Ladies and gentlemen, thank you for standing by, and welcome to the Upland Software First Quarter 2019 Financial Results. [Operator Instructions] The conference 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 the completion of the conference call, a webcast replay will be available for 12 months on Upland's Investor Relations website at investor.uplandsoftware.com. By now everyone should have access to the first quarter 2019 earnings release, which was distributed today at approximately 3:00 p.m. Central Time and 4:00 p.m. Eastern Time. If you have not received a 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, everyone, and welcome to our Q1 2019 earnings call. I'm joined by Tim Mattox, our President and COO; and Mike Hill, our CFO. On today's call, I will start by summarizing our results and some recent highlights. After that, Mike will give a more detailed look at the numbers and share with you our guidance for the second quarter and full year 2019. And then Tim, will cover sales and operations highlights. After that, we'll open up for Q&A. But before we get started, Mike will read the safe harbor statement. Mike?

Thank you, Jack, and good afternoon, everyone. During today's call, we will 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 risks, assumptions and uncertainties that could cause our actual results to differ materially. We caution you to consider our discussion of 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, as periodically updated, as needed in our quarterly reports on Form 10-Q 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, May 2, 2019. 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 financial 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 measures to the most comparable GAAP measures in our press release announcing our first quarter 2019 results, which is available on the Investor Relations section of our website at investor.uplandsoftware.com. Please note that we're unable to reconcile any forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. 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. So a few major headlines today. We had a record Q1 with better than 50% growth in total revenue, and better than 60% growth in recurring revenues. After you factor in the acquisition of PostUp, which we announced after the quarter closed on April 22. Total revenue now on an annualized run rate basis has broken through $200 million for the first time, actually at about $205 million revenue run rate today. And of course, PostUp was both accretive - immediately accretive and strategic to our CXM Solution Suite. We had record adjusted EBITDA in the quarter at an annualized run rate, north of $71 million and pro forma for PostUp. It's now at $76 million. So $76 million adjusted EBITDA pro forma for PostUp. This is the 19th straight quarter of meeting or beating guidance. And again, that's every single quarter since going public. We had a host of new product innovations in the quarter. We also had strong organic growth. So organic growth in recurring revenues was 10%, actually 9.6% rounded to 10%. So very pleased by that, but not ready to declare that sustainable. With an easy compare, we had a number of customer go lives that increased revenue. So we're thrilled to have 2 double-digit organic growth quarters in a row. But it's not the new normal. We will bounce around 10%, 5%, 8%, et cetera. And we will continue to guide conservatively at flat to 5%. And then finally, as Michael detail in a couple of minutes here, very strong Q2 guidance. We feel great about Q2 and the year. I would note that our M&A pipeline is strong. And again, we are being invited into M&A opportunities that we used to have to fight our way into. And so we feel very good about our strong pipeline of accretive and strategic potential acquisition. So again, the Upland engine, it's firing on all cylinders. And we look forward to a great 2019. And with that, I'm going to turn the call over to Mike.

Thank you, Jack. And today I'll cover the financial results for the first quarter, as we set our outlook for the second quarter and full year 2019. Total revenue for the first quarter was $48.5 million, representing growth of 53%. Recurring revenues from subscription and support grew 62% year-over-year to $45 million. Professional services revenue was $2.9 million for the quarter at 26% year-over-year increase. And perpetual license revenue was $0.7 million for the first quarter or a decrease of 60% year-over-year. Moving down to P&L to gross margins. Overall gross margin was 70% during the first quarter, and our product gross margins remain strong at 71%, or 76% when adding back depreciation of equipment, amortization of acquired intangible assets, which we refer to as cash gross margins. Our professional services gross margins were 47%, now that we have the newer acquisitions in model, and our target is 40% margins, so we're actually over our target for professional services margins here in Q1. Turning to our operating expenses. Research and development expense, net of refundable Canadian tax credits was $6.3 million for the first quarter, representing 13% of total revenue. Sales and marketing expense was $7 million, representing 14% of total revenue for the first quarter. General and administrative expense was $10 million in the first quarter, representing 21% of total revenue. However, excluding noncash stock compensation expense, G&A expense was $6 million or 12% of total revenue. Acquisition-related expenses were $7.7 million in the first quarter, resulting from our recent significant international expansion activity. I'll note here that we closed the PostUp acquisition in April, as Jack mentioned. So we will have some new acquisition-related expenses starting in Q2 for PostUp in addition to the transformation expenses related to Rant & Rave and Adestra acquired in Q4. Acquisition related…

