Upland Software, Inc. (NASDAQ:UPLD) Q1 2022 Earnings Conference Call May 4, 2022 5:00 PM ET Company Participants Jack McDonald – Chairman and Chief Executive Officer Rod Favaron – President Mike Hill – Chief Financial Officer Conference Call Participants Scott Berg – Needham & Company Luv Sodha – Jefferies Jake Roberge – William Blair Alex Sklar – Raymond James Operator Thank you for standing by and welcome to the Upland Software First Quarter 2022 Earnings Call. At this time, all participants are in listen ...

[Part I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) This section presents Upland Software's comprehensive financial data and management's analysis for the reporting period [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Upland Software's unaudited condensed consolidated financial statements for Q1 2022 and 2021, including balance sheets, statements of operations, comprehensive income, equity, cash flows, and detailed accounting notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This subsection provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Total Assets | $1,062,761 | $1,029,007 | | Total Liabilities | $734,177 | $712,719 | | Total Stockholders' Equity | $328,584 | $316,288 | | Cash and cash equivalents | $130,443 | $189,158 | - Total assets increased by **$33.75 million**, primarily driven by increases in intangible assets and goodwill, while cash and cash equivalents decreased by **$58.715 million**[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This subsection details the company's revenues, expenses, and net loss over a specific period | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total Revenue | $78,716 | $73,969 | | Gross Profit | $53,961 | $49,542 | | Loss from Operations | $(14,777) | $(17,528) | | Net Loss | $(22,831) | $(20,684) | | Net Loss per Common Share, Basic and Diluted | $(0.73) | $(0.69) | - Total revenue increased by **6.4%** year-over-year, while net loss widened by **10.4%** due to higher operating expenses, despite an improvement in loss from operations[12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This subsection presents the total comprehensive income or loss, including net loss and other comprehensive income items | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net Loss | $(22,831) | $(20,684) | | Other Comprehensive Income | $23,873 | $13,904 | | Comprehensive Income (Loss) | $1,042 | $(6,780) | - The company reported comprehensive income of **$1.042 million** for Q1 2022, a significant improvement from a comprehensive loss of **$6.780 million** in Q1 2021, primarily driven by a substantial unrealized gain on interest rate swaps[15](index=15&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This subsection outlines changes in the company's equity accounts over the reporting period | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Total Stockholders' Equity | $328,584 | $316,288 | | Additional Paid-In Capital | $579,638 | $568,384 | | Accumulated Other Comprehensive Income (Loss) | $12,359 | $(11,514) | | Accumulated Deficit | $(263,416) | $(240,585) | | Shares Outstanding | 31,320,765 | 31,096,548 | - Stockholders' equity increased by **$12.296 million**, largely due to a positive shift in accumulated other comprehensive income (loss) from a deficit to a gain, driven by unrealized gains on interest rate swaps[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This subsection details the cash inflows and outflows from operating, investing, and financing activities | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net Cash Provided by Operating Activities | $8,222 | $12,503 | | Net Cash Used in Investing Activities | $(62,509) | $(72,900) | | Net Cash Used in Financing Activities | $(4,211) | $(2,095) | | Change in Cash and Cash Equivalents | $(58,715) | $(63,357) | | Cash and Cash Equivalents, End of Period | $130,443 | $186,672 | - Net cash provided by operating activities decreased by **$4.281 million** year-over-year. Net cash used in investing activities decreased by **$10.391 million**, while net cash used in financing activities increased by **$2.116 million**[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This subsection provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=1.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the foundational principles and key accounting methods used in preparing the financial statements - The financial statements are prepared in conformity with GAAP and include Upland Software, Inc. and its wholly-owned subsidiaries. Management's estimates and assumptions, particularly for revenue recognition, deferred commissions, stock-based compensation, and fair value of interest rate swaps, are crucial. The company assessed no material impact from COVID-19 on its estimates as of May 4, 2022[25](index=25&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - The company uses floating-to-fixed interest rate swap agreements to hedge interest rate risk on its **$540 million** term loans, effectively fixing the rate at **5.4%**. As of March 31, 2022, the fair value of these swaps was a **$17.8 million asset**, up from an **$8.4 million liability** at December 31, 2021[32](index=32&type=chunk) [2. Acquisitions](index=13&type=section&id=2.%20Acquisitions) This section details the company's acquisition activities, including consideration paid and their financial impact - Upland completed two acquisitions in Q1 2022: BA Insight (cloud-based enterprise knowledge management) and Objectif Lune (cloud-based document workflow product). These acquisitions contributed **$0.8 million** and **$4.8 million** in revenue, respectively, through March 31, 2022[41](index=41&type=chunk) 2022 Acquisitions Consideration (in thousands) | Acquisition | Cash | Holdback | Contingent Consideration | Working Capital & Other Adjustments | Total Consideration | | :------------ | :--- | :------- | :----------------------- | :---------------------------------- | :------------------ | | BA Insight | $33,355 | $645 | — | $1,616 | $35,616 | | Objectif Lune | $29,750 | $5,250 | — | — | $35,000 | - Goodwill from these acquisitions totaled **$48.768 million** in Q1 2022, primarily attributed to expected synergies and the acquired workforce. Total transaction-related expenses for acquisitions were **$4.5 million** in Q1 2022, up from **$4.0 million** in Q1 2021[45](index=45&type=chunk)[46](index=46&type=chunk)[53](index=53&type=chunk) [3. Fair Value Measurements](index=15&type=section&id=3.%20Fair%20Value%20Measurements) This section describes how the company measures the fair value of its financial instruments and assets - The fair value of the company's interest rate swaps, categorized as Level 2, increased to a **$17.8 million asset** as of March 31, 2022, from an **$8.4 million liability** at December 31, 2021, due to rising short-term interest rates[50](index=50&type=chunk)[51](index=51&type=chunk) - As of March 31, 2022, and December 31, 2021, there were no accrued earnout business acquisition contingent consideration liabilities measured as Level 3 instruments, as earnout payments for BlueVenn and Second Street were finalized with no payments made[49](index=49&type=chunk) [4. Goodwill and Other Intangible Assets](index=16&type=section&id=4.%20Goodwill%20and%20Other%20Intangible%20Assets) This section provides details on the company's goodwill and other intangible assets, including changes and amortization Goodwill Balance (in thousands) | Metric | Amount | | :-------------------------------- | :------- | | Balance at December 31, 2021 | $457,472 | | Acquired in business combinations | $48,768 | | Adjustment related to prior year business combinations | $1,467 | | Foreign currency translation adjustment | $(2,461) | | Balance at March 31, 2022 | $505,246 | Net Intangible Assets (in thousands) | Intangible Asset | March 31, 2022 Net Carrying Amount | December 31, 2021 Net Carrying Amount | | :----------------- | :--------------------------------- | :---------------------------------- | | Customer relationships | $248,450 | $232,614 | | Trade name | $4,155 | $3,962 | | Developed technology | $47,831 | $43,344 | | Total | $300,436 | $279,920 | - Total amortization expense for intangible assets was **$13.8 million** in Q1 2022, up from **$12.0 million** in Q1 2021. The estimated annual amortization expense for the remainder of 2022 is **$40.45 million**[54](index=54&type=chunk)[55](index=55&type=chunk) [5. Income Taxes](index=17&type=section&id=5.%20Income%20Taxes) This section discusses the company's income tax benefit or provision and related factors - The income tax benefit for Q1 2022 was **$0.1 million**, primarily from foreign income taxes, offset by changes in deferred tax liabilities related to U.S. tax-deductible goodwill amortization and state taxes[57](index=57&type=chunk) - The Q1 2021 tax benefit of **$4.4 million** was mainly due to the release of a valuation allowance from acquired deferred tax liabilities in the Second Street business combination[58](index=58&type=chunk) [6. Debt](index=17&type=section&id=6.