Q3 2020 Synchronoss Technologies Inc Earnings Call
Good day, everyone and welcome.
Third quarter 2020.
Quick.
<unk>.
And at this time.
Todd.
Investor Relations. Please go ahead.
Sorry.
Thank you operator, good afternoon, and welcome to Synchronoss is third quarter 2020 earnings conference call.
Yesterday, after this call or something else or a trend president and CEO, Jeff Miller and.
She also David Clark.
Turning the call over to jump from Gary would you like to cover a few quick items.
It's off doing something else issued a press release announcing its third quarter financial results.
Actually the available on the company's website at <unk>.
I'll start.
It's called being broadcast live over the Internet and trusted.
Yes, it will be archived investor relations page of the company's website.
I want to remind everyone that on todays call management will discuss certain factors that are likely to influence the business going forward any factors discussed today that are not historical facts.
[music] comments regarding our long term prospects and market opportunities should be considered forward looking statements.
Statements May include comments about the company's plan.
Patients of future performance.
Forward looking statements are subject to a number of this of uncertainties, which could cause actual results to differ materially we encourage all of our listeners to review some consumed filings, including our most recent 10-K and try to choose.
For a complete description of these reps.
Statements on this call are made as of today November 12.
28, and the company undertakes no obligation to update or revise publicly.
Certain statements contained herein.
As a result of naturalmotion future events changes in expectations or otherwise.
Additionally throughout this call we'll be discussing certain non-GAAP financial measures today's earnings release and the related current report on form 8-K describe the differences between the non-GAAP and GAAP reporting.
He jumped a reconciliation between the two to the periods reported in the release.
With that said I'll now turn the call over to Jeff.
Thanks, Todd and good afternoon, everyone.
Thank you for joining us today.
As you all know following Glens departure, several weeks ago I was appointed to the role of interim President and CEO synchronous why the board of directors.
Clear instructions to continue to strengthen our position as the leading.
Your your grade platform provider.
Personal cloud messaging and digital solutions.
Despite the unexpected and sudden change in leadership.
Happy to report third quarter results that shows that the company did not skip a beat during this time and as a result, we continued to execute well in a challenging environment.
In the third quarter, we closed on a five year horizon cloud contract extension that we announced during our last call.
We help each other and she took the first steps you're offering their own cloud product. So there are more than 90 million subscribers.
And we saw trucks or expand their cloud solution offerings to more brands.
Well the messaging <unk>.
We continue to recognize additional advanced messaging revenue.
The Japanese carriers, and we added features and functionality to our CCM Ari based messaging product in anticipation of a future launch and U.S.
Financially I'm pleased with our performance in the adjusted EBITDA for the third quarter.
Before I elaborate on the quarter I wouldn't like to provide a little background on myself.
We'll be known to many of you listening.
For the past two years I served to cigarettes is cheap marketshare chief commercial officer.
And have been actively involved along with our amazing team.
Expanding our client relationships.
During my time at triggered us I have led the commercial team as we secured major contract wins across the globe.
Including elite negotiator position.
She she my contract that was announced late last year.
Before synchronous I spent 16 years at Motorola where.
Where I most recently held the position of corporate Vice President and General manager for Motorola mobility in North America.
During my time with Motorola I successfully negotiated agreements and watched numerous products all <unk>, north American operators, including eating the Motorola chain.
Laurence the droid franchise, the smartphones with Budweiser back in 2009.
And that was the relationship in a franchise second shouldn't get the next seven years.
Prior to that I served at 18, it seems for 11 years and held various leadership positions in sales marketing and.
<unk> management.
As my background demonstrates I have extensive experience in relationships in carrier and enterprise businesses.
Secret Us however that is not unique.
Sure your DNA once do throughout the entire organization.
Starting with our customer facing sales and delivery teams.
Marketing organization at a cost of product management and engineering teams, who have been delivering carrier grade solutions I'll be happy to say, Chris for the past 20 years.
Our strong customer relationships have been built on our collective organization.
And that's why I'm, so humbled to have been named the interim president and CEO.
When I joined two years ago I saw the opportunity provided by Synchronoss is decades long history with the largest mobile and fixed line operators across the globe.
And I see it even more clearly today.
