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Article by DailyStocks_admin    (07-03-08 07:27 AM)

The Daily Magic Formula Stock for 07/03/2008 is Synchronoss Technologies Inc. According to the Magic Formula Investing Web Site, the ebit yield is 14% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General

We are a leading provider of on-demand multi-channel transaction software management platforms that enable communications service providers (CSPs) to automate new subscriber activation, order management and service provisioning. Our ConvergenceNow ® platforms provide seamless integration between customer-facing applications and “back-office” or ActivationNow ® and infrastructure-related systems and processes. Our CSP customers rely on our internet based solutions and technology to automate the process of activating customers and delivering additional communications services including new service offerings and ongoing customer care. We have designed our platforms to be flexible to enable multiple communication services including wireless, Voice Over Internet Protocol (VoIP), wireline and cable to be managed through multiple distribution channels including e-commerce, CSP stores and other retail outlets, etc., allowing us to meet the rapidly changing and converging services offered by CSPs. By simplifying the processes associated with managing the customer experience for ordering and activating services through the automation and integration of disparate systems, we enable CSPs to acquire, retain and service customers quickly, reliably and cost-effectively. We enable service providers to drive growth in new and existing markets while delivering an improved customer experience at lower costs.

Our industry-leading customers include wireline, wireless, VoIP and cable MSO companies including AT&T Inc., Sprint Nextel, Embarq, Vonage Holdings, Cablevision Systems Corporation, Level 3 Communications, Covad, Verizon Business Solutions, Charter Communications, Clearwire, Time Warner Cable and Comcast. These customers use our platforms and technology to service both consumer and business customers, including over 300 of the Fortune 500 companies.

We were incorporated in Delaware in 2000. Our internet address is www.synchronoss.com. On this website, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the U.S. Securities and Exchange Commission (SEC): our annual reports on Form 10-K, quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement on Form 14A related to our annual stockholders’ meeting and any amendment to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available on the Investor Relations portion of our web site free of charge. The contents of our web site are not intended to be incorporated by reference into this Form 10-K or in any other report or document we file.

The Synchronoss Solutions

Our ActivationNow ® and ConvergenceNow ® platforms provide comprehensive on-demand e-commerce order processing, transaction management and service provisioning through multiple channels including e-commerce, telesales, CSP stores and other retail outlets. We have designed ActivationNow ® to be a flexible, scalable, open and on-demand platform, offering a unique solution for managing transactions for a wide range of existing communications and digital content services as well as rapidly deploying new services. Our ConvergenceNow ® platform, launched in February 2007, expands the capabilities of ActivationNow ® to enable an environment with a single point of access (i.e., handheld devices or desktops) to numerous communication and entertainment services.

In addition to handling large volumes of customer transactions quickly and efficiently, our solutions are designed to recognize, isolate and address transactions when there is insufficient information or other erroneous process elements. This knowledge enables us to adapt our software solutions to automate a higher percentage of transactions over time, further improving the value of our solutions to our customers. Our solutions also offer a centralized reporting platform that provides intelligent, real-time analytics around the entire workflow related to any transaction. This reporting allows CSPs to appropriately identify buying trends, their customer’s segments, areas where their business has increased, and empowers the CSP’s with the tools to maximize their marketing trade and promotion dollars and merchandising. The automation and ease of integration of our platforms enable CSPs and handset device manufacturers to lower the cost of new customer acquisitions, enhance the accuracy and reliability of customer transactions and respond rapidly to competitive market conditions. Our platforms offer flexible, scalable solutions backed by service level agreements (SLAs) and exception handling.

Our solutions are also designed to recognize, isolate and address transactions when there is insufficient information or other erroneous process elements, through a suite of capabilities we refer to as “exception handling.” Our exception handling service is designed to consistently meet SLAs for transactions that are not fully automated or have erroneous process elements. Our exception handling service utilizes two tiers of our platforms, the Workflow Manager and the Visibility Manager, to identify, correct and process non-automated transactions and exceptions in real-time. Critical functions provided by our exception handling service center include streamlining operations by reducing the number of transactions processed with human intervention.

Our flexible solutions can manage transactions relating to a wide range of existing communications and digital content services across the many segments of CSPs. For example, we enable wireless providers to conduct business-to-consumer, or B2C, and business-to-business, or B2B, transactions. We also furnish VoIP providers with customer-branded portals, as well as the gateway to service their retail customers and subscribers. The capabilities of our platforms allow CSPs to improve operational performance and efficiencies and rapidly deploy new services.

Our solutions are designed to be:

Highly Automated: We designed our platforms to eliminate manual processes and to automate otherwise labor-intensive tasks, thus improving operating efficiencies and reducing costs. By tracking every order and identifying those that are not provisioned properly, we substantially reduce the need for manual intervention. Our technology automatically guides a customer’s request for service through the entire series of required steps.

Predictable and Reliable Customer Experience: We are committed to providing high-quality, dependable services to our customers. To ensure reliability, system uptime and other service offerings are guaranteed through our SLAs. Our products are complete customer management solutions, including exception handling, which we believe is one of the main factors that differentiates us from our competitors. In performing exception handling, our platforms recognize and isolate transaction orders that are not configured to specifications, processes them in a timely manner and communicates these orders back to our customers, thereby improving efficiency and reducing backlog. If manual intervention is required, our exception handling is outsourced to centers located in India, Canada and the United States. In addition, our database design preserves data integrity while ensuring fast, efficient, transaction-oriented data retrieval methods. As a demonstration of resilience, the database design has remained stable during the life and evolution of other components of our platforms. This stability provides reusability of the business functionality as new, updated graphical user interfaces, or other technical process components are developed.

Seamless: Our platforms integrate information across the service provider’s entire operation, including customer information, order information, product and service information, network inventory and workflow information. We have built our platforms using an open design with fully-documented software interfaces, commonly referred to as application programming interfaces, or APIs. Our APIs make it easier for our customers, partners and other third parties to integrate the platforms with other software applications and to build Web-based applications incorporating third-party or CSP-designed capabilities. Through our open design and alliance program, we provide our customers with superior solutions that combine best-of-breed applications with the efficiency and cost-effectiveness of commercial, packaged interfaces.

Scalable: Our platforms are designed to process expanding transaction volumes reliably and cost effectively. Transaction volume has increased rapidly since our inception. We anticipate substantial future growth in transaction volumes and believe our platforms are capable of scaling its output commensurately, requiring principally routine computer hardware and software updates. In addition, we believe our platforms enable service and digital convergence providers to offer a variety of services more quickly and to package and price their services cost effectively by integrating them with available network capacity and resources.

Value-added Reporting: Our platforms attributes are tightly integrated into the critical workflows of our customers. The platforms have analytical reporting capabilities that provide real-time information for every step of the relevant transaction processes. In addition to improving end-user customer satisfaction, these capabilities provide our customers with value-added insights into historical and current transaction trends. We also offer mobile reporting capabilities for key users to receive critical data about their transactions on their mobile devices. Our platforms’ capabilities provide what we believe to be a more cost-effective, efficient and productive approach to e-commerce. Our solutions allow our customers to reduce overhead costs associated with building and operating their own e-commerce and customer transaction management infrastructure. We also provide our customers with the information and tools to more efficiently manage marketing and operational aspects of their business. In addition, the automation and ease of integration of our on-demand software allows CSPs to accelerate the deployment of their services and new service offerings by shortening the time between a customer’s order and the provisioning of service.

