Karen Rosenberger - Chief Financial Officer, EVP and Treasurer Steve Waldis - Founder, Chief Executive Officer

Tom Roderick - Stifel Nicolaus Nandan Amladi - Deutsche Bank Michael Nemeroff - Credit Suisse Sterling Auty - JPMorgan Tavis McCourt - Raymond James Gray Powell - Wells Fargo Securities Daniel Ives - FBR Capital Markets Greg Burns - Sidoti & Company Shyam Patil - Wedbush Securities

Good day, ladies and gentlemen, and welcome to the Synchronoss Technologies Inc. First Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I’ll now introduce your host for today’s conference, Karen Rosenberger, CFO. Please go ahead.

Thank you. Good morning, and welcome to the Synchronoss first quarter 2015 earnings call. We will be discussing the results announced in the press release issued before the market opened today. I am Karen Rosenberger, Chief Financial Officer of Synchronoss. With me on the call is Steve Waldis, founder and CEO. During the call, we will make statements related to our business that may be considered forward-looking statements under federal 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 risk and other important factors that could affect our actual results, please refer to those listed in our SEC filings, including our most recently filed annual report on Form 10-K and quarterly report on Form 10-Q. With that, I will turn the call over to Steve, and then I’ll come back a bit later to provide some further details regarding our financials and our forward-looking outlook. Steve?

Thank you, Karen. And thanks to all of you for joining us this morning to review our first quarter financial results, which were at or above the high end of our expectations on both the top and bottom line. Our cloud business delivered very robust and better than expected growth during the quarter and our activation business delivered solid low double-digit growth. Equally or more important, since the beginning of the year, we have expanded key customer relationships, announced new customer programs and made progress against our strategic growth initiatives, all of which provides us greater confidence in Synchronoss’ long term growth opportunities. Now looking at the summary level numbers for the quarter, our total non-GAAP revenues of $133.1 million grew 35% on a year-over-year basis, and topped the high-end of our guidance. From a profitability perspective, we generated a 26% non-GAAP operating margin and a non-GAAP EPS of $0.49 both of which were at the high-end of our guidance ranges. Now, we believe that Synchronoss is delivering a very attractive and unique combination of strong revenue growth and meaningful profitability margins along with an attractive recurring revenue models. And let me provide some additional color on both sides of our business starting with the cloud services, which grew a robust 63% on a year-over-year basis during the first quarter. Now, one of the most exciting updates for the quarters were, on the success we’re having with AT&T on our Personal Cloud Solution. During the first quarter, we formalized plans and began to execute work related to deploying our full Personal Cloud offering at AT&T. As discussed on Analyst Day, our initial focus is moving to a single-integrated technology platform and we can scale on a significant way for the long-term. This entails a combination of migrating subscribers as well as integrating certain technology components into our personal cloud that we know will drive both adoption and scale. This process is similar to the eventual success we had migrating acquired platform and assets on integrated platform prior to scaling our cloud with Verizon Wireless took us the better of the year to get deployed but once completed we were able to scale adoption and subscriber growth on a high volume and quality manner. We expect the majority of the integration to be completed in 2015 and deploy some new applications and functionality in early 2016. Now, while we view AT&T Personal Cloud as a significant long-term growth opportunity for our cloud business, we continue to see increased adoption and customer engagement with Verizon Wireless, our largest customer. Recall last quarter Verizon expanded its commitment with Synchronoss as part of their existing five-year deal which contemplates not only that adoption rates were more than double by 2018 but that a much broader range of devices and services will be supported. Now we’re excited about how popular the Verizon Cloud has become with subscribers as a clear data-point attachment rates on newer devices like the recently launched Samsung 6, typically exceed 80%. With our ability to transfer your content, being preinstalled in every device, consumers can easily sign-up and enjoy the powerful benefits of our personal cloud. Now, this data-point shows very clearly that mobile operators with the right focus and our technology can provide a much better mobile user experience with the subscribers and offer the operator direct monetization opportunities. These results when compared to any of the other over-the-top providers of software vendors far exceed the adoption rates these groups are getting. And as such, many of the leading mobile operators are beginning to offer the latest devices with all such over-the-top software removed from the device before it’s sold or connected on their network. Our ongoing success of mobile content transfers continues to drive high adoption across multiple operating