Thanks, Mike, and good afternoon, everyone. Today, I'll cover our Q1 results across sales, product and operating areas. On the sales front, we welcomed 161 new customers across a diverse array of industries at Upland. 28 new major customers, each committed over $25,000 in annual recurring revenue with several customers each committing greater than $100,000 in annual recurring revenue. These larger customers include a financial services provider based in Europe, who committed to our Customer Experience Management Solutions Suite or CXM Suite, an international automotive parts manufacturer based in the U.S., who committed to our supply chain solution. And a nonprofit organization who committed to our Enterprise Knowledge Management Solutions Suite. 158 other new customers committed over $2.3 million in total annual recurring spend with Upland. We also expanded relationships with 231 existing customers in Q1, 24 of which were major expansions of 25,000 in annual recurring revenue or greater. Several customers expanded their commitments by greater than $150,000 in annual recurring revenue, including a multinational ERP business that expanded its commitment to our CXM Solution Suite, a global technology business that expanded its commitment to our Enterprise Sales Enablement solution suite and a national real estate business that expanded its commitment to our Professional Services Automation Solutions Suite. 228 other existing customers expanded their commitments by close to $1.9 million in aggregate annual recurring revenue. Turning to the product area. We continue to deliver customer-driven product innovation through efficient and high-quality, internal research and development. In Q1, we delivered 4 major releases and 14 feature packs across our portfolio of solution suite. These releases improved performance, reliability and the user experience for our customer. And as Jack mentioned, last month, we closed PostUp. As many of you know, we complement internally developed customer-driven product innovation with targeted acquisition activity. With the PostUp acquisition, we added sophisticated e-mail and audience development solutions targeting the media and publishing verticals to our CXM Solution Suite. Expected CS continue to invest across our 7 cloud-based Enterprise Work Management solution suites through acquisition and internal development. On the operations front, we maintained our unwavering focus on delighting customers through the UplandOne operating platform, our foundation for 100% customer success. Major accomplishments included integrating Rant & Rave, Adestra into a single operating structure with shared management within our CXM Solution Suite. We also further refined our back-office processes, which helped to contribute to our cash efficiency this quarter. So in summary, we're off to a good start for 2019 with our Q1 results. And we anticipate continued positive performance going forward. With that, I'll pass the call back to Jack.

Thanks, Tim. So at this time, we are ready to open up the call for questions.

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

Congratulations, really nice on the numbers there. I guess, I just wanted to start with - just on the Solution Suite. I know it's still early with the Solution Suites rolled out and obviously, they're enabling a more integrated buying function or buying motion for certain functions. But I guess, I would love to get your thoughts on what's a logical step for you long term, which is cross-selling between Solution Suites and functions. Like, how are you thinking about that opportunity? And then given the broader part of portfolio, I ask cross-selling question every quarter and it seems as it maybe a different answer, which is - it is becoming something more meaningful. Because organic growth despite how much, Jack, you're downplaying it has been really solid and has accelerated from 3% a year or so ago to - let's just say, even 7% to 10% range. So just trying to understand sort of what the cross-sell is playing out? And how the Suite is imperative to that? Or is that still early days?

Well, thanks, Bhavan. The - it is still early days on the Solution Suite. So we think it represents the right way to go to market. And frankly, to add additional value for our customers. I think the plan is to bring together functionality and capabilities, 2 ways, right? To innovate through acquisition, as Tim alluded to a moment ago, and then to bring those acquired solutions on to our unified product platform in a way that is seamless, that is deep and value added, and it drives productivity and great benefits for customers. And so as a part of that, obviously, building out the enterprise sales force. And what it winds up with, I think, is us getting to a point where all 3 flywheels are really working. We've got the M&A flywheel, which, again, a proven capability of buying great cloud software products with blue-chip customer basis at highly accretive multiples. An operating flywheel, which enables us to take those products and take them from breakeven or money losing to 45%, 50% contribution margins, professionalize their operations, give them the capability to drive higher customer success, which leads to number 3, which is our ability now to use those solutions to further penetrate our accounts through our growing enterprise sales force. And it's a rinse and repeat motion. We're seeing the benefits of it. It's creating a lot of value and the good news is we're just getting started.