Demand Drivers for Our Multi-Channel Transaction Management Solutions

Our services are capable of managing a wide variety of transactions across multiple CSP delivery models, allowing us to benefit from increased growth, complexity and technological change in the communications industry. As communications technology has evolved, new access networks, end-devices and applications with multiple features have emerged. This proliferation of services and advancement of technologies, combined with their bundling (i.e., double, triple and quadruple plays) are accelerating subscriber growth and increasing the number of transactions between CSPs, and their customers. Currently, growth in wireless services, the adoption of VoIP and the increasing importance of e-commerce are strongly driving demand for our transaction management solutions. In addition, we see an opportunity to provide our services to the high-growth market of bundled services (including voice, video, data and wireless) resulting from converging technology markets. We support and target transactions ranging from initial service activations to ongoing customer lifecycle transactions, such as additions, subtractions and changes to services. The need for CSPs to deliver these transactions efficiently increases demand for our on-demand software delivery model. The rapid emergence of all digital, IP-based networks is causing the creation of telecommunications services to be less dependent on particular elements of network infrastructure. In this environment, CSPs are increasingly relying on intelligent platform solutions such as ours in order to quickly develop new packages of service offerings. The critical driver of adoption of our services is shifting from cost reduction at CSPs to generating new revenues via on-demand service creation and bundling. In this environment, we believe that our on-demand capabilities will be a major value-added difference to our CSPs and their largest customers. Our transaction management solutions are available through multiple channels: e-commerce, CSP stores and other retail outlets. Our customers value our multi-channel transaction management solutions, which we believe will be a key differentiator.

Growth in Handset Devices, Network Technology, and Applications and Content. The communications market is moving towards a next generation mobility marketplace, defined as allowing both business and consumer customers to choose a wide range of smart mobile devices supported on multiple network technologies. By developing such seamless mobility environment, it will fuel a whole set of new transactions designed around providing many forms of enhanced content and applications to increase the monthly average revenue per user (ARPU) of each individual subscriber.

Adoption of VoIP. Internet Protocol-based network technologies are transforming the communications marketplace and VoIP applications are just starting to be deployed. Our strong market capture across new entrants, cable companies and traditional communications providers positions us well to leverage our existing base and maximize capture of new transaction types.

Continued growth of e-commerce. Internet-based commerce provides CSPs with the opportunity to cost-effectively gain new customers, provide service and interact more effectively. Specifically Cost per Gross Add (CPGA) for a customer obtained via e-commerce can be up to 50% less than those obtained via traditional bricks and mortar. With the dramatic increase in Internet usage and desire to directly connect with end users over the course of the customer lifecycle, CSPs are increasingly focusing on e-commerce as a channel for customer acquisition and delivery of ongoing services.

Growth in on-demand delivery model. Our on-demand business model enables delivery of proprietary solutions over the Internet as a service. Customers do not have to make large and risky upfront investments in software, additional hardware, extensive implementation services and additional IT staff. Because we implement all upgrades to software on our servers, they automatically become part of our service and available to benefit all customers immediately.

Pressure on CSPs to improve efficiency. Increased competition and excess network capacity have placed significant pressure on CSPs to reduce costs and increase revenues. At the same time, due to deregulation, the emergence of new network technologies and the proliferation of services, the complexity of back office operations has increased significantly. CSPs with multiple back-end systems are looking for ways to help their systems interoperate for a better customer experience. In addition, CSP customers are moving to automated provisioning systems to enable them to more easily purchase, upgrade or add new features. As a result, CSPs are looking for ways to offer new communications services more rapidly and efficiently to existing and new customers. Increased competition and demand for superior end-user experience have placed significant pressure on CSPs to improve customer focused processes. CSPs are increasingly turning to transaction based, cost effective, scalable and automated third-party solutions that can offer guaranteed levels of service delivery.

Our Growth Strategy

Our growth strategy is to establish our ActivationNow ® and ConvergenceNow ® platforms as the premium platforms for leading providers of communications services and digital convergence services, while investing in extensions of the services portfolio. We believe the final and key differentiators in next generation mobility will be to provide a more automated and robust customer experience. We will continue to focus our technology and efforts around improving functionality, helping CSPs drive higher ARPU, and allowing more capabilities for ordering bundled applications and content offerings across these same complex and advanced networks.

Key elements of this strategy are:

Broaden Customer Base and Expand Offering to Existing Customers. Our ActivationNow ® and ConvergenceNow ® platforms are designed to address CSPs and business models across the range of the communications services and digital content markets, a capability we have begun to exploit by targeting new tier-one customers and industry segments such as wireless broadband, smartphone handheld devices, online content providers and hardware OEMs. We also derive significant growth from our existing customers as they continue to expand into new distribution channels, such as the rapidly growing e-commerce channel, require new service offerings and increase transaction volumes. As CSPs expand consumer, business and indirect distribution, they require new transaction management solutions which drive increasing amounts of transactions over our platforms. Many customers purchase multiple services from us, and we believe we are well positioned to cross-sell additional services to customers who do not currently purchase our full services portfolio. In addition, the increasing importance and expansion of internet-based e-commerce has led to increased focus by CSPs on their e-channel distribution, thus providing another opportunity for us to further penetrate into existing customers. The expansion in 2007 of our AT&T relationship through the combination of AT&T and Cingular Wireless and AT&T’s acquisition of BellSouth as well as through a multi-year agreement related to the Apple ® iPhone tm , highlights further penetration of an existing customer as well as the development of a major growth initiative in consumer digital convergence. We also process wireless transactions to both our Time Warner and Comcast cable customers.

Continue to Exploit VoIP Industry Opportunities. We believe continued rapid VoIP industry growth will increase the demand for our services. We have seen strong growth in residential VoIP customers and we believe we will see similar growth for commercial VoIP customers. Being the trusted partner to VoIP industry leaders, including Vonage Holdings, Comcast, Charter, Time Warner Cable and Cablevision, positions us well to benefit from the evolving needs, requirements and opportunities of the VoIP industry.

Enhance Current Wireless Industry Leadership. Spending in the global wireless industry has grown significantly in recent years. The up-tick in spending is happening because myriad advanced applications are being offered, including wireless Internet access, multimedia messaging, games and Wi-Fi. These applications translate into new transaction types that we can meld into our workflow management system. We currently process hundreds of thousands of wireless transactions every month, which are driven by increasing numbers of wireless subscribers and by wireless subscriber churn resulting from local number portability or LNP, service provider competition and other factors.

Expand Into New Geographic Markets. Although the majority of our revenue has traditionally been generated in North America, in 2007 we began our entry into the European Union by signing agreements with system integrators Siemens AG and Alma Technologies SA. We currently intend to continue our global expansion by focusing initially in Europe and believe there are opportunities to penetrate other new geographic markets within the coming years, particularly Asia/Pacific and Latin America, as these markets experience similar trends to those that have driven growth in North America.

Expand into the Smart Handset Markets. Our proprietary technology allows CSPs to bring together disparate systems and manage the ordering, activation and provisioning of communications services, allowing them to lower the cost of new customer acquisition and product lifecycle management. We believe the smart handset makers will face the same hurdles and we plan to extend our technology from the network to the interface and software that sits on the actual smart handset. As new smartphones are deployed, we will strive to ensure our technology can support a “plug and play” approach to end users wishing to purchase new advanced services, by automating and re-using our current platforms’ embedded roots with many of the leading service providers today across all wireless, wireline, VoiP, and high speed data networks.

Maintain Technology Leadership. Our proprietary technology allows CSPs to bring together disparate systems and manage the ordering, activation and provisioning of communications services, allowing them to lower the cost of new customer acquisition and product lifecycle management. We intend to build upon our technology leadership by continuing to invest in research and development to increase the automation of processes and workflows and develop complementary product modules that leverage our platforms and competitive strengths, thus driving increased interest in our solutions by making it more economical for CSPs to use us as a third-party solutions provider. In addition, we believe our close relationships with our tier-one CSPs will continue to provide us with valuable insights into the challenges that are creating demand for next-generation solutions.

Expand through Partnerships or Acquisitions. As we explore new opportunities, we continue to look for companies which are complementary to us for partnership or acquisition candidates that will enable us to either enter new markets or enhance our offerings.

Products and Services

We are a leading provider of multi-channel transaction management solutions to the communications services and digital content marketplaces based on our penetration and relationships with key CSPs. Our offerings are designed to allow our customers to respond to market demand quickly and efficiently, to optimize service offerings and to build stronger relationships with their customers. In addition, we offer process and workflow consulting services, development services and enterprise portal management services. From time to time, we will provide these services for a fee as part of the process of transitioning new customers onto our platforms and integrating our platforms with the customer’s back office systems. These services enable our customers to realize the benefits of our transaction management solutions.

