Synchronoss Technologies Inc (SNCR) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q1 2014 Synchronoss Technologies Inc earnings conference call. My name is Mark and I will be operator today. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session.

(Operator Instructions)

As reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Karen Rosenberger, CFO. Please proceed, ma'am.

Thank you, Mark. Good morning and welcome to the Synchronoss first quarter 2014 earnings call. We will be discussing the results announced in the press release issued this morning.

Again, I am Karen Rosenberger, Chief Financial Officer of Synchronoss; and 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 securities 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 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 10K and quarterly report on form 10-Q. With that, I will turn the call over to Steve and then I'll come back a bit later to provide some further details around our financials and our forward-looking outlook, Steve.

Thank you, Karen. Good afternoon, and thanks for joining us on our call today to review our first-quarter financial results which were at or above the high end of our expectations on both the top and bottom line.

Our non-GAAP revenue of $98.7 million grew 25% on a year-over-year basis and exceeded the high end of our guidance. From a profitability perspective, we generated a 25% Non-GAAP operating margin and Non-GAAP EPS of $0.39 which was at the high-end of our guidance range. The first quarter was a strong start to the year for Synchronoss particularly in our cloud services business which grew 83% year-over-year.

Now we are encouraged by the early results as our major mobile operators bundle our cloud software very effectively with their core communication services. In 2013, our customers saw their turn rates decrease and their postpaid family data plan revenues increase when subscribers register and use the Synchronoss personal cloud platform.

Now, when you combine those results with the fact that the same subscribers are activating multiple connected devices per plan, the economics are extremely compelling. And as a result, we are seeing major customers ramping up marketing efforts that include cloud services as a core part of their data plans to gain subscribers. I am sure many of you have seen the media outreach with many of our media customers here in North America and we expect similar marketing trends to happen in Europe later this year.

Now one important point I would like to make clear is how mobile operators use storage and the success it has had in driving their core communication business. Now in almost all of our customer offers subscribers can get up to 25 gigabyte's or more of free cloud storage. Now when we look across our entire base of the tens of millions of Synchronoss cloud subscribers, less than a few thousand subscribers currently use even more than 25 GB of storage thus storage is essentially free today.

Now our customers are able to offer free storage because of the real benefits described above in their core business. Unlike over the top players that we live on storage as a key part of their revenues, our customers are using storage to grow and build their highly successful multibillion-dollar core communication businesses.

As a result, our value profit gets stronger with our customers as their core business generates higher revenues. It's also why we get paid on each of our 70,000,000 plus cloud community of users. The results are both solid growth and profitability in our business.

On top of the increased marketing efforts being made by our customers, Synchronoss is benefiting from the new release and integration of the cloud into to the device set up and purchase process. As we've discussed previously, having our technology embedded in the firmware of the device or pre loaded as an app that prompts the user to sign up for the cloud during initial purchase or upgrade process drives materially better adoption rates.

And based on his early results we're seeing favorable underlying trends around cloud adoption as these new devices hit the market. And as a result, and as Karen will be provide more detail in a few minutes, we will be raising a full-year revenue guidance as we remain confident in strong growth opportunity in our cloud services business.

Now during the first quarter, the mobile industry held two of their largest annual trade shows the Consumer Electronics Expo in Las Vegas and Mobile World Congress in Barcelona Spain. A common theme at both events was the increasing complexity of the communication landscape including the proliferation of nontraditional connected devices.

An exciting part of Synchronoss's increased visibility in the marketplace is a level of customer interest we are seeing from international mobile operators. And while we've had the customer success internationally to date, we've not had the full team and in place to capitalize on the opportunity. We are thrilled to recently bring on board Chris Halbard as President of our Synchronoss International business.

Now Chris is a 25 year veteran of our telecom industry, previously serving as COO British Telecom Global Services and various senior positions at both Lucent and AT&T. Now Chris is focus on leveraging the foundation we've already put in place and continuing to build out a world class team to actively seek out opportunities across Europe and Asia-Pacific. We've established a solid track record internationally with customers like Vodafone, Telefonica, NBN Australia, and Telstra and I'm confident that Chris and his team will drive even greater success going forward.