systems and enabling customers to transfer all that valuable content from their old device to the new device in a matter of few minutes during the new device set-up and activation process. Our mobile content transfers currently deployed in over 5,000 retail stores in the United States and is making it easier to on-board new cloud subscribers every day. Now, during Q1 we’re excited to have successfully closed the acquisition of F-Secure’s cloud assets, not only because it’s an important pillar to our scaling AT&T’s Personal Cloud but it also helped to increase our global reach and access to additional customer relationships. The addition of F-Secure’s cloud assets open up new opportunities with tier one operators globally including America Movil, British Telecom and SFR. And they’ll enable our operators and subscribers in more secure Personal Cloud for that important content. Now, since our move into cloud in late 2010, Synchronoss now serves 75% of the global worldwide market supporting nine of the leading tier one operators around the globe, with an addressable subscriber base of 3.5 billion subs. Now with 130 million cloud with just over 130 million cloud customers on our platform, we have penetrated less than 4% of the current addressable market which provides Synchronoss the tremendous long-term growth opportunity that we’re well positioned to capture. Now, summarizing our cloud business, the first quarter was clearly a strong performance and we’re tracking well against our initial full-year cloud revenue target we provided. Now we have never provided quarterly updates on detailed revenue guidance and I don’t want to begin such a practice. But I am comfortable sharing that we’re tracking to at least the high-end and likely above the initial cloud guidance we provided at the beginning of the year. Now, looking at the quarterly run-rate of our cloud revenue for the remainder of the year, it’s important to keep in mind that it’s typical that some cloud revenue during first quarter related to non-recurring resources, revenue sources which was anticipated. This was primarily related to the migration efforts for some F-Secure accounts. These one-time services will be mostly completed in the first half of 2015 and then decline in the second half of the year as we complete the migration and some of the needed services work. These efforts are designed to help enable more active subscribers on our platform in a more efficient and timely manner. Overall, the percentages of these revenue sources and splits were in-line with what Karen covered with all you on Analyst Day. Now let me turn over to the activation business, which generated 12% year-over-year growth in the quarter. And this is up from essentially flat growth in the year-ago quarter and is a reflection of increased traction in both international markets along with our momentum in North America. Now we have previously discussed that we have several international wins in our activation business during the latter part of 2014. We continue to have a healthy set of international opportunities in both Europe and Asia Pacific region including both traditional and emerging markets. Now, from a short-term perspective, the exact timing and speed of these deployments will have some variability in these markets but we remain confident that these international opportunities represent important growth drivers for our activation business. Our cable MSO business showed incremental improvement in the first quarter. However, the longer uncertainty remains in the cable MSO space and how that industry may consolidate, the longer it will take for activation volumes to really return to the healthy levels we saw back in 2013. Now, we also continue to see strong interests in our integrated life platform which provides activation capabilities for non-traditional devices such as connected cars and wearables. And during the first quarter, the mobile held two of their largest annual trade-show events, the Consumer Electronics Show in Las Vegas and the Mobile World Congress in Barcelona, where the common themes were connected cars and wearables. At these events, we announced and rolled out the Timex Iron-Man watch in conjunction with AT&T which is one of the first true SIM-enabled wearables in 2015. In addition, we also announced we’re supporting AT&T and Audi for all the 2016 Audi vehicles with Audi connecting car navigation information and entertainment services that will connect to AT&T’s network. Synchronoss’ carrier-grade, cloud-based platform will be used to activate, connect, manage and monitor the watches in cars and further highlights and value we’re providing by pulling it all together. Now, summarizing our activation business, we had solid performance in the first quarter which was consistent with our goal of driving increased revenue growth from our activation business. As we look ahead for the remainder of the year, we continue to expect solid growth based on traditional seasonal uplift on our volumes that we typically see in the second half of the year based on new device introductions, the holiday season and back-to-school offerings. In addition, we also expect certain international programs and newer margin market opportunities to add growth later in the year. Overall, we’re very pleased with our first quarter results and the start of the year. And we continue to make good progress on many key initiatives. With that, let me turn it over to Karen.

