Ladies and gentlemen, thank you for standing by. And welcome to the Upland Software Fourth Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. The conference call will be simultaneously webcast on Upland's investor relations website, which can be accessed at investor.uplandsoftware.com. As a reminder, this conference call is being recorded. Following completion of the conference call, a telephone replay and webcast replay will be available on Upland's investor relations website at investor.uplandsoftware.com. By now everyone should have accessed to the fourth quarter 2015 earnings release, which was distributed today at approximately 4 PM Eastern Standard Time. If you've not received press release, it’s available on the investor relations tab of Upland's website at investor.uplandsoftware.com. I'd now like to turn the conference over to our host Mr. Jack McDonald, Chairman and CEO of Upland Software. Please go ahead, sir.

Thank you. Good afternoon. Welcome to our Q4, 2015 earnings call. I am joined today by Tim Mattox, our President and COO, and Mike Hill, our CFO. On today's call I'll summarize the Q4 results for 2015, our first quarter and full year 2016 outlook and we'll discuss recent highlights, following that Mike Hill is going to provide a more detail look at the numbers and share with you our guidance for the first quarter and full year 2016 and then Tim will cover sales and operations highlights from the fourth quarter and a little bit on full year 2015. After that, we will open the call up for Q&A. Before we get started, Mike Hill will read the safe harbor statement.

Thank you, Jack. And good afternoon, everyone. The press release announcing our fourth quarter results and our business outlook, as well as a reconciliation of management 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 securities laws. In addition, we may take additional forward-looking statements in response to your questions. These statements are subject to certain risks and 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 detail discussion of such risks and uncertainties are contained in our Annual Report on Form 10-K filed with the SEC. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today March 29th, 2016. 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 our press release announcing our fourth quarter 2015 results. 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'd say four major headlines for the call, we had strong Q4 results, strong full year 2015. We also rebuild our M&A pipeline in 2015 and had some good results there. And then finally, some important focus around our product and operating platform that are going bear results going forward. So just to dive into those. On Q4 results, we beat on revenue at $17.6 million and on EBITDA with a record $1.8 million of EBITDA. For the full year 2015, we delivered on plan. We had 23% growth in recurring revenues, which again is really what we're focused on here, as we deemphasize lower margin PSO revenue and focus on high margin recurring revenue. So we delivered 23% growth in recurring revenues on a constant currency basis, while driving EBITDA from just 2% in the first quarter of 2015 to 10% in the fourth quarter of 2015. And more importantly set the stage operationally for significant additional EBITDA margin expansion in 2016. Last year we also rebuild our M&A pipeline, focused on high contribution margin, tuck-in acquisitions, that we can execute on an accretive basis. So only doing acquisitions that are accretive on a per share adjusted EBITDA basis. We've closed two acquisitions in the last two quarters, and we are targeting an additional $10 million to $15 million of acquired revenue run rate in 2016 now. As always, there no guarantees when it comes to M&A, but our target is to close an additional $10 million to $15 million of revenue run rate in 2016 in accretive acquisitions that are going to grow adjusted EBITDA per share. And then finally, we've simplified and focused our product and our acquisition focus into three areas, Project and IT Management, Workflow Automation and Digital Engagement. And that focus will drive both operational and financial benefits going forward. So in 2016, our focus again is on growing high margin recurring revenue, dramatically expanding EBITDA margins and building scale and market presence through accretive tuck-in acquisitions. It’s a simple strategy, it leverages our operating platform and our M&A capabilities to drive growth and cash flow, growth in EBITDA and importantly growth in EBITDA per share, which we believe will be the real value creator for Upland and which will be the key financial metric we focused on in measuring our progress. So with that, I am going to turn the call back over to Mike, who will take more detail look at the Q4 numbers and share with you our guidance. Mike?