And our cloud services business is more than just personal cloud and we're excited to be working with Vodafone to bring the initial deployment of our workspace solution live during the second quarter. This platform is focused on file sync and share opportunities and enables mobile operators to provide a robust cloud offering that's a national extension to telephony, Internet, and networking services that they already provide to these small and medium-sized businesses. We're seeing a strong interest from a number of other mobile operators for workspace and ramping adoption of this offering will want to be the key aspects of our overall continued long-term growth strategy.

As our cloud platform has continued to scale Synchronoss has become integrated into the digital lives of tens of millions of mobile subscribers around the world. We are seeing increasing levels of interest from third parties looking to utilize our software platform to directly reach their customers.

Now to address this opportunity we recently launched the Synchronoss developer program which is set of open APIs and tools that allow enterprises to provide unique services to their customers that leverage Synchronoss is technology. Now early examples of this program are our recent announcement Napster and the NFL and as we continue to millions of new subscribers each quarter the contextual data we have and the ability to enhance our subscriber experience grows. Sharing music, play lists inside your address book is just the start of some great opportunities ahead of us.

Now turning to our activation services we had a solid quarter. In particular we saw good volume activity at AT&T as well of other mobile operator customers. No we're happy with the early positive trends in the year with AT&T. We saw solid strengthen the first quarter as the adoption of the next program grows which offers subscribers the ability to upgrade new devices in as little as 12 month. At the same time we saw solid traction in both its U-verse and high-end broadband channels.

On top of this growth drivers, AT&T is continuing to invest in high-speed broadband business with the rollout of its ultra fast fiber network called GigaPower which will power U-verse broadband speeds up to one gigabyte per second. While Synchronoss is currently the activation platform for all channels in GigaPower and as AT&T moves into the 21 markets in the coming years, we believe we are well-positioned to grow our diversified and successful relationship with AT&T.

Now as you recall our cable MSO business was an area of strength in 2013. One of the key value propositions for cable operators is helping them map their inventory and then reprovision and activate broadband connections as each cable MSO attempts to maximize broadband capacity from both a cost and throughput perspective in order to efficiently meet growing broadband demands for their subscribers. This historically driven strong activation transactions for Synchronoss.

Now during the first quarter, the regulatory approval process associated with the Comcast Time Warner merger has caused some softness around activation transactions as these MSOs have opted to push back their deployments until they have greater clarity around which specific property each MSO will continue to serve. Now regulatory approval is expected in the fourth quarter 2014 however, we expect volumes of our cable MSO customers to tick back up again in the mid-to late summer as the path and timelines for approval become more visible.

Recent news this week of the Comcast and Charter reaching an agreement on asset sales and swaps is a positive step in clarifying this situation. Charter, Comcast, and Time Warner are all activation customers of Synchronoss and as such we believe were positioned well to benefit from this favorable industry trend as we did in 2013 as these deals can click gain clarity and final review regulatory approval.

Now we are also seeing strong customer interest from our Integrated Life which provide activation capabilities for nontraditional devices like automotive and household connected devices. In the first quarter we know Time Warner Cable is a second Integrated Life customer. They will initially focus on supporting the connected home. Were pleased with the early success we are seeing with Synchronoss Integrated Life and believe this can develop into a meaningful opportunity over time as the number of connected devices proliferates.

Now in summary, the first quarter was a strong start of the year for Synchronoss. We are gaining traction with our personal cloud deployments while continuing to diversify our business. We're targeting a number of exciting growth opportunities and believe we have the platforms and team in place to successfully capitalize on these opportunities. With that, let me turn it over to our Chief Financial Officer, Karen.

Thanks, Steve. I'm excited about my new roll at Synchronoss and I look forward to working more closely with our analysts and investors moving forward. I will begin by reviewing our financial results for the first quarter and finished with an update to our guidance for the second quarter and full-year 2014.

