Welcome to the Synchronoss Third Quarter 2020 Financial Results Conference Call. A quick reminder that today's program is being recorded. .

And at this time, I'd like to turn the floor over to Todd Kehrli with MKR Investor Relations. Please go ahead, sir. .

Thank you, operator. Good afternoon, and welcome to Synchronoss' Third Quarter 2020 Earnings Conference Call. With me on today's call are Synchronoss' Interim President and CEO, Jeff Miller; and CFO, David Clark. .

Before I turn the call over to Jeff and David, I'd like to cover a few quick items. This afternoon, Synchronoss issued a press release announcing its third quarter financial results. That release is available on the company's website at synchronoss.com.

This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. .

I want to remind everyone that on today's call, management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements.

These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially.

We encourage all of our listeners to review our SEC filings, including our most recent 10-K and 10-Q for a complete description of these risks.

Our statements on this call are made as of today, November 9, 2020, and the company undertakes no obligation to update or revise publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes and 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 our non-GAAP and GAAP reporting and present the reconciliation between the 2 for 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 Glenn's departure 7 weeks ago, I was appointed to the role of Interim President and CEO of Synchronoss by the Board of Directors, with the clear instructions to continue to strengthen our position as a leading carrier-grade platform provider of personal cloud, messaging and digital solutions.

Despite the unexpected and sudden change in leadership, I'm happy to report third quarter results that shows that the company did not skip a beat during this time, and as a result, we've continued to execute well in a challenging environment. .

In the third quarter, we closed on the 5-year Verizon Cloud contract extension that we announced during our last call. We helped AT&T take the first steps in offering their own cloud product to their more than 90 million subscribers. And we saw TracFone expand their cloud solution offerings to more brands. .

On the messaging front, we continue to recognize additional advanced messaging revenue from the Japanese carriers, and we added features and functionality to our CCMI-based messaging product in anticipation of a future launch in the U.S. Financially, I'm pleased with our performance and the adjusted EBITDA for the third quarter. .

Before I elaborate on the quarter, I would like to provide a little background on myself, as I know I will be new to many of you listening. For the past 2 years, I've served as Synchronoss' Chief Commercial Officer and have been actively involved, along with our amazing team, in expanding all of our client relationships.

During my time at Synchronoss, I have led the commercial team as we secured major contract wins across the globe, including elite negotiated position in our CCMI contract that was announced late last year. .

Before Synchronoss, I spent 16 years at Motorola, where I most recently held a position of Corporate Vice President and General Manager for Motorola Mobility in North America.

During my time with Motorola, I successfully negotiated agreements and launched numerous products with all North American operators, including leading the Motorola team that launched the Droid franchise of smartphones with Verizon back in 2009. And that was a relationship and a franchise that continued for the next 7 years. .

Prior to that, I served at AT&T for 11 years and held various leadership positions in sales, marketing and product management. As my background demonstrates, I have extensive experience and relationships in carrier and enterprise businesses. .

At Synchronoss, however, that is not unique. The carrier DNA runs deep throughout the entire organization, starting with our customer-facing sales and delivery teams, our marketing organization and across the product management and engineering teams, we have been delivering carrier-grade solutions on behalf of Synchronoss 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 2 years ago, I saw the opportunity provided by Synchronoss' decades-long history with the largest mobile and fixed line operators across the globe, and I see it even more clearly today. As we recently published in a report from Arthur D.

Little, the total addressable market for personal cloud services, it forecast to reach $8.9 billion by 2025 in the U.S. alone and $15 billion to $25 billion globally. At present, telecom operators only own 1% of the U.S. personal cloud user base.

With customers like Verizon, AT&T and British Telecom and Cloud, there's no one better positioned than Synchronoss to help these global carriers succeed in delivering the best personal cloud service to their subscribers.

In fact, over 200 million wireless and fixed line subscribers now have access to Synchronoss' Personal Cloud solutions through our 8 global operators. Only a small fraction of these subscribers adopting our cloud would create meaningful contributions to our customers' revenue streams as well as growth for Synchronoss.

We also have a significant market opportunity in messaging with the Japanese carriers as well as in the U.S. with our CCMI 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 Synchronoss' resources on the opportunities in our pipeline that leverage our carrier-grade cloud and 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 focus 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 Synchronoss. This is one of my top priorities.

And although there is not much I can discuss at the moment, I can assure investors that we are leaving no stone unturned in 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 million and adjusted free cash flow of approximately $5 million.