I was recently published in a report from Arthur de Little.
The total addressable market for personal cloud services is forecast to reach $8.9 billion by 2025 in the U.S. alone.
It's 15 to 25 billion globally.
At present telecom operators only own 1% of the U.S. personal cloud user base.
Lets customers like the rising.
You can see and British telecom and cloud there's no one better position then synchronous healthier.
Healthier global carrier succeed in delivering the best personal cloud service to their subscribers.
That's correct.
Over 200 million wireless and fixed line subscribers now have access to cigarettes is personal cloud solutions, well eight mobile operators.
Only a small fraction of the subscribers adopting our cloud.
Create meaningful contributions to our customers revenue streams as.
As well as growth for cigarettes.
We also have a significant market opportunity and messaging with the Japanese carriers as well as in the U.S., What's RCC in my joint venture relationship, which I'll touch on later on in the call.
As CEO I intend to take a pragmatic approach in addressing the many growth opportunities, we see across our product portfolio.
I will focus cigarettes is resources on the opportunities in our pipeline that leverage our carrier grade cloud, an advanced messaging platforms and give us the highest return on investment.
We will be sharpening our focus on the lines of business that are profitable and have the highest long term growth potential.
With increased focused on operational improvements I also believe that we can drive top line growth in the long run.
And continue to expand our gross and adjusted EBITDA margins.
I look forward to sharing more details on this in the coming months.
Last but certainly not least.
I am looking to execute on a plan to establish a long term capital structure for cigarettes.
This is one of my top priorities.
And although there's not much I can discuss at the moment I can assure investors that.
We are leaving no stone unturned to get our search for a solution that we believe will be in the best interest of our shareholders.
Now, let's dive into the more details on the quarter.
In the third quarter, we delivered revenue of $68.6 million.
Adjusted EBITDA of 8.1 days and adjusted free cash flow of approximately 5 million.
Our adjusted EBITDA reflects our continued focus on profitability and contributed to the delivery of 21.4 million of adjusted EBITDA through the first three quarters of 2012.
Not surprisingly cold it did have an impact on some of our customer decision timing, although weve not lost any opportunities due to the pandemic.
In fact, we continue decide commercial agreements during the quarter.
Excluding a new licensing agreement with one of our Japanese operators.
In agreement to enhance the capabilities of our CCM I platform.
We kicked off a new activation program with Vodafone in Germany.
We finalized an agreement covering our current activation services agency.
Throughout the quarter, we added <unk> to our sales pipeline as our offerings continued to garner interest from the T.M.T. solution providers, both domestically and internationally.
As we discussed in August.
We closed on a five year renewal otherwise the cloud contracts in the third quarter.
The length of the renewal is a testament to the value of the rising puts on the relationship with synchronous.
This renewal also includes a joint marketing agreement, but we believe will increase the number of rising subscribers using our cloud offering.
This is the agreement also represents a strong foundation for ongoing and multifaceted relationship with Verizon as well as a platform to support continued global expansion of our cloud business.
With this agreement in place we have now renewed four of our cloud customers to multi year contracts.
Adding ats Gi tract.
Tracfone and assurance as new customers earlier this year.
During the third quarter 80 at GE expanded its personal cloud offering by launching the service to its millions of 18 point you'd go from prepaid customers.
This expands the eligible subscribers that we can take advantage of that can take advantage of sicknesses Ats you branded cloud offerings.
As we discussed during our analyst day event, you did experience some delays in the initial rollout of the product due to colder.
We're working with them now to extend the reach of this offering in the fourth quarter and beyond.
During the third quarter Truckful also expanded their synchronoss personal cloud solution offering to its straight talk in total wireless brands straight talk alone has 9 million active subscribers.
We're also excited here about the horizons intent to acquire Tracfone. They believed that a successful combination will further accelerate our cloud offerings penetration.
As mentioned for the messaging business, we recognized additional advanced messaging licensing revenue.
After these carriers this quarter.
Second the continued growth of the Rcs advanced messaging user population in Japan.
We continue to move the ball forward here in the U.S. and received orders during the quarter to deliver additional functionality to enrich our ccrnine messaging platforms capabilities.