Thanks Steve and good morning everyone. As Steve mentioned we are pleased to have delivered a strong start to 2015 with first quarter results that met or exceeded the high end of our expectations from both the financial and profitability perspective. Our first quarter performance was driven by solid growth across both our cloud and activation business offerings which are benefiting from a positive demand trends in our market. I’d like to begin with a preview of our first quarter financial results and will finish by providing our guidance for the second quarter and full year 2015. Starting with the income statement, GAAP revenues were $132.9 million for the first quarter. Non-GAAP revenues after adding back $179,000 of deferred revenue write-downs from certain acquisitions were $133.1 million, above the high end of our guidance and up 35% on a year-over-year basis. Our non-GAAP cloud revenue in the first quarter was $71.3 million, which represented 54% of our total revenue and year-over-year growth of 63%. As Steve mentioned earlier, there are a number of things that are positively impacting the growth of our cloud business including the continued strong execution with Verizon’s Personal Cloud, increasing adoption of our mobile content transfer offering, increasing subscriber engagement and the addition of F-Secure’s cloud assets. Our non-GAAP Activation Services revenue was $61.8 million for the first quarter, representing 46% of our total revenue and year-over-year growth of 12%. This was a meaningful increase in growth from the prior year despite the fact that some of our potential activation revenue growth drivers have not yet kicked in as Steve noted earlier. Breaking revenue down further, 72% of our first quarter non-GAAP revenue came from recurring sources namely transaction processing and subscription arrangements, while the other 28% came from non-recurring sources namely professional services and licenses. Please note, our revenue streams for our activation in cloud businesses generally consists of 65% to 75% transactions and subscription revenues and 25% to 35% professional service and license revenue with quarter-to-quarter variability. Turning to costs and expenses, we will review our numbers both on GAAP and non-GAAP basis. A full reconciliation table between the two can be found in our earnings release which is located on the investor relations section of our website. Non-GAAP gross profit in the quarter was $80.9 million or gross margin of 61% which is consistent with the last several quarters. As we have said in the past, there will always be a certain amount of variability in our gross margins depending upon our mix revenue and investments. Non-GAAP income from operations was $34.9 million in the first quarter, representing an operating margin of 26%. Our non-GAAP EPS was $0.49 and at the high-end of our guidance range was included in non-GAAP tax-rate of 34.4% and 47.1 million weighted average outstanding shares during the quarter. On a GAAP basis, first quarter gross profit was $79.3 million, income from operations was $18.3 million and GAAP fully diluted earnings per share was $0.23. It is important to note that our GAAP results include $3.2 million restructuring charge related to the integration of F-Secure’s cloud assets and other corporate restructuring. As we complete our restructuring efforts, we will incur additional restructuring cost in the second quarter. The total restructuring costs are still expected to be within the $6 million to $8 million range we discussed on our last earnings call. Due to the one-time nature of this charge, it was excluded from our non-GAAP results. Moving on to the balance sheet and cash flow. Total cash, cash equivalents and marketable securities were $209.8 million compared to $290.4 million as of December 31. The decline was primarily due to the cash use to acquire the F-Secure cloud asset and for capital expenditures which was partially offset by cash generated from operations on a non-GAAP basis. During Q1, we generated $5.4 million in non-GAAP cash from operations compared to the year ago period during which we used cash of $11 million. Non-GAAP cash from operations excludes the payments for additional purchase price for acquisition earn-outs and the excess tax benefit of exercising of stock options. We ended the first quarter with an account receivable balance of $138 million, resulting in DSO of 93 days up from 86 days last quarter and 84 days in Q4. This increase was primarily due to the timing of collections and we’re confident that DSO will return to normal levels in Q2 given the fact that we collected over $20 million in the initial weeks of the second quarter. Capital expenditures were $24.2 million for the first quarter or 18% of total revenue. If you recall, last quarter we had a substantial amount of CapEx that was invoiced to us by suppliers but not yet paid. Those payments equaled approximately $13.1 million and were made in the first quarter. Adjusting for those payments our CapEx in Q1 would have been $11.1 million or 8% of total revenue. We continue to expect CapEx to be approximately 15% of our total non-GAAP revenue for the full year with a few points in variability. With that, let me turn to guidance starting with the second quarter, we are currently targeting non-GAAP revenues in the range of $135 million to $138 million, which represents year-over-year growth of approximately 30% to 33%. We expect non-GAAP gross margins will be 61% to 62% and non-GAAP operating margins will be 26% to 27% and non-GAAP EPS will be approximately $0.50 to $0.52 assuming a tax-rate of 34.4% and a diluted share count of approximately 47.4 million shares. In the second quarter, we anticipate reporting additional GAAP restructuring charges as discussed earlier. Turning to the full year 2015 guidance, we are increasing our non-GAAP revenue guidance to $566 million to $575 million compared to our previous guidance of $562 million to $574 million. At the mid-point of our guidance range, it represents a growth of 24% on a year-over-year basis. Our cloud business is the principle driver to the increased total revenue forecast. We continue to expect solid improved growth for the year in our activation business primarily in the latter half of the year as Steve had described. Looking at profitability, we currently expect non-GAAP gross margins in the 61% to 62% with the usual quarter-to-quarter variability. In terms of operating profitability, we expect non-GAAP operating margins to increase to 26% to 27%. Our non-GAAP EPS guidance will increase to $2.10 to $2.16 assuming a tax-rate of approximately 34.4% and a diluted share-count of approximately 47.4 million shares. In summary, we’re pleased with our performance in the first quarter. There are a number of exciting growth drivers across all of our business that we believe position us well to achieve our long-term growth and profitability targets as well as generate significant value for our shareholders over the long-term. With that, let me turn it back to the operator to begin our Q&A session.