%20Debt) This section provides information on the company's debt obligations, including terms, covenants, and interest rates Long-term Debt (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Senior secured loans (net of discount) | $517,532 | $518,330 | | Less current maturities | $(3,166) | $(3,167) | | Total long-term debt | $514,366 | $515,163 | - The company's Credit Facility includes a **$350 million** Term Loan and a **$60 million** Revolver. An additional **$190 million** Incremental Term Loan was added in November 2019, bringing the total term loans to **$540 million**[62](index=62&type=chunk)[63](index=63&type=chunk)[171](index=171&type=chunk) - Interest rate swaps effectively fix the interest rate on the **$540 million** term loans at **5.4%** for the 7-year term. The Revolver's interest rate remains floating. As of March 31, 2022, the fair value of the interest rate swap was a **$17.8 million asset**[68](index=68&type=chunk)[69](index=69&type=chunk) - The company was in compliance with all covenants under the Credit Facility as of March 31, 2022. Cash interest costs averaged **5.4%** for both Q1 2022 and Q1 2021[75](index=75&type=chunk)[76](index=76&type=chunk) [7. Net Loss Per Share](index=19&type=section&id=7.%20Net%20Loss%20Per%20Share) This section presents the calculation of net loss per common share, both basic and diluted Net Loss Per Share (in thousands, except share and per share amounts) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss | $(22,831) | $(20,684) | | Weighted-average common shares outstanding, basic and diluted | 31,163,273 | 29,970,050 | | Net loss per common share, basic and diluted | $(0.73) | $(0.69) | - Due to net losses, basic and diluted loss per share were identical for both periods. Anti-dilutive common share equivalents totaled **2,664,488** as of March 31, 2022[77](index=77&type=chunk) [8. Commitments and Contingencies](index=19&type=section&id=8.%20Commitments%20and%20Contingencies) This section discloses the company's contractual obligations and potential liabilities - The company has purchase commitments for hosting services and third-party technology. No material adverse legal proceedings are currently anticipated[78](index=78&type=chunk)[79](index=79&type=chunk) - Indemnification claims from acquisitions are managed through holdbacks or representation and warranty insurance policies, with gain contingencies not recognized until realized[80](index=80&type=chunk) [9. Stockholders' Equity](index=20&type=section&id=9.%20Stockholders'%20Equity) This section provides further details on the components of stockholders' equity, including accumulated other comprehensive income and stock-based compensation Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Foreign currency translation adjustment | $(6,704) | $(5,657) | | Unrealized translation gain on intercompany loans | $1,260 | $2,552 | | Unrealized gain (loss) on interest rate swaps | $17,803 | $(8,409) | | Total AOCI | $12,359 | $(11,514) | Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $402 | $442 | | Research and development | $748 | $714 | | Sales and marketing | $1,474 | $1,137 | | General and administrative | $8,995 | $15,531 | | Total | $11,619 | $17,824 | - General and administrative stock-based compensation decreased significantly in Q1 2022, primarily due to a **$6.3 million** incremental expense in Q1 2021 related to the deemed modification of unvested grants for a former COO[86](index=86&type=chunk) [10. Revenue Recognition](index=22&type=section&id=10.%20Revenue%20Recognition) This section explains the company's policies and methods for recognizing revenue from various sources - Revenue is recognized when control of goods/services is transferred to customers, following a five-step model. Performance obligations include subscription and support, perpetual licenses, and professional services[93](index=93&type=chunk)[94](index=94&type=chunk) - Subscription and support revenue is recognized ratably over the contract term (typically 1-3 years). Perpetual license revenue is recognized upfront when software is made available. Professional services revenue is recognized over time as services are performed[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) Disaggregated Revenue by Geography (in thousands) | Revenue Type | Geography | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------- | :---------------- | :-------------------------------- | :-------------------------------- | | Subscription and support | United States | $51,344 | $52,955 | | | United Kingdom | $11,590 | $9,394 | | | Canada | $3,468 | $3,338 | | | Other International | $7,225 | $4,966 | | Perpetual license | United States | $737 | $253 | | | United Kingdom | $129 | $11 | | | Canada | $76 | $42 | | | Other International | $836 | $46 | | Professional services | United States | $1,695 | $2,044 | | | United Kingdom | $790 | $664 | | | Canada | $204 | $88 | | | Other International | $622 | $168 | | Total Revenue | | $78,716 | $73,969 | - As of March 31, 2022, approximately **$306.1 million** of revenue is expected to be recognized from remaining performance obligations, with about **70%** expected within the next 12 months[111](index=111&type=chunk) [11. Related Party Transactions](index=26&type=section&id=11.%20Related%20Party%20Transactions) This section discloses any transactions between the company and its related parties - The Company reported no material related party transactions for the three months ended March 31, 2022[115](index=115&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of Upland Software's financial performance and operational results for Q1 2022, covering revenue, expenses, key metrics, liquidity, and critical accounting policies, with a focus on acquisition impacts [Overview](index=28&type=section&id=Overview) This section provides a general description of Upland Software's business, strategy, and market position - Upland provides cloud-based software applications for digital transformation across marketing, sales, contact center, project management, information technology, business operations, and human resources/legal functions[121](index=121&type=chunk)[130](index=130&type=chunk) - The company employs a 'land-and-expand' go-to-market strategy, selling primarily through a direct sales organization and supporting over **10,000 customers** across various industries[123](index=123&type=chunk)[124](index=124&type=chunk) - Upland's revenue grew from **$98.0 million** in 2017 to **$302.0 million** in 2021, a **33% CAGR**. Foreign revenue increased to **32%** of total revenue in Q1 2022, up from **25%** in Q1 2021[125](index=125&type=chunk) - The company plans to continue growth through acquisitions, having completed **31 acquisitions** from February 2012 through March 31, 2022. Acquisition activity resumed in 2021 and Q1 2022 after a pause due to COVID-19[126](index=126&type=chunk)[128](index=128&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, cost of revenue, and operating expenses [Consolidated Statements of Operations Data](index=30&type=section&id=Consolidated%20Statements%20of%20Operations%20Data) This subsection presents a summary of the company's consolidated statements of operations, including key financial metrics | Metric | 3 Months Ended March 31, 2022 (Amount) | 3 Months Ended March 31, 2022 (% of Revenue) | 3 Months Ended March 31, 2021 (Amount) | 3 Months Ended March 31, 2021 (% of Revenue) | | :-------------------------------- | :------------------------------------- | :------------------------------------------- | :------------------------------------- | :------------------------------------------- | | Total Revenue | $78,716 | 100% | $73,969 | 100% | | Total Cost of Revenue | $24,755 | 31% | $24,427 | 33% | | Gross Profit | $53,961 | 69% | $49,542 | 67% | | Total Operating Expenses | $68,738 | 87% | $67,070 | 91% | | Loss from Operations | $(14,777) | (18)% | $(17,528) | (24)% | | Net Loss | $(22,831) | (29)% | $(20,684) | (28)% | [Comparison of the Three Months Ended March 31, 2022 and 2021](index=31&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20March%2031,%202022%20and%202021) This section provides a detailed comparative analysis of the company's financial performance between the two periods [Revenue](index=31&type=section&id=Revenue) This subsection analyzes the company's revenue performance, including breakdowns by type and contributing factors Revenue Breakdown (in thousands) | Revenue Type | 2022 | 2021 | % Change | | :-------------------- | :----- | :----- | :------- | | Subscription and support | $73,627 | $70,653 | 4% | | Perpetual license | $1,778 | $352 | 405% | | Professional services | $3,311 | $2,964 | 12% | | Total Revenue | $78,716 | $73,969 | 6% | - Total revenue increased by **$4.7 million (6%)** to **$78.7 million** in Q1 2022. Acquisitions contributed **$10.1 million** to this increase, while 'Sunset Assets' and 'Overage Charges' declined by **$0.3 million** and **$2.1 million**, respectively. Core Organic Business revenue decreased by **$2.1 million**[135](index=135&type=chunk) - Subscription and support revenue increased by **$2.9 million (4%)**, with acquisitions contributing **$8.1 million**. Perpetual license revenue saw a significant **405% increase**, primarily from the Objectif Lune acquisition[136](index=136&type=chunk)[137](index=137&type=chunk) [Cost of Revenue and Gross Profit Percentage](index=32&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit%20Percentage) This subsection examines the costs associated with generating revenue and the resulting gross profit margin Cost of Revenue and Gross Profit (in thousands) | Metric | 2022 | 2021 | % Change | | :-------------------------- | :----- | :----- | :------- | | Cost of subscription and support | $22,069 | $22,682 | (3)% | | Cost of professional services and other | $2,686 | $1,745 | 54% | | Total Cost of Revenue | $24,755 | $24,427 | 1% | | Gross Profit | $53,961 | $49,542 | 9% | | Gross Profit Percentage | 69% | 67% | +2pp | - Cost of subscription and support revenue decreased by **$0.6 million (3%)**, with a **$2.5 million** decrease in Organic Business costs, mainly due to lower telecom messaging costs after cyclical highs in 2021[141](index=141&type=chunk) - Cost of professional services and other revenue increased by **$1.0 million (54%)**, entirely attributable to acquisitions[142](index=142&type=chunk) [Operating Expenses](index=33&type=section&id=Operating%20Expenses) This subsection analyzes the company's operating expenses, including sales and marketing, research and development, and general and administrative costs Operating Expenses (in thousands) | Expense Category | 2022 | 2021 | % Change | | :----------------------- | :----- | :----- | :------- | | Sales and marketing | $15,593 | $12,432 | 25% | | Research and development | $12,067 | $10,940 | 10% | | General and administrative | $19,614 | $24,369 | (20)% | | Depreciation and amortization | $11,051 | $9,743 | 13% | - Sales and marketing expense increased by **$3.2 million (25%)**, with **$2.1 million** from acquisitions and **$1.1 million** from organic business due to increased sales commissions[145](index=145&type=chunk) - General and administrative expense decreased by **$4.8 million (20%)**, primarily due to a **$5.5 million** reduction in Organic Business expenses, driven by lower non-cash stock compensation (a **$6.3 million** incremental expense in Q1 2021 did not recur)[150](index=150&type=chunk) - Depreciation and amortization expense increased by **$1.4 million (13%)**, with acquisitions contributing **$1.9 million**, partially offset by **$0.5 million** from fully depreciated/amortized assets[152](index=152&type=chunk) [Acquisition-related Expenses](index=35&type=section&id=Acquisition-related%20Expenses) This subsection details the expenses incurred in connection with business acquisitions Acquisition-related Expenses (in thousands) | Expense Type | 2022 | 2021 | % Change | | :----------------------- | :----- | :----- | :------- | | Acquisition-related expenses | $10,413 | $9,586 | 9% | | Transaction related expenses | $4,500 | $4,000 | 12.5% | | Transformational expenses | $5,900 | $5,600 | 5.4% | - Acquisition-related expenses increased by **$0.8 million (9%)**, driven by both transaction-related and transformational expenses from recent acquisitions in 2022 and 2021[155](index=155&type=chunk) [Other Income (Expense)](index=35&type=section&id=Other%20Income%20(Expense)) This subsection covers non-operating income and expenses, such as interest and other miscellaneous items Other Income (Expense) (in thousands) | Metric | 2022 | 2021 | % Change | | :----------------------- | :----- | :----- | :------- | | Interest expense, net | $(7,762) | $(7,787) | —% | | Other income (expense), net | $(418) | $237 | (276)% | | Total other expense | $(8,180) | $(7,550) | 8% | - Other income (expense), net shifted from an income of **$0.2 million** in Q1 2021 to an expense of **$0.4 million** in Q1 2022, primarily due to currency exchange gains (losses)[157](index=157&type=chunk) [Benefit from (Provision for) Income Taxes](index=36&type=section&id=Benefit%20from%20(Provision%20for)%20Income%20Taxes) This subsection discusses the company's income tax benefit or provision and the factors influencing it Benefit from Income Taxes (in thousands) | Metric | 2022 | 2021 | % Change | | :----------------------- | :----- | :----- | :------- | | Benefit from income taxes | $126 | $4,394 | (97)% | - The income tax benefit decreased significantly by **$4.3 million (97%)** in Q1 2022. The Q1 2022 benefit was mainly from foreign income taxes, while Q1 2021 included a substantial benefit from the release of a valuation allowance related to business combinations[159](index=159&type=chunk) [Key Metrics](index=36&type=section&id=Key%20Metrics) This section presents and reconciles key non-GAAP financial measures used by management to evaluate performance Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Net loss | $(22,831) | $(20,684) | | Depreciation and amortization expense | $14,262 | $12,468 | | Interest expense, net | $7,762 | $7,787 | | Other expense (income), net | $418 | $(237) | | Benefit from income taxes | $(126) | $(4,394) | | Stock-based compensation expense | $11,619 | $17,824 | | Acquisition-related expense | $10,413 | $9,586 | | Purchase accounting deferred revenue discount | $1,929 | $494 | | Adjusted EBITDA | $23,446 | $22,844 | - Adjusted EBITDA increased by **$0.602 million (2.6%)** to **$23.446 million** in Q1 2022, reflecting the company's operating performance excluding non-cash and acquisition-related items[164](index=164&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash to meet its financial obligations and fund operations - As of March 31, 2022, Upland had **$130.4 million** in cash and cash equivalents, **$60.0 million** available under its revolving credit facility, and **$526.5 million** in outstanding borrowings[167](index=167&type=chunk) - Cash and cash equivalents decreased by **$58.7 million** from December 31, 2021, primarily due to **$62.3 million** in cash paid for two acquisitions in Q1 2022[167](index=167&type=chunk) - Working capital surplus decreased from **$106.5 million** at December 31, 2021, to **$29.9 million** at March 31, 2022, which includes **$114.5 million** of deferred revenue as a current liability[169](index=169&type=chunk) [Cash Flows from Operating Activities](index=39&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This subsection analyzes the cash generated or used by the company's primary business operations - Net cash provided by operating activities decreased by **$4.3 million** to **$8.2 million** in Q1 2022, primarily due to increased acquisition-related cash outflows[179](index=179&type=chunk) - Working capital sources included a **$9.2 million** decrease in accounts receivable and a **$1.1 million** increase in deferred revenue, while uses included a **$4.1 million** decrease in accounts payable and a **$4.8 million** decrease in accrued expenses[179](index=179&type=chunk) [Cash Flows from Investing Activities](index=40&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This subsection details the cash used for or generated from investments in assets, such as acquisitions and capital expenditures - Cash used in investing activities decreased by **$10.4 million** to **$62.5 million** in Q1 2022, mainly due to lower acquisition purchase prices compared to the prior year[182](index=182&type=chunk) - Investing activities primarily consist of acquisitions of complementary technologies, products, and businesses, and are expected to continue to expand the company's software library and infrastructure[181](index=181&type=chunk)[183](index=183&type=chunk) [Cash Flows from Financing Activities](index=40&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This subsection analyzes the cash flows related to debt, equity, and other financing transactions - Cash used in financing activities increased by **$2.1 million** to **$4.2 million** in Q1 2022, driven by a **$1.8 million** increase in additional consideration paid to sellers (holdbacks) and a **$0.5 million** increase in net share employee payroll tax settlement payments[185](index=185&type=chunk) [Critical