Our adjusted EBITDA reflects our continued focus on profitability and contributed to delivery of $21.4 million of adjusted EBITDA through the first 3 quarters of 2020. .

Not surprisingly, COVID did have an impact on some of our customer decision timing, although we have not lost any opportunities due to the pandemic.

In fact, we continue to sign commercial agreements during the quarter, including a new licensing agreement with one of our Japanese operators, an agreement to enhance the capabilities of our CCMI platform.

We kicked off a new activation program with Vodafone in Germany, and we finalized a new agreement covering our current activation services to AT&T. Throughout the quarter, we added our -- to our sales pipeline as our offerings continued to garner interest from the TNT solution providers, both domestically and internationally. .

As we discussed in August, we closed on the 5-year renewal of our Verizon Cloud contract in the third quarter. The length of the renewal is a testament to the value Verizon puts on the relationship with Synchronoss.

This renewal also includes a joint marketing agreement that we believe will increase the number of Verizon subscribers using our cloud offering. This agreement also represents a strong foundation for our ongoing and multifaceted relationship with Verizon as well as a platform to support the continued global expansion of our cloud business. .

With this agreement in place, we have now renewed 4 of our cloud customers to multiyear contracts, while adding AT&T, TracFone and Assurant as new customers earlier this year. During the third quarter, AT&T expanded its personal cloud offering by launching the service to its millions of AT&T GoPhone prepaid customers.

This expands the eligible subscribers that we can take advantage of that can take advantage of Synchronoss' AT&T-branded cloud offering.

As we discussed during our Analyst Day, AT&T did experience some delays in the initial rollout of the product due to COVID, but we're working with them now to expand their reach of this offering in the fourth quarter and beyond. .

During the third quarter, TracFone phone also expanded their Synchronoss Personal Cloud solution offering to its Straight Talk and Total Wireless brands. Straight Talk alone has 9 million active subscribers.

We're also excited to hear about Verizon's intent to acquire TracFone and believe their successful combination to further accelerate our cloud offering's penetration. .

As mentioned, for the messaging business, we recognized additional advanced messaging licensing revenue from Japanese carriers this quarter, reflecting 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 CCMI messaging platform's capabilities. As a reminder for you, CCMI stands for Common Carrier Messaging Initiative that was formed in 2019 by AT&T, Sprint, T-Mobile and Verizon.

The CCMI joint venture represents a significant opportunity for our advanced messaging offering as messaging continues to play a pivotal role in keeping people connected and a growing role for brands to engage with consumers.

According to recent analysis by GSMA, the total worldwide market for RCS services is forecast to be $74 billion annually by the end of this year. And RCS subscriber adoption has increased 157% in the first 9 months of 2020 according to Mobile Square. As such, we're actively pursuing additional opportunities around the globe. In the U.S.

alone, we believe the advanced messaging opportunity for Synchronoss is 4x the scale of the opportunities that we see in Japan. .

So to summarize the quarter and our priorities going forward. The Synchronoss team has continued to execute by delivering adjusted EBITDA for the first 9 months that has achieved our full year guidance.

Our cloud business remains strong as we signed multiyear commercial agreements with our existing customers and continued to expand -- 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 CCMI's market entry in the U.S. .

We're taking a pragmatic approach to the overall business, by focusing on the opportunities with the most potential for future growth and profitability to drive future cash flow. Last but not least, we remain focused on establishing a long-term capital structure for Synchronoss. .

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've 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 I review our third quarter results, I'd like to remind listeners of the $26 million of noncash revenue write-down in the third quarter of 2019 that distorts our year-over-year comparisons.

Consequently, we will be focusing on the non-GAAP revenue numbers for the third quarter of 2019, which excludes those write-downs. And unless stated otherwise, as we believe the unadjusted non-GAAP numbers give investors the most appropriate measure to analyze year-over-year comparisons. .

In addition, recall that because of the 5-year renewal of Verizon contract that we announced last call, approximately $10 million of noncash deferred revenue, that would have been recognized in the second half of 2020, will now be amortized over -- across the term of the Verizon renewal as per ASC 606 accounting rules, and is expected to be less than $1 million 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 will have a similar impact in the fourth quarter. .

Now onto the results. Revenue for the third quarter was $68.6 million, down from the 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% is largely the result of sunsetting our Universal ID product, the accounting treatment of deferred revenue due to Verizon renewal as per ASC 606 and lower partner revenue in our activation business.

