Good afternoon. My name is Christine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Upland Software Third Quarter 2015 Financial Results Conference Call. [Operator Instructions] Thank you. Jack McDonald, Chairman and CEO, you may begin your conference.

Thank you, and good afternoon, everyone. Welcome to our Q3 earnings call. With me today, I've got Tim Mattox, our President and COO; and Mike Hill, our CFO. So on today's call, I'm going to summarize our Q3 results. We'll talk briefly about Q4 guidance and discuss some recent highlights, including our most recent acquisition. Following that, Mike's going to give a more detailed look at the Q3 numbers and also share the guidance for Q4 and guidance for full year 2015. And then finally, Tim will cover sales and operating highlights, talk a bit more about Ultriva. And then following that, we will open the call up for questions. But before we get started, Mike Hill is going to read a safe harbor statement and also cover some upcoming investor outreach. Mike?

Thank you, Jack, and good afternoon, everyone. The press release announcing our third quarter results and our business outlook as well as a reconciliation of management's use of non-GAAP financial measures as compared to the most comparable GAAP measures is available on the Investor Relations section of our website at investor.uplandsoftware.com. During today's call, we may include statements that are considered forward-looking within the meanings of the securities laws. In addition, we may make additional forward-looking statements in response to your questions. These statements are subject to certain risks, assumptions and uncertainties that could cause our actual results to differ materially. We caution you to consider risk factors and other uncertainties that could cause actual results to differ materially from those in the forward-looking statements contained in the press release and in this conference call. A detailed discussion of such risks and uncertainties are contained in our annual report on Form 10-K, which was filed on March 31, 2015, and our most recent quarterly report, Form 10-Q, which is being filed today, November 16, 2015. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today, November 16, 2015. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements, whether as a result of new information, future events or otherwise. On this call, Upland will refer to non-GAAP measures that, when used in combination with GAAP results, provide Upland management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-GAAP to the most comparable GAAP measures in its press release announcing its third quarter results. Before I turn the call back over to Jack, I would like to announce that we will be at the Raymond James Technology Investors Conference in New York on December 8 and 9, and we will be at the 18th Annual Needham Growth Conference in New York on January 12 through 14. To learn more about our outreach plans, please feel free to contact us at investor-relations@uplandsoftware.com. And with that, I'll turn the call back over to Jack.

Thanks, Mike. I would say 3 major headlines from today's call. First, strong Q3 results with record EBITDA; second, strong Q4 guidance; and third, the acquisition of Ultriva. Regarding the Q3 results, we're pleased to announce record EBITDA for the quarter, our best quarter as a public company. We're looking at 58% sequential -- quarterly sequential growth in EBITDA, a 94% increase year-over-year. Regarding the Q4 guidance, pleased to note that our guidance at the midpoint for Q4 -- and Mike's going to take you through the details on this later in the call -- but it will yield another record quarter of EBITDA, the midpoint being about $1.7 million. And that's up from just $300k EBITDA in Q1. So we've had a solid progression this year and showing growth, and also hitting that important 10% adjusted EBITDA margin goal that we set out roughly a year ago. Third, we're very pleased to announce the acquisition of Ultriva, which will add a suite of cloud-based supply chain management, management operations, work management applications to the Upland product family. And pleased to note as well that our M&A pipeline remains strong and that we are actively pursuing additional opportunities. And as I mentioned, Tim is going to talk a little bit more about Ultriva in his section of the call, and I'm sure we'll discuss it in the Q&A as well. And then finally, as we work to successfully close out the fourth quarter and move into 2016, our focus is and will continue to be on building scale through strategic acquisitions, achieving growth in absolute EBITDA and also expanding our EBITDA margins. And we'll do that through deemphasizing lower-margin revenues, whether it's services revenues or some product revenue. It's a simple strategy that leverages our operating platform and our M&A capabilities to drive growth in cash flow, growth in EBITDA, adjusted EBITDA, which we believe will be the real value creator for Upland, and which will be the key financial metric we focus on in measuring our progress. So with that, I'm going to turn the call over to Mike, who's going to give you a more detailed look at the Q3 numbers and also share with you our guidance.