Starting with the income statement, GAAP revenues were $98.5 million for the first quarter. Non-GAAP revenues after adding back $224,000 of deferred revenue write-downs from certain acquisitions were $98.7 million which was above the high end of our guidance range and up 24% on a year-over-year basis.

Our cloud services revenue in the first quarter was $43.7 million which represented 44% of our total revenue and year-over-year growth of 83%. The strong cloud performance in Q1 was primarily driven by strong adoption of our personal cloud offering across our customer base as we realized the positive impact of their increasing promotional marketing campaigns and higher levels of free storage offerings.

In addition, we recognize some additional nonrecurring revenue related to the rollout of some of our newer cloud deployments. We are pleased with the adoption trends we're seeing across our cloud services customer base and are optimistic on the growth potential for this business.

Activation services revenue was $55 million for the first quarter representing 56% of our total revenue. Our activation business was essentially flat year-over-year. This was due in part to a difficult comparison in the year ago period when our cable MSO business was strong and included a large transaction with the Australian government's national broadband network.

In addition, while we are pleased with the year-over-year double-digit growth we saw with our AT&T related business; our business with cable MSO's realized a modest near-term headwind due to the Comcast, Time Warner Cable merger. As they explained, we expect this softness to subside once these deals gain final regulatory approval.

Further on revenue mix, 70% of our first quarter Non-GAAP revenues came from recurring sources. Namely subscription and transaction arrangements while professional services and licenses made up the other 30%.

Moving down the P&L 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 the investor relations section of our website. Non-GAAP gross profits in the quarter was $60 million or a gross margin of 61% up 100 basis points from the last several quarters. As we have said in the past, there will always be a certain amount of variability in our gross margins depending upon our mix of revenue and investments.

Non-GAAP income from operations was $24.2 million in the first quarter representing an operating margin of 25%. Our Non-GAAP tax rate for the quarter was 35.5% which led to a Non-GAAP EPS of $0.39 up from $0.28 from a year ago period and at the high end of our guidance. The number of weighted average shares outstanding for the quarter was $40.7 million up from $39.1 million in the year ago quarter.

On a GAAP basis, first quarter gross profit was $58.5 million. Income from operations was $12.4 million and GAAP fully diluted earnings per share was $0.19.

Moving onto the balance sheet and cash flows. Total cash, cash equivalents and marketable securities were $62.2 million down $15.4 million from $77.6 million at the end of the last quarter. We used $11 million in adjusted cash flow from operations for the quarter due to the timing of cash collections.

Recall that we had a very strong cash collections at the end of the fourth quarter 2013. We also had strong collections in the first week of April which we expect will contribute to a sequential decline in DSO's for the second quarter. While there can be quarter-to-quarter fluctuations in working capital as we have seen in the past, we expect the underlying growth and profitability of our business will generate strong year-over-year growth in operating cash flow for the full year 2014.

As a reminder, Non-GAAP cash from operations excludes the payments for additional purchase price for acquisition earn outs and the excess tax benefit of exercising of stock options. Capital expenditures were $8 million or 8% of Non-GAAP revenues. Down from $11 million or 14% of Non-GAAP revenue and year ago period. We continue to expect that capital expenditures will return to historical levels of approximately 10% of revenue with a few points of variability for the full year 2014.

With that, let me turn to the guidance starting with the second quarter. For the second quarter, we are targeting Non-GAAP revenues in the range of $100 million to $103 million which represents year-over-year growth of approximately 17% to 21%. We're targeting Non-GAAP gross margin up 61%, non-GAAP operating margin of between 24% and 25%, and non-GAAP EPS of approximately $0.39 to $0.41 assuming a tax rate of 35.5% and a diluted share count of 41.2 million shares.

