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Executives

Stephen Waldis - Chief Exec. Officer, President

Lawrence Irving CPA - Chief Financial Officer

Analysts

Tom Ernst - Deutsche Bank

David Eller - Raymond James

Will Power - Robert W. Baird

Eric Kainer - Thinkequity

John Bright - Avondale Partners

Synchronoss Technology Inc. (SNCR) Q4 2008 Earnings Call February 5, 2009 4:30 PM ET

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2008 Synchronoss Technologies Incorporated Earnings Conference Call. My name is Stacy and I will be your conference moderator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Lawrence Irving, Chief Financial Officer. Please proceed.

Lawrence Irving

Thank you, Stacy. Good afternoon and welcome to the Synchronoss fourth quarter and full-year 2008 earnings conference 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 this call, we will make statements related to our business that may be considered forward-looking statements under the 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 a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings including our annual report on Form 10-K for the year ended December 31, 2007.

With that, I’ll turn the call over to Steve and then I’ll comeback a bit later to provide some further details regarding our financials and our forward-looking outlook. Thanks. Steve.

Steve Waldis

Thank you, Larry. Good afternoon and thanks for joining us on our call to review our fourth quarter results, which were consistent with our expectations and highlighted by strong sequential revenue growth. We are also encouraged by recent business developments and opportunities that Synchronoss’s addressing as we head into 2009, in which some of these we will be discussing today.

We are excited that we have recently signed a new three contract with AT&T that represented a largest and most comprehensive agreement in the history of Synchronoss. In addition, we believe our recently introduced ConvergenceNow Plus platform positions us well to capitalize in what we believe is a growing market opportunity associated with the merging devices.

We are also happy with our first emerging device deployment CruiseCast, which we are actively working with other providers of emerging device manufactures on additional opportunities for deploying ConvergenceNow Plus and while the economic environment continues to have a negative impact on transaction volumes generated by some of our clients. We are optimistic about Synchronoss’s outlook for 2009 based on our new AT&T agreement, the potential associated with early stage programs and their earlier progress of our emerging devices go-to market strategies, as well as the existing opportunities with both existing and perspective customers.

Now, let me turn and provide summary review of our fourth quarter financial performance, followed by an update on some key business development activities. We reported quarterly revenues of $31.2 million, which was in the upper half of our guidance for the quarter and represented a sequential growth increase of 19% compared to $26.3 million in the third quarter and from a profitability perspective, we generated a non-GAAP operating margin of 20% leading to a non-GAAP EPS of $0.12, which was consistent with the mid-point of our guidance from the previous quarter.

We ended the fourth quarter with a very strong balance sheet. Our cash was approximately $78.8 million with essentially no debt and we generated approximately $26.4 million in cash flows from operations during all of 2008. From a summary perspective, our fourth quarter was a strong finish to 2008 and built on the momentum that we had exiting the third quarter. We entered 2009 with a strong financial position, a proven history of delivering both profitability and strong cash flow and many opportunities for growth.

Now, let me turn to our business operations and beginning with our largest customer AT&T. During the fourth quarter, our AT&T revenue grew 19% on a sequential basis, with gross driven by a degree of year-end seasonality and a move to production with our platform supporting AT&T’s converged wireline services that are solid via at&t.com website. Our core AT&T revenues grew 19% on a year-over-year basis and is if we were to exclude the iPhone related revenues from a year ago period.

For the full-year 2008, our core AT&T revenue was up 13% on a year-over-year basis. The most significant news regarding AT&T, however, was our recent announcement of a new three-year agreement, which was the largest and most comprehensive agreement in the history of the company. This new agreement is a further validation of Synochronoss’s unique value proposition and the ongoing and evolving partnership that will take place in AT&T over the next several years.

We believe the driver to discontinued expansion of our relationship with AT&T has been our proven ability to partner with AT&T and lowering their operating cost at the same time improving the quality of their customer experience. Our new agreement further deepens and solidifies our relationship from a long-term perspective and the key aspects of the agreement that we believe are important for our shareholders.

First, our previous agreements were signed with the old Cingular, now AT&T Mobility whereas our new agreement is with Corporate AT&T and can be used across the new AT&T. This three-year agreement which actually has an option to extend for years four and five on the similar terms is the longest term commitment AT&T has made to Synchronoss and it consolidates and replaces a number of individual and annual contracts that we previously had in place.

The new three-year agreement covers all of our e-commerce work both in our consumer and business areas and includes minimum transaction volumes that going forward are material in nature as compared to the older agreement that had much lower minimum commitments and that were not material. Secondly, in the most fundamental change was that our original contracts were designed to facilitate the on-boarding of incremental and discrete transaction types.

