated to more of a transactional business model when are we seeing an inflection point there?

So you'll see a couple of things. One is we break into some of the newer markets. Once we break in for example in the Vodafone Netherlands, over time, unlike we have in Verizon, it's a much more streamlined process that has to be developed to get on the actual devices. There's ways you can get on the devices in the initial phases that aren't as streamlined as for example at Verizon where the devices are actually manufactured and shipped, and were actually embedded in the firmware. So the first driver is as that becomes more routine and new devices come out, your adoption attachment rates will go out.

And then secondly, as the carriers get more and more focused around using Cloud enabled services to drive transactions, that's the second area of strong growth. So just like you saw over the fourth quarter, I saw that more transactions were done from iPads and mobile devices for commerce than in any other quarter. I think that trend's going to carryover and I think that the carriers are going to adopt that for a lot of their upgrade and marketing techniques, and that will be kind of the second inflection point that you'll see. And then the combination of those two factors really start to drive the inflection points we think in the transaction levels next year.

Okay. Last question, when you look at your opportunity at AT&T as you on board this other major channel, what's the opportunity you see from other channels or do you think growth at AT&T has to be driven by other products like your smart mobility or sync or some of these other social networking capabilities?

I think, Scott, it's probably a combination of both. There's certainly additional opportunities that we like to partner with with AT&T to find out ways that we can help improve the customer experience, help them be successful in the marketplace, but I also believe that our product set specifically around CN Plus and others has a lot of applicability not just with AT&T and others. So I think going forward, what you'll see us focus on is clearly additional channel expansion as always, but I do think that that there are great opportunities for us to take some of our CN Plus technology and leverage it there.

Okay. Great. Thanks a lot.

Our next question comes from the line of Shyam Patil of Raymond James, please proceed.

Hi. Good afternoon. Congrats on the quarters.

Thanks, Shyam.

I guess to start with Vodafone Germany, can you just talk about how that's ramping relative to your expectations. When you look at your 2012 guidance, perhaps what you're assuming from Vodafone Germany?

Yes. I think the majority of the initial phase of work that we started last year has been completed at Vodafone. There's always ongoing additional releases and transactions that are getting boarded, but clearly the emphasis out of the gate, and it's early in 2012, is on boarding new customers, and so far we've been pleased, although it's early in terms of the customer adoption that we're seeing. Obviously, that is a partnership that we have to work very closely with with our client, and to ensure that they've got the right marketing incentives and programs in place. But I'll tell you out of the gate, it feels like those investments are being made, and we're continuing to add customers each month.

Great. And then on Miyowa, I think we all understand the value add from the device standpoint. Could you talk a little bit about the value add for carriers and what kind of initial interest you've seen from your existing carrier customers for that? As well as the profitability impact on 2012 guidance from the acquisition?

Yes. So I think I'll let Larry address the second part in a minute. In terms of Miyowa, the carrier benefit and we've talked a lot about giving their customers a really powerful -- if you look at just the number of network address book transactions that we're supporting today, and users' most popular way to access the social site today is becoming mobile. So tying those two together from a social perspective gives the carrier the ability to manage that experience within their environment, aggregate the different sites together inside what is the most relevant set of information that all of us have, which is our address book.

But on the carrier side, the other part of the great value that Miyowa brings to the table is when you combine some of the data compression work that they've done, and I'll call it network shaping that they've been involved in along with some of the work that we've done at Synchronoss, the load that we're able to reduce on the network is significant enough and in some instances as great as 50%. And that obviously makes the network side of the carrier management teams happy that they can not only roll out these feature sets, but it gives the carrier much more efficient way to be able to manage the social interactions on their network and that gives them two opportunities.

One, makes their network much, much more efficient. But secondly, provides the opportunities for various different price points to allow other devices that may be social in nature with a different price point onto their networks to help contribute to their subscriber growth. And so there's really those three advantages that the carriers see on the most part. In terms of your second part of your question around the guidance for 2012, I'll let Larry address that.

Yes, so I think, Shyam, I think the important part is what Steve had mentioned about the integrating of Miyowa into our ConvergenceNow Plus+ offering. I think that's the most significant piece. But as we look at it today, we believe social networking will scale to about $7 million to $10 million of our revenues for 2012, starting out with about $1 million here in the first quarter, and then obviously scaling in the following quarters. So it's an active user type of model, so that's kind of the way to look at it. And as more and more active users come on the platform, we'll get more revenue associated with that. But as we see it right now, we've built in roughly about $7 million to $10 million for that specific functionality of our ConvergenceNow Plus+ platform.