We are still early in the full year, but based on our first-quarter results and second quarter guidance, we are increasing the range of our revenue guidance and we are now targeting total non-GAAP revenues in the range of $420 million to $430 million versus our previous guidance of $415 million to $428 million and representing growth of 19% to 22% on a year-over-year basis. From a profitability perspective we are continuing to target Non-GAAP gross margins in the 61% to 62% range with quarter-to-quarter variability and non-GAAP operating margins in the range of 24% to 25%. Our non-GAAP EPS guidance will increase to $1.61 to $1.66 per share assuming a tax rate of approximately 35.5% and a diluted share count of approximately 41.4 million shares.

In summary, the first quarter was a strong start to 2014. We are encouraged by the strong adoption trends we're seeing in our cloud services business and we are increasingly confident in its long-term growth opportunity. We have built an increasingly diversified business that has a number of new and exciting growth drivers that we believe position Synchronoss well to deliver significant top and bottom line growth over time. With that, let me turn it back to the operator and we will begin our Q&A session.

(Operator Instructions)

Tom Roderick, Stifel.

Good morning. Karen, welcome aboard for your first call here. Let me direct the first question at you, Karen and Steve, feel free to chime in.

I'm interested in digging a little bit further on this component of the revenue this quarter. Pretty similar to last quarter about 30% of revenue services and software and other, but you indicated on the call back that was kind of driven by international customer ramps. I guess the two part question is, can you give a little bit more detail into sort of where, and how, and what those contracts are ramping and when we might start to see more material subscription or recurring revenue from those?

And then Karen, more specifically as it relates to next quarter's guidance, what's the best way to think about cloud revenues directionally knowing that there is a component of the services and nonrecurring one-time fees there? Thanks.

Hey, Tom. This is Steve. Part of what we're starting to see in the business in the first quarter here, primarily the strong growth, what's coming still here from our domestic work in the US, but we saw we look at our international business particularly with Vodafone on both personal and workspace side, clearly those guys are starting to ramp.

And as I mentioned in the scripts we expect that to continue throughout the course of the year and be a source of strength for us. At the same time with some of the investments we made with Chris internationally as well as just some of the success that we're having we are encouraged by our international pipeline as it relates to our cloud services in those regions.

And further on that, relating to cloud and how you can start to take a look at that, as we proceed further in the year, I would say although there were components of the revenue that were nonrecurring in nature. I mean they were very similar to the ranges that we have put forth and talked about publicly before and at analyst day where you are still going to look to see Pro services in that 20% to 25% range, licenses in the 5% to 10% range, and the subscription and transaction revenue in the 65% to 75% range. And I think that you could anticipate that in the near-term and then potentially we may look to see further subscription recurring revenue more towards the back half of 2014.

Okay. That's good detail, thanks. Steve, maybe a broader question thinking about Verizon launching more everything and upping that personal cloud storage to 25 gig, what are you hearing from other customers, whether it's domestically our international and it looked like Telstra was a pretty good example of someone that followed pretty quickly on the heels of that.

But what are you hearing from your other customers in terms of broader interest in launching a similar service knowing that there are a lot of other free consumer oriented solutions out there. Are you hearing an acceleration given that Verizon is upping its marketing spend and visibility in this category?

I think it's a combination, Tom, how effective the early results have been a across the current customer base both here and obviously not as large, but still a decent size set of subscribers in Europe, is that the correlation between providing storage capabilities or free storage up to 25 gig, typically allows consumers to eliminate that as a decision process when they are registering. And when you combine that with pulling our software in right during the purchase and set up process, has yielded really strong adoption rates.

And so we look at customers who are on boarding, registering for the cloud, becoming active users, and then buying more products and services, the carriers are starting to see or the operators are starting to see that the more customers deploy the cloud as part of these plans, the higher monthly ARPUs, the more devices they're any to the plan. When a combined that with the ease of walking into a retail store which you can do here in the US and within three clicks of turning on the device, have it completely activated and backing it up in a real-time fashion, you start to see the real benefit.

And so that has clearly been something that has been a showcase, a product for us here in the US and that's one of the big drivers for sure as you probably saw out at Mobile World and some of the international operators are try to emulate. So we think that is good news for us.

That's great I'll jump back in the queue; that's it for me. Thank you.