Our new agreement, multi-year agreement provides AT&T with the ability to more easily onboard entire channels with us as reflected by the fact that it’s scopes out parameters of our relationship in managing growth in existing channels and defines work efforts for adding and growing new channels. Also contemplated in the agreement is pricing to scale and handle transaction volumes that are as much as 300% to 400% greater than those that we are currently managing, but to be clear there is no commitment to specific channels or to actually delivering these much higher transaction volumes at this time.

Third, we believe our agreement is a win-win for both companies, as it relates to AT&T, the agreement provides them with greater visibility into their long-term cost structure with volume discounts as they scale through higher levels beyond today’s current volumes and higher and more robust guaranteed service levels as compared to our prior agreement. From our perspective, we believe it benefits in several ways, first we have better long-term visibility into revenue associated with AT&T, our largest client.

Second, we have higher guaranteed material minimums that we have not had in our prior agreement. And finally, our related aspect is that we believe our new agreement has natural incentives in place which will allow AT&T to expand Synchronoss platform across new channels throughout the new AT&T.

Separately, it is worth noting that we extended our separate agreement with AT&T regarding the activation of the iPhone related transactions. In addition to providing activation services for the 2.5G version of the iPhone, Synchronoss is now managing a segment of transactions specific to local number porting for the 3G iPhone on behalf of AT&T independent of that which channel the iPhone is purchased through, and I want to note that we exited 2008, with an iPhone run rate in excess of $10 million annually, which is consistent with the expectation we shared several quarters ago.

During the fourth quarter, AT&T began selling the 3G iPhone to consumers via its highly successful www.at&t.com website allowing consumers to order phones from their home or anywhere they have Internet access and they will essentially be shipped a hot phone. This means consumers are no longer required to visit a retail store in order to purchase and activate a 3G iPhone. We believe this is beneficial to Synchronoss for consumers who prefer on online experience versus the in-store experience and to the degree they select AT&T as their destination website and as long as AT&T continues to market and sell the device to its e-commerce channel.

As I had mentioned earlier, we are increasingly excited about the opportunity we believe we have to establish our recently introduced ConvergenceNow platform in the embedded wireless consumer device market, which we believe is an additional large and untapped market opportunity. Our ConvergenceNow Plus platform is focused on supporting and enabling different types of wireless enabled consumer devices to be activated and supported on multiple networks.

In extends our platform into account and lifecycle management expanding the types of transactions our platform can match such as credit card transactions, inventory management of emerging devices, trouble ticketing on devices and product catalog capabilities for emerging devices to mention a few. All of these are obviously in addition to the core activation related services that we automate for all of our customers.

We are also excited to announce our first deployment of ConvergenceNow Plus platform and CruiseCast, which is the IPTV satellite initiative that we discussed at the high level on last quarter’s call. This is the first emerging device to deploy our ConvergenceNow Plus solution. AT&T is teaming up with RaySat to CruiseCast in vehicle entertainment and the partnership extends through Avis Budget Group.

CruiseCast offers over 20 video channels along with an equivalent number of music channels and is installed directly into your vehicle to dealer locations and will become nationally available in spring of 2009.

The Synchronoss ConvergenceNow Plus platform will be responsible for the complete subscriber management process including activation, trouble ticketing and inventory management. In addition to putting our platform in place in another channel and with a new program, this has potential to scale overtime and the deployment is particularly important because it’s a step forward in establishing Synchronoss, the platform of choice for all kinds of emerging device suppliers.

We intend to focus energy on this market and emerging devices is an important part of our growth strategy outside of our traditional Communication Service Provider customer base. We believe opportunities exist with leading OEM manufactures, computer and hardware companies, camera and video manufactures and essentially any consumer electronic device that will require some form of wireless enablement and activation. In addition to CruiseCast, we recently shared our involvement with Brightpoint and Nokia. We are marketing and pursing additional meaningful opportunities with Brightpoint, as it relates to OEM providers that provide from our combined value proposition.

During this past quarter, we on-boarded another customer with Brightpoint, Dell Computer and we look forward to sharing more details on the progress of other emerging device opportunities within this channel in the quarters ahead. In addition, we expand our platform across traditional transaction types and channels across our Tier One customer base. Collectively, revenues generated from our customer outside of AT&T grew 30% during the fourth quarter and 25% on a full-year basis.

During the fourth quarter, we continued our relationships with our cable MSO’s, we went live with Time Warner Cables e-commerce channel, twc.com., and deployed our platform for Comcast Business Services Group, supporting the rollout of commercial Voice Over IP Services.