ActivationNow ® and ConvergenceNow ® Platforms

Our ActivationNow ® and ConvergenceNow ® platforms address a service provider’s needs and requirements with a flexible design which can scale with their expanding business operations. Our ActivationNow ® and ConvergenceNow ® platforms are engineered to meet volume, speed to market and service guarantees which are important differentiators of our transaction management solutions. Each platform is a fully hosted service delivered over the Internet or a dedicated communication channel. Each new customer addition comes with a specific transaction fee and with guaranteed service levels. In addition, ActivationNow ® and ConvergenceNow ® platforms provide complete work flow management, including exception handling. Our ActivationNow ® and ConvergenceNow ® platforms:


• Provide what we believe to be one of the lowest costs per gross add in the wireless e-commerce market;

• Handle extraordinary transaction volumes with our scalable platform solutions;

• Deliver speed to market on new and existing offerings;

• Enable multi-channel transaction management solutions to be deployed; and

• Guarantee performance backed by solid business metrics and SLAs.

Our ActivationNow ® and ConvergenceNow ® platforms are designed to integrate with back-office systems, allowing work to flow electronically across the service provider’s and digital convergence provider’s organization while providing ready access to performance and resource usage information. Our integrated approach provides comprehensive support for current and emerging services, network technologies, smart handset devices and evolving business processes across all forms of bundled services.

Our ActivationNow ® and ConvergenceNow ® platforms are comprised of four distinct tiers, each providing solutions to the most common and critical needs of our customers.

PerformancePartner ® Portal

Our PerformancePartner ® portal, the first tier of our ActivationNow ® and ConvergenceNow ® platforms, is a graphical user interface that allows entry of transaction data into the gateway. Through the PerformancePartner ® portal, the CSPs can set up accounts, renew contracts and update and submit new transactions for transaction management processing.

Gateway Manager

Our gateways, the service provisioning subsystems and second tier of our ActivationNow ® and ConvergenceNow ® platforms, provide the capability to fulfill multiple transactions. These gateways are the engines that support our clients’ front-end portals, handling hundreds of thousands of transactions on a monthly basis. Our gateways deliver flexible architecture, supporting seamless entry and rapid time to market for our CSP customers. In addition, these gateways contain business rules to interact with the CSPs’ back-office and third-party trading partners.

WorkFlow Manager

Our WorkFlow Manager, the third tier of our ActivationNow ® and ConvergenceNow ® platforms, provides a seamless interaction with all third-party relationships and enables CSPs to have a single transaction view, including all relevant data from third-party systems. The Workflow Manager is designed to ensure that each customer transaction is fulfilled accurately and offers:


• Flexible configuration to meet individual CSP requirements;

• Centralized queue management for maximum productivity;

• Real-time visibility for transaction revenues management;

• Exception handling management;

• Order view available during each stage of the transactional process; and

• Uniform look and integrated experience.

By streamlining all procurement processes from pre-order through service activation and billing, our WorkFlow Manager reduces many costs and time impediments that often delay the process of delivering products and services to end-users.

Visibility Manager

The fourth tier of our ActivationNow ® and ConvergenceNow ® platforms, our Visibility Manager, provides historical trending and mobile reporting to our CSP customers, supports best business practices and processes and allows CSPs to assess whether daily metrics are met or exceeded. The Visibility Manager offers:


• A centralized reporting platform that provides intelligent analytics around the entire workflow;

• Transaction management information;

• Historical trending; and

• Mobile reporting for key users to receive critical transaction data on mobile devices.

The Gateway Manager, WorkFlow Manager and Visibility Manager tiers are typically deployed by all of our customers. The PerformancePartner ® portal is deployed only if our customer does not have a front-end portal to interact with end-user customers. All of our four tiers are designed to be open and flexible to enable rapid deployments. One critical function provided by our ActivationNow ® and ConvergenceNow ® platforms design is information management. By making information more accessible and useful, our ActivationNow ® and ConvergenceNow ® platforms enable a service provider to manage its business more efficiently, to provide more services with the highest possible quality and to deliver superior customer care. Our ActivationNow ® and ConvergenceNow ® platforms are designed to recognize, isolate and address transactions when there is insufficient information or other erroneous process elements through a suite of capabilities we refer to as “exception handling.” Our solutions offer a centralized reporting platform that provides intelligent, real-time analytics around the entire workflow related to a transaction. The Workflow Manager and the Visibility Manager identify, correct and process non-automated transactions and exceptions in real-time, which we believe are key differentiators for our solutions.

Customers

Our typical customers are providers of communications services, from traditional local and long-distance services to Internet-based services. We serve wireless service providers, such as AT&T and Sprint Nextel, providers of VoIP services, such as Vonage Holdings, Comcast and Cablevision Systems, VoIP enablers, such as Level 3 Communications, and long distance carriers, such as Verizon Business. We also serve emerging CSPs, such as Clearwire. We maintain strong and collaborative relationships with our customers, which we believe to be one of our core competencies and critical to our success. We are generally the only provider of the services we offer to our customers. Our contracts typically extend up to 48 months in length from execution and include minimum transaction or revenues commitments from our customers. All of our significant customers may terminate their contracts for convenience upon written notice and payment of contractual penalties. We have a long-standing relationship with Cingular Wireless, which is now known as AT&T Mobility, dating back to January 2001 when we began providing service to AT&T Wireless, which was subsequently acquired by Cingular Wireless, and in December 2006 became a division of AT&T Inc. We are the primary provider of e-commerce transaction management solutions to AT&T Mobility, our largest customer, under an agreement which runs through January of 2009 that automatically will be renewed for an additional twelve months unless either party terminates prior to November 1, 2008. Under the terms of this agreement, AT&T Mobility may terminate its relationship with us for convenience, although we believe AT&T Mobility would encounter substantial costs in replacing our transaction management solution. For 2007, we received 76% of our revenues from AT&T Inc., compared to 66% of our revenues in 2006. No other customer accounted for more than 10% of our revenues in 2007.

CEO BACKGROUND

Stephen G. Waldis has served as President and Chief Executive Officer of Synchronoss since founding the company in 2000 and has served as Chairman of the Board of Directors since February of 2001. Before founding Synchronoss, from 1994 to 2000, Mr. Waldis served as Chief Operating Officer at Vertek Corporation, a privately held professional services company serving the telecommunications industry. From 1992 to 1994, Mr. Waldis served as Vice President of Sales and Marketing of Logical Design Solutions, a provider of telecom and interactive solutions. From 1989 to 1992, Mr. Waldis worked in various technical and product management roles at AT&T. Mr. Waldis received a degree in corporate communications from Seton Hall University.

Lawrence R. Irving has served as Chief Financial Officer and Treasurer of Synchronoss since July 2001. Before joining Synchronoss, from 1998 to 2001, Mr. Irving served as Chief Financial Officer and Treasurer at CommTech Corporation, a telecommunications software provider that was acquired by ADC Telecommunications. From 1995 to 1998, Mr. Irving served as Chief Financial Officer of Holmes Protection Group, a publicly traded company which was acquired by Tyco International. Mr. Irving is a certified public accountant and a member of the New York State Society of Certified Public Accountants. Mr. Irving received a degree in accounting from Pace University.

Robert Garcia has served as Chief Operating Officer of Synchronoss since April 2007. Prior to that position, Mr. Garcia served in various positions at Synchronoss, including Executive Vice President of Operations and Service Delivery and General Manager of Synchronoss’ western office since joining Synchronoss in August 2000. Before joining Synchronoss, Mr. Garcia was a Senior Business Consultant with Vertek Corporation from January 1999 to August 2000. Mr. Garcia has also held senior management positions with Philips Lighting Company and Johnson & Johnson Company. Mr. Garcia received a degree in logistics and economics from St. John’s University in New York.