Michael Nemeroff from Credit Suisse

Hello. Thanks for taking my questions. Really nice quarter and Karen, welcome aboard. Just wanted to the maybe address one to Karen first. On the cloud services revenue if you could maybe help us understand what the mix of recurring licensed professional services were in the quarter and then I have a follow-up for Steve, please.

As far as the mix goes in the cloud, we've given the mix on an annual basis at the earnings -- sorry at the last annual, sorry, analyst day. We're not going to go into details on that mix on a quarterly basis. However, what I would say is it's still within the ranges presented and still within that range that I had just given to Tom earlier on the call.

Okay. Great. And then for Steve, on the cloud, everything seems to be rolling out pretty nicely, but you have a couple of international carriers, actually, well, Vodafone in India specifically that were you know started to ramp this quarter. Could you just give us a sense on how quickly those are ramping relative to how quickly Verizon ramped in 2013?

Sure. Let me address a couple of issues first, and to add some color to Karen's commentary too. Michael, keep in mind that as we launch newer customers right there's typically a little bit more of the service element on the front end of those deals. As you know particularly with some of the newer rollouts in Europe that get blended in there as you look at the overall rate.

But basically what we're looking at is a little update on the Indian operator at Reliance, is that we had a very successful deployment that is going on this quarter. It's going to be a gradual ramp this year so that you'll see it introduced into a subset of markets which they haven't publicly announced yet. And the by the end of the year, they will slowly ramp it up across the whole territory. So our expectation is that they'll add some additional markets in country, continue to refine the offer and then probably by the end of the year they'll be in a position to start to roll that out at a nationwide basis by the end of 2014.

As it relates to the work that we're doing in Europe, particularly around Vodafone, as you recall last year we launched in about 17 or 18 properties within Vodafone today that were up and running. But there is a big effort underway as we speak to relaunch or actually relaunch is a strong word, to take an approach with some new marketing efforts that you will start to see as the year goes on. Particularly over the summer timeframe.

And as they start to kick in our expectation is that the current adoption rates that we're seeing today should increase towards the latter half of the year. Just probably reflected in some of the comments that Karen had indicated earlier in terms of our guidance view for 2014.

Just real briefly, the ASPs, can you give a sense of how they've been trending over the last quarter.

So the ASPs continue to trend, to trend very well. Also on the enterprise space those ASPs have a tendency to trend a little bit higher as we had talked about before. Again, the bigger drivers for those ASPs is that we're finding that for each plan that's using our cloud we're starting to see more and more devices connected to it.

And then although the operator obviously offers a free storage component, we get paid on each subscriber so the amount of storage that those subscribers are consuming along with those devices have increased as well. So the combination of the two have kept the ARPUs very strong on the consumer side. And as we had talked about in the past, Michael, on the enterprise side it seems to be a little strong.

Thanks for taking my questions. Congrats on the good quarter.

Great. Thanks, Michael.

Gray Powell, Wells Fargo

Good morning thanks for taking the question. I just had a couple. Can you give us a sense as to the number of handsets or maybe the percentage of handsets with your cloud application pre-installed last year and how you're seeing that change in 2014? And then do you see a point where your Synchronoss cloud app is pre-installed on the majority of your customer handsets excluding the iPhone?

Yes. So some of the newer, in the past there was multiple ways. We could be in the firmware of the device which particularly rated -- related to our network address book from our early day implementations and as well as available through the app stores. And typically they would get downloaded as we've discussed by either a user would have to go and find that app and download it or there would be some call to action to do so.

On a go forward basis, one of the things that we did with our newer software products last year is we integrated the cloud into the address book. And we also did was created a really, what we believe, slick process for customers when they purchase the new device where it's embedded in the setup flow of the device. In other words customers as they turn on the device you flow right into it.

Right now, there's only a small handful of those devices that are on the market today, as we've just released that version of the software at the end of Q1. But as these new devices are released, depending on upon the markets that we serve, obviously in North America that's a much more mature market, where in Europe it will take a little bit more time.