Our first question comes from Tom Roderick of Stifel. Your line is open.

Hi, guys. Good morning. So Steve, let me throw the first question at you. I’m intrigued by your comments around Verizon, particularly the attach rates exceeding some of your expectations, exceeding 80% on some of the more recent releases of the android devices. What are you seeing with respect to attach rates on iOS, just general trend line for that? Are they going up, are any promos or marketing plans being run to drive adoption up in iOS? And then with respect to your broader installed base of across Verizon period, what are you seeing from a storage dynamics and usage dynamics for active subscribers?

Okay, sure Tom. So, the first, there are several changes that are happening right now, I think we announced some product linkages today in a press release which is really driving adoption across all devices. And that’s really making it seamless for consumers in the store to transfer their content from device to device and immediately seed the cloud. When you look at that process and how effective it’s been in the android market, we are absolutely making progress on the iOS side as well. There are some enhancements that we’re working internally this year along with some of these newer techniques as part of these family share plans that are absolutely contributing to better connections, better attachment rates. You’re starting to see as a part of these mobile share plans, several of those devices there is usually an iOS or an android type of device in it and the value that the consumers are seeing of having it centralized and then being able to be distributed across different devices is very compelling to them. And again, I remind everybody that although the common users today may have iCloud accounts, many of these subscribers that walk into retail stores do not have iCloud accounts. And one of the recommended way to get your data from iPhone to iPhone is our content transfer applications, so all of those things are trending very favorable to us. As from a storage perspective, we continue to see kind of the storage of the devices as the devices get more sophisticated, the different data classes and quality of the photos and imageries and different types of devices that has trended well as well. I would say that as more and more of these devices in the connected home and the connected cars come out, the importance and relevance of storing more and more of that content from the subscriber is really key to the carrier’s strategy on a go-forward basis. So, we see good trends today and we expect that to continue.

Good. Okay, that’s perfect. Let me just kind of shift over to the activation business. And I guess, if I look at the results this quarter relative to what we had estimated, you had a big beat on the cloud quarter, activations came up light of our model, which isn’t necessarily to say that our model was right. But I am curious with respect to some of the dynamics in the activation market, particularly the cable space. Are there any dynamics in that market as Time Warner and Comcast break apart that changes the shape of the activation business for the year, or changes the optimism that it can still grow at the same rates that you guys had laid out at the beginning of the year?

Yes, certainly the uncertainty of this consolidation and obviously in the news with different mergers being called off and postponed and then potential new mergers may arising, that clearly creates headwind in terms of those types of cable MSO activations for our business for sure. And the quicker that gets cleared up obviously the more favorably it would be for us. However, I’ll remind folks that in our activation business, for years are historically lowest quarter, is always Q1. And so when we looked at our year-over-year comparison, we were really happy with that 12% year-over-year growth. And one of the big drivers in our business, it’s typically promotions of potential new devices that show up late in the year, September-October timeframe, back-to-school specials, the holiday season. And to those typical trends in our business, typically our strongest activation quarters are typically back-ended in the year for those reasons. And then, on top of that as I mentioned earlier, we do have some activation progress that we’re making internationally. And we expect some of that contribution to come into the second half of the year as well. So, if you take that into conjunction, certainly the MSO side of it is something that we’ll have to keep our eye on. That being said, most of the other trends that we typically see feel good for us out of the gate as we sit here today.

Great, one last quick one for me, Steve. a lot of discussion about wearables in the market, particularly with the recent Apple watch launch. Understanding that watch itself is tethered today, perhaps not an immediate driver, but can you help clarify what the opportunity is on that particular device today? And then how the wearables category trends out for you as new releases of that watch come out and as competing products remain out in the market place?

Yes, so the expanding part today is the, you’re right, a lot of the devices that are set today are Bluetooth enabled. So they’re really not a separate wireless wide-area network connection, they don’t require a SIM card for example. The Timex is one of the first out there that actually gives you that capability. We believe that the internet of things in general, not only will, it can consider yourself a smart device of speaker will have to be connected to a wide area network, but also it’s going to pull into our integrated life products where our cloud being able to contextually understand where you are and what you’re doing. And you see some of that in a very small way with our Timex work where we support some of the content associated with the activation process. On a go forward basis, we believe the trend is that, more and more of these devices as they get standardized will become more true wide-area network or SIM-enabled and they will create opportunity for us.

Wonderful. Thank you, Steve. Appreciate it.

Thanks Tom.

Thank you. Our next question comes from Nandan Amladi of Deutsche Bank. Your line is open.

Hi good morning. Thanks for taking my question.

Hi Nandan.

Steve, hi. On the international projects, I know you said some of them will ramp towards the second half of the year. Which specifically are likely to ramp earlier? And perhaps you can help us size with that early growth might look like.’

So, we haven’t broken that obviously a lot of the specific customer data in those regions. But we presented a little bit on Analyst Day some of the work we’re doing in the emerging markets particularly believe it or not, in Asia Pacific where we’ve had some good work with Telkom Indonesia actually Reliance Coms, there are some other service providers in emerging markets that we’re working with closely right now. And we, again, as the variability as I mentioned in my script, what quarter or what month that actually gets turned on is something that we watch closely as it’s a newer part of our business as we mature in international markets. But those are the ones that we think, a, will not only contribute in the second half of the year but also a lot of those markets are interested in buying really the whole solution where we have an opportunity to not only sell the activation components to it but we’re also be linking some of the cloud elements as well.