Thanks, Jack. And as Jack just mentioned today I'll cover the financial results for the fourth quarter and our outlook for the first quarter and full year 2016. Total revenues for the fourth quarter was $17.6 million, an increase of 7% from a year ago, an $18.4 million or 12% growth on a constant currency basis. Recurring revenues from subscription and support grew 16% year-over-year to $14.7 million or 20% growth on a constant currency basis. Professional services revenue was $2.3 million for the quarter, a 22% year-over-year decline. Perpetual license revenue was 608,000 for the fourth quarter and declined 28% year-over-year. And remember, this is purposeful in accordance with our plan to focus on growing high margin recurring revenues and deemphasize lower margin professional services revenues and on-premise perpetual licenses. Moving down the P&L and gross margins, overall gross margin was 60% during the fourth quarter and our product gross margin remained strong at 66% or 73% when adding back depreciation of equipment, amortization of acquired intangible assets. Professional services gross margin was 22% during the fourth quarter, and we expect services margins to increase in 2016 more towards our normal target of 30%. Turning to our operating expenses. Research and development expenses were $3.7 million for the fourth quarter, representing 21% of total revenue for the fourth quarter. Sales and marketing expense was $3.1 million, representing 17% of total revenue for the fourth quarter. General and administrative expense was $3.9 million in the fourth quarter, representing 22% of revenue. Excluding non-cash stock compensation for the fourth quarter, G&A expense was $3.2 million or 18% of total revenue. Operating loss was $2.8 million in the fourth quarter of 2015 compared to a loss of $3.6 million in the same quarter of 2014. GAAP net loss was $4.3 million or…

Thanks, Mike. And good afternoon, everyone. I am 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 via our products as choice for those required exceptional technology and service. On the sales front, we acquired over 65 new customers of which nine were major accounts. We continue to see strength in our expansion sales to existing customers with seven customers increasing the annual recurring revenue by 25% and more, verticals of particular strength for healthcare, government, financial services and higher education. Some of the major renewal and expansion examples for the fourth quarter were a large financial service firm recommitting to our IT financial management offering for over 1 million per year. Four other key customers in this area recommitted to the tune of 2.5 million as well. A large media company recommitted to our web content management offering for 470,000 per year, a large government agency in the UK expanded its existing relationship to over 175,000 per year for the portfolio and project management offering. And a leading design automation software company renewed its commitment to Upland's professional services automation offering to over 165,000 per year. So it’s a nice examples of expanding relationships. On the cash flow front, we continue to build and progress the pipeline. We see more opportunities for our professional services, automation offering in Tenrox with customers with our portfolio and project management offering PowerSteering. Also we are seeing opportunities within our manufacturing supply chain work management offering Ultriva, which we acquired in Q4 and a PowerSteering particularly in companies deploying in Lean Six Sigma approach. So some nice activity there.…

Thanks, Tim. At this point, we are ready to open the call up for Q&A. So operator, if you could please do that.

[Operator Instructions] Your first question comes from the line of Terry Turman. Your line is open.

Hi. This is Brian Peterson in for Terry. Congrats on the quarter guys. Just wanted to hit on the M&A cadence, obviously you've closed a couple of deals already this year. But could you give us an update on the pipeline and any areas as you look at kind of the refine product segments where we might see some focus in 2016?

Yes. So the pipeline looks good. Again, our focus in project and IT management, as well as Workflow Automation and Digital Engagement, we see a number of interesting opportunities in both Digital Engagement and in Workflow Automation. So I think those are the two where we'll see the most activity. And right now, pipeline development is been good, pipeline looks strong and a number of interesting opportunities at the bottom edge of the funnel. I think we'll continue to see smaller deal sizes. So these tuck-in acquisitions, we're seeing $3 million, $4 million, $5 million revenue businesses. I do believe over time we're going to see that grow, I think they are already some good dynamics afoot in the market and some of the softening in the BC and private equity arena that’s going to flow down, its smaller companies in BC portfolios and allow us to increase our average deal size through time. But frankly, to make our targets for this year we don’t even need that. We can do very well with some of these smaller tuck-ins that we've got. And what we like is these are deals that we can combine with our existing platforms to immediately drive meaningful adjusted EBITDA and supports our overall margin expansion goals for the business.