But we would expect that as all new devices or upgrade cycles happen that those fastest or hot selling devices will have this pre-embedded set up flow process as part of that device. And as that starts to proliferate that's giving us the confidence in our business that we mentioned earlier because -- you mentioned at analyst day I guess a year or two ago we had numbers roughly in that 60% adoption rates for those that are embedded on the device. We are actually finding higher adoption rates with a few devices albeit popular devices that are in the marketplace today.

Understood, okay that's very helpful. And then how should we think about the timing to convert Verizon' s NAD customers to the full personal cloud offering? Do you think the bulk of those 55 million customers that are probably paying close to a $1.00 in ARPU can convert over and become a $3.00 ARPU type customer over time?

So it's early. And obviously we don't comment on anything specifically with our customers, but I will tell you in general, Gray, that we believe based upon the strength -- and it's early -- of the adoption rates we're seeing, that the platform is now in place that as these devices or subscribers come up for renewal, that those won't convert from traditional standalone network address book to full personal cloud. And given the early adoption rates it's very reasonable to see the process over the next few years.

Understood. Okay. Thank you very much.

Sterling Auty, JPMorgan

Thanks. Hi guys. One question on cloud, one on activations. On the cloud side when you look at the Galaxy operator like a Vodafone, can you remind us how they are rolling out the technology and more importantly, how they are marketing this? Are they doing it from a centralized, from the parent Vodafone or is each operating company doing each decision and each marketing program separately to drive adoption?

Okay. So the program is managed centrally. There are some degrees of freedom that are given to the operators in terms of the local independent operators and how they choose to market it.

However, some of the newer marketing plans especially those that we expect to launch this year in mid to late year with Vodafone, will be driven out of a central kind of offer flow. And that our expectation is that there will be a lot of similarities in those operating markets. So even though they have some of independence based upon the way the offers are being constructed which obviously we can discuss the details of them, it appears to us that it will be rolled out somewhat uniformly in those markets.

And then on the activation side, when you talk about like the Comcast, Time Warner combination and maybe some of the moves of subs over to Charter et cetera, does activations on that or does some of the activations separately you kind of talked about, a network grooming type of implementation, do those activations have different economics than a new customer activation, kind of a Greenfield activation if you will of a subscriber coming in?

That's a good question, Sterling. Typically they have the same type of economics, however because the forecasts are much more robust, the volume discounts on those transactions have a tendency to be higher because they understand when they go into each region and they say we're going to essentially clean up and re-provision these types of circuits, and then issue the activations, you typically have a higher volume. So the overall pricing schematic is the same, but they obviously can sign up for forecast to give them better volume discounts because of the visibility.

Got it. Thank you.

Nandan Amladi, Deutsche Bank

Hi, good morning, thanks for taking my question. Steve, the first question has to do with Comcast, Time Warner, Charter situation. Does that change your view of the activation segment for this year?

No. I think what it does is it as we tried to indicate, in 2013 it was a strong capability for us because of the combination of us being able to help them with mapping their inventory in regions and then reprovision and activate that. If you recall, last year we had very strong -- stronger than normal activation flows, the cable MSO market was a good contributor to that.

I think prior to the last few weeks what was unclear based upon the merger activity of what properties were going to end up of what operator, there is a tendency to hold off those efforts until it's understood. Obviously you wouldn't want to be cleaning markets up that you are going to have to diversify.

However, over the last few weeks particularly earlier this week as that starts to get clear in terms of where those assets will end up, our belief is that then those programs that we have been working on will start to kick. Although the approval, Nandan, may not happen towards the end of the year we believe that some of those properties for example that are completely unaffected will start to ramp up again in the latter half of second quarter, early Q3. And then as the merger gets completed, for those other properties as well as the new co that they are creating all would be good opportunities for Synchronoss exiting the year and then clearly for 2015.

Okay. And then a quick follow up. Perhaps for Karen. Very strong personal cloud performance in the quarter. Does that change your view of the CapEx that you'd discussed at the analyst day?

