Q2 2021 Upland Software Inc Earnings Call
[music].
Thank you for standing by and welcome to the Upland software second quarter 2021 earnings call at.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session and.
Instructions will be given at that time.
The conference call will be recorded and simultaneously webcast and Mr. Dong.
Non software Dot com and.
A replay will be available day, it's like 12 months.
By now everyone should have access to the second quarter 2021 earnings release, which was distributed today at 4 P M Eastern time.
And if you have not received the release, it's available on upland that.
That's right.
And I would like to turn the call over to Jack Mcdonald, Chairman and CEO of Upland software. Please go ahead Sir.
Thank you and welcome to our Q2, 2021 and earnings call I'm joined today by Rod Fat Brown, our president and.
And Mike Hill, our CFO on too.
Call I'll start with some opening comments on our Q2 results and Rod it's going to provide some color around customers and also around product development and.
And following that Mike will provide some insights on the Q2 numbers and on our guidance after that we'll open the call up for Q&A, but before we get started Mike could you go ahead and read the Safe Harbor statement.
Thanks, Jack and good afternoon, everyone. During today's call. We will include statements that are considered forward looking within the meetings of the securities laws. These statements are subject to risks assumptions and uncertainties that could cause our actual results to differ materially a detailed discussion of these risks and uncertainties are contained in our annual report on.
<unk> form 10-K, as periodically updated and 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.
We do not intend or undertake any duty to release publicly any updates or revisions to any forward looking statements on.
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 and our press release announcing our second quarter 'twenty 2.
And 1 results, which is available on our Investor relations and on the Investor Relations section of our website.
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.
And with that I'll turn the call back over to Jack Alright.
Alright, Thanks, Mike So and the second quarter, we continued executing on our acquisition playbook, we completed another strategic and accretive acquisition and Veeva, which is a cloud based knowledge management solution and that expands our product library within the knowledge management.
Market are getting.
Getting to our customers and new ways to drive contact center productivity, particularly in regulated industries, such as utilities health care.
And financial services and I will note. We did that are completed that acquisition, while posting strong free cash flow of $10.6 million and that's after acquisition expenses and so that's over 22 million of free cash flow for the first half.
And of 2021 and again after acquisition expenses and.
So this makes 3 acquisitions for us completed thus far in 'twenty, 1 and while there can't be any guarantees I think we're well on our way to making a 2021 and a strong year for acquisitions, our pipeline of acquisitions is robust and we're active in the market for.
<unk> opportunities and.
In terms of Q2 results.
We had 7% total revenue growth is expected adjusted EBITDA came in at 31% and of course, reflecting the are continuing and go to market investments Q.
Q2 free cash flow as I, just mentioned and 10.6 million and 22 million for the first half of the year, a -2% organic growth, but again, if you exclude the political.
<unk> revenue from last year, our organic growth was positive 4% in line with what we expected now we're clearly lapping some tough revenue growth compares right now given last year's Spike and political messaging revenue as well as the impact of Covid.
Including the fact that we shut down acquisitions for most of 2020, so that impacts our total growth rate here.
Here and 2021, but that said as we move through this and we look out over the next several years I really like the way. This business set up we've got a powerful cloud software library approve and operating platform. We've got a strong base of over.
1700 enterprise customers over 10000 customers total, but 1007 hundred and enterprise customers and we've got and equity compound or financial model. So beginning of 2020..2 went over those next several years. This is a business that can reasonably target total revenue growth.
The 15 per cent per year, that's organic plus acquisitions at 15% per year, and importantly achieved that growth on a sustainable and self funded basis and.
And generate positive free cash flow as we go and that's financed out of internally generated cash flow cash on hand, and our debt facility with no further dependence on the equity capital markets.
In addition to that now that we've digested the structural go to market investment we've made with some of the new leadership team the new sales and marketing service and product team members. We are set up nicely over the next several years for strong.
And expanding adjusted EBITDA margins as we take those margins from 32% toward our long term goal of 40 per cent.
So with that background, let me turn the call over to Rod for some insights on customers and product developments right.
Thanks, Jack Good afternoon, everyone on the customer front and the second quarter, we expanded relationships with 311 of our existing customers. So it was a strong expansion quarter 51 of those were major expansions. We also welcomed 133, new customers to upland during the quarter include.
<unk> 32, new major customers I'd like to talk about a couple of those major expansion and cross sell story is just to add some color.
How things are played out during the quarter.
Let me start with Gannett and I think we all know going at a major player on the media and publishing space.
And and upland and top 25 customer are they expanded.