Great. If I could just sneak one more in, you have done a great job historically signing one to two tier ones a year. Is that kind of the goal for 2012 as well or is it more to sell kind of your stack into your existing customers?

Well, I mean it's always accommodation of both. I think that clearly we want to continue to grow. We think is a lot of space in our existing account. But one of the primary drivers going forward is really getting on devices. And as I'd mentioned earlier, just if you looked at our top four big carriers that we're servicing today, just those guys alone generate and have roughly 1 billion connections in the market today, and so there's huge growth opportunity there.

But we clearly are going to be focused on, how do we get our software and our transactional opportunities via the Cloud on as many devices as possible? And so a subset to that would have to be, not only will you grow your existing accounts, but because of our distribution in the power that distribution would require us to get additional logos each year, and so I think it's a combination of those three items. Clearly, penetrating our existing base, looking for new pockets of high growth opportunity in the device space in which whatever logos are supporting those would be natural fits for us. And we'll continue to target those guys collectively, both here in the US as well as one added benefit we should've said earlier on the Miyowa acquisition is we really have a nice sales and operational group now developing in Europe that can handle much bigger opportunities over there, and we see European growth -- or growth internationally outside the United States is picking up as well.

Great. Thanks very much.

Our next question comes from the line of Vincent Lin of Goldman Sachs, please proceed.

Great. Thanks. Larry, I just wanted to follow on the margin guidance. In terms of the R&D investments ramping up in 2012, so if we think about the phasing of the investments, do you expect R&D investments to be pretty evenly distributed or should we see kind of the investment being front end loaded and kind of moderating as we exit the year?

I think you'll be a little bit less in the first quarter and certainly further on in the second, third, and fourth quarter. But I would look at R&D to be roughly somewhere in the neighborhood of -- say, roughly around 18% to 19% of our revenue dollars.

Got it. And then real quickly on the revenue composition, sounds like -- based on your commentary sounds like AT&T in the near-term could be a little bit higher in terms of revenue contribution because of a new channel, obviously. But as we move through the year, the contribution from the other non-AT&T clients should increase as a percentage of revenue, does that sound right?

Yes. AT&T is obviously with the new channel is going to be contributing some additional revenues for us. I mean, we've always given guidance for AT&T to be kind of in that low double-digit range. And we don't see 2012 being much different than that. But I think the non-AT&T revenue is the area where we're going to see some significant growth in 2012 in terms of where our guidance is reflecting.

Okay. Great. Thanks.

Our next question comes from the line of Daniel Ives of FBR, please proceed.

My question is just from a high-level. Going into 2012, how would you compare your conversations with the carriers versus a year ago, just in terms of willingness to look at more of the platform, more strategically looking out the next one to two years, maybe if you could speak from a high level how it's changed your conversations?

Well, I definitely think, Daniel, that the carriers are very -- have a bunch of good data for their customers and see that a lot of the large operating -- the OEMs out there, obviously Apple being the largest, are really creating very tightly integrated vertical stacks of hardware and software, and then obviously providing multiple carriers. And so I think the conversations that we have really focus on the carriers particularly on the wireless side of the house, really trying to make sure that they've got the right horizontally enabled solutions, so that US consumers will interact with them, A, utilizing Cloud technology; but B, really go to that carrier and still have the freedom to say whether I'm a whatever, whether I'm an Android or an Apple user or a RIM user or a Windows 8 provider, I'm going to come to the carrier because I know my data and my servicing will be very specific and will be very easy for me to move in and out of these devices, in and out of these services. So from that perspective I think we feel very bullish on the fact that by the investments we're making especially around CN Plus, that there's a lot more that we can bring to the carrier on behalf of their subscribers to allow them to maintain that position. So I would say that where last year there was some good discussion around -- I think there is some really strong active plans being done in 2012.

Okay. Thanks. That's insightful. Thanks.

Our next question comes from the line of Will Power of Robert Baird, please proceed.

Yes, thank you. Good afternoon. I wonder if you can just first kind of update us on where you are right now with the Miyowa acquisition or I guess, integration; any positive, negative surprises there? And I guess part of that, Steve you alluded to the data compression capability, which seems fairly significant. Any early conversations you're having with other carriers, how are you kind of gauging interest in that? That's the first question.

It's been very positive. One of the things that we're bringing to the table is because we have such a large distribution of active devices and consumers and carriers on our products today, when you look at capabilities like Miyowa for us to incorporate that into our roadmap and to roll that out as part of a cadence that's operating today, is a lot easier for the carrier to consume and it creates a much more viable economic model that we can install for them, get access to that technology on a per unit or per device basis much better.