That's helpful, Jack. And maybe you and Tim here, you've obviously made a bunch of acquisitions in the past 24 months, some of them sizable. You've also reorganized product portfolio solutions suite. I guess if we pause on the acquisitions for a moment, you have sort of a birds eye view. Where do you think you are with the product portfolio? Like, within the Solution Suite you have so far, do you still see, like, some of them being in product extension mode? Or are there any of those verticals, like, whether it's the workflow automation fees or the marketing automation fees. Will you feel comfortable enough to say, we're ready to step on the gas in terms of organic investments vis-à-vis acquisition, meaning they're fully flushed out product suites. How should we think about the areas you focused on? And what those acquisitions have brought? And what's left to be done, so to speak, from a technology perspective?

So look at - sure. Look at top down, it's a $25 billion TAM. So there's a ton of opportunity in each one of those suites across multiple buying centers. And so when we look at our filters for M&A, we're looking at - we create that checkerboard and that road map for functionality we want to add for each Suite. We're constantly talking to our customers about the solutions that are in demand by them. And we see a great opportunity to continue expand what we're doing around CXM, sales enablement. There's a ton of great opportunity workflow automation. I feel like we're just scratching the surface on. We're very excited about the opportunities in project and financial management. And also, of course, in Upland PSA where we did a major rebranding. And for the first time, a really bringing, kind of, product as a feature in, right? Where we're taking capabilities from multiple products and presenting them via one dashboard through our upcoming Upland WorkCenter capability. So plenty of opportunity to continue to expand. In terms of organic. As we've said before, right now we're paying about $1 in sales and marketing for every $1 of bookings that we generate. And if you look at our disclosures for ASC 606 purposes, right? This is a 6-year duration, so that is a great relationship in terms of what we're paying for that ARR and the long term value of it. So we will continue to invest in sales and market - marketing consistent with that efficient growth mode and with this upwardly ramping EBITDA margin to 40%. And I think, we'll see what we're in search of that efficient frontier, and we'll see what organic growth rate that ultimately yields. So again, it is going to bounce around. You're going to have some quarters that are 10%, some that are 5%, some that are 8%, and we will continue to guide conservatively.

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

So look, I mean, the proof is in your numbers. But look, in a world where the average software company pays its 9x forward revenues, you talked about kind of an ample hunting grounds out there. What - is there anything particular that you're seeing - doing to get these good companies at attractive prices? And then a subquestion would be, is there a mix shift in terms of companies? Are these competitive bids that you're going after? Do you run into more strategic or less strategic versus private equity? Then I have a quick follow-up.

Yes. So the pipeline is a potential acquisition stronger that it's ever been. I think it's worth kind of just noting how that pipeline is being created, right? It's - the bulk of it is being created by VC Investment. And VC has invested $205 billion in cloud software since 2000. And the bulk of the companies that we've bought to date, 21 acquisitions we've done, average birth date - birth year for those companies 1999. And most of them received the bulk of their funding between '99 and 2005. When VCs on average we're investing about $1 billion per year in cloud software. By contrast, last year alone, they invested $35 billion. And if you look for the last 5, 6, 7 years, the rates of investment have dwarfed the rates that prevailed during the years that created the businesses we're buying today. So the clear message from that is that this is a supply of great cloud company that is going to grow and grow significantly in the coming years, as these later investments and later funds begin to age out. And we're playing an important role in rationalizing that part of the ecosystem. Taking these great products, putting them on to an enterprise grade platform, professionalizing their operations, positioning them for sustainable growth and providing the support and the customer-driven development that enterprise customers need and the balance sheet to lean forward and buy more of them. Again, in fact, flywheel, we talked about earlier, and we're at a rinse and repeat kind of a position there. In terms of the competitive landscape for M&A, I would tell you this, if this were strictly a financial exercise, then I feel differently. But the UplandOne platform, our ability to convert these businesses pretty much overnight from flat or money losing on the EBITDA line to 45% to 50%. And then now increasingly to get the network effects. So being able to pump these great solutions into our 7 Solution Suites and then sell them into our 9,000 customer accounts through a growing enterprise sales force has really changed the game. And it puts us in a very good position, more and more often when I'm talking to our M&A team about perspective acquisitions in the pipe, I'm hearing the words pole position, right? More and more often, Upland is going to pole position as those acquisition opportunities are concerned. So again, we don't want to get ahead of ourselves. We're always going to maintain our conservative stance. We all know and we'll say again that there are no guarantees where M&A is concerned. But we feel very, very good about the state of the pipelines, our ability to execute and having the resources required to get it done.