Christopher S. Putnam has been with Synchronoss since January 2004 and has served as Executive Vice President of Sales of Synchronoss since April 2005. Mr. Putnam leads the Company’s new business initiatives and sales teams, and he is responsible for strategic account acquisitions such as Time Warner Cable, Comcast and Vonage. Prior to joining Synchronoss, from 1999 to 2004, Mr. Putnam served as Director of Sales for Perot Systems’ Telecommunications business unit. Mr. Putnam received a degree in communications from Texas Christian University.

Omar Tellez joined in June 2006 as Executive Vice President of Marketing. Before joining Synchronoss, Mr. Téllez was the Vice President of the Product Solutions Group at Openwave Systems from 2001 to 2006 and was with Booz Allen & Hamilton’s Communication Media and Technology Practice from 1996 to 2001. Mr. Tellez received a master of business administration degree from the Haas School of Business at the University of California, Berkeley, and a degree in industrial engineering from the Universidad de los Andes in Bogota, Colombia.

Ronald J. Prague joined Synchronoss in July 2006 as Vice President and General Counsel of Synchronoss and has served as Secretary since October 2006. Before joining Synchronoss, Mr. Prague held various positions with Intel Corporation from February 1998 to June 2006, most recently as Group Counsel for Intel’s Communications Infrastructure Group. Prior to joining Intel, Mr. Prague practiced law with the law firm of Haythe & Curley (now Torys LLP) from 1992 to 1998 and with Richards & O’Neil (now Bingham McCutchen) from 1988 to 1992. Mr. Prague is a graduate of Northwestern University School of Law and earned a degree in business administration and marketing from Cornell University.

S. Andrew Cox joined Synchronoss in December 2003 as Chief Information Officer. Prior to joining Synchronoss, from March 1997 to December 2003, Mr. Cox was the Managing Director for Infrastructure Solutions with CoreTech Consulting Group, and was an analyst with Rohm and Haas Company from December 1992 to March 1997. Mr. Cox received a degree in electrical engineering from Bucknell University and a Masters of Business Administration from Loyola College.

Robert Sean Parkinson joined Synchronoss in December 2007 as President, International Operations. Prior to joining Synchronoss, from 2004 to 2007, Mr. Parkinson was the Chief Executive Officer for Non-Western Operations of T-Systems Gmbh. From 2002 to 2004, Mr. Parkinson was Senior Vice President of Global Business Development of AIG Technologies, Inc. Mr. Parkinson received a business diploma degree in 1979 from Manchester University, Manchester, England.

Patrick J. Doran has served as Vice President, Research and Development and Chief Technology Officer since April 2007. Prior to that position, Mr. Doran served in various positions at Synchronoss, including Chief Architect and Senior Software Engineer since joining Synchronoss in 2002. Before joining Synchronoss, Mr. Doran was a Senior Development Engineer at Agility Communications from 2000 to 2002 and a Member of Technical staff at AT&T/Lucent from 1996 to 2000. Mr. Doran received a degree in Computer and Systems engineering from Rensselaer Polytechnic Institute and a masters degree in Industrial engineering from Purdue University.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a leading provider of on-demand multi-channel transaction management platforms that enable CSPs to automate new subscriber activation, order management and service provisioning. Our ActivationNow ® and ConvergenceNow ® platforms provide seamless integration between customer-facing applications and “back-office” or infrastructure-related systems and processes. Our CSP customers rely on our internet based technology to automate the process of activating customers and to deliver additional communications services including new service offerings and ongoing customer care. We have designed our platforms to be flexible to enable multiple communication services including wireless VoIP, wireline and cable to be managed through multiple distribution channels including e-commerce, CSP stores and other retail outlets, etc., allowing us to meet the rapidly changing and converging services offered by CSPs. By simplifying the processes associated with managing the customer experience for ordering and activating services through the automation and integration of disparate systems, we enable CSPs to acquire, retain and service customers quickly, reliably and cost-effectively. We enable service providers to drive growth in new and existing markets while delivering an improved customer experience at lower costs.

Our industry-leading customers include wireline, wireless, VoIP and cable MSO companies including AT&T Mobility Inc., Sprint Nextel, Embarq, Vonage Holdings, Cablevision Systems Corporation, Level 3 Communications, Covad, Charter Communications, Verizon Business Solutions, Clearwire, Time Warner Cable and Comcast. These customers use our platforms and technology and services to manage both consumer and business customers, including over 300 of the Fortune 500 companies.

Revenues

We generate a substantial portion of our revenues on a per-transaction basis, most of which is derived from contracts that extend up to 48 months from execution. We have increased our revenues rapidly, growing at a compound annual growth rate of 67% from 2001 to 2007. For the year ended December 31, 2007, we derived approximately 85% of our revenues from transactions processed. The remainder of our revenues were generated by professional services and subscription revenues.

Costs and Expenses

Our costs and expenses consist of cost of services, research and development, selling, general and administrative and depreciation.

Cost of services includes all direct materials, direct labor and those indirect costs related to revenues such as indirect labor, materials and supplies. Our primary cost of services is related to our information technology and systems department, including network costs, data center maintenance, database management and data processing costs, as well as personnel costs associated with service implementation, customer deployment and customer care. Also included in cost of services are costs associated with our exception handling centers and the maintenance of those centers. Currently, we utilize a combination of employees and third-party providers to process transactions through these centers.

Research and development costs are expensed as incurred, unless they meet GAAP criteria for deferral and amortization. Software development costs incurred prior to the establishment of technological feasibility do not meet these criteria, and are expensed as incurred. No costs were deferred during the years ended December 31, 2007, 2006 and 2005. Research and development expense consists primarily of costs related to personnel, including salaries and other personnel-related expenses, consulting fees and the cost of facilities, computer and support services used in service technology development. We also expense costs relating to developing modifications and minor enhancements of its existing technology and services.

Selling expense consists of personnel costs including salaries, sales commissions, sales operations and other personnel-related expense, travel and related expense, trade shows, costs of communications equipment and support services, facilities costs, consulting fees and costs of marketing programs, such as Internet and print. General and administrative expense consists primarily of salaries and other personnel-related expense for our executive, administrative, legal, finance and human resources functions, facilities, professional services fees, certain audit, tax and bad debt expense.

Depreciation relates to our property and equipment and includes our network infrastructure and facilities.

Current Trends Affecting Our Results of Operations

We have experienced increased demand for our services, which has been driven by market trends such as various forms of order provisioning, local number portability, the implementation of new technologies, subscriber growth, competitive churn, network changes and consolidations in the industry. In particular, the emergence of wireless order provisioning of e-commerce transactions as well as VoIP, local number portability and the convergence of bundled services has increased the need for our services and will continue to be a factor contributing to competitive churn. In addition, the increasing demand for converged services has led to the growth and mainstream adoption of smart phones.

To support the growth driven by the favorable industry trends mentioned above, we continue to look for opportunities to improve our operating efficiencies, such as the utilization of offshore technical and non-technical resources for our exception handling center management. We believe that these opportunities will continue to provide future benefits and position us to support revenue growth. In addition, we anticipate further automation of the transactions generated by our more mature customers and additional transaction types. These development efforts are expected to reduce exception handling costs.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements in accordance with GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during a fiscal period. The Securities and Exchange Commission (“SEC”) considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. We have discussed the selection and development of the critical accounting policies with the audit committee of our board of directors, and the audit committee has reviewed our related disclosures in this Form 10-K. Although we believe that our judgments and estimates are appropriate, correct and reasonable under the circumstances, actual results may differ from those estimates.

We believe the following to be our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that are uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See “Risk Factors” for certain matters bearing risks on our future results of operations.


Revenue Recognition and Deferred Revenue

We provide services principally on a transactional basis or, at times, on a fixed fee basis and recognize the revenues as the services are performed or delivered as discussed below:

Transactional Service Arrangements: Transaction revenues consist of revenues derived from the processing of transactions through our service platforms and represented approximately 85% of our revenues for the years ended December 31, 2007 and 2006. Transaction service arrangements include services such as equipment orders, new account set-up, number port requests, credit checks and inventory management.