Without the accounting adjustment due to the Verizon renewal, revenue would have been approximately $5 million higher at $73.6 million, a decline of 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 of 2020 and 69% in the third quarter a year ago.

As we noted on our Investor Day, approximately 85% of our customer contracts are multiyear in nature, which provides a strong foundation in base of revenue that has served us well in the COVID-19 economy. .

Cloud revenue was $39.5 million in the quarter, a decrease of 2.5% compared to $40.5 million in the year ago quarter. Without the ASC 606 adjustment, cloud revenue for the third quarter would have been 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 Verizon in the quarter, although those may not recur at the same level going forward. .

Messaging revenue was $16.5 million in the third quarter compared to $17.1 million in the third quarter of last year, a 3.5% decrease. .

As Jeff noted earlier, we continue to recognize additional license revenue from Japanese carriers, and 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 CCMI, 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 the year ago quarter or down 39% year-over-year. This decrease is due to the sunsetting of our Universal ID product and lower partner revenue in our activation business. .

Total costs and expenses were $85.6 million in the third quarter, down 17% compared to $103.2 million in the third quarter of last year. The reduction in total costs and expenses reflect the cost reduction initiatives we executed in 2020.

Recall, we had targeted a reduction of $55 million in annual operating costs, 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 to gross margin were driven by lower cost of goods sold and lower expenses related to our migration from company-managed data centers 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 onetime benefits in the quarter. Adjusted EBITDA margin was 12%, up from 11.1% in last year's third quarter.

Had it not been for the ASC 606 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 of 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, primarily driven by strong collections and other changes to working capital. This compares to a decrease of $6.8 million in the third quarter of 2019. .

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. .

Refinancing our preferred stock and position the company with a cost-effective and permanent long-term capital structure is the top priority for Synchronoss. Recall, 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. Given 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 are generating the highest return 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 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. .

Lastly, on the Investor Relations front, we will be participating in ROTH Technology Virtual Investor Conference this week on the 11 and 12. 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&A session. .

[Operator Instructions] And first from Canaccord, we'll take Mike Walkley. .

Jeff, congratulations on the promotion to Interim CEO. Hopefully, it becomes a permanent one for you.

But can you share with us just your time, I know it's been short as CEO kind of the strength of the Synchronoss bench in supporting you? And any feedback from customers about the transition and ongoing support your team can provide for them?.

Yes. Mike, thank you for joining us today, and thanks for the question. Of course, the first thing to do when an unexpected change takes place is to focus on our employees and to 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've 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 that our teams work with and interact and serve and deliver every day for our customers.

And while there was a change in leadership, our customers quickly recognized that as long as we continue to serve them, they're ready to move forward and continue on the path we are on. .

So we've been given great support from our customers who are focused on making sure that we serve them in 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 that we've had opportunities for questions to be asked and clarity to be provided on the direction we're heading. .

And just a follow-up question for you.

With comments about taking a pragmatic approach to your businesses focusing resources on the area that generate the highest return for shareholders and drive growth, can you maybe help us just rank order kind of the priorities where you're seeing that? I mean clearly, you highlighted cloud and RCS in the script, but are there some areas you may deemphasize or maybe even cut from your portfolio to save costs over time?.

Well, we are going to focus heavily on the 2 businesses we spend most of the time in our discussions today. And the obvious -- the reasons are rather obvious, and we sort of try to point those out today as well. That #1 is because the market tailwinds are there for us. There is natural growth in both the messaging world and in 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 the focus there, we will evaluate what we're going to do with the rest of the customers and the services that we are providing because they are serving their customer universes, but they're not as high a priority to us, in general, as that of the cloud and messaging base. .

Okay. And just on cloud, update us maybe on just new customers like TracFone and AT&T. I know with COVID, there's been some delays.

But how are things progressing there? Any stats you can share on uptake? Or how you see it coming together over the next couple of quarters in terms of a potential growth driver?.

Yes.

Well, while things were off to a little bit slower start than we had anticipated or had hoped due to COVID related to the AT&T launch, clearly, forward progress is happening, both with the launch of new devices that the AT&T Cloud has -- is embedded on those devices and the expansion into the AT&T prepaid GoPhone segment of the market is another further step, very concrete one, where we expect the population of users for the AT&T 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 continued momentum for our product offerings to be more broadly available to that TracFone base. And we're encouraged by that.