Their existing relationship to multiple products within our customer experience library and signed a multiyear expansion really focused on helping them achieve their revenue and growth goals very exciting deal for us another upland top 25 customer and the largest SaaS player on the world significantly expanded their relationship with upland.
Core products within our enterprise sales and marketing library.
And in this case, they double down with their current spend on our content marketing products specifically.
I've been doing this for 25 plus years and when I see a big customer like this and who is the undisputed leader and what they do double down on our sales enablement products to 7 figure plus levels. It helps validate.
And the competitive the competitiveness of our products.
The scale of the cross sell opportunity we have in front of us.
And frankly, how we at upland and are beginning to position ourselves as a trusted partner to global enterprises really bringing last mile solutions, 2 big problems and.
And finally last quarter we.
And we mentioned our deal with HPE to resell the upland document workflow cloud and I'm excited to announce this is now rolled out to the market with first wins closed and in the books and pipeline building and we have a lot of excitement about this relationship going into 'twenty 2.
Switching to the product front, and we had a good quarter for new product releases, and we also welcomed and dome and as our new Chief product Officer, Dan will own the overall product strategy for our library of products. He will focus on our R&D focus staffing strategy, all while working closely with our M&A teams and.
And our go to market teams.
With that I'm going to turn the call back to Mike.
Well, thank you rod.
And I'll cover the financial highlights for the second quarter and our outlook for the third quarter and full year 2021.
On the income statement total revenue for the second quarter was $76.3 million representing growth of 7% recurring revenue from subscription and support grew 7% year over year to $72.4 million.
Professional services revenue was $3.4 million for the quarter of 10% year over year increase.
Overall gross margin was 67% during the second quarter and our product gross margin remained strong at 68%.
Or 72%, when adding back depreciation and amortization.
Which we refer to as cash gross margin.
Operating expenses, excluding acquisition related expenses, depreciation and amortization and stock comp were $31.6 million for the second quarter or <unk> 41 per cent of total revenue all generally as expected.
Also acquisition related expenses were approximately $5.5 million and the second quarter, which were about as expected. After some puts and takes without additional acquisitions. This year. We currently estimate acquisition related expenses to be around 4 million for Q3 and around 3 million for Q4 for each acquisition total acquisition.
<unk> expenses are generally 50% to 60% of the acquired annual revenue run rate.
And it varies from acquisition to acquisition, depending upon uncontrollable factors such as size and location.
Generally and for each acquisition and 45% to 50% of these transaction and transformation expenses are included within the FERC or incurred within the first 3 months and then taper down rapidly until the transformation is complete by each acquisitions first anniversary.
Our second quarter 2021, adjusted EBITDA was $23.7 million or 31 per cent of total revenue consistent with $23.7 million or 33 per cent of total revenue for the second quarter of 2020 as.
As expected adjusted EBITDA margin was lower due to our increased go to market investments compared to last year.
We still expect adjusted EBITDA margin for 'twenty, and 'twenty, 1 as a whole to be around 32% and.
And as implied by the midpoint of our guidance and we expect to exit 2021 with Q4 at around 33% to 34 per cent.
On cash flow for the second quarter of 2021 here GAAP operating cash flow was $10.8 million and free cash flow was $10.6 million, even with $5.5 million of acquisition related expenses and the quarter.
We also had some positive changes and some of the working capital accounts like collections on accounts receivable.
And with over $22 million of free cash flow year to date through Q2, we continue.
We anticipate full year 2021 free cash flow of over $30 million and possibly over $40 million, depending upon the size and timing of future acquisitions.
And the corresponding acquisition related expenses associated with those.
So we are generating substantial GAAP operating cash flow and free cash flow, even after acquisition related expenses.
This ongoing free cash flow generation, and addition to our existing liquidity of $236.5 million comprised of approximately $176.5 million of cash on our balance sheet as of June 30th 'twenty, 'twenty, 1 and our $60 million Undrawn revolver.
This ongoing cash flow generation exist existing available liquidity and expanding our credit facility, while maintaining our net debt leverage of up to a maximum of around 4 times should allow for self sustained growth without dependency on the equity capital markets I should note that our net debt.
Net leverage is currently around 3.6 times based on the midpoint of our 2021 adjusted EBITDA guidance.
As of June 30th 2021, we had outstanding net debt of approximately $354 million after factoring in the cash on our balance sheet.
You'll note that the principal payments on our term debt are 1% per year or about $5.4 million per year and with the remaining balance maturing in August of 2020.6.
The interest rate on our outstanding term debt is locked at 5.4%, making our annual cash interest payments of approximately $30 million at our current debt level and.
Additionally, I will point out that our term debt has no financial covenants on current borrowings.
