Q3 2020 Upland Software Inc Earnings Call

Hi, Mike.

[music].

Okay, and recent sales product and operations highlights following that Mike will provide some insights on the Q3 numbers and our guidance then we'll open the call up for Q in a before we get started.

That I will turn the call back over to Jack.

All right. Thanks, Mike in the third quarter, we posted record organic growth.

And free cash flow and based on strength, we're seeing in the business. We also raised our revenue and raised our adjusted EBITDA guidance for Q4.

And the full year, so let's go through the numbers.

There are no longer dependent on the equity capital markets due to watch our free cash flow generation.

Our Q3 organic growth in reported recurring revenues came in at 14%.

Now this recent acceleration inorganic growth is all being driven by.

Bob in election year, CX sand usage by political campaigns.

And other advocacy organizations and.

That usage has to date.

More than offset any co bid related bookings in churn impact and we see continued strength in organic growth as we move into Q4, but.

Flow to help users streamline resource allocation requests, resulting in greater utilization and profitability and in our enterprise sales and marketing area. We added new key Microsoft integration that enables users to access their request for proposal and proposals.

Hi, Barry directly from within or.

Total revenue.

Paul generally as expected.

Also acquisition related expenses were approximately $3.6 million in the third quarter.

And as I mentioned on the last quarter's call. These costs will continue to dramatically decline without further acquisitions, we anticipate Q4 to be around $1.5 million.

Our third quarter 2020, adjusted EBITDA was $25 million for 34% of total revenue up 21% compared to $20.7 million or 38% of revenue for the third quarter of 2019.

Volver.

With regard to income taxes I will note that upfront currently has approximately $351 million of total tax and it will carry forwards and these approximately $211 million will be available for utilization prior to expiration.

As of September Thirtyth 2020.

Had outstanding net debt of approximately $301.6 million after factoring in the 233 million of cash on our balance sheet.

I will note that the principal payments on our term debt are 1% per year or about 5.4 million per year.

With the remaining balance maturing in August of 2026 the.

Ended December 31st 2019 full.

Okay.

And generate more and more free cash flow, we will expect that.

Net debt leverage to come on down below four down to three and a half and ultimately lower than that towards three.

Thanks, Michael So Jack if I could just follow up on what you've said you know as we think about the M&A landscape out there. It makes perfect sense that there's a lot of.

Of companies that are actionable that meet your criteria, but just on valuations right now and competition for deals, especially when we look at.

Public market multiples that or.

In some in some cases.

Very rich relative to recent history.

The acquisition.

And I don't see anything changing that in the current environment, our pipeline as strong and as I say there are some bigger secular trend as.

These D C companies come out of portfolios that grew larger over the past 10 years. In addition to that I would know kind of on a more specific basis right now you've got a bunch of people bunched up at the exit who wanted to transact this year.

But weren't able to because of the impact of Covid. So both in a sort of short term.

And in the longer term, we think those supply demand characteristics are gonna keep prices are reasonable and again you know for US you look at.

An EBITDA multiple multiple arbitrage, which is very attractive relative to the pro forma EBITDA multiples, we're paying and if you look at the I R. R's, but we're getting on these deals very substantial so we like where where position.

Excellent. Thanks, so much for the thorough explanations and keep up the good work us.

Thank you.

Our next question comes from <unk> with a million.

Blair.

Everyone. Congrats when the quarter. This is actually Jake on for <unk>, but I'd love to dig more into the sales restructuring that you guys are doing so how did these initial cross selling efforts impacted a C. V. I know that you guys are saying and a 21, but just trying to understand where you see the low hanging fruit and just kind of.

What's been happening already.

Yeah. So thanks for the question Jake is early.

To be kind of pointing to specific impacts, but there's a lot of exciting.

Initiatives that are underway, they're being led by rock fat around our president Chief Commercial officer. So let me ask Rod to give you a broader picture of what we're doing.

Thanks. Thanks for the question. So Q3 progress actually it was it was a good quarter for progress in this mission is Jack but it were early and.

Really five to seven quarter journey from here frankly, but we are deep in this evolution. So some highlights.

Crossover pipeline is growing quite nicely.

The.

Sort of reshaping our marketing motion a bit so we've centralized are Legion machine just to get more efficient.

We've also.

We're well into sort of an updated digital presence. The did you even though the virus journey is pretty digital and with Covid. It's now more digital so.

Under the under the auspices of selling remotely for a long time.

We spent a lot of time sort of reengineering kind of the buyers during with US digitally you'll see a lot more of that publicly from us as we get into 2020, but a lot of a lot of progress there.

We also added.

A new leader for our sales development team. So this is the team that catches the lead flown qualifies. It. So we've centralized that team hired a new leader.

And updated that motion. So we have a lot more visibility top tunnel top a funnel.

And then we talked about the global accounts initiative, that's even is mostly hired and we've added a leader.

And they will be in in shower top 150, 200 accounts globally and so they are generally on the ground now.

And ramping and coming up to speed on all of our products and their accounts and so as we as we get into early 21, we expect to see sort of an impact from that team on our cross off high point, but we're already seeing anecdotal impact of just finding opportunities within our biggest customers. So honestly.