And as also mentioned, we've had a great success, of course, with Verizon and their treatment of consumers in the cloud base, and we hope a future relationship with TracFone and Verizon will only further support that momentum. .

Great. Last question for me, and I'll pass it on. David, it's great to see the strong execution on cost controls. Can you just kind of remind us where you are in terms of executing against that? I guess it sounds like maybe you're slightly above plan.

And just the implied Q4 guidance, since there's only 1 quarter left, a little bit of a step down sequentially.

Is that just mainly due to timing in the messaging business with some strong revenue in Q3 that maybe a little lumpy down in Q4, is that the main driver for the down sequential adjusted EBITDA?.

Yes. Mike, you're right on. A combination of continued expectation of a downdraft because of the Verizon, a 606 adjustment and then, yes, just being -- hopefully being conservative around revenue and that bringing down -- then bringing down EBITDA. So that's -- you're right on.

There are probably -- I mentioned some sort of lumpy license revenue in the third quarter that we're not putting into our expectations for fourth quarter. .

We'll move on to Mike Latimore with Northland Capital Markets. .

Great.

I guess with the sort of the CEO change coming kind of right at quarter end, did you see any deals that were paused or delayed? Or was it really kind of business as usual here?.

Yes. There were no delays that were as a result of transition whatsoever. And as I mentioned, if anything, we were just pleasantly surprised that the strength and the depth of the relationships that exist from the Synchronoss organization just sort of paid their dividend.

Customers know who they deal with every day and how they are served by Synchronoss. So we really didn't miss a beat. And that was in our operating performance and our results here for Q3. And candidly, it was very much in the feedback that we received from customers who are quite ready to move on and make sure that we focus on the future. .

Great, great. And then on a T&T, obviously, good to see them moving forward on a number of fronts here.

I guess is there any -- are there any kind of key initiatives or product development work that Synchronoss has to do like in the fourth quarter? Any important initiatives on your side can help at AT&T move along?.

No. The infrastructure is in place. The Cloud Solution is operating for both the postpaid subscribers of AT&T and now more recently, the prepaid subscribers. It's a matter of customer adoption and the focus of our partners amongst the portfolio of things that they work on with their clients. .

Great. And then within messaging, I guess you probably break this out in the 10-Q.

But how does the kind of the mobile -- or the subscription or mobile e-mail piece of the business do in the quarter?.

Another solid quarter overall. I don't have any specifics 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 3 continents that we are interacting with. .

Mike, it's not a growth engine, as you're aware, but it's a solid contributor to profitability. .

Okay. Great. And I guess just last one on the -- sort of the last comment you made there, David, was about, you expect to continue to grow EBITDA. I think you said that.

And I guess, was that sort of a comment about next year? Or what was that in reference to?.

Well, yes, yes, yes, absolutely. We are expecting the plan for growth for next year's EBITDA. When I was answering Mike Walkley's question, it was more about the sequential EBITDA, obviously, embedded in our guidance is a step down after a strong third quarter.

Remember, the third quarter, we -- I mean we also benefited from about $2 million of one-timers that we don't expect to repeat. But yes, it's our intention to grow EBITDA. It's a huge focus for us. And obviously, related to that is taking out the pipe. .

And our next question will come from Jon Hickman with Ladenburg. .

First of all, can you comment on the restructuring, the $6.5 million? There was $7 million last quarter, is that going to go away in coming quarters?.

Yes. It should roll off. It's basically severance-related to the force reductions we executed in the middle of the second quarter, Jon. So I mean there's some historical litigation also flowing through there. I hope that goes away too, but that may persist. But I'm hoping that as we sort of cross the year here, the $7 million should roll off. .

And is that coming out of your like just SG&A?.

It's an add-back for EBITDA purposes. And -- so yes, but most -- well, it's really across the board. Because I mean the RIF was across many different departments, including technology. So it's not just SG&A, no. .

Okay, okay. So as that goes off, your actual operating expense will decline. .

Sorry?.

I said as that severance expense rolls off, then the operating expense, the actual cash operating expenses will go down too, right?.

Yes, yes, yes. But we add it back for EBITDA purposes, so you can -- yes, you can do comparisons. .

Okay.

So then let me ask as DCMI contracts -- or as those -- if that begins to get implemented across the carriers and their customers, how -- I know you got a bunch of revenues kind of upfront to do the project, but how will revenues roll in once the platform kind of gets -- goes live? Can you walk me through that?.

Sure. I mean, I'll let Jeff comment on the launch.