With Cablevision, we also started to work on some Fixed Mobile Convergence opportunities that enabled both traditional and new platform offers. In addition to the above, we continued to strengthen and expand our relationship with Communication Service Providers, such as Level 3 and Vonage among others.

Then on the wireless side of our business, our transaction volumes, which spread grew as expected during the fourth quarter. However, the process continues to be highly manual. For customers to realize the full value that Synchronoss provides, it’s essential that we move to highly and increasing automated process. Synchronoss’s ready and capable rapidly implementing such automation and it is the focus on what we’re doing in 2009 as it’s not economical for us to continue with limited automation over the long-term.

There continues to be plans for ramping the automation, however, the business environment has caused a significant amount of cost and channel change it’s brand, which impacts changes the business processes and impacts our progress and in Vodafone, we continue to proceed with our discovery face engagement in a number of professional service engagement and it have been requested in a number of opportunities being evaluated have continued to expand. We consider those to be minor of positive developments in the range of potential outcomes of Vodafone remain the same as previously discussed.

In summary our fourth quarter performance was solid, as we entered 2009 I want to reiterate that point that no company is immune to the negative pressures of the economy and we are feeling and may continue to feel an impact as a result of some of our customers generating lower volumes on same-store basis.

However, we are optimistic about Synchronoss outlook for 2009, based on ever belief that customers will watch to reduce cost faster in this environment. Our new longer-term contract with AT&T and the potential with earlier stage programs and the progress of our emerging devices go to market strategies as well as opportunities of both existing and new customers.

With that, let me turn it back over to Larry.

Larry Irving

Thank you, Steve. I would like to provide additional details on our fourth quarter and full-year 2008 performance. In addition to our guidance for the first quarter and full-year 2009, starting with the income statement revenues were $31.2 million in the fourth quarter, which was in upper half of our guidance range $30 million to $32 million and represented increase of 19% on sequential basis.

Consistent with the expectation we shared last quarter, the sequential increase in our fourth quarter revenue was driven by a degree of positive year-end seasonality. Incremental contribution from full quarter adviser and most importantly increase contribution from ongoing transactions associated with some of our earlier stage programs. If we would exclude the impact of the Apple iPhone revenue, our total revenues were approximately 23% on a year-over-year basis.

Our overall AT&T revenue represented 64% of our total revenues, compared to 66% in the previous quarter and 76% in the fourth quarter of 2007. The revenue from our other customers represents the remaining 36% of our total, up from 36% in the previous quarter and 24% in the fourth quarter of 2007. Revenue from our customers outside of AT&T grew 30% on a year-over-year basis and 26% sequentially.

From our revenue mix, 84% of our fourth quarter revenue came from transactions process, the remaining 16% 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 stock-based compensation expense. Our non-GAAP gross profit in the quarter was $17.1 million representing a non-GAAP gross margin of 55%, which was an increase over last quarter.

Turning to operating expenses, non-GAAP research and development expenses came in at $3.3 million, or 11% of revenue, while non-GAAP SG&A expense was $5.4 million, or 17% of revenue. Depreciation and amortization was $2.1 million, or 7% of revenue.

Non-GAAP income from operations came in at $6.3 million, representing a non-GAAP operating margin of 20%. The company’s tax rate for the quarter was 41.1%, leading to a non-GAAP EPS of $0.12, which was within our guided range of $0.11 to $0.13.

On a GAAP basis, including stock-based compensation expense of $2 million, the resulting GAAP income from operations in net income for the quarter was $4.2 million and $2.7 million respectively. The resulting GAAP diluted earnings per share was $0.09.

Taking a look at our summary results for the full-year 2008, our total revenue was $111 million, compared to $123.5 million in 2007. If we would exclude the impact of the Apple iPhone in both years’, our revenue from other transactions and relationships grew at 17% on a year-over-year basis.

Our full-year 2008 non-GAAP operating margin came in at 23% and drove non-GAAP EPS of $0.58. Looking at our cash, total cash, cash equivalents and marketable securities totaled $78.8 million at the end of the fourth quarter, which is up from $73.3 million at the end of the third quarter.

The increase in cash was due primarily to $8.3 million in cash from operations offset in part by $2.5 million in capital expenditures. For the full-year 2008, the company generated $26.4 million in cash from operations.

Now, let me turn to the guidance for the first quarter and full-year 2009. Beginning with the quarter, we are currently targeting revenue in the range of $28 million to $29.5 million for the first quarter. This takes into consideration, our sequential move to a seasonally slower quarter in addition to the fact that the macroeconomic environment continues to impact transaction volumes at our customers.