Accounting Policies and the Use of Estimates](index=40&type=section&id=Critical%20Accounting%20Policies%20and%20the%20Use%20of%20Estimates) This section highlights the accounting policies that require significant judgment and estimates by management - Key accounting policies requiring significant judgment and estimates include revenue recognition, income taxes, deferred sales commissions, business combinations (goodwill and long-lived assets), and stock-based compensation[187](index=187&type=chunk) - No material changes to critical accounting policies were reported in Q1 2022 compared to the 2021 Annual Report on Form 10-K[188](index=188&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details Upland Software's exposure to and management of market risks, including interest rate, foreign exchange, and inflation risks [Interest Rate Risk](index=42&type=section&id=Interest%20Rate%20Risk) This subsection describes the company's exposure to fluctuations in interest rates and its mitigation strategies - Upland's interest rate risk primarily relates to cash equivalents and variable rate indebtedness. Interest rate swap agreements fix the interest rate on **$540 million** of term loans at **5.4%**, mitigating exposure to variable rates[193](index=193&type=chunk) - As of March 31, 2022, with no outstanding debt under the revolving credit facility, a hypothetical **100 basis point** change in interest rates would not impact total interest expense[193](index=193&type=chunk) [Foreign Currency Exchange Risk](index=42&type=section&id=Foreign%20Currency%20Exchange%20Risk) This subsection outlines the company's exposure to foreign currency fluctuations and their potential impact - The company is exposed to foreign exchange rate fluctuations as it invoices customers and incurs operating expenses in various foreign currencies (e.g., AUD, CAD, GBP, EUR)[194](index=194&type=chunk) - A hypothetical **10%** change in foreign currency exchange rates could result in a **$2.0 million** change in revenue for the three months ended March 31, 2022. The company has not engaged in currency hedging strategies to date[194](index=194&type=chunk) [Inflation](index=42&type=section&id=Inflation) This subsection discusses the potential impact of inflation on the company's business and financial results - Inflation has not had a material effect on the business in the last three fiscal years, but potential future inflationary pressures could increase costs and adversely affect financial results if not offset by price increases[196](index=196&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) This section evaluates Upland Software's disclosure controls and internal control over financial reporting, confirming their effectiveness and reporting no material changes for Q1 2022 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022[199](index=199&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2022[200](index=200&type=chunk) [Part II. OTHER INFORMATION](index=44&type=section&id=Part%20II.%20OTHER%20INFORMATION) This section contains additional information not covered in Part I, including updated risk factors and exhibits [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section updates previously disclosed risk factors, emphasizing the potential adverse effects of inflation on the company's liquidity, business, financial condition, and operational results - The company may be adversely affected by inflation, which could increase overall cost structure, particularly if commensurate price increases cannot be achieved[205](index=205&type=chunk) - Inflation may lead to higher interest rates, capital costs, shipping costs, supply shortages, increased labor costs, and weakening exchange rates[205](index=205&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and Inline XBRL financial data - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), and 18 U.S.C. Section 1350[209](index=209&type=chunk) - The report also includes Inline XBRL formatted financial statements and notes, and a Cover Page Interactive Data File[209](index=209&type=chunk) [SIGNATURES](index=46&type=section&id=SIGNATURES) This section contains the official signatures, certifying the filing of the Quarterly Report on Form 10-Q by Upland Software, Inc. on May 4, 2022 - The report was duly signed on behalf of UPLAND SOFTWARE, INC. by Michael D. Hill, Chief Financial Officer, on May 4, 2022[213](index=213&type=chunk)

Upland Software, Inc. (NASDAQ:UPLD) Q4 2021 Earnings Conference Call February 24, 2022 5:00 PM ET Company Participants Jack McDonald - Chairman & Chief Executive Officer Mike Hill - Chief Financial Officer Rod Favaron - President Conference Call Participants Bhavan Suri - William Blair Joe Meares - Truist Luv Sodha - Jefferies Luke Morison - Canaccord Alex Sklar - Raymond James Operator Thank you for standing by and welcome to the Upland Software Fourth Quarter 2021 Earnings Call. . At this time, all part ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36720 Upland Software, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 27-2992077 (I.R.S. Empl ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $76.1 million, representing a growth of 3% year-over-year [33] - Recurring revenue from subscription and support grew 2% year-over-year to $72.3 million [33] - Adjusted EBITDA for Q3 2021 was $25 million, consistent with the previous year, with an adjusted EBITDA margin of 33% [38] - Free cash flow for Q3 2021 was $4.9 million, with a year-to-date total of approximately $28 million [39][40] - The company lowered its Q4 revenue guidance by $3.9 million due to reduced messaging volumes and lower new logo bookings [10][12] Business Line Data and Key Metrics Changes - Organic growth in recurring revenues, excluding political, was flat in Q3 2021, with a full-year expectation of 2% growth [13] - Professional services revenue increased by 12% year-over-year to $3.1 million [33] - The messaging volumes from progressive advocacy organization customers were lower than expected, impacting revenue [12][58] Market Data and Key Metrics Changes - The company expects a quarterly revenue run rate of $75 million for Q4 2021, reflecting the impacts of COVID-19 on the business [11][17] - The net dollar retention rate is currently in the low to mid-90s, down from 94% in 2020, but expected to improve in 2022 due to multiyear renewals [16][25] Company Strategy and Development Direction - The company is targeting total revenue growth of 15% per year, combining organic growth and acquisitions, with a focus on self-funded growth [20][66] - The management remains committed to the current strategy of building a strong go-to-market and product organization, with no plans for a major pivot [62][67] - The company aims to add $40 million to $50 million in acquired revenues by the end of 2022 [11][91] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a mixed quarter with strong adjusted EBITDA but lower than expected messaging volumes [9] - There are positive early indicators for Q4 bookings, but the company is taking a conservative approach until sustained improvement is seen [57][110] - The management expressed confidence in the long-term growth potential and the effectiveness of the changes made in the sales and marketing structure [71][73] Other Important Information - The company has approximately $240 million in liquidity, including $180 million in cash and a $60 million undrawn revolver [41] - The net debt leverage is around 3.6, with outstanding net debt of approximately $350 million [43] Q&A Session Summary Question: Visibility and confidence in the pipeline - Management noted that the pipeline creation was impacted by the transition to a fully digital lead generation model during the pandemic, affecting new logo bookings [54][56] Question: Changes in competitive environment - Management indicated no material competitive changes but noted improved relationships with major platform players like Salesforce [70][72] Question: Impact of new logo and expansion sales on acquisition pace - Management confirmed that the pace of acquisitions remains unchanged at $40 million to $50 million per year, supported by internally generated cash flow [91] Question: Goodwill write-off clarification - Management clarified that there were no write-offs, only adjustments in purchase accounting related to acquisitions [87] Question: Drivers of lower messaging volume - The decline was primarily due to lower variable messaging volumes from progressive advocacy organization customers, not due to churn [112][123]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UPLAND SOFTWARE, INC. For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-36720 (Exact name of registrant as specified in its charter) (State or other jurisdiction of in ...