Transaction revenues are principally based on a set price per transaction and are recognized based on the number of transactions processed during each reporting period. Revenues are recorded based on the total number of transactions processed at the applicable price established in the relevant contract. The total amount of revenues recognized is based primarily on the volume of transactions. As automation rates increase, transaction costs for the CSP decrease.

Many of our contracts guarantee minimum volume transactions from the customer. In these instances, if the customer’s total transaction volume for the period is less than the contractual amount, we record revenues at the minimum guaranteed amount. At times, transaction revenues may also include billings to customers based on the number of individuals dedicated to processing transactions. Set-up fees for transactional service arrangements are deferred and recognized on a straight-line basis over the life of the contract since these amounts would not have been paid by the customer without the related transactional service arrangement. Revenues are presented net of discounts, which are volume level driven, or credits, which are performance driven, and are determined in the period in which the volume thresholds are met or the services are provided. Deferred revenues represent principally setup fees with revenues recognized over the life of the contract.

Professional Service Arrangements: Professional service revenues represented approximately 14% and 13% of our revenues for the years ended December 31, 2007 and 2006, respectively. Professional services, when sold with transactional service arrangements, are accounted for separately when these services have value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the professional services. When accounted for separately, professional service revenues are recognized on a monthly basis, as services are performed and all other elements of revenue recognition have been satisfied.

In determining whether professional services can be accounted for separately from transaction service revenues, we consider the following factors for each professional services agreement: availability of the consulting services from other vendors, whether objective and reliable evidence for fair value exists of the undelivered elements, the nature of the consulting services, the timing of when the consulting contract was signed in comparison to the transaction service start date and the contractual independence of the transactional service from the professional services.

If a professional service arrangement does not qualify for separate accounting, we would recognize the professional service revenues ratably over the remaining term of the transaction contract. There were no such arrangements for the years ended December 31, 2007, 2006 and 2005.

Subscription Service Arrangements: Subscription service arrangements represented approximately 1% and 2% of our revenues for the years ended December 31, 2007 and 2006, respectively, and relate principally to our ActivationNow ® platform service which the customer accesses through a graphical user interface. We record revenues on a straight-line basis over the life of the contract for our subscription service contracts.

Service Level Standards

Pursuant to certain contracts, we are subject to service level standards and to corresponding penalties for failure to meet those standards. All performance-related penalties are reflected as a corresponding reduction of our revenues. These penalties, if applicable, are recorded in the month incurred.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated bad debts resulting from the inability of our customers to make required payments. The amount of the allowance account is based on historical experience and our analysis of the accounts receivable balance outstanding. While credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit losses that we have in the past or that our reserves will be adequate. If the financial condition of one of our customers were to deteriorate, resulting in its inability to make payments, additional allowances may be required which would result in an additional expense in the period that this determination was made.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred income tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse or be utilized. The realization of deferred tax assets is contingent upon the generation of future taxable income. A valuation allowance is recorded if it is “more likely than not” that a portion or all of a deferred tax asset will not be realized.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”) to create a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 as of January 1, 2007, as required and determined that the adoption of FIN 48 did not have a material impact on our financial position and results of operations. As of December 31, 2007, we have total unrecognized tax benefits of $678 which includes $29 for interest related to uncertain positions during the year ended December 31, 2007. We did not have any unrecognized tax benefits as of January 1, 2007. Components of the reserve are classified as either current or long-term in the consolidated balance sheet based on when we expect each of the items to be settled. Accordingly, we recorded a long-term liability of $649 on our balance sheet at December 31, 2007 that would reduce the effective tax rate if recognized. We record interest and penalties accrued in relation to uncertain income tax positions as a component of income tax expense. We did not accrue for interest or penalties as of December 31, 2006 or any period prior to 2006. Tax returns for all years 2000 and thereafter are subject to future examination by tax authorities.

While we believe we have identified all reasonably identified exposures and that the reserve we have established for identifiable exposures is appropriate under the circumstances, it is possible that additional exposures exist and that exposures may be settled at amounts different than the amounts reserved. It is also possible that changes in facts and circumstances could cause us to either materially increase or reduce the carrying amount of its tax reserve.

Stock-Based Compensation

As of December 31, 2007, we maintain two stock-based compensation plans. Prior to January 1, 2006, we were applying the disclosure only provisions of SFAS 123, Accounting for Stock-Based Compensation (“SFAS 123”). Compensation cost is recognized for all share-based payments granted subsequent to January 1, 2006 and is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Under SFAS 123(R), an equity instrument is not considered to be issued until the instrument vests. As a result, compensation cost is recognized over the requisite service period with an offsetting credit to additional paid-in capital. Compensation expense also includes the amortization on a straight-line basis over the remaining vesting period of the intrinsic values of the stock options granted prior to 2006 calculated in accordance with Accounting for Stock Issued to Employees (“APB 25”). We classify benefits of tax deductions in excess of the compensation cost recognized (excess tax benefits) as a financing cash inflow with a corresponding operating cash outflow.

We utilize the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on a blended weighted-average of historical information of similar public entities for which historical information was available. We will continue to use this approach using other similar public entity volatility information until our historical volatility is relevant to measure expected volatility for future option grants. The average expected life was determined using the SEC shortcut approach as described in Staff Accounting Bulletin (“SAB”) 107, Disclosure about Fair Value of Financial Instruments , which is the mid-point between the vesting date and the end of the contractual term. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. We have never declared or paid cash dividends on our common or preferred equity and do not anticipate paying any cash dividends in the foreseeable future. Forfeitures are estimated based on voluntary termination behavior, as well as a historical analysis of actual option forfeitures.

Results of Operations

Year ended December 31, 2007, compared to the Year ended December 31, 2006

Net Revenue. Net revenues increased $51.1 million to $123.5 million for 2007, compared to 2006. Due to increased volumes of transactions processed, net revenues related to AT&T increased $47.0 million to $94.5 million for the year ended December 31, 2007, compared to 2006. Net revenues outside of the AT&T relationship generated $29.0 million of our revenues during 2007, as compared to $25.0 million last year. Transaction revenues recognized in 2007 and 2006 represented 85% or $104.6 million and 85% or $61.7 million of net revenues, respectively.

Professional service revenues increased as a percentage of sales to 14% or $18.0 million for the year ended December 31, 2007, compared to 13% for previous year.

Expense

Cost of Services. Cost of services increased $19.7 million to $55.3 million for 2007, compared to 2006, due primarily to the growth in personnel costs required to support higher transaction volumes submitted to us by our customers and increases in telecommunication costs. In particular, personnel and related costs and third party consulting service costs increased $17.4 million due to the management of exception handling. Also, additional telecommunication and maintenance expense in our data facilities, contributed approximately $1.6 million to the increase in cost of services. In addition, stock-based compensation expense increased $286. Cost of services as a percentage of revenues decreased to 44.8% for 2007, as compared to 49.2% for 2006.

Research and Development. Research and development expense increased $2.9 million to $10.6 million for 2007, compared to 2006, due to the continued investment in and further development of our ActivationNow ® and ConvergenceNow tm platforms to enhance our service offerings and increases in automation that have continued to allow us to gain operational efficiencies. Research and development expense as a percentage of revenues decreased to 8.6% for 2007, as compared to 10.7% for 2006.

Selling, General and Administrative. Selling, general and administrative expense increased $8.1 million to $18.5 million for 2007, compared to 2006, due in part to increases in personnel and related costs totaling $3.4 million, increased expenses of $1.5 million associated with being a public company for the entire year, increased stock-based compensation expense of $1.7 million, and increased marketing expenses of $689. Selling, general and administrative expense as a percentage of revenues increased to 15.0% for 2007, as compared to 14.5% for 2006.

Depreciation. Depreciation expense increased $2.0 million to $5.2 million for 2007, compared to 2006, due to increased fixed asset additions. Depreciation expense as a percentage of revenues decreased to 4.2% for 2007, as compared to 4.5% for 2006.