With regard to income taxes upland currently has approximately $356 million of total tax net operating loss carryforwards and of these we estimate approximately $216 million will be available for utilization prior to exploration and.
I will note that we still expect around $5 million per year of cash taxes.
For guidance.
For the quarter ending September 30th 2021, Upland expects reported total revenue to be between 75, 4% and 79.4 million, including subscription and support revenue between 72.2, and $75.8 million for growth and recurring revenue of 4% at the midpoint over the quarter ended September 30.
2020.
And third quarter 2021, adjusted EBITDA is expected to be between 23.9, and $25.9 million 4 and adjusted EBITDA margin of 32% at the midpoint. This adjusted EBITDA Guide at the midpoint is in line with the quarter ended September 30th 2020.
For the full year ending December 31, 2021, upland expects reported total revenue to be between 300.8, and 312.8 million, including subscription and support revenue between 287.1, and $297.1 million for growth and recurring revenue of 5% at the <unk>.
Midpoint over the year ended December 31, 2020.
Full year 2021, adjusted EBITDA is expected to be between 94.8, and 100.8 million 4 and adjusted EBITDA margin of 32% at the midpoint.
This adjusted EBITDA guide at the midpoint is a reduction of 2% over the year ended December 31, 2020, reflecting our incremental investments and our go to market activities.
And with that I'll pass the call back to Jack.
Great. Thanks, Mike and operator, we are now ready to open the call up for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the key.
And your time your question has been interest and you would like to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Bhavan, Suri with William Blair. Please go ahead.
Hey, James Thanks for taking my question and.
And you know actually absolutely on messaging that was pretty solid.
Organic growth so congrats on that and Jack for you initially and just what drives that a little more about how rod sales restructuring has been progressing you know.
Given we're halfway through the here and kind of what.
And sort of milestones should we look for by the end of 2021 sort of think about how that's playing out.
Well.
Look I talked about this before and there are a series of milestones we look at it right. The first was getting the team in place, which was done on a really lightning fast basis. When you consider that rod joined early last year and was able to have the full team in place by the end of.
Last year, and then we started to see a different level of hygiene around the process and really building a true go to market.
Culture within upland.
And adding capacities like centralized lead generation and adding the global account managers and where we're seeing the impacts of that already in terms of opportunities are within accounts. So I'll, let rod kind of comment some more on this but just.
<unk>.
1 point before that when I look at this business over the next several years.
And I I think about upland as and equity compound or and this is a business that can grow 15% total growth a year right and that's going to be a mix of acquisition growth and M&A and again can do it on a sustainable basis.
On a self funded basis.
While generating positive free cash flow material positive free cash flow.
And while putting up expanding adjusted EBITDA margins here as we move from the low thirties wherever you are today up toward our long term goal of 40%. So rod is bringing that strength around go to market. It. It's beyond just the sales and marketing piece right, because he's making changes and customer success.
Changes and on the whole product side of the business and building a stronger platform that will continue to bolt on acquisitions on top of.
And I think the combination of that and that totaled 15% growth to me is the number to look at as we move out over the next several years.
Yeah.
Yeah, just to add to that I think what.
And to Jack's point, the progress we measure internally is a combination of capability and outcomes right. So we.
We've spent the last 5 quarters.
Swapping out a bunch of leadership, putting and new systems, putting a new process changing how we sell them.
And the early indications of that on.
And the area of the conversion in other words the pipeline, we had a year ago, how well are we converting that and hopefully and was that and we've learned and that you know we've learned how to converted better we are better and stronger sales people better methodologies. So you start with converting what you have and then you start shifting to making sure you're bringing in the kind of pipeline and you can win and so that's what the.
Our team and the marketing teams have been doing.
And you know all the early indicators that the S E. Our team, which is the our lead qualification team.
And as steadily created.
And really good pipeline and the first 6 months of the year.
You know for not a very big team and so and I'm encouraged by that we're seeing that pipeline converts.
And in some cases.
Which is encouraging.
The challenge is to.
Try and describe to you guys and and operating level we are.
So much better I think there and we were 5 quarters ago, just and talent and process.
Discipline and the quality of our day to how we're presenting our products.
And we're pricing business those type of things.
But as we said earlier on the call, we're coming off of that compare which would be very difficult to see the outcome and just work.
And from a growth perspective until we kind of lap until we lap this and so so really I and my my my answers just rest assured that what we are doing right now I think he was just making this company so much better.
And frankly, setting us up for the next 5 to 10 years of compounded growth and.
Turning back on the M&A game too that we really didn't do any of that last year.