Similar to the fourth quarter, we expect progress and new initiatives to partially offset these factors. It is worth pointing out that the first quarter of 2009, is the last quarter that we will consider challenging from a year-over-year comparison perspective. While we generated activation revenue related to Apple 2G iPhone throughout 2008, it was during the second quarter of 2008 that our iPhone related volumes dropped significantly as AT&T brought the activation process for the 3G version into its retail stores.

From our profitability perspective, we are expecting the first quarter non-GAAP gross margins in the low 50% percent range and non-GAAP operating margin of approximately 18% to 20%. We currently estimate non-GAAP EPS of $0.10 to $0.12 for the first quarter, assuming a tax rate of 41% and approximately $31.5 million shares outstanding.

On the spending front, as we discussed last quarter and then Steve’s remarks today, we are continuing to invest in our platform to support new opportunities since its further enhancing ConvergenceNow Plus for emerging devices and supporting new programs across a number of our new customers and our current customers.

These upfront investments are required to drive high automation rates as quickly as possible and we expect to gain leverage off these investments overtime. We also continue to regressively pursue international opportunities. We believe these investments will not only help Synchronoss through this more challenging economic period, but they will also position us well for improved revenue growth and profitability when the economy improves and volumes across our highly automated programs bounce back to its normal levels.

From a full year perspective, it is important to begin with our usual note regarding the fact that the level of impact and then timing of such impact from early stage relationships and on-boarding new programs can be very difficult to predict as they involve many factors that are beyond Synchronoss’s control.

Secondly, we are operating with the mindset that the macroeconomic environment will remain challenging throughout 2009, which if that were to be the case would likely dampen transaction volumes at a number of a more longstanding programs that are fully ramped.

In addition, it may of course greater variability in our customers’ actual transaction performance compared to their plans. The bottom line is; we do not control the transaction volumes of our customers. Our goal is to get our platform in place at as many customers and as across as many programs as possible, so that we can benefit as transactions come our way.

Taking these factors into consideration, we are optimistic that Synchronoss is well- positioned to generate solid growth and profitability in 2009 based on our new agreement with AT&T progress across a number of earlier stage initiatives and a solid pipeline of new opportunities.

We are currently forecasting total revenues in the range of $120 million to $126 million for 2009, which represents a return to a year-over-year growth in the high single-digit to low teens range. It is worth noting that this implies growth in the high teens range during the final three quarters of the year, keeping in mind that the first quarter is a very difficult comparison quarter.

As we have in the past, we will continue to provide updated guidance over the course of the year, as we gain more visibility into the timing and traction of new programs in our current transaction types and new transaction types.

From a profitability perspective, we are targeting non-GAAP gross margins in the low 50% range. Non-GAAP operating margins of approximately 20% to 22% and non-GAAP EPS of a range between $0.50 and $0.56, this assumes a full year tax rate of approximately 41%.

In summary, we are pleased with our fourth quarter results and with the progress the company is making against its strategic growth initiatives. We have a new long-term agreement with our largest and longstanding customer relationship. We have exciting earlier stage programs that we are on-boarding across both AT&T and our broader customer base.

We are optimistic about our outlook in 2009; in spite of the increasingly difficult economic environment and even more so, longer-term as we continue to enhance Synchronoss already strong market position. With that let met turn it over to the operator Stacy to begin the Q&A. Thank you very much.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Tom Roderick - Thomas Weisel.

Tom Roderick - Thomas Weisel

I was hoping maybe you could just talk a little bit about the dynamics of the AT&T relationship with respect to perhaps what pushing more transaction types and more traffic in your direction? Can you speak at a high level with respect to the idea that a managed services arrangement is far more beneficial type of solution, as big carriers try to cut CapEx or are there other dynamics that come into play when you are structuring big relationships like this?

Steve Waldis

Hi, Tom this is Steve. Certainly, there is pros and cons in today's economic world. One of the pros certainly is that managed services environment allows us through automation to dramatically reduce cost at the same time improving service levels; and so a lot of the work that we did in the fourth quarter especially with AT&T in terms of on-boarding their new wireline program is a good example to that and so we look forward into 2009, I think the dynamics that we focus in on are obviously, the offset of potential existing programs and that may have a dampened transaction flow, but offsetting that with the ability for us to go through an onboard program so efficiently since automation obviously drives a much better cost at the providers.

Tom Roderick - Thomas Weisel

So, specifically with AT&T and thinking about the transaction volumes that have an opportunity to grow I think you said 300% to 400%. What would it take to, what sort of channels would you look to add that could potentially create this volume growth numbers like you approach there?