As a reminder for you Ccfive stands for common share your messaging initiative that was formed in 2019.
Hey, GNC sprint T mobile and otherwise.
This is actually my joint venture represents a significant opportunity for our advanced messaging offerings as messaging continues to play a pivotal role.
Keeping people connected and a growing role the brands to engage with consumers.
According to recent analysis by G.S. I made.
The total worldwide market for Rcs services is forecast to be 74 billion annually annually by the end of this year.
And Rcs subscriber adoption has increased 157% in the first nine months of 2020, according to mold square.
As such we are actively pursuing additional opportunities around the globe.
In the U.S. alone, we believe the advanced messaging opportunity for synchronous is four times the scale of the opportunities that we see in Japan.
So to summarize the quarter.
Our priorities going forward.
The Synchronoss team has continued to execute by delivering adjusted EBITDA for the first nine months that has achieved our full year guidance.
Our cloud business remained strong as we signed multiyear commercial agreements with our existing customers. We continued to expand its.
The expansion of new customers and brands during the quarter.
We continue to benefit from the market adoption of advanced messaging in Japan, and we are making steady progress in our preparations for the introduction of CCM EIS market entry in the U.S.
We're taking a pragmatic approach to the overall business.
Focusing on the opportunities with the most potential for future growth and profitability.
Drive future cash flow.
Last but not least we remain focused on establishing a long term capital structure for cigarettes.
And before I turn the call over to David I'd like to thank the employees.
For their tireless efforts in delivering these positive results.
And the support that they provided during our recent leadership transition I am honored to lead this team of amazing people.
Now I'll turn the call over to David to discuss the financial results in more detail.
Following David's remarks, we will open the call for questions. So David. Please go ahead.
Thanks, Jeff and thanks, everyone for joining us before you our third quarter results I'd like to remind listeners of the $26 million of non cash revenue write down in the third quarter 2019 that distorts our year over year comparisons.
Consequently, we will be focusing on the non-GAAP revenue numbers for the third quarter 2019, which excludes those write downs and unless stated otherwise as we believe the feet on adjusted non-GAAP numbers give investors the most appropriate measure to analyze year over year comparisons.
In addition recall that because it was a five year renewal are rising contract that we announced last call approximately $10 million of noncash deferred revenue that would have been recognized in the second half of 2020, well now be amortized over.
Across the terms of rising renewal as per S.C., six or six accounting rules and is expected to be less than a million dollars per quarter going forward.
These adjustments had an approximately $5 million unfavorable impact on both revenue and EBITDA for the third quarter of 2020, and we'll have a similar impact in the fourth quarter.
Now onto the results.
Revenue for the third quarter was $68.6 million down from a non-GAAP revenue of $78.2 million, which has been adjusted for the $26 million cumulative adjustment to revenue last year.
The year over year decline of 12.3% was largely the result of sunsetting, our universal I'd product the accounting treatment of deferred revenue due to the rising when all asked for a FC six or six and lower partner revenue in our activation business.
Without the accounting adjustment due to the horizon renewal revenue would have been approximately $5 million higher at $73.6 million, a decline or approximately 6% year over year.
Our recurring revenue was 80% of total revenue in the third quarter, compared with 72% and 78% in the first and second quarter 2020, and 69% in the third quarter a year ago.
As we noted on our Investor day, approximately 85% of our customer contracts are multi year in nature, which provides a strong foundation. The base of revenue that has served us well in the cold 19 economy.
[noise] cloud revenue was $39.5 million in the quarter, a decrease of 2.5% compared to.
A $40 $5 million in the year ago quarter.
That the U.S.C. six so six adjustment cloud revenue for the third quarter with an approximately $44.5 million an increase of 10% from the third quarter 2019.
We continue to see new subscriber growth in spite of the uncertain economic environment.
We also received incremental professional services revenue from rising in the quarter, although those may not recur at the same level going forward.
Messaging revenue was 16 and a half billion dollars in the third quarter compared to $17.1 million in the third quarter of last year.
3.5% decrease.
As Jeff noted earlier, we continue to recognize additional license revenue from Japanese carriers.
I would like to remind listeners that revenue from Japanese advanced messaging sales at the moment primarily consists of perpetual license sales and this revenue can be relatively lumpy quarter to quarter.