Thanks, Jack. I'll cover the financial results for the third quarter and our guidance for the fourth quarter and full year 2015. Total revenue for the third quarter was $17.1 million, an increase of 5% from a year ago. And it was $18.1 million or 11% growth on a constant currency basis. When using the currency exchange rates from the second quarter of 2015 just a quarter ago, total revenue for the third quarter was $17.4 million. Recurring revenue from subscription and support grew 14% year-over-year to $14.1 million or 20% growth on a constant currency basis. When using the currency exchange rates from the second quarter of 2015, again, just a quarter ago, recurring revenue for the third quarter was $14.4 million. Professional services revenue was $2.4 million for the quarter, down 20% year-over-year, and perpetual license revenue declined 36% year-over-year to $540,000. Moving down the P&L to gross margin. Overall, gross margin was 62% during the third quarter, and our product gross margin remained strong at 67%, or 71% when adding back amortization of acquired intangible assets. Professional services gross margin was 31% during the third quarter. Turning to our operating expenses. Research and development expense was $3.9 million for the third quarter, representing 23% of total revenue. Sales and marketing expense was $2.9 million, representing 17% of total revenue for the third quarter. General and administrative expense was $4.5 million in the third quarter, representing 26% of total revenue. Excluding -- but excluding noncash stock compensation for the third quarter, G&A expense was $3.9 million or 23% of total revenue. Operating loss was $1.8 million in the third quarter of 2015, compared to a loss of $1.7 million in the same quarter of 2014. GAAP net loss was $2.3 million or a loss of $0.16 per diluted…

Thanks, Mike, and good afternoon, everyone. I'm going to cover our sales, product and operating areas. The results continue to show that our enterprise customers are achieving greater success and improved outcomes by relying on the Upland family of products. Upland continues to demonstrate to both new and existing customers why our products are the choice for those who require exceptional technology and service. On the sales front, we acquired over 120 new customers, of which 8 were major accounts. We continue to see strength in our expansion sales to existing customers, with 8 major customers increasing their annual recurring revenue by 25% or more. Verticals with particular strength were health care, government, financial services and higher education. Some of the major renewal and expansion examples for the third quarter were: a large data center manufacturer and building solutions company nearly doubled their commitment to our portfolio on project management offering to $160k per year; a large tire manufacturer expanded its commitment to our portfolio and project management tool to over $420,000 per year; a leading financial analytics software company renewed its commitment to Upland's Professional Services Automation offering to nearly $300,000 per year; and a large financial services firm recommitted to our IT Financial Management offering for $400,000 per year. On the cross-sell front, we continue to build and progress the pipeline. We closed cross-sell deals for our Professional Services Automation offering, Tenrox, and to customers of our portfolio and project management product PowerSteering. Our 2 latest acquisitions, Mobile Commons and Eclipse, continue to perform well. The Mobile Commons robust 2-way text messaging platform is allowing organizations to deepen their relationship with customers and improve outcomes. While Eclipse's powerful, but easy to deploy, portfolio and project management offering gets customers up and going quickly. On the product front, we…

Thanks, Tim. So again, a strong EBITDA quarter, a strong EBITDA guidance for Q4. And of course, we're happy to welcome Ultriva to the Upland family of products. And with our healthy capital resources and robust acquisition pipeline, and we do see a lot of activity on the M&A pipeline. So we remain committed to growing through strategic acquisitions and expanding our absolute and adjusted EBITDA margins. So at this point, we're ready to open the call up for Q&A. So I'd ask the operator to go ahead and do so.

[Operator Instructions] Your first question comes from the line of Bhavan Suri from William Blair.

Let's just dive in. I guess, as you look at the quarter, initially at the high level, certainly, the subscription number came in ahead of our expectations. But maybe, Mike or Jack, can you just walk through the puts and takes on, outside of currency, sort of why you saw it sort of be at the low end. Is this the services deemphasis? Was there a license piece that didn't come in? How should we think about how the quarter ended up on the top line? Because obviously the bottom line was great.

