Ladies and gentlemen thank you for standing by and welcome to the Upland Software Third Quarter 2019 Financial Results. [Operator Instructions] 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 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 third quarter 2019 earnings release which was distributed today at approximately 3:00 p.m. Central Time 4 p.m. Eastern Time. If you've not received the 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 and good afternoon. Welcome to our Q3 2019 earnings call. I've got Tim Mattox our President and COO; and Mike Hill our CFO with me today on the call. I'll start by summarizing results and highlights. Mike will give a more detailed look at the numbers and then Tim will cover sales and operations highlights for the quarter. After that we will open it 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 will 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 period 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, November 7, 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 third 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 over to Jack.

Thanks Mike. So a number of major headlines today. It was a great quarter. 51% growth in recurring revenues 48% growth in total revenues, I would note that was with a slight FX headwind weakness in the British pound maybe hit us for about $300,000. Nothing material but, a slight headwind on that. Record adjusted EBITDA. This is our 21st straight quarter of meeting or beating guidance that's every quarter since going public. We introduced a host of product enhancement releases that Tim will cover in greater detail later in the call. Organic growth was 6%. So up 100 basis points sequentially from the second quarter and in the target range that we've set. So that was great. Our M&A engine is humming at record levels. Since the end of Q2, we have closed three strategic and creative acquisitions that, together have added 41 million in total revenue, 18 million in adjusted EBITDA. Those transactions include simple which added telecom expense management capability to our project and IT management cloud, InGenius which added computer telephony integration to our Contact Center Productivity solution suite, and Altify which added a robust customer revenue optimization capability which will really form the core of our new Sales Optimization solution suite. I would note that InGenius and Altify closed just after the end of the third quarter. All three of those acquisitions are similar to all the acquisitions we've done in that they're highly accretive. But I will say these last few acquisitions really the acquisitions over the past year or two have become increasingly more strategic as we are now building out our solution suites and not only executing against acquisitions that are immediately accretive from an EBITDA per share standpoint but also adding core strategic pieces to our solution suite so that we can better serve customers and better drive long-term growth. From a run rate perspective the business today is at a $259 million revenue run rate $99 million adjusted EBITDA run rate. So a true milestone here as we approach $100 million in EBITDA run rate with high levels of growth. Also in the quarter we closed a $410 million credit facility to provide capital for growth. Our acquisition pipeline is robust. Our ability to successfully integrate these acquired products onto the UplandOne platform has never been stronger. And we are seeing the strength continue into Q4; already in the quarter we've had some outstanding sales activity. And so as our guidance reflects we are looking forward to a strong Q4 and a strong end to 2019. So with that I'm going to turn the call over to Mike who will give you a more detailed look at the numbers and the guidance. Mike?

Thank you Jack. Today I'll cover the financial results for the third quarter and our outlook for the fourth quarter and full year 2019 as Jack just said. Total revenue for the third quarter was $55.1 million representing growth of 48%. Recurring revenue from subscription and support grew 51% year-over-year to $51.1 million in the period. Professional services revenue was $3 million for the quarter a 31% year-over-year increase. Perpetual license revenue was $1 million for the third quarter for an increase of 7% year-over-year. Moving down the P&L to gross margins. Overall gross margin was 70% during the third quarter and our product gross margins remained strong at 72% or actually 76% when you add back depreciation of equipment and amortization of acquired intangibles which we refer to as cash gross margins. Our professional services gross margin was 34% in the period. Turning to our operating expenses. Research and development expense net of refundable Canadian tax credits was $7.3 million for the third quarter representing 13% of total revenue. Sales and marketing expense was $8.7 million representing 16% of total revenue for the third quarter. General and administrative expense was $12.2 million in the third quarter representing 22% of total revenue; however excluding noncash stock compensation expense G&A expense was $6.5 million or 12% of total revenue in the period. Acquisition-related expenses were $7.5 million in the third quarter resulting from our recent significant acquisition activity with one acquisition during the quarter and two acquisitions immediately following the quarter. Remember when we do an acquisition we have these acquisition-related expenses which generally amount to about a half a turn of acquired revenue annualized run rate on each acquisition. When looking at an acquisition investment we view these as part of the overall cost of the acquisition. But for GAAP…