With regards to see your mind, we continue to receive professional services revenue as we add features and functionality in preparation for their launch.
Digital revenue was $12.6 million compared to $20.7 million in year ago quarter or down 39% year over year. This decrease is due to the sunsetting of our universal I'd product and lower partner revenue into our activation business.
Total cost and expenses were $85.6 million in the third quarter down 17% compared to $103.2 million in the third quarter last year.
The reduction in total costs and expenses reflect the cost reduction initiatives, we executed in Twentytwenty recall, we had targeted a reduction of $55 million in annual operating costs of watch of which we expected to realize approximately $45 million in calendar 2020, we are on track to meet or slightly exceed.
These targets in the year.
Adjusted gross profit in the third quarter was $40.2 million or 59.4% compared with $43.6 million and 33.7% on an adjusted basis.
Improvements in gross margin was driven by lower cost of goods sold and lower expenses related to our migration from company managed datacenters to the public cloud.
Adjusted EBITDA in the quarter was $8.1 million compared to $5.8 million in the third quarter of last year, driven by the aforementioned reductions to our operating costs and approximately $2 million of one time benefits in the course.
Adjusted EBITDA margin was 12% up from 11.1% in last years third quarter.
Had it not been for the A.S.C. six so six adjustments to deferred revenue adjusted EBITDA would have been approximately $13.1 million or 19% of revenue up 126% from the third quarter last year and gross margins would have improved to 61% up from 56% in the third quarter 2019.
Turning to the balance sheet and cash flow statement cash and cash equivalents totaled $46.4 million up $3.6 million from $42.8 million in the second quarter 2020 final primarily driven by strong collections and other changes to working capital. This compares with a decrease of $6.8 million in the third quarter 2009.
Team.
Our third quarter, ending cash balance reflects our previous decision to defer the payment of 2019 management bonuses as a result of the economic uncertainty related to COVID-19.
We have begun paying those bonuses in the fourth quarter.
[noise] refinancing our preferred stock and positioned the company with a cost effective and permanent long term capital structure is the top priority for Synchronoss, we call we filed a shelf earlier in the quarter and we are actively evaluating financing alternatives and while there is nothing imminent. We believe this allows synchronoss to be opportunistic if the market moves our way.
Now turning to guidance, if you recall due to our solid performance last quarter, we narrowed our previously provided EBITDA guidance to the top end of the range, resulting in guidance of $20 million to $25 million.
And our continued execution in the third quarter, we are increasing our annual EBITDA guidance range to $23 million to $26 million.
In closing as Jeff mentioned, we are taking a pragmatic approach to the business by focusing our resources on the lines of business that generates the highest returns and shareholder value and have the most potential for future growth and profitability.
Our improved adjusted EBITDA for the third quarter highlights, our sharpened focus on increasing profitability profitability and cash flow going forward.
We expect to continue to grow adjusted EBITDA going forward on an annual basis as a result of these efforts last.
Lastly, on the Investor Relations front, we will be participating in loss technology virtual Investor Conference. This week, the 11th and Twelveth. If you are participating in that event. Please schedule a visit with us.
And now I'll turn the call back over to the operator for the Q and a session.
Thank you very much Sir and ladies.
Any questions.
To join the queue.
<unk>.
On your telephone keypad.
Just me.
<unk>.
<unk>.
Any questions at this time.
[noise] first from Canaccord.
Welcome.
Good.
Great. Thank you very much hope everybody is doing well and stay healthy on the call here.
Yes, congratulations on the promotion to the interim CEO hopefully becomes a permanent one for you.
Can you share with US just your time I know, it's been short as CEO I know you know the strength of the synchronous bench and supporting you and any feedback from customers about the transition and ongoing support your team can provide for them.
Yeah, Mike. Thank you for joining us today, thanks for the question.
Of course, the first thing to do when an unexpected change takes place is to focus on our employees and then make sure that.
They are clear that we are staying true to our plan and that we want to do is continue to execute that plan.
I have felt incredible support from the Synchronoss organization.
And I felt very similar feedback and support from our customer base.
It's not been personal support for Jeff Miller by any stretch of the imagination. It's been focused on the fact.