Hey, Bhavan. It's Mike. Thanks for the question. Yes, so color around Q3's revenue component. So yes, as you noted there, recurring revenue continuing actually up to -- on a constant currency basis with Q2, up to $14.4 million from $14.1 million. Professional services, there at $2.4 million, being a little bit -- well, hanging in there. But as you know, we are deemphasizing the lower-margin parts of the business, including professional services. And so that's part of why we're seeing a little bit less, if you will, kind of follow-through on revenue. And then perpetual license as well, a little bit of the old ratable perpetual deferred revenues kind of burning off as well. So that's really kind of the color around it. And, Jack, if you have some other comments, feel free.

Yes. I would just say, Bhavan, that the emphasis going forward is growing EBITDA, as we've talked about. And pleased that we're really starting to ramp it up a bit from where we were earlier in the year. And again, looking at a pretty significant jump in Q4. And so as we do that and we comb through the business, we're going to deemphasize those parts of the revenue stream that are lower margin, whether it's PSO or even any lower-margin product revenue, to make sure that we're hitting our broader goals to grow EBITDA. Obviously, 10% was the goal here. Long-term goal is significantly in excess of that. And we want to be making sequential progress, not only hitting Q4, but progress as we move forward through 2016.

That's really helpful. And then when you look at next year, I know you're not giving guidance, clearly. But you've talked about expanding EBITDA for next year nicely. But obviously, the cross-sell seems to be yielding some early initial nice results, and it was great to hear that, Tim. How are you thinking about sort of the investment piece of R&D? And then sort of integrating the acquisitions and obviously investing in sales vis-à-vis that sort of EBITDA? So I think, I guess the question is how should we think of EBITDA a little bit next year, balanced with some of your integration and growth initiatives?

The goal is to continue to expand those adjusted EBITDA margins, and that will come from a number of places. One, as we continue to grow through acquisition, we'll see better G&A leverage. And that should yield some increases. Second, some of the investments we made in 2015 around data center infrastructure will begin to bear fruit in -- as we move into 2016, allowing for some improvement on the cost of goods side that will find its way to the EBITDA line. And then in a number of areas, whether it's development, we are leveraging our A line partnership with DEB [ph] factory to drive a more efficient development process and take costs out of R&D. Or where we're leveraging scale in our cloud operations area to now begin to lower some costs there. And then finally, on the sales and marketing side, just reviewing those investments product by product to make sure that our investment is on the efficient edge there and not beyond it. So all of that feeds into our goal, which is to significantly, again, increase EBITDA margins as we move into 2016. Obviously, more details on that when we deliver Q4 guidance on the next call -- excuse me, 2016 guidance on the next call.

That's right. That's right, and that was really helpful. And the one quick question for Tim before I turn it over. Obviously, it's nice to hear the color on cross-sell. And you've got sort of these leaders that are driving some of that cross-sell synergy, Tim. But when you look at productivity on the cross-sell, obviously early stages. But any sense of how that's trending vis-à-vis your expectations now that you've had the cross-sell initiatives for, say, 6 to 9 months? And sort of how much room is there to kind of grow that next year?

Yes. Thanks, Bhavan. We're definitely seeing some areas where cross-sell is more relevant. By that, I would mean, more efficient for us to acquire that business. So where the decision-maker is the same, those opportunities move along more quickly. Where we have to hop to a different decision-maker, perhaps from a PMO head to a CMO, that's a little more difficult. And that's actually behaves more like us acquiring a new customer. So if I look at it, we're learning where those relevant points are. We're certainly seeing our Professional Services Automation product being able to be sold into our project areas quite nicely. I believe we're going to see more of that 2-way text messaging platform. We have some traction there with our Clickability Web Content Management customers. So we're learning more and investing more of our time in those particular areas themselves. And then as we noted in our prior call this year, we integrated FileBound, our advanced workflow product into our PowerSteering project and portfolio management product. So that, for lack of a better term, a bit of an embedded upsell where we can position that as just a natural upgrade to that particular product. So those are some of the focus areas. Hopefully, that gives you a little more insight.