Right now we still believe that the CapEx expenses will be in line with that 10% plus or minus with a little variability on that for the year. I would preface that with, you know it's always subject to new customer wins and you know, geographies of where those customers may or may not be located. But at this time, not significant increases forecasted.

Okay. Thank you.

You're welcome.

Shyam Patil, Wedbush Securities

Hey, guys. Great quarter. Just a couple of questions.

On the cloud side, Steve, I believe about 12 months ago you talked about a ramp from $45 million to $70 million at Verizon over a 12 month period. It seems like you're probably close to that $70 million now. Just wondering if you could talk a little bit about what inning you think you're in there and how big of a driver the increasing visibility in the retail stores is going to be for you later this year.

Obviously, we did give that metric a year or so ago just to give kind of investors an idea of how we saw the opportunity. Obviously, not getting specific around any customers this year I will tell you that we are very comfortable of the robust activity that we're seeing not just at Verizon, but across the board.

I would say that the ability to market it as they've done such a great job of that publicly is part of some of their more everything plans as well as the value that they bring in terms of the integrating all kinds of other devices not just on the wireless side but on the FiOS or other components that could be beneficial. We believe that the opportunity on a go forward basis continues to maintain really strong opportunity for us.

I think the biggest driver as mentioned earlier, would be that as the natural upgrade of device cycles happened, even though we deployed the cloud and we had over the top apps and then we put some of the firmware, we're really proud of the capabilities that are on the brand new devices that have just recently been launched in the last few weeks. Some of the hotter devices if you go into the stores and you go through the set up and purchase process customers really like it. The reps in the stores, it's very easy-to-use.

The adoption rates are much higher and so our belief that as customers continue to go through that upgrade cycle that we're going to continue to grow the personal cloud business in a very similar fashion now like we grew the network address book stand alone business a few years ago. I think that's a piece of given us a little bit of excitement here in the year is that albeit early, albeit on a few devices it definitely exceeded our expectation in terms of what we thought we would get from adoption perspective.

Great. And then just a follow-up on the cable side of activation. You mentioned that all three of the players are customers. Are you guys penetrated at the same level at each one? I thought that Time Warner was a little bit more advanced as a Synchronoss deployment than the others. And just how you think about the incremental opportunity for Synchronoss post the acquisition?

Yes, so, we clearly -- Time Warner has definitely been our longest standing relationship, however last year we made some great strides with Comcast. And so Comcast became a very large customer of ours on the cable, in fact I think they became, if not I think our biggest cable MSO customer but I'll defer to Karen to make sure I have that correct, but they are very big in size. We can't predict obviously on where these mergers and acquisitions can be in the future and how that would benefit or not benefit where Synchronoss will be.

I will tell you that in the past as you guys have seen we seem to fare very well because we provide this median of software across customers that creates big customers across their footprints that make it very I guess easy for them to do business. And so I don't have any insight as to one way or the other. We feel good about the fact that since we do similar work for all three and all three have been very good and launched their new customers with us that we would believe going into that process that we are well-positioned. But obviously we don't have as much visibility yet today as we would later in the year on that.

Great. Congrats again.

Great thanks.

Daniel Ives, FDR Capital Markets

Yes, thanks. Steve, I'm curious if I even compare over the last year. Talk about maybe more of a high [leverage procedure] how conversations have changed on the cloud with, not just existing but new customer deployments, international? Maybe you can just compare and contrast where we were a year ago, where we are today, maybe even six months ago.

That's a great question, Daniel. A year and half ago operators were out there saying look the cloud could have some opportunity for us. And it's kind of something they thought we should have it, not sure where it fits in. Year-and-a-half later the operator discussions where having is this is a core part of our multi billion-dollar communication strategy. And we see it as not a standalone, separate business that we're trying to go after consumers that are doing all kinds of things in different markets.