And we did a deal early early early 'twenty, and 'twenty and turning that back on and executing that and having a team.
And that is going to market and integrating acquisitions and the same time much more capable much cleaner deals are getting tucked in and quicker.
You know less inc. So on the acquisition. So I'll just leave it to you know inside them a lot of really good operating improvements and which you will see over time there'll be just to be very hard to visualize given the compare and I think that's the trick.
No and I appreciate the color I think.
If you start off with those operating improvements and you say, okay and they'll play out I think you said 2 or 3 or 4 quarters.
Even given the compare.
We'll see how they go and so I appreciate the color and candor I guess to add to that.
You know 1 of the things I've always ask Jack and the team over the years has been the ability to cross sell and you've come in and so and said okay. We're gonna start focusing on some of the cross sell and he made some really interesting acquisitions that actually fit really well with cross sell and so we'd love to get an update on how that and motion is going and.
And you know just.
To put a fine point on maybe a little bit. So so obviously that ultimately plays into net dollar retention rates and your existing base starts buying more maybe help us think through sort of and how the cross sell is going and and maybe your micro Jack talk about how that plays into the net dollar retention rate over time.
And <unk>.
Jack would you like me to start.
And I know please do.
Yes, so that's a great question.
Color on.
On the cross sell is that we really started we created our on cross sell is a unique pipeline in the <unk>.
Third quarter of last year, we got all the integration stuck in.
And the system stuff.
Tidied up and we really started tracking and cross sell is a unique pipeline and from Q3 to Q2 of this year 4 quarters in a row, our cross sell bookings grew every quarter.
They're still not you know theyre not a high percentage of our overall sales.
But every quarter, they get bad or the pipeline grows the deals grow a couple of the deals I mentioned.
Earlier.
And the update on where we're both cross sell deals 1 was and expansion and some cross sell and the other ones and cross sell and.
And so they're the most healthy cross sell quarter, we've had and keep to now that's not to say, we're where we need to be but if I drew the line and I like the slope. So we'll just leave that there so from a from a cross sell perspective, a lot of progress and look and your point is it's perfect right and I will say, we've got the organization focused on.
What I'll call net IRR.
You know net and net dollar retention and obviously with the year over year.
Measurement is kind of harder for the individual sales guy or a customer success manager to see but what they can see is and are we you know we're selling this much and we're churning this much and a given quarter and so we've reoriented the entire business around frankly been every day, our I'll put up and given quarter, which is exactly what drives organic growth.
The following year and so.
So so that that's another sort of behavior change operating change that we've put in and so they like you're you've got it and we are spending I'm, probably spending more time on the on.
On the churn part of that and that they are our conversation frankly than I am on the new dollar part just because of the new to all of the parts up and running the teams there and now we're focusing on hey, what do we need to be doing different with our products to.
And to improve our retention rates, what do we need to be doing differently and pricing and organizational structure and optimizing.
Optimizing who's got commercial skills, who doesn't it and so we're really looking at the org to tightened up how we're doing our retention, which is a huge capability that we if you go I mean, we go back 24 months. This company wasn't anywhere near this big we didn't have anywhere near this many products to renew and getting the org oriented.
And ready to deal with the next the next 20 acquisitions.
And and being capable of managing those customer bases.
And you know is a big part of another thing we're working on right now we've accomplished a lot and we have a lot to do so we live and die every day and inside the business on a net IRR metric for a given quarter and that's essentially you know what everybody's compensation is aligned on.
That was really helpful. I really appreciate all the detail. Thank you think that this is my question and say I appreciate it.
The next question comes from Brian <unk> with Jefferies. Please go ahead.
Hello, everyone.
And also now on from Brent Thill I wanted.
On the question and I've been asked about.
Uh huh.
Along the lines of the sales investment that you've been making for the better part of the year.
And I guess, how should we think of.
Organic growth as a component of that 15% revenue growth target that you laid out Jack.
Should we expect it to be a step function higher than.
Okay.
That you've been delivering thus far.
I think loved and the and the near going here.
I wouldn't change the outlook that we've had historically, we've always talked about targeting mid single digits.
And guiding more conservatively than that to low single digits, and so I'm not ready to change that show. The the total 15% growth we can get that done on a self funded basis.
On a sustainable basis at those organic growth levels now, there's some optionality and there that organic growth could go higher.
As we move and and and that will be upside but.
That's where I come out on that.
Got it and I guess and rehab.
And into the back half of the year.
Obviously, you have the tougher compares given the election related spend.
And maybe for Mike could you share and little bit is how do you think about.
Guidance, but more specific.
And how we should be positioning.