Income Tax. Our effective tax rate was approximately 37.1% and approximately 41.9% during 2007 and 2006, respectively. During 2007 and 2006, we recognized approximately $14.0 million and $7.3 million in related tax expense, respectively. The reduction in our effective tax rate in 2007 was due to the recording of a net cumulative R&D tax credit of approximately $1.2 million. Exclusive of this item, the effective tax rate for 2007 would be 40.2%.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations
Three months ended March 31, 2008 compared to the three months ended March 31, 2007

Net Revenue. Net revenues increased $7.8 million to $29.1 million for the three months ended March 31, 2008, compared to the three months ended March 31, 2007. Due to increased volumes of transactions processed, net revenues related to AT&T increased $6.5 million to $21.1 million for the three months ended March 31, 2008 compared to the same period in 2007. AT&T represented 72% and 68% of our revenues for the three months ended March 31, 2008 and 2007, respectively. Net revenues outside of the AT&T relationship generated $8.0 million of our revenues during the three months ended March 31, 2008 as compared to $6.7 million last year. Net revenues outside of the AT&T relationship represented 28% and 32% of our revenues during the three months ended March 31, 2008 and 2007, respectively. Transaction revenues recognized for the three months ended March 31, 2008 and 2007 represented 85% or $24.8 million and 81% or $17.3 million of net revenues, respectively. Professional service revenues decreased as a percentage of sales to 14% or $4.0 million for the three months ended March 31, 2008, compared to 18% or $3.8 million for the previous three months ended March 31, 2008.
Expense
Cost of Services. Cost of services increased $3.8 million to $13.4 million for the three months ended March 31, 2008, compared to the three months ended March 31, 2007, due primarily to the growth in personnel costs required to support higher transaction volumes submitted to us by our customers and increases in telecommunication costs. In particular, personnel and related costs and third party consulting service costs increased $3.1 million due to the management of exception handling. Also, additional telecommunication and maintenance expense in our data facilities, contributed approximately $484 to the increase in cost of services. In addition, stock-based compensation expense increased $178. Cost of services as a percentage of revenues increased to 46.1% for the three months ended March 31, 2008, as compared to 45.2% for the three months ended March 31, 2007.
Research and Development. Research and development expense increased $490 to $2.4 million for the three months ended March 31, 2008, compared to the three months ended March 31, 2007, due to the continued investment in and further development of the ActivationNow ® and ConvergenceNow ® platforms to enhance our service offerings. Research and development expense as a percentage of revenues decreased to 8.3% for the three months ended March 31, 2008, as compared to 9.1% for the three months ended March 31, 2007.
Selling, General and Administrative. Selling, general and administrative expense increased $2.0 million to $5.3 million for the three months ended March 31, 2008, compared to the three months ended March 31, 2007, due in part to increases in personnel and related costs totaling $689, increases in public company expenses of $230, and increases in stock-based compensation expense of $854. Selling, general and administrative expense as a percentage of revenues increased to 18.1% for the three months ended March 31, 2008, as compared to 15.2% for the three months ended March 31, 2007.
Depreciation. Depreciation expense increased $378 to $1.5 million for the three months ended March 31, 2008, compared to the same period in 2007, due to continued growth in the investment of our infrastructure. Depreciation expense as a percentage of revenues decreased to 5.0% for the three months ended March 31, 2008, as compared to 5.1% for the same period in 2007.
Income from Operations . Income from operations increased $1.1 million to $6.5 million for the three months ended March 31, 2008, compared to the same period in 2007. Income from operations decreased as a percentage of revenues to 22.5% for the three months ended March 31, 2008, as compared to 25.4% for the three months ended March 31, 2007. The primary reason for this decrease was due to incremental stock-based compensation in selling, general and administrative expenses of $854.
Income Tax. Our effective tax rate was approximately 41.8% and approximately 41.9% during the three months ended March 31, 2008 and 2007, respectively. We review the expected annual effective income tax rate and make changes on a quarterly basis as necessary based on certain factors such as changes in forecasted annual operating income, changes to the actual and forecasted permanent book-to-tax differences, or changes resulting from the impact of a tax law change. During the three months ended March 31, 2008 and 2007, we recognized approximately $3.1 million and $2.7 million in related tax expense, respectively.
Liquidity and Capital Resources
Our principal source of liquidity has been cash provided by operations and by cash provided from our IPO which was completed on June 20, 2006. The net proceeds from our offering and the exercise of the over-allotment option by our IPO underwriters were approximately $52.8 million, which enabled us to strengthen our balance sheet. Our cash, cash equivalents and marketable securities balance was $102.0 million at March 31, 2008, an increase of $6.1 million as compared to the end of 2007. We anticipate that our principal uses of cash in the future will be to fund the expansion of our business and to expand our customer base internationally. Uses of cash will include facility expansion, capital expenditures and working capital.
Discussion of Cash Flows
Cash flows from operations. Net cash provided by operating activities for the three months ended March 31, 2008 was $5.2 million compared to $3.4 million for the three months March 31, 2007. The increase of $1.8 million is primarily due to income derived from increased volume from transactions and a decrease to accounts receivable due to increased collections. This amount is partially offset by a decrease to accounts payable and accrued expenses.
Cash flows from investing. Net cash provided by investing activities for the three months ended March 31, 2008 was $982 compared to net cash used of $3.6 million for the three months March 31, 2007. The increase of $4.6 million was primarily due to the decreased purchases of fixed assets of $4.1 million supplemented by an increased sale and decreased purchase of marketable securities.
Cash flows from financing. Net cash provided by financing activities for the three months ended March 31, 2008 was $1.2 million compared to $207 for the three months March 31, 2007. The difference of $1.0 million was primarily due to increased net proceeds and tax benefits received from the issuance of common stock.
We believe that our existing cash and cash equivalents, the cash generated from our initial public offering and cash generated from our operations will be sufficient to fund our operations for the next twelve months.
Effect of Inflation
Although inflation generally affects us by increasing our cost of labor and equipment, we do not believe that inflation has had any material effect on our results of operations for the three months ended March 31, 2008 and 2007.
Impact of Recently Issued Accounting Standards
In September 2006, the FASB issued Statement 157, Fair Value Measurement (“Statement 157”). Statement 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. Statement 157 also expands financial statement disclosures about fair value measurements. On February 6, 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2 “Effective Date of Statement No. 157” which delays the effective date of Statement 157 for one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Statement 157 and FSP FAS 157-2 are effective for financial statements issued for fiscal years beginning after November 15, 2007. We have elected a partial deferral of Statement 157 under the provisions of FSP FAS 157-2 related to the measurement of fair value used when evaluating goodwill, other intangible assets and other long-lived assets for impairment and valuing asset retirement obligations and liabilities for exit or disposal activities. We adopted SFAS No. 157 on January 1, 2008.
In December 2007, the Securities and Exchange Commission (“ SEC ”) issued Staff Accounting Bulletin No. 110 (“ SAB 110 ”). SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14, Share-Based Payment . SAB 110 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of expected term of “plain vanilla” share options in accordance with FASB Statement No. 123(R), Share Based Payment. The use of the “simplified” method was scheduled to expire on December 31, 2007. SAB 110 extends the use of the “simplified” method for “plain vanilla” awards in certain situations. We currently use the “simplified” method to estimate the expected term for share option grants as it does not have enough historical experience to provide a reasonable estimate due to the limited period our equity shares have been publicly traded. We will continue to use the “simplified” method until it has enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of March 31, 2008 and December 31, 2007.



CONF CALL

Lawrence R. Irving

Welcome to the Synchronoss first quarter 2008 earnings conference call. We will be discussing the results announced in the press release issued after the market closed today. Again, I’m Larry Irving, Chief Financial Officer of Synchronoss Technologies. With me on the call is Steve Waldis, President and CEO.

During this call, we will make statements related to our business that may be considered forward-looking statements under Federal 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.

With that I’ll turn the call over to Steve and then I’ll come back a bit later to provide some further details regarding our financials and our forward outlook.

Stephen G. Waldis

Thank you for joining us on our call to review our first quarter results which had revenue near the low end of our guidance and profitability that was in line with guidance that we provided on our last quarter’s call.