Right. And a quick follow-up, if I might. On the press release on unifying the mobile content transfer in the personal cloud, is this simply a formalizing of something you were already doing or is this net new?

This is something that we actually released this quarter integrated those two, so we had two products. And what it does as it allows us to walk into an operator at the time of activation. And while we’re activating the device potentially and transferring that important data, it immediately sets up and provisions the cloud account. And the significance of that is when you have more mature markets like here in the United States for example, Verizon where there is a lot more control over the OEMs, there is a lot - it’s not as relevant. And so it takes longer in some of these emerging markets. And we think of some of our Vodafone properties where we’re trying to get better adoption rates today, we believe that the integration of the two allows the consumer who wants to have that experience in the store, they immediately become a registered cloud user. That’s helpful to us because it puts the adoption a little bit more in the control of us and the operator than before being more contingent upon either the OEM or the software vendor.

Thank you.

Thank you. Our next question comes from Michael Nemeroff of Credit Suisse. Your line is open.

Hi, guys, thanks for taking my questions. Just related to the cloud services spike this quarter, I know there is some seasonality in Q1 especially related to services, but I’m curious if that increase in services in Q1 is all related to customers that you’ve already announced. Or is that spike in services related to potentially some customers that maybe you have not yet announced that could be coming on in 2015?

It’s always a combination, Michael and we don’t obviously break it out to get to the customer level. But there is always a percentage of it, so we remind folks that it’s in their typical percentages that Karen talked about at Analyst Day. But in that process, what I pointed out was there are some work where we’re working with F-Secure accounts that we want to quickly move over to our platform in ways that we know that could leverage our technologies, again moving them over to some of these adoption techniques that we know will drive higher subscriber growth in it. And so, there was a combination of that, we wanted to make sure that we highlighted that just because in the past I think folks were somewhat confused around the subscription revenues growing nicely but there are one-time events that’s a common part of our business. And so we wanted to make sure that folks model it properly going forward is really the reason for pulling it out.

So, just to be clear on that, you do expect that cloud services should sequentially be down in Q2 from Q1 because of that spike in services in Q1?

No, no, no, we’re not suggesting that Michael, we just want to make sure that folks understand that it’s the right ratio of breakout between recurring and services. So I know some folks in the past that assumed higher percentage was all recurring and then they run that number out, it is not necessarily the right now. So, I think what we’re trying to do is provide some guidance around the fact that we don’t expect it to go down but there are pieces of that you need to take into account when you think about that cloud number growing each quarter.

And then just on the international side of the business, you obviously expect a lot of good things in the next couple of quarters. If you could just give us a sense of what growth that the international businesses is growing at right now and what the split of the revenue was this quarter and what you expect that to be for the year maybe.

Sure Michael, so we don’t break out those specific stuff obviously because we don’t have segment software to manage in different areas. But I can tell you that we do expect it to be one of our fastest growing components of the company this year. In terms of, obviously it’s a smaller number. But I think one of the investments that we made last year in terms of our Chris Halbard and his team, they’ve been out there talking and embracing customers on different projects that we typically didn’t have any presence before. And some of that work obviously as you saw at the end of ‘14 came across the chasm in what we’re comfortable that they’re going to have some reasonable amount of success in the second half of the year with some of the opportunities that we’re working on now.

That’s great, thanks very much.

Right, thanks Michael.

Thank you. Our next question comes from Sterling Auty of JPMorgan. Your line is open.

Yet, thanks. Just a follow-up just to make sure that were clear. So, you kind of mentioned off-the-cuff on the last question around cloud that you would not expect it to be down sequentially. So, should we assume that flat to up sequentially in June is a reasonable expectation?

We don’t break out obviously that, in the years we try to avoid getting quarter-to-quarter break outs on it Sterling. But it really was designed to say that in that number, Karen gave the break-out of the percentage of license and services associated with the cloud.

With the overall business.

The overall business. And so, when you think of that Sterling, this is not to indicate that we go down but assume that in that business was going to be a portion of those one-times that come in each quarter, so we’re not suggesting that it would go down. But when people fill-out their models, I think there was a belief that people would exponentially jump those up each quarter and that’s what we’re trying to telepath that we don’t expect it to go down, but you should use the similar logic that you’re suggesting when you think about it in the other quarter.

Okay, that’s fair. And then I think the F-Secure contribution and the original guidance was $10 million to $15 million. In the new guidance, is that still the expectation for contribution? And any sense that you can give us, you gave some color commentary but how much of that is first half versus second half?

It’s in the same range as that we discussed before. I would say that right now what we’re doing as part of the service work, we’re evaluating, they had a bunch of accounts, some that were really appealing to us and that we’re committed to moving forward in a big way. There were some that frankly we don’t see as being profitable because they were too small in other regions. And so that’s what that would consistently come in through the years. But I’d say it’s pretty much lining up as we had anticipated and those accounts that I mentioned, obviously the AT&Ts and the success we’re having there, America Movil, KPN, British Telecom those are the ones that are the ones that we’re really focused around. And those are the ones that primarily make up those numbers.