But our teams work with and interact inserv and deliver everyday for our customers and while there was a change of leadership our customers quickly recognized that as long as we continue to serve them.
We are ready to move forward and yeah and continue on the path we were on.
So we've been.
Given great support from our customers, who are focused on making sure that we serve them the way that they have come used to become accustomed.
And for our employees, it's been very much the same situation now that we've been in rather constant communication with them.
We've had opportunities for questions to be asked and clarity to be provided on the direction. We're heading.
Thank you and just a follow up question for you.
With comments about taking a pragmatic approach to your business is focusing resources on the area to generate the highest return for shareholders and drive growth.
Maybe help us just rank order kind of the priority is where you're seeing that and clearly you highlighted cloud an rcs in the script, but are there. Some areas you may deemphasize or need even cut from your portfolio to save costs over time.
Well, we are going to focus heavily on the two businesses. We spent most of the time and our discussions today and then I'll address the reasons or rather obvious and we sort of try to point those out.
Today as well that number one is because the market.
Tailwinds are there for US there is a natural growth in both the messaging world into the cloud World.
And we have.
The opportunity for dramatic penetration expansion in the customer cloud customers and the messaging customers that we serve.
Once we place to focus there we will evaluate what we're going to do it the rest of the the the customers and the services that we are providing because they are serving their their customer.
Reverses, but they're not as high a priority to us in general as that of the cloud messaging base.
Okay. Thanks, and just just on cloud you update us maybe on just new customers like Tracfone in 18 key I know with co, but there's been some delays, but how are things progressing there anything.
Yes, you can share on uptake or or how you see it coming together over the next couple of quarters in terms of a potential growth driver.
Yeah, well, while things were off to a little bit slower start than we had anticipated or hoped due to coal good related to the agency launch clearly forward progress is happening both with the launch of a new devices that the agent you. Klaus has is embedded on those devices and you expansion into the ATM.
Prepaid go phone segment of the market is another further step.
Step very concrete one where we expect the population of users who are there any chip to cloud to continue to expand similarly, although it's also early in its very early days the expansion into straight talk and total wireless brands just continue momentum for our product offerings to be more broadly a bit.
A little too that Tracfone base, and we're encouraged by that and as also mentioned.
We've had a great success of course with with Verizon and their treatment of consumers or the cloud based and we hope a future relationship with Tracfone and Verizon will only further support that momentum.
Great. Thanks, that's good for me and I'll pass the line Yeah, David it's great to see the strike is keeping an eye on cost controls.
Just kind of remind us where you are in terms of in terms of executing against that it gets it sounds like maybe you're slightly above plan and just the implied Q4 guidance is only one quarter left me a little bit of a step down sequentially is that just mainly due to timing in the messaging business with a strong revenue in Q3 that maybe a little lumpy down and.
Q4 is that the main driver for the past sequential adjusted EBIDTA. Thank you.
Yeah, Mike you're right on a combination of continued expectation of a downdraft because of the Verizon.
Six or six adjustment and then yes, just being hopefully being conservative around around revenue.
And that bringing down and then bring down EBITDA. So that's oh, you're right on.
You know, what you're probably an interesting sort of lumpy license revenue in the third quarter that were not putting into our expectations for fourth quarter.
Great well, thanks for taking my questions of what everybody stays healthy.
Thank you.
All right, we'll move on to Mike Latimore with Northland capital markets.
Great. Thank you.
Great.
I guess, we'll see a sort of the CEO change coming kind of right at quarter end did you see any deals that were paused or delayed or it was really kind of get more usually are.
No.
Yes, there were there were no delays that were as a result of transition whatsoever and as I mentioned, if anything we were just.
Pleasantly surprised at the strength and the depth of the relationships that exist from the synchronous organization just sort of paid their dividend customers know who they deal with every day and how they are served by synchronous. So we really didn't Miss a beat.
And that was in our operating performance in our results here for Q3.
And candidly it was very much in the feedback that we received from customers who were quite ready to move on and make sure that we focus on the future.
Great great.
And then on TNT.
Actually get to see them moving forward on a number of fronts. Here I guess is there any are there any kind of key initiatives or or product development work that synchronoss has to do like in the fourth corridor any important initiatives on your side, though Paul It came along.