Steve Waldis

Well, I think, the agreement doesn’t commit to any type large scale transactions, but definitely provides the ability to do so Tom, and I think what and obviously to contemplate that type of growth that would require new channels above and beyond the existing ones that we perform today and so I think essentially what we are excited about it took more of a global approach in terms of what are the items and elements that are required for our platform and managed service to deployed in a new channel, and took that into consideration and made it a win-win.

I think for both companies in the sense that Synchronoss is kind has a defined plan and opportunities to get there and AT&T gets their benefit obviously getting discount from the higher volumes of those transaction. So, it really ends up in an opportunity or mechanism in the new contract for us to do that and more importantly, as I stated in a few minutes ago our old agreements where with Cingular AT&T Mobility, the new agreement is with Corporate AT&T and so that allows us to be utilized potentially across all of the...

Tom Roderick - Thomas Weisel

Okay, last question from me, maybe you could just provide a little bit of an update from non-traditional transaction types and update on the retailer big box opportunities that you had talked a bit about last year? And then you also mentioned Dell Computer, which seems to be a little bit out of the norm of traditionally what you have done, so can you provide an update in terms of the strategy, getting away from some of the carriers-centric deliveries there?

Steve Waldis

So, it’s a big part of our ConvergenceNow Plus initiative and essentially the, let me start by answering the Dell question, the Dell is to our relationship with Brightpoint and through Brightpoint they use our technology and platform as they go into pick back and shift opportunities for Nokia’s and Dell and which there maybe hot air cards being shifted out with the actual computers.

I think the opportunities that Synchronoss sees going forward and why we’re excited about our first appointment with CruiseCast is there is big push in the industry today to get devices onto the networks that the large carriers that are offering today and I think it is a big growth opportunity as wireless saturation happens here in the U.S. the way for wireless carriers to grow is to offer ways to allow other devices are called the non-traditional devices to be activated in the networks.

Panasonic devices for example, cell phones, cameras, navigation devices and so Synchronoss sees a great opportunity to play in that field and that we can be a great enabler of those devices and titles into the various different networks and that existed both not for just wireless but even for high speed data or IP type services and so that’s the growth area that we believe to our partnerships to Brightpoint as well as directly with consumer OEM manufacturers or devices manufacturers like CruiseCast that will want to contract us to have us managed that subscriber process from start to finish.

Operator

Your next question comes from the line of Tom Ernst - Deutsche Bank

Tom Ernst - Deutsche Bank

It looks like you’re forecasting about a high single-digit sequential decline which is expected as a seasonal effect and I wouldn’t believe that there is any effects happening, it is not like you have got some new business, it has generated a little more volume in Sprint, a couple of the deals you have got normal seasonal effects and transactions and then I think another thing investors have been worried about is anytime you consolidate a major contract like that, we would expect that you’d conceded near-term in pricing, a couple of questions, its sounds on your comments with AT&T as you are talking about discounts for forward volume and growth you didn’t yield the discount here in the short term? And then secondly, what you view as a normal seasonal effect if we didn’t have those other issues, what kind of magnitude sequential decline do you think there is in the neutral economy?

Steve Waldis

Let me answer in two parts, let me answer the second part question Tom. On the AT&T contract, for some of the existing volumes there are some discounts, but they are not material. The discounts that really start to accelerate or with much higher volumes and in return for those slight discounts on the existing business, we actually got material commitments for minimums, which we didn’t have to recall in the past. So it’s a really, zero point reviewed this and we believe AT&T does is a really good win-win for both companies and we’re both now motivated obviously to continue to improve the experience and drive cost out of business.

In terms of the seasonality, you are right going into the fourth quarter the wireless component of our businesses is seasonally high and so you typically see that component drop off under normal circumstances during the first quarter of the year.

Then obviously we took into consideration the timing of new programs which we think to some degree may offset that and looked at what the potential forecast maybe given in light of the economic environment and kind of looked at that as we provided our guidance going forward.

Tom Ernst - Deutsche Bank

What is main seasonal effect, do you think that’s in five or ten point kind of impact to your business typically?

Lawrence Irving

I mean typically in the fourth quarter specifically around the consumer side of the wireless side businesses where you see that seasonality and it ranges from one-year than X. Obviously this year was, overall I think volume was just slightly down from the previous year in terms of volumes of transaction, but you could typically see a range of anywhere from the 15% range to as much as 20% in terms of transactions, but again the pricing associated with those transactions vary depending upon the complexity of those transactions. So, that has an impact as well as that drives some of the change in our revenue streams, there is some seasonality there in the fourth quarter. I would say a range between 15% and 20%.