You talked about the Samsung 6 as an example, and so, you used media transfer as the example. Are you still seeing use case or usage post just media transfer in terms of cloud usage on some of these new devices?

Yes. I think when you come to the, I mean, obviously I cite an example here in the U.S. But we definitely see that in markets where you can’t get preinstalled and embedded into the set-up process. The media transfer linkage into the cloud seems to get very good adoption rate results which is really the key so what. I had mentioned a little bit that here in the U.S. market which you saw, and the announcements were made publicly, some of the newer devices were Samsung had got deals with Microsoft and others, those applications were removed from the devices in the U.S. market. And I think it’s a sign that they recognize the power what we bring to them under their branded names to be able to service these customers.

And last question, on the activation side, am I hearing correctly, you’re talking a lot about the activation business internationally in the second half. Can you just directly kind of comment to all the news around Comcast, Time Warner and some of the consolidation moves, and maybe how that changes the landscape of the activation business this year?

Yes. So part of both Comcast and Time Warner are very big activation clients for the company, so is Charter. And so, as these Cox is also a customer. So as these agreements get together and form whether they would consolidate or not, it definitely creates somewhat of a headwind only because some of the marketing programs are advancements that drive volume obviously get put on hold or backed off. It’s unclear at this point what the real, what the impact would be. I’d caution investors only because as these guys consolidate, it’s something that we keep our eye on. That being said, it’s still, if you think of the three drivers of activation, probably more towards the smaller side, the bigger drivers really are the new product or device introductions that come in towards the latter half of the year, the relationship obviously with AT&T being a large customer and their ability to drive volumes. And then thirdly is, how successful we are in ramping some of these international opportunities, those are the ones that I would say, if you’re trying to prioritize if I understood the question Sterling, those are the ones who would really have the biggest impact. This is certainly an impact but I wouldn’t put it in the top one or two category.

Great. Thank you.

Thanks.

Thank you. Our next question comes from Tavis McCourt of Raymond James. Your line is open.

Great. Thanks for taking my questions. I have a couple of them. First, Steve, I think you filed a lawsuit against Dropbox a few weeks back and I was wondering if you could address the timing, why now and kind of maybe a broader discussion on where you think your IP is relevant?

Yes.

And then if I can do a quick follow-up, on the work you’re doing with AT&T today, should we think about that business as the full outsourcing similar you do for Verizon or more in the context of some of the software-based deals that you referenced during your analyst day? Thanks.

Yes, great, two great questions Tavis. On the IP side, obviously we don’t want to comment on any specific pending litigation that we have. What I will tell you is our philosophy has been that we believe that we’ve got some seminal patents that exist in this space today for data synchronization and back-up. And we’ve been highly successful in litigation in the past in getting the right folks to actually to pay up or to stop violating our patent. So our approach has been simple. If we believe that operators, whether they’re over-the-top providers or other folks are going to offer services that we think will impact our communication service providers then we intend to go after them. As far as patent position, we just came back out of validation on a lot of these patents for the new patents office, which puts us in a very strong position to go and force these patents. And I’d say lastly on that point, the operator who pay us millions of dollars a year expect us to go after these folks and protect the IP that they’re investing in with us. That’s been our strategy, it’s been a successful strategy and those that come into our space or believe we try to offer peripheral areas, we absolutely will enforce what we believe is our IP. On the second question that you had on the AT&T side of the equation as it’s currently contemplated today, it would be an outsourced arrangement. However, it is early on in the process and there are all kinds of discussions that could take place over time where we would try if it made sense to offer more software enabled only models. But currently out of the gate Tavis, so I would say that’s the case however, it’s early on and to the extent that there could be some hybrid solutions down the road, we absolutely would consider that. And if it was in the best interest of both AT&T and us, we’d do that.

Great. And if I could ask a follow-up, Steve, on your commentary about integrated life you mentioned the work you’re doing with AT&T and Audi. And I think some of the activities you described seemed to go a little farther than base activation. So, I’m wondering, to what degree are you doing similar services to like a Jasper Wireless competing, or is it purely complementary?

It’s mostly complimentary. It’s a good course, think of us as the logical heir and these guys are really at the network kind of behind us completing the transaction inside the network or the physical layer. Typically where we get involved is helping just like we do with our thing of our AT&T.com or eCommerce experience at the point of sale if you’re not a dealership placing the order and then being able to provide those peripheral services that are at the logical layers really where we find not only our software to have the sweet-spot but where we’re able to have the highest degree of success.

Great, thanks a lot.

Okay.

Thank you. Our next question comes from Gray Powell of Wells Fargo. Your line is open.