No the infrastructure is in place or the cloud solution is operating for both the postpaid subscribers of ATM Z and now more recently the prepaid subscribers there, it's a matter of customer adoption.
And you know the focus of our partners.
Once the portfolio of things that they work on with their clients.
Great and then within a within messaging I guess, you probably break this out in the 10-Q, but how does that kind of the mobile or the subscription or mobile email piece of the business during the quarter.
So another solid quarter overall I don't have the perfect because we don't break it out beyond that it was just solid.
Operating performance continued profitable contributor to the business, we really enjoy the strong foundation of our overall messaging platform. Thanks to our E mail customer base around the globe and it's as you know supported with a broad diverse set of customers from all three continents.
We are interacting with Mike, it's not a growth engine as you're aware, but its a solid contributor to profitability.
Okay great.
Just last one on the <unk>.
So your last comment you made there Dave was about you expect to continue to grow EBITDA. I think you said that I guess was that sort of a comment about next year.
Well, yes, yes, yes, absolutely we are expecting to plan for growth and for next year's EBITDA. When I was at answering Mike Mike Walkley question. It was more about the sequential EBITDA, obviously embedded in our guidance is a step down after a strong a strong third quarter number. This quarter. We are I mean, we also benefit.
From a <unk> from about $2 million or one timers that we don't expect to repeat.
Well, yes, it's our intention to go either got huge focus for us and obviously related to that is take you know taking out the pipe.
Okay all right.
Very good okay. Thanks, Mike.
Thank you.
And our next question will come from Jon Hickman with Ladenburg.
Hi, Thanks for taking my questions.
First of all can you comment on the restructuring the 6.5 million.
There was $7 million last quarter is is that kind of goes away.
But yeah I think quarters.
It should roll off it's basically severance related to the force reductions we executed in the middle of the second quarter. John So I mean, there's some historical litigation also flowing through there I hope that goes away too, but that that may persist, but I'm, hoping that well as we sort of across the year.
Here, the seven should roll off.
And is that coming out of your like just yesterday.
Yeah, it's an add back for EBITDA purposes.
And.
Yeah, but most of all its really across the board because I mean, the the Wes.
Yes, so it was across many different departments, including technology. So it's not just us DNA now okay. Okay.
So as that goes off your <unk> your on your actual operating.
Sorry.
They said is that sitting in for severance.
Is that severance expense rolls off.
Then the operating expense the actual cash operating expenses.
Go down too right, yes, yes, yes, okay. When we add it back right adopt purposes Bhavan, Yes, you can.
Okay do compare.
So then linear as the.
You know my contract.
Or as as those.
Is that begins to get implemented across the carriers and their customers. How I know you've got a bunch of revenues kind of upfront to do the project, but how little revenues Roland once the platform. The time it gets goes live.
Can you walk me through that.
Sure I mean, but I'll, let Jeff comment on the on the on the logical so none of the way the deal structure as we.
As they launch and we grow we should earn revenue as they add subscribers and add messaging volume. Okay. So this is all about getting them set up im so sorry.
Just the same as in June in Japan is that similar.
It's similar to Japan, but I think its Ah I think we'd expect to be a little less lumpy.
Sure Charles.
I'll add a little bit too at one one distinction of course is that she's Eli is a joint venture and as such but we're working with here is the collective growth and adoption across that network, which is made up of now the three operators, but as they grow there will be additional licensing revenues that go for.
For new subscriber growth as well as the message volume growth. In addition to that as we've seen throughout 2020.
There have been request Spice you see my for Synchronoss is an integration partner to take on and expand the capabilities of what that network can provide in terms of new service offerings.
We hope and expect that that is something that will continue in 2021 as it has served us well in 2020 I think it's fair John to say, it's going to be similar to Japan.
Okay.
So hopefully larger [laughter] someday yeah.
Yeah, but it's like.
Because you don't know how you don't know the Mets and the volume you don't know how many subscribers are going to rank them tick quarter.
Corridor, it's right kind of difficult to model right.
Well you have you can make it you just basically make a subscriber assumption based on experience in Japan.