Thanks Mike and good afternoon everyone. I'll now go through the sales product and operating results for this quarter. In terms of Q3 sales we expanded relationships with 204 existing customers including 24 major expansions over $25000 in annual recurring revenue. Among our larger expanding customers we had a leading provider of streaming radio and online programming as well as a division of a global humanitarian organization. They each expanded their commitments to our Customer Experience Management Solution suite while a multinational health IT and research company expanded its commitment to our Sales Optimization solutions suite. We had 201 other existing customers who expanded their commitments by more than $2 million in aggregate annual recurring revenue in Q3. We also welcomed 95 new customers in Q3 22 of which were new major customers who each committed over $25000 in annual recurring revenue. Among our larger new customers were a global financial services firm who committed to our Project & IT Management solution suite a multinational enterprise software company who committed to our Contact Center Productivity solution suite and a global nonprofit healthcare enterprise who committed to our document automation solution suite. 92 other new customers committed over $1.7 million in total annual recurring spend with Upland. We're pleased with the sales performance year-to-date. As Jack mentioned our sales pipeline is robust and we look forward to a strong Q4. Turning to product. We continued our strategy of combining internally developed customer-driven product innovation with strategically relevant acquisitions. In August we announced our acquisition of CIMPL a leading cloud-based telecom expense management platform. With this acquisition our project and IT management solution suite becomes the industry's first to combine it financial management and telecom expense management as further evidence of our commitment to invest in our solutions. In early October, we…

Great. Thank you Tim. At this time we are ready to open the call up for Q&A.

[Operator Instructions] And our first question comes from the line of Brad Zelnick from Credit Suisse. Your line is open.

Fantastic. Thank you so much. Fantastic. Congrats on a good quarter especially the very strong organic growth that you continue to put up. And guys not to get too nitpicky your total revenue exceeded what we were modeling but I think relative to some others perhaps just a touch light. So in that context can you maybe just speak to the performance of some of the recent acquisitions in the quarter? And what might have surprised you just from when you last guided?

Yes no real surprises. Thank you for the question. No real surprises since we last guided. I mean we updated guidance in connection with the Altify acquisition which was a little more than a month ago. The only -- and of course we met guidance in the quarter. But there was a touch of weakness related to FX about a $300000 impact principally related to the weakness in the British pound. That would be the only item I would note.

Got it. But just in terms of renewals and what you would expect as well from acquisitions basically in line with what you were expecting internally?

Absolutely. In fact we're seeing great performance and as we now are into Q4 and we're looking at organic motions and sales thus far in the quarter we've had some great results. So we feel great about Q4 and the close of the year and feel great about the most recent acquisitions.

Awesome. And if I could just sneak in one more. During the quarter you announced an upcoming preview for your Project and Financial Management WorkCenter in addition to your PSA WorkCenter launch back in -- in I think it was the spring. Can you talk maybe a bit about any early customer interest into either? And how that may drive potential cross-sell success among PFM or PSA solutions going forward?

Yes. The WorkCenter is a very powerful technology a desktop that enables our users to basically experience multiple products on a single pane of glass. And that includes not only visualizing data we offer that capability today with Upland Analytics but also being able to take targeted actions. And we have built the WorkCenter desktop as a separate application that can be deployed across each of the Upland Solutions suites. We're rolling it out first in Upland PSA. And we've had some great customer interest. The strength of a multi-product business like Upland's is the ability to offer customers additional relevant functionality which is tightly integrated to the products we currently offer. Having founded the business seven years ago and now having made 25 acquisitions it takes a certain amount of time until you build up enough critical mass in the various solutions areas that you can begin to buy and offer adjacency. And I would tell you that in just the last year we've really started to see that not only in our PSA suite but in our customer experience management suite in our contact center productivity suite and now with the acquisition of Altify and Sales Optimization. So look for more activity from Upland on that front through WorkCenter and through other key integrations of the great products that we're bringing into the Upland family.

Excellent. Jack.

Thank you so much for the colors and thanks for the questions.

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

Hey, guys, thanks to my questions and I apologize for the background noise here. I'm just at the airport. But congrats on the organic growth there. I guess maybe for Tim on the organic growth question. Tim if you look at your products and you thought about sort of what was driving the enhanced organic growth is there new feature functionality to add or buy there? Or do you feel pretty good about sort of where those pieces are the ones that are driving sort of the outsized organic growth? Or is it fairly well balanced?