Okay. Thanks for taking the questions. Just a couple, if I may. Maybe to start off, with F-Secure you have the main components needed to support a broader AT&T personal cloud rollout. And I even see that AT&T is offering 50 gigabits of free storage in their digital locker. So, what needs to happen for your cloud business to ramp with AT&T like it has with Verizon?

What we want to do is as we try to point out is that, there is a period of time where we would like to consolidate we have several products that are in production today, some that we’ve recently acquired through F-Secure. We’d like to basically migrate and create a consolidated experience and then input some of our technology components that we have found to be highly successful in driving adoption and providing monetization opportunities, to think of those as specific use cases that really drive the type of consumer behavior and response that both the operator and Synchronoss is looking for. And that effort takes time to do I think if you look back at our Verizon deployments, I think it took us the better part of the year to get there. We’re in that process now, we would expect by the end of ‘15 to be in a position where some of this newer combined or consolidated functionality would be ready and enter in the market in early 2016.

Okay, okay. And the maybe switching to the activation side, not to overly focus in on the cable operators, but maybe, just generically, can you talk about the dynamic that you see in any M&A situation? Is it really from the cable or the telecom customers or like their customer’s standpoint and the rate at which they sign up subscribers? Or is it more that like your customers free activities in the back often and there is more of a slowdown on the professional services side of the work?

Yes, so it’s a combination of the daily flow of activities, it’s a great question Gray they come in don’t changes much. So Time Warner, Comcast Charter they all promote their services and they’ll look for you to sign it up. But there was a portion of our business where we basically provide an opportunity for these large cable operators to take a look at where their footprints are. And if they can reprovision or call it network groom, those locations, they’ll develop that network grooming. And that will create a bunch of activity that will actually process through our activation engines. And when those properties are suspect to be traded off to somebody else or not, they’ll drive some degree of freezes in those particular situations that they do have an impact in our business. So, we pointed out because in 2013 as saturation in these networks and growth in just overall broadband has continued, it becomes a very key initiative for these operators to try to figure out how to groom and reprovision, reactivate those markets. And that created a nice wind in our back where we had some quarters we were in excess of 20%. It’s that portion of that business that gets puts on hold or it grows and the visibility really drops off.

Okay. That’s helpful. Thank you very much.

All right, thanks Gray.]

Thank you. Our next question comes from Daniel Ives of FBR Capital Markets. Your line is open.

Yes, thanks. I’m interested to see how the barriers on cloud are going to, it was in the call today with a 60% growth, so great job there. Kind of, on that point, could you talk maybe about how conversations with customers have changed maybe over the last three to six months given some of the adoption curves that we’ve seen on cloud among the carriers? Maybe you could compare and contrast where we were six months ago.

Yes, I think it was, and that’s a great question, maybe a year ago there was a discussion around can we really do this or do we need to partner with over-the-top providers and somehow find a unified way to make it happen. And there was big concerns because many of the mobile operators believe that they don’t want to go down the paths or the path of the past where wire-line and they become commoditized over time. And what’s happened is, through the use of the technology and the way that they see consumers coming then they say look, I want to put all kinds of really cool things on your network. And if you guys can store my data in a way that makes it accessible for those cars and tablets and smartphones and family share plans, and one of the more popular applications is on holidays, families literally post all the pictures from their vacations and create albums. And that’s all done on the fly inside the app. So there is, really valuable applications. And the operators are seeing they can be very effective in doing that. And the business benefits are becoming more and more obvious. So, today the conversations are lot different around gee, can we really do this to how do we most effectively do this and what are some of the adoption or engagement techniques that you guys can put in your software to make us successful.

And in terms of the landscaping in cloud, obviously it’s a fertile opportunity. You’re really the only pure play out there. Do you see any changes competitively in terms of the landscape? Or do you still think it’s more of an education sale in terms of the biggest uphill battle there?

You know, I think it’s mostly around finding ways. One of the things, one of the biggest assets that the operators have is besides our network, as they really got great marketing and sales distribution engines. And so, if you can find ways to make your technology embedded in those distribution engines, we see it every day at companies like Verizon. You get into that flow and that really pays great dividends. And I think it’s really trying to, and that’s where we, not only create a technology that gives these consumers a great experience that they’re excited about but we need to find more and more creative ways which we’re doing to integrate that experience at the time of sale, at the time of activation which is why we announced today the integration of MCT and CD McLeod, how important that is because we can walk into a Vodafone market for example, offer that out to their customers. And immediately start to see adoption rates that we’re not dependent upon going to work with the OEM or going working with the over-the-top provider to make sure that the applications are in the right place at the right time.

Great job. Thanks.

Thanks Daniel.

Thank you.

Thank you. Our next question comes from Greg Burns of Sidoti & Company. Your line is open.

Good morning. I guess, when you were at this point with Verizon where you are with AT&T you laid out where you thought the revenue would be once you launched on an annualized basis, once you launched the consolidated service, and then where you thought it might end up at the end of the year once you began to scale that. Any kind of expectations for AT&T?