Upland Software, Inc. (NASDAQ:UPLD) Q2 2021 Earnings Conference Call August 4, 2021 5:00 PM ET Company Participants Jack McDonald - Chairman and Chief Executive Officer Mike Hill - Chief Financial Officer Rod Favaron - President and Chief Commercial Officer Conference Call Participants Bhavan Suri - William Blair & Company LLC Luv Sodha - Jefferies LLC Michael Rackers - Needham & Company, LLC Joseph Meares - Truist Securities, Inc. Aaron Spychalla - Craig-Hallum Capital Group LLC Luke Hannan - Canaccord Gen ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-36720 UPLAND SOFTWARE, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorpo ...

Financial Data and Key Metrics Changes - Total revenue for Q1 2021 was $74 million, representing a 9% growth year-over-year [13] - Recurring revenue from subscription and support grew 11% year-over-year to $70.7 million [13] - Adjusted EBITDA for Q1 2021 was $22.8 million, or 31% of total revenue, down from $24.6 million or 36% of total revenue in Q1 2020 [15] - Free cash flow for Q1 2021 was $12.2 million, despite $9.6 million in acquisition-related expenses [15][16] - The company expects full-year 2021 free cash flow to exceed $30 million, potentially over $40 million depending on future acquisitions [16] Business Line Data and Key Metrics Changes - Professional Services revenue was $3 million for the quarter, a 20% year-over-year decline due to COVID-19 travel impacts [13] - Organic recurring revenue growth was 3%, and 6% when excluding political-related revenue from Q1 2020 [9] Market Data and Key Metrics Changes - The company reported a 9% total revenue growth, with a strong performance in recurring revenue [9][13] - The demand environment is showing signs of returning to pre-COVID levels, with a net dollar retention rate in the mid-90s [32] Company Strategy and Development Direction - The company restarted its M&A engine, completing two strategic acquisitions: Second Street and BlueVenn, which are expected to enhance its Customer Experience Management (CXM) suite [9][11] - The acquisition program is now self-sustaining, relying on free cash flow rather than equity capital markets [9] - The company is focusing on cross-selling opportunities and integrating acquired products into existing sales channels [23][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand environment returning to normal, although they maintain a conservative outlook for the remainder of the year [32] - The company is actively pursuing additional acquisition opportunities across various product suites, including Contact Center and Document Workflow [26][64] Other Important Information - The company has approximately $246.7 million in liquidity, including $186.7 million in cash and a $60 million undrawn revolver [17] - Upland has about $356 million in total tax NOL carry-forwards, with an estimated $215 million available for utilization prior to expiration [17] Q&A Session Summary Question: Progress on BlueVenn and Second Street acquisitions - Management is excited about both acquisitions, which are strategic and accretive, enhancing the CXM product suite [22] Question: M&A funnel opportunities - The company has a strong pipeline across all key product suites, with potential acquisitions likely outside of CXM [26] Question: Cross-sell journey and organic revenue growth - Management indicated that foundational work is being done to support cross-sell efforts, with expectations for growth in 2022 [30][31] Question: Demand environment post-COVID - Management noted that the business proved resilient during COVID, and the demand environment is beginning to normalize [32] Question: Mobile messaging products usage - The company is seeing expected organic growth of 6% when excluding political revenue from the previous year [35] Question: Bookings and pipeline growth - Bookings are in line with expectations, with a mix of new versus expansion deals [39][40] Question: Retaining acquired sales talent - The company focuses on retaining top talent from acquisitions while integrating them into the larger sales organization [46] Question: Update on HP relationship - The relationship with HP is developing positively, with training and pipeline building underway [50][51] Question: Contact center market opportunities - The company sees significant potential in the contact center space and is looking to expand its solution suite in this area [64] Question: M&A pipeline and COVID impact - The COVID impact has led to an influx of potential acquisition targets, with a focus on quality and resilience during the pandemic [68][69]

Part I. FINANCIAL INFORMATION This section details Upland Software's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Upland Software's unaudited condensed consolidated financial statements and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table provides a snapshot of Upland Software's financial position at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :----------------------------------- | :------------- | :---------------- | | **Assets** | | | | Cash and cash equivalents | $186,672 | $250,029 | | Total current assets | $250,823 | $317,540 | | Total assets | $1,035,117 | $1,011,220 | | **Liabilities** | | | | Total current liabilities | $147,245 | $121,420 | | Notes payable, less current maturities | $517,636 | $518,437 | | Interest rate swap liabilities | $14,581 | $30,032 | | Total liabilities | $717,457 | $704,605 | | **Stockholders' Equity** | | | | Total stockholders' equity | $317,660 | $306,615 | | Total liabilities and stockholders' equity | $1,035,117 | $1,011,220 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This table details Upland Software's financial performance over the reporting periods Condensed Consolidated Statements of Operations (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | | :----------------------------------- | :----- | :----- | | Total revenue | $73,969 | $68,032 | | Gross profit | $49,542 | $45,831 | | Loss from operations | $(17,528) | $(15,323) | | Net loss | $(20,684) | $(20,081) | | Net loss per common share, basic and diluted | $(0.69) | $(0.81) | | Weighted-average common shares outstanding | 29,970,050 | 24,906,932 | - Total revenue increased by **9%** year-over-year, from **$68.0 million** in Q1 2020 to **$74.0 million** in Q1 2021. Subscription and support revenue, the largest component, grew **11%** from **$63.9 million** to **$70.7 million**[11](index=11&type=chunk) - Net loss slightly increased from **$(20.1) million** in Q1 2020 to **$(20.7) million** in Q1 2021, while net loss per common share improved from **$(0.81)** to **$(0.69)** due to an increase in weighted-average common shares outstanding[11](index=11&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This table presents Upland Software's comprehensive loss, including other comprehensive income items Condensed Consolidated Statements of Comprehensive Loss (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | | :----------------------------------- | :----- | :----- | | Net loss | $(20,684) | $(20,081) | | Foreign currency translation adjustment | $(2,387) | $(3,459) | | Unrealized translation gain (loss) on foreign currency denominated intercompany loans | $840 | $(7,313) | | Unrealized gain (loss) on interest rate swaps | $15,451 | $(31,401) | | Comprehensive loss | $(6,780) | $(62,254) | - Comprehensive loss significantly improved from **$(62.3) million** in Q1 2020 to **$(6.8) million** in Q1 2021, primarily driven by a substantial unrealized gain on interest rate swaps in 2021 compared to a large loss in 2020[14](index=14&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This table outlines changes in Upland Software's stockholders' equity over the period Changes in Stockholders' Equity (Three Months Ended March 31, 2021, in thousands) | Metric | Balance at Dec 31, 2020 | Stock-based Compensation | Unrealized Gain on Interest Rate Swaps | Net Loss | Balance at Mar 31, 2021 | | :----------------------------------- | :---------------------- | :----------------------- | :----------------------------------- | :--------- | :---------------------- | | Additional Paid-In Capital | $515,219 | $17,824 | — | — | $533,044 | | Accumulated Other Comprehensive Loss | $(26,234) | — | $15,451 | — | $(12,330) | | Accumulated Deficit | $(182,373) | — | — | $(20,684) | $(203,057) | | Total Stockholders' Equity | $306,615 | $17,824 | $15,451 | $(20,684) | $317,660 | - Total stockholders' equity