And Terry on an operational front, these types of acquisitions are easier to integrate and more rapidly get the synergies that we're looking for.

Got it. Understood. And just on the margins, obviously it’s gone from an 11% in the first quarter to 14% exiting the year, happy with those levels. But can you talk about what some of the incremental drivers are going to be to get to that 14% level in '16?

Yes. And the 14% level is overall for the year and we've – and that’s where our guidance is. As we talk about, you know, our target is to do better than that and exit the year at closer to 20% adjusted EBITDA margin. But again we're guiding to the numbers that Mike spoke to a moment ago. And there are a number of areas that are enabling that margin expansion. One of those is this tuck-in acquisition math, which is better. Two, is fixed cost, operating leverage, it’s a business scale. Our fixed cost, including public company cost can be amortized over a bigger revenue base. Third, our – the efficiencies that we're starting to see now with scale and frankly some time as we brought all these businesses together, efficiencies that we're seeing on the R&D side, we work with our partner Dell Factory [ph] and use a platform to manage and track quality and performance on our – all of our code basis. And through that platform are able to drive efficiencies and our development process and spend a lot of time in 2015 getting that platform up and operational, still work to be done. But now we're starting to see the efficiency and margin improvement benefits that are associated with that. And then finally we'll continue to seek sales and marketing efficiencies, as well as efficiencies in customer support area. So I would say that is the list and rough order of priority in terms of where we're finding that margin improvement.

Great. Jack. Thanks for the color.

Thanks.

Your next question comes from the line of Bhavan Suri from William Blair. Your line is open.

Hey, guys. Can you hear me, okay?

Yes. Hey, Bhavan. Good afternoon.

Hey, guys. Good afternoon, thanks. Certainly as I think just to echo Terry's point, certainly the EBITDA exit rate are certainly very high teens by the end of this year, on a run rate business its really, really encouraging. Just to delve into a little bit, first on the revenue guide, if I look at the recurring revenues, subscription revenue, guidance of about by 11% growth to 16%. I am assuming does it include any of the $10 million to $15 million you sort of mentioned in potential acquisitions that could happen this year. So that’s sort of somewhat existing business growth rate by the end of year type number?

Yes. There is no M&A in that number, that’s correct.

Great, great. And then just to touch briefly on the gross margins, on that subscription line, you know, they ticked down a little bit versus last year and last quarter. Just some sense on what's driving that down, sort of in fiscal we see them to stabilize and they do start up-ticking from here? How should we think about the gross margins on that subscription lines, maybe that ones for Mike.

Yes. Hi, Bhavan. Yes, that should be sort of a bottom, and we're going to be looking to expand gross margins both in total and on the subscription line through the quarterly course of the year here in 2016. So yes, that should be sort of a low point here. And the reason for the that margin is really we've got some pass through talks related to one of our products, the mobile messaging cost and I think we had talked about in one of these calls in the past here. So that’s really the reason that you see that and anyway I like to say it, it should be expanding from here.

And then a quick one to follow up Mike, as you look at it you are obviously deemphasizing license, and you are deemphasizing subscription and there was – Mike, just trying to get some color, I am sorry, on subscription services. How to get some color on '16, for that to throw it up and say, let's start for three years out, five years and you look at the professional services lines, is that something you're just going to push to out partners completely and licenses is also gone or do you think just certainly we can do some services yourself and maybe there is still will be some license remaining there, or is this there something just you are effectively really have to return to get rid off?