And our models and any any insights that you could share on.
Conditional.
Yeah, I love and Mike here, so that.
Last year, the political revenue of course ramped up during the course of the calendar year quarter to quarter, as we got closer and closer to the election and Q4.
We talked about $2 million of election.
And revenue in Q1 last year that was not in this year's Q1 are now we've got about 3 and a half million and Q2 that was not and but that was in Q2 last year. That's not in this Q2.
And then of course ramped.
Higher levels, and Q3 and Q4 last year. So again, that's what we're talking about that we're gonna have to lap. Those we will continue just like we did and todays 10-Q filing and the next Qs and and the 10-K.
We will format those out to show the breakout of the political revenue.
And.
So I think that's it I think it's just the trend you can see it coming and we know the trend from last year and of course, we'll we'll continue to back that out to try to guess.
Disclosure and visibility into the impacts of this year, but we've got our guidance numbers out there for this year as you can see and and and that should as Jack said just sort of curious through.
Got it and 1 last 1 if I may from raw.
John.
I'm just trying to see the momentum on the existing.
And do you expand within the existing accounts could you maybe you could give us some more light as to which I.
I guess the niche parts of the portfolio saw most traction and.
And there is the most comprehensive in terms of the cross sell motion.
Okay.
Yeah.
Yeah, that's a great question.
And I'll mention I didn't mentioned this customer.
Can't say their name, but it's another major Tech company. This was a.
This is illustrative of a.
Our strong product group for Us, obviously, and our sales enablement group this organization.
<unk> purchased our ultimate sales enablement suite and they.
And they're rolling it out to 1200 salespeople that are and tire sales organization. So when a company like debt bets, it's a sales methodology on you.
It's a pretty strategic deal that part.
I mean, we have strength in every business unit, and and frankly and each of our.
The Egypt sort of the library areas of the business.
We saw good cross sell and good expansion, obviously expansion for US is the lifeblood I mean, I mentioned earlier, we track on a cross sell pipeline. We also track expansion and separately and we track obviously new logo, we track all 3 because they convert at different rates and we run different campaigns and programs.
And and you know all 3 I would say expansion is reasonably healthy and were.
And a lot more progress there of kind of same store sales of getting existing customers with existing products to expand and that's obviously the lifeblood of any software business and.
And I mentioned earlier, the growth and the and the and.
And the cross sell success and that leaves us with new logo, which frankly is is this is this the longest sales cycle pipe right you don't have and existing relationship on an existing contract. It's a net new conversation.
Youre, winning from scratch, and you're putting and contracts and those things take longer and so.
And we run that as a sort of another parallel pipeline and all 3 we've optimized investment for all 3 we werent doing this I would say 2 years ago.
And and we sort of optimize the marketing investment across those 3 pipelines to drive the most sales and and I think it's working pretty well again, the the global account team has been in place and average of about 9 months. They now know their cohort groups. So those those folks and manage our top 170.175 customers vertically or.
And at those global account managers and their statistics from Q2.
It was very encouraging they were if I looked at the whole company relative to net IRR do we how much more do we sell that we lost so to speak if we looked at that cohort group substantially better than the overall company as a whole. So we know that applying these type resources into our biggest customers is going to have a great outcome and we've just got earn.
Early evidence of couple of quarters into those folks being and their seat that theyre already impacting that so we just you know we've just got to keep we've just got to keep doing what we're doing and sometimes we're gonna have a year like 2020, where we had on overall growth rate based on our 2019 acquisitions and some tailwind with the elections and and.
Sometimes we're going to have a year like 2021, and what you were talking about today, where we didn't acquire a lot last year and and we're dealing with some with some lap numbers from the election. So.
You know is to exit the very beginning I think the most important data point here is.
This is a 15% grower forever and it's that's honestly why I'm here.
And obviously, you could generate organic growth, but where we're here to equity sort of compound. This business over the next 5 to 10 years and create that value.
Alright, I appreciate the color. Thank you.
The next question comes from Scott Berg with Needham. Please go ahead.
This is Michael Rackers I'm on for Scott Berg and thanks for taking my question and just have 1.1 quick 1 for you.
But now that you've had and vivo for a little over a month now is the trajectory of that acquisition comparable to other acquisitions that you've done or have you found anything unique that would require a different timeframe.
And can you just kind of give us some color around that.
Sure. So pan Veeva was a great add.
2 our software library.
And we've seen a lot of opportunity and the knowledge management space and of course, we've got a strong and we had a strong offering prepay and vivo with right answers, which is more about enterprise search right, where you've got a search bar and you're tapping a federated.