We are materially adjusting our full year 2008 outlook; however, we will share greater details related to key customers and initiatives to make clear the underlying growth drivers on our business. I’ll also review a list of new customer initiatives that we’ve recently begun to work on though much of the related top line benefit is not expected until 2009. We believe that 2008 will be one of the most important years in the history of Synchronoss. During 2007 we validated the success and scalability of our business model and our franchise and brand became known on a worldwide basis. The growing power of our brand is evidenced by winning more new customer initiatives in this past quarter than in any other time in the eight year history of the company.

The confidence that we have in the direction of the company and in our long term growth is evidenced in part by the fact that our Board of Directors recently approved a $25 million share repurchase program that we plan on beginning to execute during this quarter. Before getting into the details let me begin with a summary review of our results for the first quarter.

We reported revenues of $29.1 million and increase of 36% on a year-over-year basis and just below our guidance of $30 million to $32 million. From a profitability perspective, we generated a non-GAAP operating margin of 28% leading to a non-GAAP EPS of $0.16 which represents an increase of 33% on a year-over-year basis and was in line with our guidance. Now let me turn to some underlying drivers of our business and financial performance which I believe will be helpful to evaluate Synchronoss’ long term growth profile and opportunity.

From a summary perspective our participation in the launch of the iPhone has had a significant impact on our business, both financially and even more so from a fundamental perspective and while we’re not permitted to quantify the impact at that time last year we repeatedly discussed the fact that we generated material revenue from test transactions as AT&T and Apple prepared for this very successful launch. In addition to the fact that these test transactions did not recur in 2008 there are additional factors that have impacted our iPhone related revenue in 2008.

First, as we discussed on our last call we initially received a much higher than normal price per transaction as a result of the highest priority being placed on ensuring the success of this major launch and during the middle of the first quarter of 2008 the price per transaction was brought in line with all of our other activation related transaction pricing.

Secondly, we cannot share the specifics due to NDA obligations, but the gap between the number of iPhones expected to be sold and the actual number that we activating continues to be significant and we expect this trend to continue. As a reminder Synchronoss is not paid on the number of iPhones that are sold but rather the number that we activate and as a result we are materially adjusting our expectations as it relates to revenue related to the iPhone during 2008.

To put these factors into perspective we currently expect our related transaction revenue from the iPhone to decline by approximately $30 million in 2008 compared to 2007. We continue to expect to exit 2008 with an iPhone contribution rate that is in excess of $10 million annually. Even more important, the decline in our iPhone related revenue is masking the underlying growth in momentum of the rest of our business.

To this point, we currently expect our year-over-year overall business outside of the iPhone to grow in the range of 27% to 32% during 2008 with core AT&T related revenues growing in the mid to high teen range and our relationships with our new customers outside of AT&T growing between 40% and 55%. I believe this speaks to the longer term growth opportunity and when combining this with a record number of wins in Q1 2008 I’m confident that Synchronoss will turn to strong growth in 2009.

Let me start by taking a look at our relationship with AT&T. We continue to see growth opportunities. For 2008 AT&T continues to provide focus and attention to growth areas such as converged services, data services growth and mobility, exciting new handsets, IPTV services and further e-commerce adoption. And as AT&% has stated publicly they intend to grow their e-commerce channel by offering more converged services. For Synchronoss we’re excited at the opportunity to expand our platform and handle more transactions across multiple lines of network services via www.AT&T.com.

Finally we’re also excited by some of AT&T’s newer initiatives and we expect to have more to share with you in regard on future calls as we are at the early stages of some new transaction opportunities including those associated with IPTV initiatives. While we expect to see solid growth in our core AT&T business we are equally excited about other business opportunities and as I mentioned at the beginning of my remarks, we are at the beginning of implementing and ramping more potential and meaningful opportunities at this moment than at any other point in Synchronoss history.

Let me begin by updating you on our major new North American wireless carrier, Sprint. We are excited at the opportunity to transform their customer experience in various sales channels in ways that will benefit their overall business. From a short term perspective we have always stated that the initial timing of how new customers and transaction ramps can be difficult to predict given the number of variables at the customer that are beyond our control, investors are well aware of the high degree of change that’s been publicly shared by Sprint; however, even more meaningful to our roll out is the fact that we’re dealing with material process changes that take time to be planned and executed within the context of Sprint’s overall schedule of both IT and business initiatives.

While we reduced expectation for the iPhone related revenues the overall primary reason for our update to the forecast, we are also going to take a more conservative view to the timing of the ramp of Sprint based on the latest information available to us. Importantly the overall scope for what we will ultimately do with Sprint is no different today than it was when we announced the customer. Even with our adjusted timetable we still expect Sprint to exit 2008 with a revenue run rate of $8 million to $10 million annually and we believe there’s upside potential from these levels in 2009.

W are currently working with Sprint’s consumer group on transactions associated with Sprint’s e-commerce channel. This is much the same way we began our relationship with AT&T Mobility and after all the processes are worked out we look to drive a more automated investing class customer experience and then once we demonstrate to our partners at Sprint our value proposition and impact we look ahead to more transaction opportunities with Sprint in the tele-sales areas of their consumer group.

On other existing customer news, I am pleased to share with you that we recently won a significant new contract at Time Warner Cable in which we will support their national e-commerce channel related to video, broadband, telephony transactions sold on the web. Previously Synchronoss did not handle any video or broadband transactions for TWC. Rather, we handled voice-over IT orders and LMP cording to TWC’s network.

\We will take over 100% of the transactions that occur through their e-commerce channel and as this occurs our growth will be more closely aligned with the underlying growth in TWC’s business as they promote a more national distribution strategy for selling the full suite of Time Warner services. We also benefit as TWC pushes more of their overall business to the web, much in the way AT&T pushed much of their business to the web. We also believe there remains long term opportunity with Time Warner Cable from a converged services perspective.

As it relates to other significant customer expansions we recently signed an agreement to support a nationwide roll out with a communications service provider who will be launching fixed mobile devices for the first time. We are not only excited to launch this customer but also by the trend for communications service providers to launch more and more converged services that will drive additional transactions to our platform.

I would like to finish by providing some details on numerous new customer and partner initiatives that have been underway beginning with our international strategy. In 2007 we accelerated our move into the international markets due to the growing awareness of the Synchronoss brand on a global basis.

While we stress that our involvement in the iPhone launch was a significant factor in raising Synchronoss’ awareness internationally, our strategy for going after international markets was not an iPhone centered strategy. Our strategy was to identify a tier one international service provider. An opportunity to roll out our ConvergenceNow platform for both wireless and broadband services and to do that in a major European country.

This is a major and long term undertaking but we believe will yield the largest set of opportunities. I am pleased to share with you that we’ve recently entered the detailed discovery phase with Vodafone who will become our first international customer. We look forward to working with them and our partner, Siemens, to establish a high profile reference account internationally similar to what we did with AT&T domestically. This has been a very comprehensive evaluation process that started in late 2007.

Our initial work with Vodafone is in connection with scoping out how to most effectively and how quickly to deploy our ConvergenceNow platform in Germany in support of their converged service offerings. Given the complexity and size of Vodafone, it is not yet known the final scope of the services that we will provide. We are actively engaged with both Vodafone business and technical teams to define all the business and technical requirements in order to deploy our platform that will generate the highest levels of automation out of the gate.

Our current expectation is that we will complete this process in Q3, we will deploy our platform in the fourth quarter of this year and then to begin actual transactions in the first quarter of 2009. Again, we are still in the early discovery phase so the information regarding exact timeframes and work scopes are still being worked out as we speak.

We continue to have relatively modest expectations for international contribution in 2008 but what is most important from our perspective is that we have developed a relationship that has significant opportunity to expand over time. In fact as we discussed on this call we are already in discussions with other operating companies in Vodafone’s business and are actively engaged in other businesses and operating companies.