But -- so remember, the way the deal is structured, as we -- as they launch, and we grow, we should earn revenue as they add subscribers and add messaging volume, okay? So this year is all about getting them set up in -- sorry?.

Just the same as in Japan.

Is it similar?.

It's similar to Japan, but I think it's -- I think we'd expect it to be a little less lumpy.

Is that fair, [ Jeff ]?.

I'll add a little bit to it. One distinction, of course, is that CCMI is a joint venture. And as such, what we're working with here is the collective growth and adoption across that network, which is made up of now the 3 operators.

But as they grow, there will be additional licensing revenues that go for new subscriber growth as well as new message volume growth. .

And in addition to that, as we've seen throughout 2020, there have been requests by CCMI for Synchronoss as 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 would continue in 2021 as it has served us well in 2020. .

I think it's fair, Jon, to say it's going to be similar to Japan. Hopefully larger, some day. .

Okay. Yes.

But it's like -- because you don't know how -- you don't know the messaging volume, you don't know how many subscribers are going to join in particular quarter, it's kind of difficult to model, right?.

Well, you have -- you can make -- you just basically make a subscriber assumption based on our experience in Japan. .

And those licenses are in block. .

Yes. .

Those licenses will be in blocks as we have expansion. So as a result, it will have a lumpy characteristic that is similar to Japan, for sure. .

[Operator Instructions] Next from Cowen, we'll move on to Jeff Bernstein. .

Just a couple here.

One, I think BT is doing some RCS stuff with Google? Was there a bake-off there? Were you guys involved? Is there opportunity for you in that, et cetera?.

Well, we do stay in contact with customers around the globe as it pertains to messaging opportunities. And certainly, we have been in discussion with BT because BT 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 Synchronoss. So our conversations are not done there and opportunities have not been fully exhausted. .

Perfect. And then I think you mentioned adjusted free cash flow in the quarter of $5.5 million.

What does adjusted free cash flow mean?.

I think we said free cash flow. It's attached to the reconciliation. I think it's just below $5 million. So if you go to the release itself, there should be a reconciliation in there, Jeff, that just shows you how we calculate that. .

Got you. Okay. I'll find that. .

If you cannot find, I can walk you through. .

And then I think I missed what you said the total impact of the Verizon reamortization under 606 was 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 5% a quarter, essentially almost ratably. And then the adjusted free cash flow is, net cash provided by operating activities, which is a GAAP concept.

And then, we would deduct out capitalized software, CapEx, which is tiny, and we did add back some litigation expense to get to adjusted free cash flow. .

Okay. So now in terms of sustaining that, I would think that, that would be pretty key to doing some kind of debt offering, et cetera.

How are we feeling about cash generation versus cash burn on a next 12 months basis?.

Yes, yes. We're heavily focused on that free cash flow and really getting to the point where we're generating sufficient free cash flow just out of our operations to be self-funding. I would caution, though, that when you look at us, when we might have quarterly swings in things like AR and AP, deferred revenue that can swing quarter-to-quarter.

But clearly, year-over-year, following up on a question Mike Latimore asked, we're not only focused on increasing EBITDA next year, we're really focused on meaningful free cash flow. But obviously, right now, it's the 2021 planning process for us internally. So that work is ongoing. .

Sure. Okay. And then in terms of -- have you gotten any feedback from the market, obviously, with very solid credit rated customers, people sort of looking through your significant recurring revenue business here.

Any feedback from the debt market about how that's looked at? Or do you not have a flavor for that yet?.

No. We have an 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 certainly an opportunity to use debt as one of the components to help bring down the overall cost of our capital structure. .

Got you. Terrific. And then you mentioned something about finishing an activation deal with AT&T.

Was that new business? Is that a renewal?.

Yes. It was an 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, which just put us on a great trajectory to align our plans with AT&T through year-end. .

Got you.

So that's business that you already had, the terms of that business have moved around a little bit?.

That's correct. .

Got you. Okay. And then you mentioned $44.5 million of cloud revenues, that was net of the ASC 606 impact.

So is that 40 -- is that -- got $5 million added to it? Is that what it is?.

$39 million. .

Yes. No, the $44.5 million 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 million. Had you added back to 5%, it would have been 44.5% in the quarter. .

All right. 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 for the day. .

Thank you, operator, and thank you, everyone, for joining us today. We look forward to updating you again next quarter. Our call has concluded. Have a wonderful day..