Yes. I think as Jack alluded to certainly the strategic acquisitions create interest in the core products we already have. And as we bring them together thematically and technologically that's creating interest in terms of common buyers. And as I alluded to we're also incrementally innovating on those products through customer-driven innovation and feedback. So that helps us as well as those features get delivered. Upland Analytics as I alluded to was launched on an additional product so that helps as well. So yes I think the products definitely are being well received as well as the innovation that we're driving and this thematic approach to solution suites is certainly bringing a lot of interest to multiple products. I mean recall we have only a little bit over 1 product per customer today so just a big greenfield opportunity for us there.

Just to echo what Tim said Bhavan we're also on a strategic level making some key investments in driving additional organic growth. Again it's in the context of a business with adjusted EBITDA margins approaching 40%. And so we're not changing anything in terms of our target of mid-single digits or our conservative guidance stance. But we have the room within the budget to make some strategic investments around solution suites around bringing some of the great products we've acquired in Europe to the U.S. in a more robust fashion for example and elsewhere. And so you'll start to see those key investments play out over the next 4 to 5 quarters and into next year but we're very excited about the prospects there.

Got it got it that's helpful. And I guess just on the acquisition cadence you talked a little more about integration this call than you have in the past. You've also made a large number of acquisitions. I'd love to just understand as you think about that cadence and the sustainability or the acceleration of that cadence because you obviously accelerated from last year how you feel about the pipeline and the ability to continue executing on that level?

Thanks Bhavan. So the pipeline is stronger than it's ever been. Our capacity to integrate these acquisitions to successfully position the acquired products for sustained profitability and growth is stronger than it's ever been. And I would tell you if we look at that pipeline it's not only stronger in terms of numbers of opportunities but in terms of the strategic value of the products in the pipeline as they relate to our current solution suites. Mike's discussion earlier about the restructuring expenses was just meant to shed some additional light on what the main components of our restructuring budgets are and the speedy way in which those costs burn off. But we feel great about the pipeline feel great about the cadence. This has been a very successful year in M&A and we are actively in the market as we speak pursuing additional accretive and strategic opportunities.

Bhavan the only other thing I would mention is the UplandOne playbook that we use to reduce our risk of integration continues to get refined but it's very robust right now. And so our ability to integrate multiple companies that ability has increased with our standardization and scaling of that playbook.

[Operator Instructions] Our next question is from Brent Thill from Jefferies. Your line is open.

Hey, guys, This is Luv Sodha here for -- on for Brent Thill. I just had a couple of questions. Congrats on the quarter and on the deals post the quarter as well. One was on the Altify acquisition. Could you maybe talk about the opportunity in the CRO space what you're seeing? And given that the app is sort of natively built on the Salesforce platform what is the opportunity in terms of the partnership with Salesforce? Is there an opportunity to sell it to other Salesforce customers? So any insight there would be appreciated.

Yes. So great question. We're very excited about Altify as a core platform and as you mentioned a native Salesforce solution as a core platform for our Sales Optimization suite going forward. So with Altify you're able to bring in a methodology-driven selling capability with artificial intelligence to guide sales forces through the entire sales motion. And this is a solution that is in use today by leading brands globally so really household names in tech and financial services and a number of other industries using this platform. Onto that platform now we can cluster some of the great point solutions that we had already acquired in the sales enablement area. One for example is customer reference management. Again another product used by large enterprise-class sales forces so a great overlap in terms of target customer. And of course our customer reference management solution integrates tightly to Salesforce which really becomes a hub for a lot of what we do in this area. In addition to that you've got our RFP automation proposal solution Qvidian is the brand name of that particular solution which again plays very well in large enterprise sales forces particularly in regulated industries where you've got compliance concerns. So financial services but as well as many other verticals where it plays strongly. And so that again a great tie-in. And then finally with Kapost being able to bring the content creation capability to feed not only sales optimization but also our marketing buying center-focused CXM capabilities around marketing automation and messaging. So a very powerful set of solutions coming together. The Salesforce partnership which we have now not only with Altify but with other products like the computer telephony integration a solution that we recently acquired InGenius which really provides an enterprise-class connection between leading CRMs and principally Salesforce the key contact center operations platforms. So we see many opportunities to partner in a material way with Salesforce and that is part of our strategy going forward.