Group of databases and.
A contact center agent is is is doing that and getting the right answer at the right time here with Pan Veeva.
You've got a.
Structure, where it's 1 database and really the lens.
And to the product is around workflow and so you're walking.
Contact agents through a specified.
Workflow in order to provide consistency and service and support delivery and <unk> and <unk>.
And I, especially right promotes.
Faster on boarding of contact center agents, which is a critical item for our customers given the labor environment.
And we're in and also.
So you don't have that particular area of strength and regulated industries health care utilities financial services. So we really liked the way can be bought fits into our existing software library. The early indications on the integration process.
<unk>, which obviously is a pretty well baked process for upland 28, plus acquisitions in.
It's been going very well and I would also say and again. These are early signs, but some of the early signs on the sales side there.
Are also positive and you know.
And just to kind of.
Reinforce or comment on something Rod said, a moment ago and at which I think is so on target and so important a lot of the the.
Positive changes that rod and the team are bringing to the table.
Make us a better buyer of businesses, so our ability and and I think it was pretty well developed even before but it's it's better now our ability to share these businesses apart and diligence and to understand how we're going to integrate them and sort of hit the ground and running on the go to market side.
Is yeah, it was a level up.
From where it was before and again these changes to me are what support that our total growth rate of 15%.
Over the next several years and over the long term as we are as we scale the business.
Great. Thank you so much that's all from me.
Thank you.
Our next question comes from Terry Tillman with Chile. Please go ahead.
Hey, guys and Joe Meares on free on for Terry.
And I think I missed these numbers and you mentioned I'm a few minutes ago, but I think the last time, we spoke and said you had 9 games across 8 verticals.
Is that still the same number I guess is the question and then.
Are you thinking about increasing investments and in games and I know, it's a more recent move and you guys, but just wondering if you're planning on.
Loading up since it sounds like and been very productive and so forth.
Great Rod do you want to talk a little bit about that.
Sure Yeah those numbers are the same.
What were you know I would I would probably not use the term gam only because our debt.
The people that the spec we used to hire that team.
Very senior and these are the kinds of people who could work.
Its sales force and run their biggest accounts kind of debt that's the spec that the next set.
Of hires.
And we'll be focused on sort of those next level down customers. So the customers are generally a little bit smaller. So so I think what's more important to think I would I would think of it this way rather than thinking about us out of games.
Think about us adding more.
And more salespeople.
Who own and entire account so we're kind of a tricky business and that we have 30 products and a salesperson and it's very hard to sell 30 products and know how to sell 30 products. So we've been working on our product expertise and product specialists, we call them solutions consultants and that capacity so that more of our sellers.
Kent can represent all of upland and to a given customer and and that is another big key to unlocking cross sell long term because you you have a more strategic account plan for that customer.
I'll give you. An example, we've got a we're a sales force customer and <unk>.
We have a sales guy at Salesforce, who represents all of the products and Salesforce has to upland.
He doesn't know them, all and detail, but you know he learns what we're up to and he will bring to bear the product experts and we want to learn about data rahmat from when I learned about tableau, our meal soft right now he has access to the to the specialist. So so all in all this is Rob.
And a long answer to a short question, but where we're where we will head there is more sales people that own entire accounts and more product specialists.
And who sort of sit behind them and are available when the conversation goes to the third or fourth level.
And and that that's sort of an important evolution. That's a that's going to take US time, because you know every.
90 days, we buy another company that has a debt has another team that only knows 1 product. So it's at that isn't going to be a way of life.
And as we move forward.
Got it that was really really helpful answer and I appreciate it and.
And then just as a follow up around acquisitions and they've been doing a lot of work on the CDP space and I know Blue then blues and it's like a smaller acquisition, but are you seeing anything out of asset so far.
Yeah, I mean, it's been the integration has gone well and we are.
And I'm very excited about Bluebird and.
Because what it represents.
In terms of bringing together.
The existing CX M assets that we had and SMS messaging and in and out and App and push notification and and email and customer sentiment.
And so.
So thus far the integration there has been.
Proceeding.
Just as planned and you know again on rods point.
And he builds out that account focused selling ability.
That means and every acquisition, we do we upland acquire as a business. We can now take that product and put it into the you know the sales bags. If you will of our account based salespeople.
And you start to really see a.
Leverage on that with acquisition that helps us.
Create even more efficient business just post acquisition right. It's 1 more chapter in that integration.
On a playbook.
And that enables us to reduce unnecessary costs and get more operating leverage so again to me it supports that 15% total growth target.
And it supports debt expanding EBITDA and free cash flow margin as we go.