Yes, I think Bhavan I think there always be some. We're not actively trying to drive it completely out. But we're - as you know we're focused on expansion with existing customers and typically a lot of the bigger professional services projects have related to really big new logo stuff and we deemphasize the sales and marketing on trying to go land on those new logos, focusing on existing customers and expansion there. And so we're going to have a little bit less professional services and that’s really it. There will always be professional services in my opinion, there will always some perpetual license sales, but it’s just - it’s not something that we're actively going to trying to grow.

Got you, got you. And then one last one from me, for Tim, and I usually touched on some calls, but sort of cross sell, you did a great job Tim of certainly talking about some expansions and renewals and at some of these large customers, the media customer, et cetera. But when you look at the cross sell motion, now probably sort of focused just about a year, year and half. So help us understand where it’s been successful. Certainly the product alignment should help because it’s multiple product in each those categories that you suggested. But also maybe where it lacked and where sort of you think they could improvement that Mike gave, not even '16 to maybe '17 and '18 as we think through sort of long-term here?

Yes, it’s a great question Bhavan. I think you know, where we're finding the most success is really where the two products together are providing sort of not just additive value or if you bought the products separately, but more and use them together you get some additional benefit. And so some examples of that would be Advanced Workflow in our PowerSteering product and we announced earlier in the year Upland Workflow Manager and use of that and couple of used cases, one was to improve capital equipment expenditures associated with a complex set of projects, the PowerSteering is managing. And so that up-sell we're seeing decent opportunity set there and I will say that they are not closing as quickly as we though, and that there is still a decision process related to adding that capability, but we're seeing more interest in that. Also as I mentioned before our Ultriva manufacturing offering, that is really a strong and manufacturers have deployed a Lean Six Sigma methodology and PowerSteering is an optimal tool to manage a Lean Six Sigma project family. So we're finding - both customers that speak the same language, if you will, and the language of Lean Six Sigma and also when you talked about managing the initiative under that umbrella that they appreciate the tools that’s being homed to that. So we're seeing a good opportunity set there, even though that’s a relatively new acquisition for us. Also finally in our Web Content Management area, obviously adding the capability to track and monitor the digital footprints that a customer or prospect leaves on a website is super important. And so having a Web Content Management offering means the decision maker for that tracking software is the same one. And so we're seeing a set of opportunities around those as well. And finally, we are seeing within - as I mentioned in my comments, our Tenrox professional services automation offering and its relevance where situations where there are a number of complex projects team managed, that a basic project tracking tool can't handle, that PowerSteering becomes a very relevant up-sell as well. So we have set of opportunities associated with those. So hopefully that gives you little more flavor around the kinds of opportunities we're seeing there and where we go in the future.

That’s helpful, Tim. Thanks again guys. Thanks for taking my questions.

Yes.

Thanks, Bhavan.

[Operator Instructions] Your next question comes from the line of Richard Davis with Canaccord. Your line is now open.

Hi, thanks. Two quick questions. In occupancy [ph] this is like a six to nine month lag in seller’s valuation expectations, and no points for guessing what direction they are going. But what are you guys seeing out there, have you seen any cracks because just as for perspective we've heard that you guys are starting to do trios [ph] that are like picking the two to three people that are going to fund and two or three people they might fund and then the rest that know how to swim. And it just seems to me that target rich environment for you guys, but if you could talk about that that be helpful? Thanks.

Yes. I think we are starting to see some of those cracks and its not just you know, big Unicorn type deals that you see in the headlines. But it flows down to smaller portfolio companies inside of these EC portfolios. And frankly, the valuation environment also impacts expectations from boost traffics [ph] that are not EC funded. So I think it’s a more – a much better and more target rich environment for us that’s on the lag. I also agree with you that it takes a period of a few quarters to kind of truly sink in. So my gut is when we discussed it internally is that we probably won't really start to see the full force benefit of that until the end of this year or into 2017. But I mean, frankly, we're seeing a very good – we've got a pretty full pipeline right now for the deals we want to get done. And these smaller tuck-in deals work very well for where we are this year as a business, as we want to add scale to a limited number of product platforms, so that we don’t through these acquisitions increase organizational complexity and then when we're ready to strike out with some larger acquisitions as we move into 2017, I think the timing will be beneficial. So there you go.