increased from **$306.6 million** at December 31, 2020, to **$317.7 million** at March 31, 2021, primarily due to stock-based compensation and unrealized gains on interest rate swaps, partially offset by the net loss[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table summarizes Upland Software's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, in thousands) | Activity | 2021 | 2020 | | :----------------------------------- | :----- | :----- | | Net cash provided by (used in) operating activities | $12,503 | $(5,309) | | Net cash used in investing activities | $(72,900) | $(68,148) | | Net cash used in financing activities | $(2,095) | $(3,204) | | Effect of exchange rate fluctuations on cash | $(865) | $325 | | Change in cash and cash equivalents | $(63,357) | $(76,336) | | Cash and cash equivalents, end of period | $186,672 | $98,688 | - Net cash provided by operating activities significantly improved to **$12.5 million** in Q1 2021 from a use of **$5.3 million** in Q1 2020. Cash used in investing activities increased to **$72.9 million**, primarily due to acquisitions[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations for the condensed consolidated financial statements [1. Summary of Significant Accounting Policies](index=9&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and estimates used in financial reporting - The financial statements are prepared in conformity with GAAP and include Upland Software, Inc. and its wholly-owned subsidiaries. Management's estimates are based on historical experience and assumptions, with no specific COVID-19 related updates to estimates as of May 5, 2021[22](index=22&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - The Company uses floating-to-fixed interest rate swap agreements to hedge exposure to interest rate risk on its **$540 million** term loans, effectively fixing the rate at **5.4%**. These derivatives are recognized at fair value as liabilities[29](index=29&type=chunk) - The fair value of interest rate swaps was **$14.6 million** as of March 31, 2021, down from **$30.0 million** at December 31, 2020[29](index=29&type=chunk) [2. Acquisitions](index=10&type=section&id=2.%20Acquisitions) This section details the company's business acquisitions and their financial impact - In Q1 2021, Upland acquired BlueVenn (cloud-based customer data platform) and Second Street (audience engagement platform), contributing approximately **$1.0 million** and **$2.0 million** in revenue, respectively, since their acquisition dates through March 31, 2021[39](index=39&type=chunk) Acquisition Consideration (in thousands) | Acquisition | Cash | Holdback | Contingent Consideration | Working Capital Adjustment | Total Consideration | | :---------- | :--- | :------- | :----------------------- | :------------------------- | :------------------ | | BlueVenn | $53,535 | $2,429 | $2,742 | — | $58,706 | | Second Street | $25,436 | $5,000 | $1,650 | $104 | $32,190 | | Localytics (2020) | $67,655 | $345 | $1,000 | $(5,238) | $63,762 | - The purchase accounting for BlueVenn and Second Street is preliminary, with finalization expected by Q1 2022. Goodwill of **$98.7 million** from these acquisitions is primarily attributed to expected synergies[38](index=38&type=chunk)[43](index=43&type=chunk) [3. Fair Value Measurements](index=13&type=section&id=3.%20Fair%20Value%20Measurements) This section describes the valuation methods and categories for financial instruments - The Company measures contingent accrued earnout business acquisition consideration liabilities as Level 3 instruments, remeasured periodically based on anticipated revenue levels, discount periods/rates, and foreign exchange rates[47](index=47&type=chunk) Liabilities Measured at Fair Value (March 31, 2021, in thousands) | Liability | Level 1 | Level 2 | Level 3 | Total | | :-------------------------- | :------ | :------ | :------ | :------ | | Earnout consideration liability | — | — | $4,350 | $4,350 | | Interest rate swap liabilities | — | $14,581 | — | $14,581 | - The fair value of interest rate swaps, categorized as Level 2, was a **$14.6 million** liability at March 31, 2021, reflecting a decline in short-term interest rates since the swap agreements were initiated[48](index=48&type=chunk) [4. Goodwill and Other Intangible Assets](index=14&type=section&id=4.%20Goodwill%20and%20Other%20Intangible%20Assets) This section provides details on the company's goodwill and other intangible assets Goodwill Balance (in thousands) | Metric | Amount | | :--------------------------- | :------- | | Balance at December 31, 2020 | $383,598 | | Acquired in business combinations | $65,190 | | Foreign currency translation adjustment | $(230) | | Balance at March 31, 2021 | $448,558 | Intangible Assets, Net (March 31, 2021, in thousands) | Asset Class | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | :-------------------- | :-------------------- | :----------------------- | :------------------ | | Customer relationships | $348,678 | $98,022 | $250,656 | | Trade name | $9,700 | $4,992 | $4,708 | | Developed technology | $87,044 | $36,627 | $50,417 | | Non-compete agreements | $1,148 | $1,052 | $96 | | Total intangible assets | $446,570 | $140,693 | $305,877 | - Total amortization expense for Q1 2021 was **$12.0 million**, up from **$11.2 million** in Q1 2020. No impairments of intangible assets or goodwill were recorded[55](index=55&type=chunk) [5. Income Taxes](index=15&type=section&id=5.%20Income%20Taxes) This section explains the company's income tax provisions and deferred tax assets/liabilities - The Company recorded an income tax benefit of **$4.4 million** for Q1 2021, primarily due to the release of valuation allowance related to deferred tax liabilities from the Second Street acquisition and foreign income taxes[58](index=58&type=chunk) - As of March 31, 2021, Upland had **$355 million** in total net operating loss carryforwards, with approximately **$214 million** available for utilization prior to expiration[60](index=60&type=chunk) [6. Debt](index=16&type=section&id=6.%20Debt) This section details the company's long-term debt obligations and credit facilities Long-term Debt (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :----------------------------------- | :------------- | :---------------- | | Senior secured loans (net of discount) | $520,806 | $521,603 | | Less current maturities | $(3,170) | $(3,166) | | Total long-term debt | $517,636 | $518,437 | - The Company's Credit Facility includes a **$350 million** Term Loan and a **$190 million** Incremental Term Loan, both with interest rates effectively fixed at **5.4%** via interest rate swaps, and a **$60 million** revolving credit facility which remains floating[63](index=63&type=chunk)[64](index=64&type=chunk)[68](index=68&type=chunk) - As of March 31, 2021, the Company had **no outstanding borrowings** under the Revolver and was in compliance with all Credit Facility covenants[72](index=72&type=chunk)[75](index=75&type=chunk) [7. Net Loss Per Share](index=18&type=section&id=7.%20Net%20Loss%20Per%20Share) This section presents the calculation of net loss per common share Net Loss Per Share Computation (Three Months Ended March 31, in thousands, except share and per share amounts) | Metric | 2021 | 2020 | | :----------------------------------- | :----- | :----- | | Net Loss | $(20,684) | $(20,081) | | Weighted–average common shares outstanding, basic and diluted | 29,970,050 | 24,906,932 | | Net loss per common share, basic and diluted | $(0.69) | $(0.81) | - Due to net losses, basic and diluted loss per share were the same. Anti-dilutive common share equivalents totaled **2,660,192** as of March 31, 2021[77](index=77&type=chunk) [8. Commitments and Contingencies](index=18&type=section&id=8.%20Commitments%20and%20Contingencies) This section outlines the company's contractual commitments and potential liabilities - The Company has purchase commitments for hosting services, third-party technology, and software development services, including a remaining obligation of **$7.2 million** for DevFactory FZ-LLC through December 31, 2021[78](index=78&type=chunk)[79](index=79&type=chunk) - The Company is **not involved in any current or pending legal proceedings** that would materially adversely affect its financial statements[80](index=80&type=chunk) [9. Stockholders' Equity](index=19&type=section&id=9.