That's super helpful. And just a really quick question, maybe for Tim on technology. One of the hot areas these days is old and we will report on it, this robotic process automation stuff. Is that notion or that technology relevant to you guys? Is that something you could add? Or is it just like, yes, fine, whatever, we'll let other folks do that. I was just curious.

It's a good question. I think there is an opportunity there for us, Richard. And as Jack mentioned, there's a lot of VC investment in that area. And so I'm sure we'll see an array of companies that become available to us from an M&A perspective. But certainly, in workflow automation that can be applicable for us. That's probably the solution area where it's most relevant. If that's helpful to you.

Your next question comes from the line of Scott Berg from Needham.

Hey, guys this is Josh for Scott. So you've had some impressive success in dealing your business. And now you're getting into some hotter product categories. Would you consider a partner strategy to augment your internal sales efforts at this point?

So we have multiple go-to-market motions today, direct enterprise, we have OEM partners, we have inside. And so we do have multiple motions. And in the Workflow Automation space we've got some go-to-market partners that have been great for us. So yes, we would. We get a lot of inbound interest on that, and it's something that we always evaluate as part of the go-to-market mix.

Okay. Great. And then another question on the increased sales force disruption in the U.K. and Europe, following Rant & Rave and the Adestra acquisitions. You mentioned one large deal in the quarter. How is the international pipeline shaping up for the rest of the year? And how do you think about expanding sales investments in this territory?

Yes. It's shaping up well, consistent with the strong guidance that we provided. We are well along on consolidating the various acquisitions that we've made in Europe and feel good about where that's going. What we love about CXM, and it relates of course to Adestra and to Rant & Rave as well as PostUp and our core Upland Mobile Messaging assets and to our Enterprise Knowledge Management asset, is that there is a cohesive consistent and strong selling message in the sales and marketing organizations regarding being able to really manage the customer journey from prospect, through purchase, through repurchase, through advocacy, across multiple channel, social, web, e-mail, text, and to do it in a personalized way but at scale. And I feel like we've assembled now the core assets that we need to do that. It's not to say there aren't additional assets we can add on, but we've got some very powerful ones. We are refining that sales motion. We're already seeing a number of opportunities within the existing customer base to sell a solution that includes multiple offering. So a short answer is we feel very good about the opportunity both in Europe, and of course bringing those products into the U.S.

Yes, Jack, I would just add that with these smaller companies, they've typically grown in 1 geography. And as Jack mentioned, bring those products into another geography for us is an immediate arbitrage. So we're bringing Rant & Rave and Adestra into North America, and then the UMM product suites into the U.K. And we have seen the pipeline light up where we've really focused on developing the deeper customer relationships with our messaging customers. And so more often than not, they have an e-mail - current e-mail solution. And just endemic to the market, it's not necessarily one that they're delighted with. So we're seeing interest not just on the technology that we purchase but our approach to the customer and how we build loyalty.