Got it. In terms of the M&A strategy I know you mentioned that the pipeline is robust. I wanted to ask if -- on the strategic side if there are any solution suites where you do see you could add assets into? Or any color there would be helpful.

Yes. I would say if you look at our Customer Experience cloud that's where we're seeing the most opportunity. So you really got 3 clouds within Upland: Customer Experience; we've got a Document Automation cloud; and then a Project & IT Management cloud. In the Customer Experience cloud which is really about doing a couple of key things. It's orchestrating customer journeys it's synchronizing revenue teams and it's empowering front line customer experience professionals. That cloud is the most significant chunk of our overall revenue. It's the growthiest part of our revenue and it is an area where we have a very strong pipeline. So I'm not saying we won't do acquisitions outside of that but we're very much focused on a number of strategic and accretive acquisition opportunities in that customer experience cloud area. So that's where the focus is right now.

Curtis, thank you again.

Thank you.

All right. Our next question comes from the line of Brian Peterson from Raymond James. your line is open.

Thanks, gentlemen. I appreciate that. So just one for you Jack. As I think about M&A I think you've referenced multiple times the strategic acquisitions more recently. I'm curious if you look at the pipeline of opportunities do you look more at how the technology and the products fit within your current fit or your current products? And does that potentially lead you to look at maybe more expensive or growthier acquisitions than you've done in the past?

So strategic fit clearly important. And we are building a pipeline and expanding a robust pipeline of acquisitions that are well within our valuation target range. So as we've talked about a 5x to 8x pro forma EBITDA valuation range we don't see any issue staying within that range. And that buying power has given us the ability over the last several years to look at increasingly more strategic and acquire increasingly more strategic and increasingly growthier solutions and products which sets us up now really to go-to-market with this solutions suite and cloud capability around customer experience Document Automation and Project & IT Management in a more holistic way. And we're making some key investments now to build out that distribution. So great strategic pipeline no issues on valuation a strong operating platform with robust capability to onboard these acquisitions and position them for sustainable growth and increasingly now a distribution engine to cross-sell these products into our customer base. But on the last point I want to caution that that will be a longer-term investment scenario but looking good and an area of focus for us in the future.

Thank you.

Our next question comes from the line of Eric Lemus from SunTrust. Your line is open.

Hey, guys, thanks for taking the question and Nice job in the quarter. One quick question for you Mike. What was the -- I apologize if I missed it but what was the organic recurring revenue growth in the quarter?

It was 6% Eric.

Okay. Great. And then kind of following up on a previous question. But when you look at the overall product suites that you have is there one that kind of stands out in terms of more cross-sell traction than the past? And then also on another side of the coin is there a particular product suite that has more opportunity than others for cross-sell?

I think the Customer Experience cloud in general is the one where we're seeing it. So the customer journey orchestration part of that which is called the CXM solution suite which includes marketing automation it includes SMS and email messaging it includes our customer sentiment platform that is the area that's furthest along in terms of integration of those point solutions into a suite and in terms of the unified go-to-market motion. So we see a great opportunity there. But I will tell you we looked at some acquisitions in sales optimization and contact center productivity we are starting to combine these powerful in the case of the contact center also part of the broader customer experience solution where you're combining this powerful enterprise-grade workflow automation linkage between Salesforce and core contact center operations platforms and then laying over that robust enterprise-class knowledge management and customer sentiment capability where contact generations can be empowered not only with immediate customer records and a workflow out of Salesforce but also with a robust enterprise knowledge base right that is created through this strong gamification capability we've got in our knowledge management solution to really better serve customers drive a superior customer experience. And the moment that call is hung up a text-based or email based customer survey goes out that enables a client to talk about the experience not in terms of a static or stilted survey but just in natural language where you can then process that using AI capabilities and tease out insights through time and have a positive circular loop in terms of improving the customer experience through time. So these are now when you think about the level of adjacency and relevance of our products this is a game change away from where we were even just two years ago. And again we can talk about sales optimization as well as I alluded to earlier between CRO customer reference management RFP proposal automation and the content side. So you're really seeing a new company emerge if you will within Upland. More strategic more tightly integrated and still backed by the UplandOne platform driving high margins and increasing margins through time. And of course that focus on existing customer success above all else. So we're very excited as we move into the end of the year and we look out to 2020.

There are no more questions at this time. Thank you everyone for joining the call today. You may now disconnect.