And those licenses are in block, yes licenses in block said as we have expansion. So as a result, it will have a lumpy characteristic that is similar to Japan for sure.
Okay. Okay. Thank you that's it for me.
Thanks, John Thank you.
[noise] Another reminder, ladies and gentlemen star one if you have any questions on next from Cowen we'll move on to Jeff Bernstein.
Yeah, Hi, guys. Thanks for taking the question just a couple of years <unk> did she is doing some rcs stuff with Google was there was there a bake offs there where you guys involved is there opportunity for you.
In that et cetera.
Well, we do stay in contact with our customers around the globe as it pertains to messaging opportunities and certainly we have been in discussion would be chicos boutiques are we this is a customer of ours, both in the messaging as well as in the cloud space.
There are a number of people who have actually worked with other third parties like Google and also can still take advantage of opportunities and capabilities that are provided by secret us. So our conversations are not done there.
And opportunities have not been fully exhausted.
Terrific. Thank you and then I think you mentioned adjusted free cash flow in the quarter, a 5.5 million what does adjusted free cash flow needs.
I think we said free cash flow.
It's attached to the reconciliation I think it's just below $5 million.
So again, if you go to the release itself should.
There should be a reconciliation in there Jeff that just shows you how we calculate that got stuck out off on that.
My I could walk.
And then I think I guess <unk> <unk>.
What you said the total impact.
The impact of the Horizon Realisations, you know under under 66 is going to be for the second half of the year and what it was in the quarter.
Yes, so it's 10 for the second half of the year, it's five a quarter essentially almost ratably Yep Gotcha, and then adjusted free cash flow as net cash provided by operating activities, which is a GAAP concept and then yes, we would.
You deduct out capitalized software Capex, which is tiny and we did add backs litigation expenses to get to an adjusted free cash flow. Okay. So now in terms of sustaining that I would think that that be pretty key to doing some kind of debt offering et cetera, how are we.
Feeling about you know cash generation versus cash burn yet Oh on next 12 months basis yeah.
Yeah. We're we're heavily focused on that a free cash flow and really getting the point, where we're generating sufficient free cash flow just out of our operations to be so self self funding.
Caution, though that you know when you look at us when we might have quarterly swings in and things like they are in a t. a deferred revenue that can swing a quarter to quarter, but clearly year over year.
Just following up on a question Mike Latimore asked.
We're not only focused on increasing EBITDA next year, we're really focused on a meaningful free cash flow, but obviously right now it. It's the 2021 planning process for us internally so that work is ongoing.
Sure.
Okay and then in terms of you know have you gotten any feedback from the market. Obviously with you know very solid credit rated customers you know people sort of looking through your you know significant a recurring revenue business year, you know any feedback from the debt Mark.
What about how that's looked at or or do you not have a flavor for that yet.
We you know we have a existing debt line with citizens Bank. We obviously actively talk to them about the potential to expand that to take out the pipe and I mean, I think there's a there's certainly an opportunity to use that as one of the components to help bring down the overall cost of our capital structure.
Got it terrific.
And then you mentioned something about finishing in activation deal with 18 T was was that new business is that or a renewal.
Yeah. It was the extension of the relationship that we have had in place.
But some renegotiations for how things were finalized for the second half of the year.
It's just put us on a great trajectory to align our plans with a teacher you're in.
Got it so that's business that you already had the terms of that business as well.
Right around a little bit.
That's correct.
Okay, and then you mentioned $44.5 million of.
Cloud revenue that was net of the assay six so six impacts so is that 40.
Is that got 5 million added to it is that is that what it is.
No.
Yeah, no that's the 40.
44.5 would have been added back the $10 million revenue.
Impact.
So the cloud revenue in the quarter was the reported cloud revenue was 39.5 have you added back the five it would have been 44.5 in the quarter.
Okay, all right that's great. Thanks, so much guys.
All right. Thank you.
[laughter].
Ladies and gentlemen, nothing else remaining in the queue I'd like to turn things back to Todd Kehrli for any additional or closing remarks.
Thank you operator, and thank you everyone for joining us today.
The update.
Scoreboard call has concluded have a wonderful but.
And once again ladies.
Our meeting for today, Thanks for joining US you may now disconnect.
[noise].