What we see it as a catalyst and a value-added differentiator for customers who can come to us, buy multiple devices, have multiple operating systems, buy more things inside the home. And by doing all those things collectively together, the clouds really becoming kind of the glue that keeps those customers with them, makes them more profitable, adds more connected devices, so the conversations definitely have changed from a nice to have, to this is a really core piece of what we're working on a go forward basis. And because that's been demonstrated successfully here in the United States, it doesn't fall short on some of the major operators in Europe, and so those why we believe those discussions are proceeding fairly well.

Tavis McCourt, Raymond James

Hey. Thanks for taking my question and a great quarter.

Karen, a question on the DSOs and your cash flow commentary. I think you said you expect cash flow from ops to be up year-over-year. When I put that in my model that kind of presupposes I guess the DSOs will finish the year certainly closer to where they finished last year than where they've started out this year. Just wanted to make sure that, that's kind of the reasonable range for DSOs and that you do expect that.

And secondly, Steve, last year you highlighted kind of an ARPU range for subscribers. And I guess as you've talked about a lot of maybe a higher percentage of subscribers than you originally expected having multiple devices, if we could revisit that. Is that ARPU range that you talked about on a per subscriber basis or on a per device basis? Because I think you get paid on multiple devices as well. I just want to confirm that, that new longitude to your commentary last year.

Yes. That's correct. Think about the best way to look at the model. And obviously there is nuances in different accounts, but we get paid by a subscriber which is a set of data and then of that active subscriber, we get additional fees for the number of devices that are accessing that subscriber data. So I get paid for -- say Karen has a smart phone plus a tablet and maybe a secondary phone or maybe even a connected car whoever may be using it. We get a fee per those devices and obviously the amount of storage you consume.

Clearly, early on as the operators decide to add more and more capabilities to the cloud particularly in bundling beyond wireless. So where those carriers offer broadband offerings and to tie the broadband offering in with the family share or some type of plan, we see those trends, albeit early on, continuing to be more towards the higher end of the ASP, but it's still too early for us yet to get comfortable of changing that range. Other than I would say is the comment that I made earlier on the enterprise side, especially in the early days of workspace, we are seeing those ARPUs slightly higher. For sure.

Back to the DSO portion of your question. If you recall, we did have an abnormally, we had an anomaly in that fourth quarter where we received a lot of cash in the same quarter in which we billed it, so from a normalized perspective we are anticipating the DSO to smooth over the year, and it would be back in line with levels of the DSOs in 2013.

Great. And Steve, a follow-up on the full-year guidance. In terms of the activation revenue, is your commentary on the back half of the year that you're building in expectations that, that will come back to a degree where we could be looking at full year high single digit growth which I think is more normalized? Or is it just that maybe you'll get some positive growth, but the revenue upside on the guidance for the year was despite activation likely being a little bit weaker than you would have thought three months ago for the full year?

I think, it's early on in the year as it relates to activations -- it's a great question, Tavis. I can tell you that the first quarter, little bit of the perfect storm because it's historically our weakest quarter coming off of obviously strong Q4s with the holiday season. The cable MSO causing some pause and softness. What will see and we'll have a better feel probably as we go through the early part of this spring is we typically start to see it come back because people start to move and on top of it obviously an exceptionally bad winter especially in the Northeast which does impact the movements for those locations that we service. We typically see it come back in Q2.

And then typically and there is some type in at least previous years some launch of new devices that take place in Q3 on the wireless side that are very big contributors in Q3. And then you have back-to-school and holiday season. So we look at those elements of it, they're pretty consistent each year. I think the piece that has a little variability to it is just how quickly will the cable MSO market that was so strong in 2013 get it's clarity around these M&A activities and start to come back.

And then to your point, Tavis, it's a good question, how much of that comes in towards the end of this year versus the run rate exiting year. And that something that we'll probably give you guys a better feel for as we head into the summer versus where we are today.

Great. Thanks a lot.

I would now like to hand the call over to Steve Waldis for closing remarks.

Well I want to thank everybody for joining us on our Q1 2014 earnings call and we look forward to speaking to all of you soon. Thank you.

Thank you very much. This concludes today's conference. Thank you for your participation, you may now disconnect and have a great day.