What it really comes down to and we're at. I don't want to overstate this because I think it's early days on it. But we're early days on building strategic relationships with our customers. So we talk about 9,000 customers, 1,300 of those what we call major accounts. We're averaging north of $100,000 a year in ARR with those accounts. With story after story of customer accounts that we've acquired at a lower ARR and dramatically expanded through time. And building out because of UplandOne, because of that focus on existing customers, because of the enterprise grade delivery and the increasing customer satisfaction, which is manifested in the 98% net dollar retention rate that we recently published, which was up 500 basis point improvement over the year before. We're really beginning to build more strategic relationships with customers and that is what leads to what Tim is talking about now. Where there's really a few things that feel better that when you complete an acquisition that stands on its own as a highly accretive transaction. And that you know is sematic, but that then drives a number of inbound calls from existing customers about their desire to learn more and to see if they can begin to deploy that solution as well. So all very positive on that front.

[Operator Instructions] Your next question comes from the line of Brian Peterson from Raymond James.

So just first one to hit on the M&A pipeline. Jack, you mentioned that you guys are getting invited to a lot more deals. If I think about - I'm assuming that means larger deals. But if I think about the 7 Solution Suites today, as you potentially look at larger acquisitions, is it possible that we could see acquisitions that would hail an entire new Suite? Or we still looking at something that would be synergistic with your existing portfolio?

Synergistic with the existing portfolio for the foreseeable future. Size of deals will - acquired companies in terms of their revenue will continue to be between $5 million and $25 million, consistent with what we've done. But you're right, there has been $1 million or $2 million a year increase in the average transaction. And I wouldn't be surprised to see that continue over the next 2 years. We'll continue to target and again, there are no guarantees for the M&A. 4 acquisitions between $25 million and $50 million a year of acquired revenue. But we've got a robust pipeline right now. It's all tied to extensions of existing Solution Suites. More solutions to sell into our existing customer base into the buying centers that we're servicing today. So we like where that stands.

Got it. And I just wanted to follow-up on Bhavan's question on the organic growth. If we could dig into that a little bit, just understand, from what we've seen, and obviously, the 10% number the last few quarters has been much higher than what we've modeled. How much of that is coming from upsell versus cross-sell versus new logos? And if we think about how that organic motion evolves? Over the, call it, next maybe 12 to 24 months. Does that change? And are we seeing any incremental investments there?

So a couple of things. I would say, you look at the net dollar retention rate number that we recently published with 98%, right? Up 500% basis points from 93%, which was the number 4, 2017. So that 98% is a very good platform for organic growth, right? And it starts with satisfying existing customers. And it's that drive to customers success. That's what supports renewals. It's what supports expansion, it's what creates pricing power. And that is the foundation of the business. In addition to that, obviously, we've expanded our sales capacity. We realized, right? With scale a couple of years ago that we could buy-in new products and retain the sales forces. We might cut some of the marketing spend, but we could keep the productive sales capacity and the related sales-enablement spending and still hit our contribution margin targets. And so we began doing that about 2 years ago and we've seen the impact of that on organic growth. And it's also really catalyzed an iterative process internally where more sales-oriented culture led us to revise and improve our go-to-market to group our solutions around core buying centers in the enterprise. So that our salespeople could present a more cohesive, more seamless opportunity to customers, and customers reacted well to it. And they perceive that as adding additional value. So that's the back story on it. And we feel good about it. But I do want to be clear, as I said at the front of the call, it's great to have 2 back-to-back double-digit quarters but - of organic growth, but they're not all going to be that. We had an easier compare in Q1. We had some go lives. You could see 10%, you can see 5%. You can see 8%, you could see 6%. And that is the - that's the sort of framework you could see. And we will continue to guide conservatively. And so our flat to 5% will continue to be the case. Of course, there's a tremendous amount of value potential and growth here just on the M&A side of it. Although, we understand the power of positive organic growth in our, again, investing in it consistent with that efficient growth index of paying $1 in sales and marketing of $1 of ARR bookings. And that upwardly ramping EBITDA margins 40% at the $250 million to $300 million revenue range.

[Operator Instructions]

Okay. Great. So operator, thank you. I think that's what we've got for now. I want to thank everybody for their time on today's call, and we look forward to speaking to you again on our next quarterly conference call. So thank you, and good afternoon.

Thank you for joining Upland Software First Quarter 2019 Financial Results Call. You may now disconnect.