Awesome, Thank you and another 1 but I'll jump back in the queue.
And next question comes from Jeff Lee with claims came on please go ahead.
Hey, guys. This is Aaron on for Jeff.
Just 1 quick 1 for me Rod you mentioned churn and the efforts you guys are taking there and as far as retention goes just curious to get a little more color around what you're seeing right now and as far as churn is concerned you know, what's working and as far as that retention is going and kind of how does that compare over the last last couple of quarters to a year.
Yeah, I think I mean, obviously, we reported at the end of last year.
We did do we did have we did have a little more churn and we haven't had historically had and it was.
Primarily COVID-19 related customers.
And to pause projects or pause activities.
And I will say as we got into the new year, we've seen improvement.
Across the board.
More improvement and our and our big global accounts, but improvement across the improvement across the board.
And.
On better turns less true.
And be clear.
Perfect. Thanks, that's it from me.
The next question comes from David Times debt Kennecott. Please go ahead.
Yeah.
Hey, guys. This is this is luke on for D. J.
And so I think you hinted at this earlier, but maybe you can put just a finer point on it for me and I'm curious with the heightened focus on cross sell and are you looking at M&A thriller lens that incorporates more thought around product and go to market synergy.
Thanks, Luke so yeah look I think it's.
Upland has reached that point of scale, where I like it because in a way it becomes a simpler business. We're building. This cloud software library. We've got this platform in place that is supporting 1700 enterprise customers globally 10000, total customers is delivering high customer sat.
Dysfunction.
And also a high and expanding.
Margins, and we've married that too and equity compound or model and so the piece to me.
That we needed to build on was distribution.
And.
As we put that account based selling and place exactly the points that raws from making on this call.
It's just kind of help us.
To bring more of those products in and it's it's cross sell.
And obviously, we've done some nice cluster and that I think of our acquisitions. If you look at what we've done over the past 4 years I mean, I think the story kind of tells itself around.
And that focus on on cross sell whether it's the suites, we've built and CX EM and.
And document and workflow automation.
You know in enterprise sales enablement, as well as and project and Ikea management, but you see it particularly in those first 3 that we've really built some cohesive offerings. There and you know we were mentioning earlier on the call.
These major SaaS leaders with with expertise and and in the sales domain.
You know moving toward.
You know multiple product implementations and.
You know 7 figure kind of our annual recurring revenue numbers and growing I think that says something about.
The work, we've done and bringing.
These products together, so we'll keep that focus and will continue to build out that account based sales capacity with.
And I towards.
Increasing velocity around both.
And enterprise license agreements and cross sell as we go.
Got it that's really helpful.
Maybe just as a follow up.
Hi, how are you guys thinking about deal sizes as your business continues to scale.
Which is to say you know should should investors expect larger deals or for the volume.
Ah deals to increase overtime.
You know well, we're really focused on right now.
To be plain about it right, it's 15% total growth that means and doing it on a on a self funded sustainable basis, while continuing to generate positive neat materially positive operating cash flow and free cash flow and that means we'll be doing 40, $45.50 million a year of acquired revenue and and that could grow.
A little bit as we scale.
And and so you know that's going to set up as you know call. It 3 or 4 acquisitions a year were then.
You know our size category, which is this 5% to $25 million.
To me that's the part of the market that we can really be dominant and.
Where we can have a pole position on acquisitions.
We haven't really talked and this call.
Yet about our pipeline, but very strong you know again and if you look at where we were a few years ago, we were having to fight our way and to our sales processes.
And we're now invited into.
And again and our size category, where we really have pole position because we've got a unique value proposition for these viruses for the sellers I should say as being.
A buyer that Scott.
Fair transparent pricing.
That brings speed and certainty to the process and then also is the best home for the product.
And the customers and a subset of their high performing people. So I think we just keep executing and that's the that's the good part here in order to create the kind of growth, we're talking about and the kind of shareholder value. We're talking about over the next several years, we don't have to do anything new right. It's got to continue.
And with what he's doing on the product and go to market side and on the M&A side. We just got to continue 1 foot in front of the other bringing and these great cloud digital transformation tools that big corporate customers Love and we have a big pipeline of deals to execute against.
That's very helpful. Thank you.
And next question comes from Alex Sklar, with Raymond and he's got a home.
Thank you.
Jack or Rod I know most of the business is U S based today, but a number of your acquisitions like <unk> do have the international exposure I'm. Just curious if you could talk about international enterprise opportunity kind of broadly how does the coverage of international accounts look today and and proud of the product suite kind of positioned outside of the U S.
Yeah, So Mike.
My rough split on U S rest of world revenue today.