The building is going great I'm excited about sort of how the progress we're making on the ground operationally and structurally with the team's talent people and the processes and so so we're sort of encouraged as we exit the year.

And move into 21.

That's great. Thanks for the congrats again on the gay quarter.

Thank you.

Our next question will come from Frank failed, let's cafe.

Thank you.

Jacket I'm curious if you could just talk about some of our higher all the drivers and how the customer behaviour age is changing it feels like.

Things are starting to open up and feel a little better kind of mid just give us a little more specific in.

And I guess for Rod on the on the sales build out I'm curious if you can give us a sense of the capacity.

You are adding in <unk> over last year, and how do you expect that to to roll on the 21.

Sure. So thank you for the question.

When we went into the.

The.

The slowdown that was precipitated by the response to Covid.

We made some assumptions around impact too bookings insured.

And at the time, our belief was that we're going to see the most impact.

In the second quarter, and the third would be better than the fourth would be better than that and you would.

Move back to a more normal.

Situation by Q1, and we have seen that progressive improvement as we moved quarter to quarter. So it's.

It's not to say our business has been noon, if you will from the impact of be lockdowns, but it's been incredibly resilient and of course, we've had some areas that.

Have.

Done spectacularly well enter it in bits about trend.

Organic credit so.

That's a little bit of Ah Ah Ah Ah stage setting too I think it's more specific insights get Rob can give you around.

What we're seeing from customers.

Yeah bring it to your capacity question.

We're more.

Taking current capacity and evolving retooling, it and sort of.

Changing out some players too.

The right type of players.

And then adding the global account team that.

Is it completely incremental but because we sort of swap it out with some other AE. So I would just say, it's sort of a modest slight increase in capacity nothing dramatic really we want to make sure the model is humming.

And so and so until we get to that point I would call. It a a modest increase but really.

Kind of a retooling so do we have the right players do we have the right players in the right place in the field.

But we have the right skill sets, we've upgraded a number of folks and.

And we've done a lot more training this year to get people more capable and then we've added we've added to global account has but they weren't even those weren't completely incremental so.

So I think that it's a.

What is the word I would use is from a from a increase capacity as we head into 21.

And just a follow up Jack I'm on the above trend where are you seeing.

The biggest surprise me upside.

So in terms of.

Growth of the business see accent usage in this quarter came in.

Very strong.

Really driven by.

Election year political campaign, an issue advocacy usage.

Wasn't necessarily unexpected and that we knew we would have.

This kind of a bump.

Given that were on that for your cycle right now.

But that's where I would say we've seen the biggest kind of above trend.

Growth opportunity and Q3 and again, we see that <unk>.

Strength continuing into Q4.

Thank you.

Thank you.

Thats or professional services so.

I think we're I think we're well positioned to be resilient through that.

Great. Thank you.

Hi, Thank you have a question. Please press Star then one to join the queue.

Our next question comes from Jeff Van Rhee with Craig Hallum.

Great. Thank you for taking my questions I'll add my congratulations on several questions for me, Jeff to the high level would be a great organic 40% I mean blowout numbers. There can you dial it in a little closer what it would have been without the election year upside that would be question, one and then two.

Moving fairly quick, but I just want to make sure I heard the 21 commentary on growth clearly.

Clearly as well I think you referenced universe, the low to mid single digit guide may not be valid, but just maybe a little finer point on both of those.

Sure. So this out size performance was all driven by that bump in.

CX and usage.

For coming out of election year political campaigns and so.

Absent that usage, we would not have had this above trend.

Result will be back in our normal kind of outlook of low to mid single digits right. So get standard upland.

The.

Range of performance.

Now as I said, we are seeing this strength continuing.

In the fourth quarter and you know in addition to that.

We're going to be conservative about the outlook for 21.

And assume that very little of that.

You know repeats but.

But as I mentioned in the opening remarks in most cases, what weve seen in the past is that a portion of that spanned moves over into issue advocacy.

And that you do get an.

An echo of that in the year following so.

You know thats, our take on what the potential impact is now.

You've got.

Hey that strong performance in 20.

And as well as any coded impacts around bookings and churn, particularly earlier in the year.

That are going to impact and create a headwind for.

Our organic growth rate.

In 21, so we just want to sort of the.

Conservative in terms of our.

As we move into next year, recognizing the fact that these.

Who me to accomplish that.

So integrate into a sales force.

Sometimes directly sometimes into their environment that's helpful as well.

So those are the things that we're looking to do in addition to the customer informed incremental innovation now where we see a gap either adjacent or with a particular product. We also have the M&A era, when our quiver that we've used more strategically on in the past few years. So we look to fill in.

The roadmap that way as well.

Some shit that's helpful. Thank you.

Okay.

This concludes that question and answer session I would like to turn the call back over to Jack Mcdonald for any closing remarks.

Great. Okay, well. Thank you all very much for your time. This afternoon, and we look forward to seeing you on our next earnings call. Thank you.

Hey content now can call. Thank you for attending today's presentation you may now disconnect.