Operator

Your next question comes from the line of Shyam Patil - Raymond James.

David Eller - Raymond James

Hi, guys this is David Eller filling in for Shyam. I was hoping you guys can help us understand your activation mix between smartphones and normal cell phones? And then maybe what your revenue is most sensitive to changes then?

Steve Waldis

So, one of the things what we do is we provision any phone that comes through the e-commerce channel. So, it doesn’t matter it is a smartphone or any other type of phone and we don’t typically share with what that volume is, so that’s pretty much and I don’t think we can under NDA really disclose the number of transactions that we do from a smartphone perspective to a regular phone perspective.

David Eller - Raymond James

Okay, and then maybe you can tell us a little bit more about contracts up for renew in ‘09 or and then also if you could just touch on the growth drivers that kind of core AT&T for ‘09?

Lawrence Irving

From a AT&T perspective, I mean we believe that the opportunity that exist in our new agreements for potential growth is good and for us going to New Year obviously, we want to tapper that expectation in light of the economic environment that are out there today, but we think that there are certain opportunities for us like what we have done here on the wireline consumer side and whether other areas of the business obviously wireline and some of the newer services are going to have margin pressures in the carriers are good opportunities as you go to bundle these convergence services and so those are natural areas that we think have a good feel for us taking over and have an opportunity there to grow into the transactions sides and that side of the equation. I’m not aware of David we get back if any of ….

Steve Waldis

As a matter fact, we don’t usually share the renewal practices, the renewal times of our contracts. We just announced the signing of the AT&T agreement. As a matter of fact this one-time agreement is we signed then we shared and there are obviously a lot of reasons why we don’t share that, but as a matter of practice we don’t.

But I should tell you there is that typically our contracts tend to be somewhere between two to three years and automatically have renewal periods in them as well.

David Eller - Raymond James

Okay, then just kind of last question, if we could update on uses of cash?

Steve Waldis

Uses of cash going forward.

David Eller - Raymond James

Yes, for ‘09.

Steve Waldis

And so, we as a matter of as you could see this past year we generated somewhere in the neighborhood of about $26 million of cash from operations. We do expect to continue generating cash going forward and that enables that neighborhood are a little bit less, there will be CapEx as always as I have provided in the past. We use our typical guidance in terms of CapEx range somewhere in the neighborhood of about 10% of our revenues and that’s really dictated on some of the new programs that are coming onboard.

One of the things that we have talked about is we are moving into a new location in our Pennsylvania office, so there will be some capital expenditures around that and that’s the two major areas that I would talk about when I refer the cash is generating, its pretty strong cash from operations and then in the CapEx required to run the business going forward, it’s typically it’s around 10% of our revenues.

Operator

Your next question comes from the line of Will Power - Robert W. Baird.

Will Power - Robert W. Baird

I guess a couple of questions first, on AT&T I mean it sounds like there is some nice growth opportunities through ‘09 and beyond, should we expect that them to grow as a percentage of revenue in ‘09 and anyway to get a sense for magnitude of that?

Lawrence Irving

The best way to look at AT&T this past year, we had pretty strong growth, as we mentioned overall the year-over-year growth rate in Q was roughly 13%. We expect growth going forward to be in the double-digit range as well. So, that’s pretty much the way I would look at AT&T going forward.

Now, there are things that we are certainly cognizant of in terms of the economic conditions is going out, so we are certainly cognizant of that and we factor that into our view in terms of our guidance, but as we see it right now, economic conditions aside and we expect to see double-digit growth.

Steve Waldis

Will this is Steve, across our base, that could be true in terms of certainly in tough economic times here overall, embedded program transaction volumes, as subscriber growth slows will impact you, but you also do have and you were offsetting at times with their ability to onboard programs that may have taken longer, because of the cost benefit that the carriers can get in under managed service platform environment have a tendency to be a favorable win.

Will Power - Robert W. Baird

Okay, and I was curious on the Sprint relationship, it sounds like there’s been a little more manual intensive than it might be ideally moving more towards automation overtime. I was wondering if you could give us anymore flavor for what type of impact I mean we’ve ahead on margins in Q4 and how should we think about that impact looking forward in ‘09?