The overall business development activities in Europe remain quite robust and I’m pleased to share with you that in the early stages of another promising partnership with a large global systems integrator that has been including Synchronoss on a number of proposals it’s pursuing. Now this can be difficult to predict how productive these partnerships will be, particularly in the early stages but the high degree of interest this large global consulting firm has shown to Synchronoss is definitely encouraging. We hope to have more specifics to share with you in future quarters.

The final update on our international business is with a leading European handset manufacturer. During the first quarter of 2008 we entered into a paid engagement that involved sharing our expertise and platform experience with this leading handset manufacturer in Europe in managing highly automated customer transactions directly from the handset device and electronically via the web. As I previously stated, we believe the handset market provides another large and very compelling set of opportunities for Synchronoss. We believe this is a very exciting opportunity to expand our platforms and services into this new growing market internationally and we will be updating all of you later this year on our overall strategy as we work more closely with this company as well as other handset manufacturers.

During the first quarter we also entered into a new partnership and customer relationship with Brightpoint. For those of you that aren’t familiar, Brightpoint is a global leader in the distribution of wireless devices and is providing customized logistic services to the wireless industry. In 2007 Brightpoint handled approximately 83 million wireless devices globally. As part of our global agreement and as their exclusive provider, we are going to be providing our gain changing activation and e-commerce platform in supporting their clients who rely on Brightpoint for managing distribution and logistics of electronic and handset devices. Brightpoint gives us the strength in distribution and logistics no different than what we previously announced with ATG providing and empowering the front end customer experience.

ATG, which was announced this past quarter, is a leading e-commerce provider that has made great strides in the areas of empowering e-commerce solutions to telecommunication marketplace. We have worked closely with them via our AT&T relationship and see opportunities to continue to bring solutions to the market, both here in the US and internationally.

We intend to work closely with ATG to bring more successful solutions to the market. We see the value combined of an ATG, Synchronoss and Brightpoint e-commerce solution set to become the clear market leader in both offering end-to-end e-commerce and compelling economics and advantages for handset, OEMs and communications service providers both here in the US and internationally.

In summary, we are disappointed that our near term outlook is materially lower than we previously estimated which Larry will summarize in a moment. However we have shared expanded details about our business to show clearly that we expect strong growth in our core AT&T business as well as those new customer wins, both domestically and internationally, during 2008 and we expect the overall business to return to strong growth in 2009.

We have recently signed more new customer relationships that have had significant long term potential compared to any other quarter in the history of the company and we expect our stable of customers outside of AT&T to exit the year at over 40% of our total revenue even though much of the impact of these new relationships shared today will not be realized until 2009 and beyond. This bodes very well for the long term health and growth opportunities with Synchronoss.

With that let me turn it over to Larry.

Lawrence R. Irving

I would like to provide additional details on the first quarter performance in addition to our guidance for the second quarter and the full year 2008. Starting with the income statement revenues were $29.1 million which represented an increase of 36% over the first quarter of last year.

Our revenue in the first quarter came in just under our target due primarily to lower than expected revenue associated with the iPhone and a smaller factor was the timing of project related revenue with one of our newer customers. AT&T represented 72% of our total revenues compared to 76% in the previous quarter. The revenue from our other customers represented the remaining 29% of our total revenue up from 24% in the previous quarter.

As Steve pointed out we expect our revenue to become increasingly diversified over the course of 2008 driven by continued strong growth in our core AT&T business. Declines in our iPhone related revenue and an increased contribution from new customers that we have added in the recent months and quarters. From a revenue mix perspective, 85% of our first quarter revenue came from transactions processed. The remaining 15% was generated from professional services and subscription services.

Turning to cost and expenses, we’ll review our numbers both on a GAAP and a non-GAAP basis. There is a reconciliation table between the two in our earnings release. Our non-GAAP results exclude stock based compensation expense. Non-GAAP gross profit in the quarter was $16 million representing a non-GAAP gross margin of 55%.

Now let me move to the first quarter operating expenses. Non-GAAP research and development expenses came in at $2.3 million or 8% of revenue while non-GAAP SG&A expenses were $4.1 million or 14% of revenue.

Depreciation was $1.5 million or 5% of revenue. Non-GAAP income from operations came in at $8.2 million an increase of 38% on a year-over-year basis and representing a non-GAAP operating margin of 28%. The company’s tax rate for the quarter was 41.8% leading to a non-GAAP EPS of $0.16. It should be noted that the effective tax rate is higher than expected driven primarily by the inability to realize R&D tax credits as the tax legislation has not been enacted as of this date. This obviously may change at some point during the year.

On a GAAP basis including stock compensation expense of $1.6 million the resulting GAAP income from operations and net income for the quarter was $6.5 million and $4.3 million respectively. The resulting GAAP diluted earnings per share was $0.13. Looking at our cash, total cash, cash equivalents and marketable securities totaled $102 million at March 31st, 2008 an increase of approximately $6.1 million compared to the end of the previous quarter.

Now let me turn to the guidance for the full year and the second quarter of 2008. Let me start with the full year. We currently anticipate that our annual revenue will be down slightly on a year-over-year basis due to the fact that we now expect our iPhone related revenue to decline by $30 million compared to the prior year. We have updated our 2008 guidance range to between $115 million and $120 million.

A significant portion of the updated revenue outlook is related to the reduced expectations for iPhone related revenue. Another factor is the more conservative timing expectations relative to Sprint. It is important to highlight that our current guidance excluding iPhone related revenue reflects year-over-year growth between 27% and 32%. As Steve previously stated our core AT&T related revenue is expected to grow in the mid to high teens range and our relationship with other customers is expected to grow between 40% and 55%.

Given the recent developments related to the iPhone as well as the timing related to the Sprint roll out, we took what we believe is a conservative view on the timing and the impact of new transaction types in 2008 including those stemming from new projects with AT&T and TWC, Time Warner Cable, as well as new customers such as Vodafone, Brightpoint and other new engagements that we hope to be able to share more at a later date.

The timing of new projects do include multiple variables beyond our control and we must rely on the information our customers share with us relative to expected transaction volumes and the pace with which these transactions will move to our platform. As we gain additional insight into the number of new initiatives we have underway including the timing of the roll out of our services and the speed which these transactions will ramp, we will update the investors at that time.

From a profitability perspective, we currently expect our full year gross margins to be in the low to mid-50% range which is lower than our previous estimate. This change in our view is due primarily to the investments that need to be made to ramp a record number of new initiatives as well as the lower mix of higher automated transactions achieved with the iPhone which is negatively impacting our outlook over the near term.

As a result we expect a non-GAAP operating margin in the range of 25% to 28% of revenue leading to non-GAAP diluted EPS of $0.55 to $0.60. This assumes a non-GAAP tax rate of 41.8% and shares outstanding of approximately 34.3 million. Of note this share count assumption does not include any potential impact from the execution of the 25 million share repurchase program we announced after the close today.

For the second quarter of 2008 we expect total revenues in the range of $24 million to $25 million and non-GAAP EPS between $0.10 and $0.11. Our EPS forecast assumes a non-GAAP tax rate of 41.8% and 33.7 million shares outstanding. The sequential decline in revenue in the second quarter relates to revenue associated with the iPhone and the slower than anticipated ramp of Sprint.

The second quarter is the first full quarter that we do not have premium pricing on the iPhone related transactions and the change occurred during the second month of the first quarter. In addition we have lowered our volume expectations relative to the number of iPhones that we expect to activate. Our second quarter guidance assumes core AT&T growth in the double digit range and our growth rate with our other customers in the 40% to 50% range on a year-over-year basis.

In summary we are clearly disappointed with our revised outlook for the short term but we have tried to provide additional information on today’s call to illustrate the underlying growth drivers to our core AT&T business as well as our growing business with our other customers. The most significant benefit of our work with the iPhone has been the significant increase in our brand awareness which led to a record number of new customer relationships that have significant long term potential.

We view 2008 as a transition year for the company given the decline in our iPhone related business combined with the investments we have in ramping our new customers. This bodes well for the long term and we are confident the company will return to strong growth in 2009. The confidence our management team and Board of Directors have in the growth profile of our business is evidenced in part by the share repurchase program we are announcing on today’s call.

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