%20Stockholders'%20Equity) This section provides further details on the components of stockholders' equity Accumulated Other Comprehensive Loss (in thousands) | Component | March 31, 2021 | December 31, 2020 | | :---------------------------------------------------- | :------------- | :---------------- | | Foreign currency translation adjustment | $(1,743) | $644 | | Unrealized translation gain on intercompany loans | $3,994 | $3,154 | | Unrealized loss on interest rate swaps | $(14,581) | $(30,032) | | Total accumulated other comprehensive loss | $(12,330) | $(26,234) | - Stock-based compensation expense totaled **$17.8 million** in Q1 2021, up from **$9.3 million** in Q1 2020, primarily due to a **$6.3 million** incremental expense related to the deemed modification of unvested grants for the former COO[88](index=88&type=chunk) - Unvested Restricted Stock Units (RSUs) increased from **1,261,290** at Dec 31, 2020, to **2,234,764** at March 31, 2021, with **1,096,662** units granted during the quarter[89](index=89&type=chunk) [10. Revenue Recognition](index=21&type=section&id=10.%20Revenue%20Recognition) This section explains the company's policies for recognizing revenue from various sources - Revenue is recognized when control of promised goods or services is transferred to customers, following a five-step model. Performance obligations include subscription and support, perpetual licenses, and professional services[95](index=95&type=chunk)[96](index=96&type=chunk) - Subscription and support revenue is recognized ratably over the contract term (generally 1-3 years). Perpetual license revenue is recognized upfront when software is made available. Professional services revenue is recognized over time as services are performed[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) Disaggregated Revenue by Geography (Three Months Ended March 31, 2021, in thousands) | Revenue Type | United States | United Kingdom | Canada | Other International | Total | | :----------------------- | :------------ | :------------- | :----- | :------------------ | :------ | | Subscription and support | $52,955 | $9,394 | $3,338 | $4,966 | $70,653 | | Perpetual license | $253 | $11 | $42 | $46 | $352 | | Professional services | $2,044 | $664 | $88 | $168 | $2,964 | | Total revenue | $55,252 | $10,069 | $3,468 | $5,180 | $73,969 | [11. Related Party Transactions](index=25&type=section&id=11.%20Related%20Party%20Transactions) This section details transactions with affiliated entities and related parties - The Company has an agreement with DevFactory FZ LLC (an affiliate of a non-management investor) for software development services, with a purchase commitment of **$9.6 million** in 2021. Payments were **$2.4 million** in Q1 2021[116](index=116&type=chunk) - Services were also purchased from Crossover, Inc. (controlled by the same investor) for approximately **$1.0 million** in Q1 2021, for identifying and connecting with technology software development resources[116](index=116&type=chunk) - An arrangement with former subsidiary Visionael Corporation, in which the CEO holds a significant interest, generated **no fees** in Q1 2021 (down from **$15,000** in Q1 2020). An allowance for credit loss of **$0.4 million** was recognized against advances to Visionael[118](index=118&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Upland Software's financial condition, operational results, and liquidity [Overview](index=28&type=section&id=Overview) This section provides a general description of Upland Software's business and strategy - Upland Software provides cloud-based enterprise work management software across various functional areas including Marketing, Sales, Contact Center, Project Management, Information Technology, Business Operations, and Human Resources/Legal[123](index=123&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[134](index=134&type=chunk) - The Company employs a 'land-and-expand' go-to-market strategy, serving over **10,000 customers** with more than **1,000,000 users**. Revenue grew from **$98.0 million** in 2017 to **$291.8 million** in 2020, a **44% CAGR**[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - COVID-19 impacted new bookings and churn, but was offset by strength in cloud offerings and US election-year campaigns in 2020. Acquisition activity resumed in Q1 2021 after a pause in 2020[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk) [Key Metrics](index=30&type=section&id=Key%20Metrics) This section defines and reconciles key non-GAAP financial metrics used for performance evaluation - Adjusted EBITDA is a key non-GAAP metric used to evaluate operational effectiveness and efficiency, defined as net income (loss) plus depreciation, amortization, interest, other expense, taxes, stock-based compensation, acquisition-related expenses, and purchase accounting adjustments for deferred revenue[137](index=137&type=chunk) Reconciliation of Net Loss to Adjusted EBITDA (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | | :----------------------------------- | :----- | :----- | | Net loss | $(20,684) | $(20,081) | | Depreciation and amortization expense | $12,468 | $11,737 | | Interest expense, net | $7,787 | $7,643 | | Other expense (income), net | $(237) | $1,402 | | Benefit from income taxes | $(4,394) | $(4,287) | | Stock-based compensation expense | $17,824 | $9,320 | | Acquisition-related expense | $9,586 | $15,158 | | Purchase accounting deferred revenue discount | $494 | $3,701 | | Adjusted EBITDA | $22,844 | $24,593 | - Adjusted EBITDA decreased by **7.1%** from **$24.6 million** in Q1 2020 to **$22.8 million** in Q1 2021[139](index=139&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section analyzes Upland Software's financial performance, including revenue and expenses [Revenue](index=32&type=section&id=Revenue) This section details Upland Software's revenue streams and their year-over-year changes Revenue (Three Months Ended March 31, in thousands) | Revenue Type | 2021 | 2020 | % Change | | :----------------------- | :----- | :----- | :------- | | Subscription and support | $70,653 | $63,891 | 11 % | | Perpetual license | $352 | $361 | (2)% | | Professional services | $2,964 | $3,780 | (22)% | | Total revenue | $73,969 | $68,032 | 9 % | - Total revenue increased by **$6.0 million (9%)** to **$74.0 million** in Q1 2021. Acquisitions contributed **$5.8 million**, while organic business revenue increased by **$0.7 million**, despite a **$2.1 million** decline in CXM usage revenue from US election campaigns[146](index=146&type=chunk) - Professional services revenue decreased by **$0.8 million (22%)**, primarily due to reduced on-site work from COVID-19 travel impacts[149](index=149&type=chunk) [Cost of Revenue and Gross Profit Percentage](index=33&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit%20Percentage) This section analyzes the costs associated with revenue and the resulting gross profit Cost of Revenue and Gross Profit (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------------------- | :----- | :----- | :------- | | Cost of subscription and support | $22,682 | $19,939 | 14 % | | Cost of professional services and other | $1,745 | $2,262 | (23)% | | Total cost of revenue | $24,427 | $22,201 | 10 % | | Gross profit | $49,542 | $45,831 | 8 % | | Gross profit percentage | 67 % | 67 % | 0 pp | | Amortization included in cost of revenue | $2,714 | $2,395 | 13 % | | Stock Compensation included in cost of revenue | $442 | $318 | 39 % | - Cost of subscription and support revenue increased by **$2.8 million (14%)**, with acquisitions contributing **$1.8 million**. Cost of professional services decreased by **$0.6 million (23%)** due to planned operating efficiencies[151](index=151&type=chunk)[152](index=152&type=chunk) [Operating Expenses](index=34&type=section&id=Operating%20Expenses) This section details Upland Software's various operating expenses [Sales and Marketing Expense](index=34&type=section&id=Sales%20and%20Marketing%20Expense) This section analyzes sales and marketing expenditures and their drivers Sales and Marketing Expense (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------- | :----- | :----- | :------- | | Sales and marketing | $12,432 | $10,931 | 14 % | | Percentage of total revenue | 17 % | 16 % | 1 pp | | Stock Compensation | $1,137 | $549 | 107 % | - Sales and marketing expense increased by **$1.5 million (14%)**, with **$0.4 million** from acquisitions and **$1.1 million** from organic business due to go-to-market