Steve Waldis

Sure Will. This is Steve, certainly and that’s a true spread, but if all of our customers, when you are in a manual a highly manual environment it does impact your margins on a negative side and one of the things that we wanted to do going forward is obviously drive that to a much more automated state and so, we’re working hard with our partners in Sprint there is a lot challenges that are going on in the industry, but I think what’s important for us, Synchronoss to focus on and where we’re really moving forward in ‘09 is we’re at a transaction size in Q4 that we really need to try to move towards more of an automated state and that’s kind of our plan going forward for the reasons you cited.

Will Power - Robert W. Baird

Okay and maybe just last question. I know you eluded to volume impacts related to the economic slowdown, is that primarily a function of just the carriers being slower to deploy your products or is that more a function just of slower online activity generally by their end customers or was it a combination of both?

Steve Waldis

It is more of the latter I would say Will that the first is actually more positive so in an environment, we will see customers may be move more aggressively to look for us to onboard, programs are little bit quicker like the consumer AT&T wireline work that we did in the latter half of ‘08. The latter meaning that their subscriber growth has customers in our model give out a forecast and those forecasts that kind of usually and ranges I am giving you a roll of sum its kind of an of 80, 110 were typically 80% of the forecast its kind of a payer taken than anything above 110% the insulates don’t apply and so customers have a tendency in environments like this to not obviously be in the higher end, and might be in the lower end of their forecast number and so that’s a negative impact as those end subscribers don’t sent the transactions in to the carrier for us process that obviously impacts us negatively.

Operator

Your next question comes from the line of Eric Kainer - Thinkequity..

Eric Kainer – Thinkequity

Thank you vey much for taking my call and congratulations on a fine quarter, my first question is I believe AT&T mobility, AT&T consumer, Time Warner Cable are all 100% penetrated as far as the e-commerce channel. I wonder if you can kind give us an analogous number for maybe Comcast or Embarq?

Steve Waldis

No, it’s hard Eric to quantify and even in some of those channels, even like for example on www.timewarner.com necessarily without getting into specifics on our customer location not necessarily in every particular region is up on certain times. There is really the way to look at is that, we still believe in the wireless e-commerce space, although we are getting some nice featured platform deployments.

We still think that the level of penetration for us and that could be true for both Voice-Over-IP and some of the work that we are doing with MSO’s. We still have a way to go to penetrate those accounts further than where we are today, the quote a percentage on that will be tough I wouldn’t want to guess at it, but essentially how we scale is we get into the client, we get a couple of regions and/or services or transactions up and running and then we add to those as the year goes on and we expect that behavior to happen within all of our accounts during the course of DSO as I had mentioned earlier on-boarding programs might be not only new programs for new customers, but also could be newer regions for our service types within existing accounts that they want to move over and get the benefit of the lower cost.

Eric Kainer – Thinkequity

Okay, part of your answer there I assume you a little bit and that is, do I understand correctly that not all the parts of Time Warner Cable, not every region is fully on-board and ramped?

Steve Waldis

Not every transaction for every region is fully no-board that’s correct and there is a profit, but obviously we can share because it’s proprietary that customers in terms of going through that process, as we enable each of the regions, but the majority of transactions flows on-boarded today, but it’s not 100%.

Eric Kainer – Thinkequity

Okay, are all of the transaction types on-boarded now at Embarq? I think, you had one that you were still working on as for about this time last quarter?

Steve Waldis

No, I know we have transactions involved with Embarq on the online that channel Eric, but I’ll have to get back, I don’t know that number on top my head.

Eric Kainer – Thinkequity

Okay, well let me jump to the next question if I could. Obviously, we’ve seen just about every one of your customers, everybody in the space really talking about taking headcount down and when we look at service providers generally, the big chunk of people are obviously customer service that is obviously the leading space or you windup hoping improve the efficiency of operations. Should we be expecting faster on-boarding when we start seeing kind of headline numbers coming out of all of your various customers, at least the ones where you not 100% penetrated yet?

Steve Waldis

I think Eric, as I said earlier, I think there are scenarios where in a tough economic environment to the extent that you can automate typically manual processes, it’s a positive outcome of tighter environments, but you also have investments as you declare our platform customers also have to make investments in terms of giving us the exposure to back offices to make the right automation changes that we need to integrating with their front-end by flows or websites that we can capture these orders in an effective manner and so, those were things that require investments and/or CapEx on our customer side and so those are things that as much as the ability to automate to certain degree will absolutely be a positive. I take it on the negative side or areas that you have concern in tighter environments is really allowing them to have the proper capital expenditures to do that.

Eric Kainer – Thinkequity

Okay that’s a fair point. And then last question from me is, really a round Sprint. I guess a couple of questions around Sprint. First is, how many programs have you launched at Sprint? And secondly, as far as the program that you mentioned last quarter, which was

Sprint [Zoom] obviously you have an existing relationship with Clearwire on the Voice-Over-IP side. Now, I was wondering whether you’ve been able to expand that Sprint Zoom relationship to activations for all the broadband, activations within Clearwire.