And so it's very early on, Will, with the conversations for our customers, A, it makes a lot of sense; B, we knew this in a lot of the conversations we had with our existing customers last year, which is a factor in us doing the Miyowa acquisition in the first place. When you add the third element of it, which is the network compression side, that's a great conversation for us to have because typically when work with our carriers, marketers or our buyers, but providing features on the network that in fact reduce congestion and provides a much more efficient experience makes that internal selling process a lot easier. So it's early on, we are actively, as Larry said, integrating it into our platform. It's part of some of our R&D spend this year and although it's early on, the customer feedback we've got has been incredibly positive.

Okay. And then I wanted to ask about the European pipeline. You've had success with Vodafone and Orange and obviously, there's significant opportunities with probably those two alone, but I wonder if you could kind of frame maybe discussions you might be having with other carriers because clearly the opportunity would be to open up additional doors there; and I guess as part of that, what's kind of the likelihood, do you think for some other relationships in Europe this year over the next 12, 18 months or so?

I think we feel like every year we've been making really solid progress in Europe; and besides the other reasons that we've talked about for Miyowa, their ability to be focused in Europe provides us a little more kind of humph in coverage for lack of a better word in Europe, to gain additional markets from there. One of the things that we focus on and I believe is one of our strongest assets is that it's one thing to have the features for carriers to contemplate consuming. But the second is really coming to the table with scalable solutions that over time will work at 1 million handsets but will also work at 100 million handsets. And I think because of the reputation we're building specifically around Verizon and Vodafone and as a Company that not only delivers the features but knows how to handle the scale as we've described earlier, they make those conversations and credibility factor for us a little bit better for sure. And I believe that the connected device space over the next year or two will become relevant and that these carriers as to one of the earlier questions are going to be very focused on making investments to ensure they don't lose that customer experience, and we just think that the solution set that we built plays really well into that.

Okay. Thank you.

Our next question comes from the line of Greg Burns of Sidoti & Co, please proceed.

Good afternoon. In terms of when you deploy CN Plus at a carrier, when the device gets rolled out, is it -- is the full platform enabled and the carrier then decides what point solutions on that platform they want to enable? Or is it -- does it just get rolled out with the ability to offer just the point solution at one time and then maybe in the future, that functionality has to be added to the device down the road?

Yes. It's a good question, Greg. I'd say it does vary by carrier but the ideal type of scenario or the scenario that you pretty much should get to within six months to a year is first off, there is a software called an agent for lack of a better word that we actually go out, which is very similar to here in Verizon in the US, we're actually on the device itself. Sometimes we're actually in the firmware at the hucks level, and once we're on that device, then it's a factor of what type of activity does that carrier want to have their subscribers do from the device itself? And the biggest area that we're seeing in which the full suite of ConvergenceNow platform for the connect, sync, and activate makes sense is most of the carriers today upgrade their base every 1.5 year, 80% some odd of that.

And so as they move to getting customers to upgrade from the device itself, that drives additional opportunities that our software being on that device can create it to the Cloud. Now, for those instances and carriers where we are not on the device, consumers will download it or it might be an app from an app store that gets on the device. But regardless of how we get there, once it's there it really is a factor of how much activity that the carriers really want to drive their end-users from. And think of it more as to as those activities create revenue opportunities for the carrier, that opens up more and more uses our technology stack, and is a big focus of our roadmap that we work with them.

Okay. Thank you. And in terms of Miyowa the way I understand it, it's activity-based, based on customer usage is how you get paid; how do the carriers deliver that? Is it bundled and given for free, or do they charge subscribers a monthly fee for the service?

So it varies. Some choose to factor that in their cost of goods sold based on the network reduction for example, they may get from the efficiency of the compression side that I mentioned. Others will charge that as part of a broader solution in which they may be storing files such as videos or photos or customers' personal information, so it does vary either by offer; also by handset in particular instances in terms of what types of plans you're on.

Okay. And in terms of your non-AT&T revenue, it was down sequentially, didn't really see any kind of seasonal uptick in the fourth quarter there, was there any customer that was weak in the quarter?

I think what we had said earlier is in the third quarter, we had some revenues that were classified as non-AT&T that was related to the patent settlement that we had, and that number was in Q3. So when you looked at Q3 to Q4, you've got that piece to deal with. So that's really the biggest driver for it.

Okay. Thank you.

Well, that ends today's session of Q&A. I will now turn the call over to Mr. Steve Waldis, Chief Executive Officer for closing remarks. Please proceed.

Great. We want to thank everybody for spending time with us today. And we look forward to keeping everybody to speed up to speed in 2012. Thank you.

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