Your next question comes from the line of Brian Peterson from Raymond James.

Just wanted to hit on the Ultriva acquisition. Any details you can give on what you paid? The potential revenue contribution for the rest of '15 and into '16? And when that deal should actually close?

Yes, Brian. It's Mike. Thanks for that question. So Ultriva is closed. It was a simultaneous sign and close on Friday. What was paid? We paid a total of about $7.5 million. That's and in -- disclosed in our 8-K is expectation to get to $4.7 million of revenue. So that'd be a multiple of about 1.6x, which is in the -- right in where we've always talked about, the revenue multiple on our deals of 1.5x to 2x. As far as expectations next year, Ultriva, $4.7 million revenue. And we think it's a good mix to the product family.

Yes. This is Tim here. Let me add a little bit of color just in terms of what we bought. I mean, we have a company with a great technology, strong team, very loyal customer base. So obviously next year, we're going to be prioritizing and ensuring those things are maintained. As we do that, we do believe that there's an immediate opportunity to introduce Ultriva to some of our other Upland customers. And where it makes sense, vice versa. We see a couple common customers already there. So think it's going to add an interesting mix, particularly with areas we're already in with manufacturing customers. So those are some areas of focus where we're going to look to build on the Ultriva P&L that we acquired, as Mike alluded to.

And, Tim, just to follow up on that. Any help on understanding the percent of your existing customers today that are in the manufacturing vertical? And, Mike, sorry if I missed this but wanted to follow up. Did you guys give the number of gross adds this quarter?

I'm sorry. What was that, Brian? The question.

The gross adds for new customers?

Gross adds for new customers?

Yes, yes. We did. I -- that was me, Brian. Tim here again. So we added 120 new customers and 8 major customers. And in terms of manufacturing as a vertical, it's not one that we've traditionally focused on. So as I alluded to, it really opens up a new area for us. We do have a set of manufacturing customers that use our project and portfolio management tools. So not a significant percent of our customer base. But again, with a relatively small revenue company like Ultriva, it can have an impact on their P&L, just getting 1 or 2 of those.

Your next question comes from the line of Richard Davis from Canaccord.

With regard to the -- you talked about the pipeline and things like that, are there any themes among the companies in the pipeline in terms of particular area, is it collaboration? Because you guys are trying to find interesting assets. So you don't have to give us the names of them, but just thematically would be great.

Yes. So a few -- thanks for the question, Richard. This is Jack. I would say a few themes. First, where we can find natural linkages to our existing product family that will yield synergies on the operating side and, of course, can yield synergies on the sales side. That's a key filter. We're also looking at acquisitions that are going to be accretive to EBITDA, to adjusted EBITDA within the first year that they're purchased. So that's another key filter for us. In terms of size of acquisitions, as we've talked about, our range is $5 million to $25 million. But I think most of what you'll see in the near term here will be in that sort of $5 million to $10 million range, although we are looking at some things that are larger than that. So -- and then finally, of course, we want to make sure there's a good fit culturally with the businesses. And that from a financial standpoint, we can continue to pay the kind of multiples that'll result in accretive acquisitions. So in that sort of 1.5x to 2x range.

Got it. And then when you say accretive to EBITDA, do you also mean accretive to EBITDA per share? Or when you say accretive to EBITDA, just means don't lose money?

That's right. Don't lose money and be part of our plan to -- don't impede the plan to increase EBITDA margins by next year. So we're -- we set that 10% adjusted EBITDA margin for Q4 of this year and ramped up EBITDA significantly to get there. We'll be putting out a goal for Q4 of 2016, ramping up EBITDA margin as we go. And so acquisitions have to be accretive to that overall goal.

[Operator Instructions] There are no further audio questions at this time. I turn the call back over to the presenters.

Okay. Great. Well, thank you. And if there are any questions that we didn't get to, please feel free to contact us at investor-relations@uplandsoftware.com. On behalf of Tim and Mike and the Upland team, I want to thank all of you for joining us this afternoon. Thank you. We will see you next quarter, and have a great evening.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.