70% U S, 30% rest of world.
Right and that that rest of world right the bulk of that EMEA.
It is a U K Europe is about a 17 and 18% and 5% in Canada and and the rest is rest of world.
Alright, so just with.
With that background.
You know, we see attractive opportunities for obviously growth in the U S and some of these acquisitions that we've made are like Pam veeva.
Based outside the U S but.
You know almost half their sales in the U S and the fastest growing part of their business in the U S and those are acquisitions, where we can help to accelerate that process by again tapping into this account based sales organization that rod and the team are building and I know there's also some interesting stuff on.
Your way.
On.
The marketing side and on the lead Gen side.
And internationally and so I'm going to I'm going to.
Turn it to rod to get his views and <unk>.
Thoughts around that.
Yeah.
Yeah and.
And I think you've mentioned and most of them and Beavis revenue and I think a little bit more and have a right at Atlas and the U S. So so we from a from a you know what's interesting is we we have service the rest of the world out of frankly, the U K and the U S and Canada.
For the life of the company.
And.
And and I think if you know 5 years ago people, probably would have thought that was weird, but today I think that the strength because being able to.
And do a deal you know I was on a call earlier with.
A big Swiss company.
And we're doing that deal from the sellers and the eastern U S for us.
And the customers cool so what what we're going to focus on frankly staffing and the U S and the U K from a go to market perspective.
And Jack alluded to the fact that our next step with our Legion and SCR team as it is to put a team on the ground and the U K.
For per time zone coverage, and and and language coverage on the continent. So yeah. So we will I think more and more it's completely acceptable and and and it would it would not be smart at all frankly, they start building sales offices everywhere around the world. So we're not going to do that.
We're going to take advantage of just how work has become remote and that's how that's how we go to market.
Okay, Great color, Mike 1 for you on on the free cash flow conversion and another really really impressive quarter and you're trying to pick your frac, you're tracking well above that kind of $4.55 per cent normalized EBITDA to free cash flow. If you look back over the 12 months and despite doing those 3 deals a year to day. So I'm just curious if there's any color on what's driving that success.
And the working capital side, and if it's sustainable at all or if there's just some timing benefits there that are occurring.
Yeah for the most it is sustainable like we've talked about it.
So year to day, almost 23 million so far of free cash flow operating cash flow this year and out of 2 quarters.
So very comfortable confident that we're going to get to at least $30 million on the year here 2021, and potentially get to $40 million again, depending on future acquisitions and the restructure costs that come with those so so.
We expect to be sort of sustainable.
And this call. It you know around 30 to 40 around 40, as we grow we're going to add more cash flow and so for me as I look at it you know I'm kind of looking at a $40 million a year and then growing with scale.
We're at almost 100 millions of EBITDA and now so so that's our that's.
And that's the way to think about it so that's with full load of our.
Acquisition related expenses coming through as we're doing active doing acquisitions right now.
The 50% to 60% conversion is gonna be pre acquisition costs, right and and all of that's still consistent and and.
In fact, we're doing a little bit better so timing wise timing differences there was.
And I think the working capital changes and Q2 were about $1 million net positive so that didn't help us that much here in Q2, as we printed the $10.8 million of operating cash flow.
So so anyway, it's strong and and expect it to continue.
Got it got it yes, definitely I was picking up on the kind of the 60 plus percent.
And over the last 12 months and and I was just that was kind of the the Delta was I was asking for but that's helpful color. Thank you.
Sure.
And our last question as a follow up from 2 last go ahead Paul.
Yeah.
Hey, guys. Thanks for my question was actually.
And MTF as well when you initially gave the 30 at least 30 million and possibly $40 million and.
Free cash flow for the year.
Well, there and number baked into the first half.
And it seems like you're tracking ahead of where you probably just like it to be but I'm just trying to see if there's any yeah, okay any guidepost on internally.
Yeah, you know the tide, there is timing differences from quarter to quarter. So it's always hard to have specific milestones.
We have wanted to do 10 million a quarter and but again you know there's day.
You can't get too specific you kind of have to look at the year and total or trailing 12 to kind of get a clear picture as to timing differences.
Work their way out of.
The mix. So so yeah I do feel like we're a little bit ahead of the conservative sort of 30 million that we started with the year, which makes me feel good that we're going on at least get to the 30 and hopefully 40 as we complete the year.
I appreciate it thanks guys.
Okay.
Yeah.
This concludes our question and answer his question.
We'd like to go on the conference back over to Chad Mcdonald for any closing remarks.
Great well. Thank you all for joining us today, and we look forward to seeing you on the next earnings call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.