Steve Waldis

No, we had. Certainly, we have activities that are going on both in those areas and Eric, but we haven’t obviously disclosed in details because of the sensitivity on the client, other than say that that we’ve had a higher degree of transactions flow coming off from the fourth quarter. However, it is in a manual state and does impact some of the margins that we need to improve which would come through automation and we’re working on and trying to get there with our partners in early part of ‘09, but we haven’t really got to tell you the specifics of the programs as you can imagine with the sensitivity of the date on the customer side.

Eric Kainer – Thinkequity

Any of you on how many programs you’ve launched with Sprint now?

Steve Waldis

We’ve just conceptually talk about Sprint in general as well as our Zoom relationship, but not the individual transaction types of programs that are underneath those.

Operator

Your next question comes from John Bright - Avondale Partners.

John Bright - Avondale Partners

Steve, should I interpret some of the comments you’re making on Sprint is more cautious in nature because the overall economic environment or should I that precede some of the comments as more cautious and that they maybe not proceeding as fast as you might have hoped in the rollout of your managed services?

Steve Waldis

Well, I think John, what we’re trying to communicate is that we are increasing the transaction volumes that we did in Q4. Albeit very manual and I think, what we’re trying to do is to really focus on transactions that are automated and we really want to move to a state going forward where we can drive as much automation as possible and to really get ability to kind of automate some of these transactions that were at today and so clearly with all our customers there is the economic backdrop that is out there today and speared along with everybody else is not exempt from that, but there is also a desire on Synchronoss’s part to really drive more towards an automation process going forward rather than continuing to onboard transactions in a manual state.

John Bright - Avondale Partners

Okay, it’s kind of more those types of questions. So, when the iPhone stopped activation all online in the online channel last year? Is that now a road block for that potentially to happen as a sole distribution channel or future hot handset, do you think or is that just one off?

Lawrence Irving

I’m not sure John, I just want to make sure I understand the question. I’m not sure John, because the channel today that we support besides just iPhone’s are several in all of the AT&T products through att.com.

John Bright - Avondale Partners

Sure. Well Steve, where I’m trying to go with it is, I think they moved that over because of a special relationship with AT&T to try to drive certain penetration and they were seeing obviously some unlocked phones. Is that something that’s going to keep another handset in the future from using the online channel only or activations looking forward?

Steve Waldis

I think, in terms of the way that we operate today is the current process, which is although allows you to activate essentially without having to go to a retail store. It sends, we do multiple devices today in a very similar fashion, so to the extent that, you would go and order a phone, you actually would receive the phone and it would be hot and active in that’s irrelevant of whether it’s an iPhone that you would have taken and finish the process in iTunes at home or whether you would have a BlackBerry or some other smart phone devise that would be activating.

So it’s really a process that’s up and works today and to the extent that the phones that would be sent out would be hot and activated from the carrier. We believe that’s a better experience then having to wait in stores from Synchronoss perspective and so we do think that’s a good growth opportunity going forward and we believe and a lot of our emerging device work with these consumer enabled products that may want to be sold on the web that would be a compelling feature as well.

John Bright - Avondale Partners

Last question in your prepared remarks you mentioned aggressively pursuing international opportunity. Could you expand upon what would be some optimal opportunities you’d like to pursue?

Steve Waldis

We are clearly pursuing the communication, big service providers in Europe not just Vodafone, but also continue to look at a good OEM manufactures in Europe that have a potential to want to provide some type of enablement through multiple carriers and so, we’re pursuing it, we’re being targeted and focused around the opportunities that we think can drive the highest amount of transactions as you’re familiar with our model.

We need to find the opportunities through investment in the beginning will generate volumes in the long run that will make a meaningful for everyone and we’re actively going after the logos and OEMs that becomes in your mind are absolutely the once we targeting.

John Bright - Avondale Partners

Anything on M&A front International?

Steve Waldis

No. nothing, John. We’ve obviously wouldn’t comment on that, but there is nothing there is nothing there.

Operator

At this time, I’d like to turn the call back over to Mr. Steve Waldis, President and CEO for closing remarks.

Steve Waldis

I want to thank everybody for taking time out to join us on our call, our fourth quarter 2008 earnings call and look forward to keeping all of you up to-date on a going forward. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect and have a great day.

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Source: Synchronoss Technology Inc. Q4 2008 Earnings Call Transcript
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