Well, we certainly don’t provide obviously future year guidance. I would say that we see it more of a contributor in ‘16 as we get the full product deployed and it starts to ramp. And then, there is no reason why we wouldn’t it expect it to behave if all of the offers that we can bring to the table with our software, and again the partnership with the operator come together that we wouldn’t see kind of trajectory similar to where we saw in the early days of Verizon. But that would be something that we typically start to look for and have probably better visibility towards the end of this year in terms of how the deployment went, what the actual use cases that we ended up agreeing upon and then how they’ll end up in the market.

Okay. Thanks. And we haven’t heard much in terms of an update from Vodafone. It seems like AT&T and Verizon ramp, they’re happening pretty quickly. It seems like Vodafone’s in the slow lane here in terms of ramping up. What needs to change there so we’re talking about Vodafone as like an AT&T or Verizon type customer?

Well, I think it really varies by regions at Vodafone and how the cloud is deployed. Although our software is available in 18 countries, how they choose to deploy it really varies by each country. And so, what we’ve been doing is really focused on the bigger countries that really drive, if you look at the 300 million or 400 million subs that exist out there, you get half of them just from Germany and India alone. So, when you look at those types of markets, they’re ones that that we’re really investing in. And techniques like I described earlier, we’re introducing these concepts to sort of retail stores, so they’re not dependent upon the latest device roll-out. And extending them to offer the right programs to their customers, some of the properties that we’re dealing with now are getting educated on as they bought cable assets to try to figure how to make this available across the cable assets, that’s been a big contributor here in companies like Verizon where you can integrated them with bios. With those types of techniques that we’re working on and I would say that each country itself almost looks like a market on to itself that we’re doing. I can’t say that when I look at international as a whole, we’ve invested time and effort there. And we believe that that will start to pay out both not on the cloud side but also on the activation side in the latter half of the year.

Okay. Thanks. And just lastly, in terms of your updated full-year guidance, do you still expect activation revenue to come in where you had previously targeted at the end of the year, end of the fourth quarter?

Greg, we haven’t given any specific updates. What I would quote to you is to look to some of the drivers that we provided in the script around, we believe which is typical with us, it’s typically based on the latter half of the year. And the drivers there are the back-to-school, new device introductions that may happen towards the latter half of the summer and then obviously how quickly we’re able to get some of these international opportunities into production, in generating revenue. I will say that the 12% and at the gate is something that we were happy with given that prior year was flat. We’re off to a start but there is a lot of activities that we’re hoping and banking on coming in, in the second half of the year. We wanted to share that with you guys. But we haven’t given any specific updates on it.

Okay. Thank you.

Thank you. Our last question comes from Shyam Patil of Wedbush. Your line is open.

Thanks, guys. On AT&T, can you talk about kind of how we should think about the economics there for the cloud deal maybe compared to the size of where Verizon is? Do you see that potentially kind of getting to that size over time?

I think we, the first part is, our cloud products as we said pretty consistently in Analyst Day, it’s still in that $1 to $5 per year range, very typical model. So we look at the opportunity, we believe with the consolidated platform, we’re in a good position to capitalize on that going forward but obviously it requires partnerships on both us as well as AT&T as part of the success we had at Verizon is really their commitment in terms of how they see the cloud and how it’s integrated into lot of their core offerings. So, assuming that those elements happen on both sides, we believe that we’re putting a lot of time and effort in the hope that by the end of this year we’ll be in a position in early ‘16 to really capitalize that and to really start growing it like we have done in Verizon. So there is no reason that that couldn’t be in that particular realm zone, but there is a lot of work and effort and time to do that. And we hope to have a better view for how we think that looks like towards the end of this year with you guys.

Great. And then on the activation side, I know you called out cable as a potential headwind. I know you don’t break out AT&T separately anymore, but were there any changes to that relationship or any changes, anything that would impact volume there in the first quarter?

With AT&T?

Yes.

No, no, it’s pretty much the same. Obviously we’re looking forward to them getting some clarity around the whole Direct TV M&A opportunity that is expected to close this quarter. But for the most part, most of the channels that we support today and the efforts I’d say the more exciting highlights are things that we announced with them as our partners at Mobile World around the connected watches or connected cars.

Great. And my last question, Karen, how should we think about operating cash flow and free cash flow for the year?

I think as we move forward throughout the year, we’re getting more comfortable with improving upon those DSO which drives a lot of the cash provided by operations in our business. So, I would say, it would return to normal levels. And then we already talked about some of the guidance related to the CapEx spends as we progress through the year from an overall cash perspective.

Thanks, guys. Great quarter.

Thanks.

Thank you. That concludes the Q&A session. I’d like to turn the call back over to management for any further remarks.

Great, well, thanks for joining us today to review our first quarter results of 2015. And we look forward to speaking to all of you soon. Thank you.

Ladies and gentlemen, thank you for your participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a wonderful day.