And then on the numbers, your margins flattens, that’s often. Do you think about - I know you said all of the acquisitions we do we want those be accretive on a per share EBITDA basis, looking much back the margins numbers if you saw something of interest and [indiscernible] sufficient we got. But just kind of what's philosophy on margins in terms of that?

Yes. So it comes back to where we touched on – on your earlier question which is, its a two front war, one is to expand EBITDA margin, but the other is to make sure that we continue to mature operational processes, have the appropriate product focus and achieve more organizational focus and simplicity. And so, that drives us toward tuck-in acquisitions on to existing platforms. We – and those acquisitions you know by definition should come with higher contribution margins. So it’s not just the margin, it’s also the organizational focus that these tuck-ins facilitate and enable. And frankly, I think we can grow based on just those kinds of acquisitions from here through too $100 million of revenue. So there is plenty of growth opportunity and then of course opportunities to branch out from there. But I think there are some pretty straight forward tuck-ins and who would know we expect enough time and the hard work over the last three, four years putting in place the platforms we got. So I think now is the time to reap a little bit there and start doing some of these higher margin tuck-ins.

Got it. That’s helpful. Thanks.

Your last question comes from the line of Richard Baldry from ROTH Capital Partners. Your line is now open.

Thanks. And just from a very high level, could you talk about what the adjusted EBITDA been point to next year, is about $10 million, how much do you view that in terms of overall firepower with that act to an internal acquisition sort of funding capabilities? By that I mean, do you think that if we can do 10, we'll be willing to add ex amount in terms of debt to the books to match that as it scales and were comfortable at the next portion of equity, you know, shares is being used in acquisitions. Is sort of broad way of thinking how that you're - a good cash generator what you can do without looking to expedite financing from an overall perspective? Thanks.

Yes, at a high level what Mike and I saw with our last business proficient is just that sort of magic point that you hit at, roughly 20% EBITDA. Where if you have a model where you have an acquisition currency, that you can use for some portion of purchase price, and then a debt facility that you can use for lets say 50%, maybe upwards at 60% acquisition price, you have a self-sustaining model that enables you to acquire, use the cash flows acquired to pay down debt through times and win some repeat. So at a high level that 20% margin target, EBITDA margin target is very important. And in addition to that of course, we work continuously to lower the efficient around cost of acquisitions you know, cost of restructuring et cetera, to reduce overall cash usage in M&A.

And how about in terms of your adjusted EBITDA it went up to new high, the willingness on sort of the credit side of the table to offer multiples of that. There really is a matter of showing that that can be consistent quarter-to-quarter for a certain time, and do you look at the track record you nailed for Upland [ph] for a sort of run rate solution basis and try and give me a multiple that. So I was trying to engage how willing could it be step up the credit side of the table as you scale up the EBITDA?

Hi, Richard. It’s Mike. Yes, thanks for that question. So as you know Wells Fargo here is our current – has our facility in place, credit facility in place and of course these are with guys that used to be in Silicon Valley Bank, long-term relationships and really the answer to your question gets down to relationships and about execution on what you plan to do. So really its about yes, this EBITDA expansion is going to help us secure greater levels of credit, now still making sure that that’s comfortable levels that the business obviously can support and then actually getting those opportunities presented to us, that’s goes back to reputation and just being able to deliver on expectations as you know. So given these announcements here, this is all should be very positive in those respects and frankly should allow us the expansion that we need.

Thanks. Congrats on a great quarter.

Thank you.

There are no further questions at this time. I'll turn the call back over to Jack.

Okay. Well, thank you very much. Appreciate your time this afternoon and look forward to speaking with you again on the next call. Good afternoon.