investments[155](index=155&type=chunk) [Research and Development Expense](index=34&type=section&id=Research%20and%20Development%20Expense) This section details research and development investments and their changes Research and Development Expense (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------- | :----- | :----- | :------- | | Research and development | $10,940 | $9,118 | 20 % | | Percentage of total revenue | 15 % | 14 % | 1 pp | | Stock Compensation | $714 | $615 | 16 % | - Research and development expense increased by **$1.8 million (20%)**, with **$0.8 million** from acquisitions and **$1.0 million** from organic business, primarily due to outsourced technology development services[157](index=157&type=chunk) [General and Administrative Expense](index=34&type=section&id=General%20and%20Administrative%20Expense) This section analyzes general and administrative costs, including significant one-time items General and Administrative Expense (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------- | :----- | :----- | :------- | | General and administrative | $24,369 | $16,676 | 46 % | | Percentage of total revenue | 33 % | 25 % | 8 pp | | Stock Compensation | $15,531 | $7,838 | 98 % | - General and administrative expense increased by **$7.7 million (46%)**, driven primarily by a one-time **$7.6 million** increase in non-cash stock compensation expense related to the COO's departure[159](index=159&type=chunk)[160](index=160&type=chunk) [Depreciation and Amortization Expense](index=35&type=section&id=Depreciation%20and%20Amortization%20Expense) This section details depreciation and amortization expenses Depreciation and Amortization Expense (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------------------- | :----- | :----- | :------- | | Depreciation | $444 | $461 | (4)% | | Amortization | $9,299 | $8,810 | 6 % | | Total depreciation and amortization | $9,743 | $9,271 | 5 % | - Total depreciation and amortization expense increased by **$0.4 million (5%)**, with acquisitions contributing **$1.0 million**, partially offset by a **$0.6 million** decrease in organic business due to fully amortized assets[162](index=162&type=chunk) [Acquisition-related Expenses](index=35&type=section&id=Acquisition-related%20Expenses) This section analyzes expenses incurred due to acquisition activities Acquisition-related Expenses (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------- | :----- | :----- | :------- | | Acquisition-related expenses | $9,586 | $15,158 | (37)% | | Percentage of total revenue | 13 % | 21 % | (8) pp | | Transaction related expenses | $4,000 | $3,300 | 21 % | | Transformational expenses | $5,600 | $11,900 | (53)% | - Acquisition-related expenses decreased by **$5.6 million (37%)**, primarily due to a significant reduction in transformational expenses, despite an increase in transaction-related expenses from renewed acquisition activity[164](index=164&type=chunk) [Other Income (Expense)](index=36&type=section&id=Other%20Income%20(Expense)) This section details non-operating income and expenses, including interest and currency effects Other Income (Expense) (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------- | :----- | :----- | :------- | | Interest expense, net | $(7,787) | $(7,643) | 2 % | | Other income (expense), net | $237 | $(1,402) | (117)% | | Total other expense | $(7,550) | $(9,045) | (17)% | - Total other expense decreased by **$1.5 million (17%)**, driven by a shift from other expense of **$1.4 million** in Q1 2020 to other income of **$0.2 million** in Q1 2021, primarily due to currency exchange gains[166](index=166&type=chunk)[168](index=168&type=chunk) [Benefit from Income Taxes](index=36&type=section&id=Benefit%20from%20Income%20Taxes) This section explains the income tax benefit recognized by the company Benefit from Income Taxes (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | % Change | | :----------------------- | :----- | :----- | :------- | | Benefit from income taxes | $4,394 | $4,287 | 2 % | | Percentage of total revenue | 6 % | 6 % | 0 pp | - The income tax benefit slightly increased by **$0.1 million**, primarily due to deferred tax benefits from the release of valuation allowance related to business combinations in both periods[169](index=169&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Upland Software's cash position, debt, and capital management - As of March 31, 2021, Upland had **$186.7 million** in cash and cash equivalents and **$60.0 million** available under its revolving credit facility, with **$531.9 million** outstanding under its credit facility[172](index=172&type=chunk) - Cash and cash equivalents decreased by **$63.3 million** from December 31, 2020, primarily due to **$77.9 million** in cash paid for two acquisitions in Q1 2021[172](index=172&type=chunk) - Net cash provided by operating activities was **$12.5 million** in Q1 2021, a significant increase from **$5.3 million** used in Q1 2020, driven by increased scale and favorable working capital changes[183](index=183&type=chunk) [Critical Accounting Policies and the Use of Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20the%20Use%20of%20Estimates) This section highlights accounting policies requiring significant management judgment and estimates - Key accounting policies involving significant management judgments and estimates include revenue recognition, stock-based compensation, deferred sales commissions, income taxes, and business combinations (goodwill and long-lived assets)[192](index=192&type=chunk) - No **material changes** to critical accounting policies were reported for Q1 2021 compared to the 2020 Annual Report on Form 10-K[193](index=193&type=chunk) [Recent Accounting Pronouncements](index=40&type=section&id=Recent%20Accounting%20Pronouncements) This section outlines the impact of recently issued accounting standards - The Company is evaluating the impact of ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease accounting burdens related to reference rate reform (e.g., LIBOR discontinuation)[34](index=34&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details Upland Software's exposure to market risks, including interest rate, foreign exchange, and inflation - The Company's exposure to interest rate risk is primarily from variable rate indebtedness. Interest rate hedge instruments effectively fix the interest rate on **$540 million** of term loans at **5.4%**, mitigating risk[197](index=197&type=chunk) - Foreign currency exchange risk arises from international operations and expenses in foreign currencies (CAD, GBP, EUR). A hypothetical **10%** change in exchange rates could impact Q1 2021 revenue by **$1.5 million**. No currency hedging strategies have been employed to date[198](index=198&type=chunk) - Inflation has not had a material effect on the business in the last three fiscal years, but significant inflationary pressures could harm financial results if not offset by price increases[200](index=200&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of Upland Software's disclosure controls and procedures - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of March 31, 2021[203](index=203&type=chunk) - No **material changes** to internal control over financial reporting occurred during the quarter ended March 31, 2021[204](index=204&type=chunk) - Internal controls have inherent limitations, including human diligence, judgment lapses, and potential circumvention by collusion or management override, which could lead to undetected material misstatements[205](index=205&type=chunk) Part II. OTHER INFORMATION This section includes additional information not covered in the financial statements [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors detailed in the Company's 2020 Annual Report on Form 10-K - No **material changes** to the risk factors included in the Company's 2020 Annual Report on Form 10-K were identified during 2021[208](index=208&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and agreements - Exhibits include an Advisory Agreement with Tim Mattox, CEO and CFO certifications (pursuant to Exchange Act Rules 13a-14(a), 15d-14(a), and 18 U.S.C. Section 1350), and Inline XBRL documents[212](index=212&type=chunk) [Signature](index=45&type=section&id=Signature) The report was officially signed by the Chief Financial Officer on May 5, 2021 - The report was signed by **Michael D. Hill**, Chief Financial Officer, on **May 5, 2021**[216](index=216&type=chunk)