Upland Software Inc at Needham Technology & Media Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Berg - Needham & Company, LLC - Analyst : All right. Let's start with the following public software valuations, as I'm sure most of us all have obviously seen. But the Upland business model has historically been what we call a predominantly acquisition-based strategy. How quickly, if at all, do the changing public valuations that we are seeing today make their way into private valuations? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 2:15PM, UPLD.OQ - Upland Software Inc at Needham Technology & Media Conference (Virtual)

Question: Scott Berg - Needham & Company, LLC - Analyst : Got it. Speaking of acquisitions, when you look at the pace of acquisition, the company has targeted, historically, at least an acquisition per quarter roughly. In 2021, you acquired three companies, and I don't consider three to be that big of a difference before necessarily. But in 2022, already -- as you mentioned Jack, you've already made two. How should we think about the acquisitions in terms of what are you trying to -- I guess to drive from a revenue perspective at the end of the day? Is it in absolute dollar of revenue? Or are you really kind of looking more for a percentage or growth rates from your acquisition strategy?

Question: Scott Berg - Needham & Company, LLC - Analyst : Jack, do you think you'll alter that strategy at all, given where valuations are? And I know we just talked about private valuations. But if you see some softness out there, and the opportunity is strong and maybe add, I don't know, an extra 5% or 10%, do you think you would actually try that in the current environment this year?

Question: Scott Berg - Needham & Company, LLC - Analyst : Okay. So we will come back to acquisitions in a moment. But let's look at the most recent quarter results. I think we all expected messaging -- or message usage to normalize at some point in 2021, relative to elections in 2020. And it did a little bit, but it seems to have obviously normalized much more so far this year. But I think the part of the quarter and the last couple of quarters that I continue to get most questions on is the company's net revenue retention metric, which has remained below pre-pandemic levels but has modestly improved the last couple of quarters. Is this a function of depressed REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 2:15PM, UPLD.OQ - Upland Software Inc at Needham Technology & Media Conference (Virtual) renewal rates or more about cross-sell, upsell that maybe remains a little sluggish? And then with all of those ideas in mind, how do you fix it to bring it back to that historical level?

Question: Scott Berg - Needham & Company, LLC - Analyst : Excellent. The company has made a fair amount of investment and changes to its go-to-market strategy over the last two years in an attempt to increase organic growth. How do you rate these changes today? The company started making them right as the pandemic hit, so the question may seem a little bit unfair or we see an incomplete grade, given kind of what's happening in the macro, obviously. But two years into this pandemic mess, most software companies have at least started to hit a normal sales stride.

Question: Scott Berg - Needham & Company, LLC - Analyst :

Question: Scott Berg - Needham & Company, LLC - Analyst : Definitely a great free cash flow yield at the moment and certainly a reflection of what's going on at the broader market. Staying on the go-to-market changes just a moment here is -- I know the company has made a number of changes around pricing, packaging, and just the messaging around the platform overall. Are these stable today in where you want them to be? Or do you see more tweaks coming now that they have been out there for a little while?

Question: Scott Berg - Needham & Company, LLC - Analyst : No. Within the go-to-market changes, I know the company has made several marketing changes around pricing, packaging, and the message of the platform. Before they were kind of clouds and now you moved into these other kind of sweet areas. Are these changes stable today or should we see some more tweaks coming here in the short term?

Question: Scott Berg - Needham & Company, LLC - Analyst : Back to acquisitions, Jack, you mentioned the two that you have done year to date now, [Objectif Lune] and BA Insight. Where do these two individually fit within the Upland product suite today?

Question: Scott Berg - Needham & Company, LLC - Analyst : Right. As you look back at all the acquisitions on the company's history, I think your ability to drive the 40% to 50% contribution margin, as you mentioned Jack, has been very consistent but certainly improved over time in your ability to drive those. But what other lessons have you learned maybe about, I don't know, the products or people or maybe geographic location, et cetera that helps impact how you look at acquisitions on a go-forward basis? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 2:15PM, UPLD.OQ - Upland Software Inc at Needham Technology & Media Conference (Virtual)

Question: Scott Berg - Needham & Company, LLC - Analyst : Got it. Within your recent acquisitions at least, I think a modest area of change is, the company seems to be acquiring companies that are growing certainly at faster rate than some of your early acquisitions. These acquisitions seem to be in (inaudible) quote-unquote [other] categories as well. Does having a solution in a hot-demand space -- we can take some of those CX products solutions as an example of these -- but does it make it easier or less easier on retention in that new sales? And I asked the question because I could probably make a case of both, just because the customers are running so fast and sometimes, they like to swap products out. But at the same point, they tend to like buy more if they think the product is the right fit.

Question: Scott Berg - Needham & Company, LLC - Analyst : Got it. All right. Let's touch on capital allocation a little bit. The company last year planted flags stating you can generate a consistent level of free cash flow annually and then use those funds to self-fund the acquisition strategy going forward. What free cash flow can you remind us did you commit to 2022? And is that margin the right way to think about the business in 2023 and beyond? Or is there may be something that differs in that strategy going forward?

Question: Scott Berg - Needham & Company, LLC - Analyst : Got it. And then on the growth rate of the company -- I know we have talked about net revenue retention earlier. But one of the questions I get frequently is, what is the time frame to think about when a company returns to a lower- or mid-single-digit organic growth profile. Part of it could be attrition; part of it could be net new sales. You talked about some of the sales changes. And I guess if you weave in what's happening with the messaging business, does the messaging business become cyclical every two years around elections that can kind of move those numbers around, given the success that you have had there? But just overall, how should we think about returning to what that historical profile kind of have been, net all the movements in the business?

Question: Scott Berg - Needham & Company, LLC - Analyst : No more questions left for me. (Conference Instructions) Mike, I guess with the sharp rise in interest rates and expected federal funds increases, that has a chance to impact some of the bonds of your business over time. I've had lots of questions on the company's near-term exposure to rates on your debt. Can you remind us in terms of your current term loan in terms of what the rate and the duration is? And how should we think about maybe your capital structure going forward past the existing term?

Question: Scott Berg - Needham & Company, LLC - Analyst : Last one for me. I'm asking all my companies this week, given where the stock prices are, at least for the majority of my universe. But any thoughts on (technical difficulty) levels? I think a lot of management teams -- or at least a lot of investors, I should say, would like to see some confidence in management teams at least relative to where share prices are for a lot of companies like yours, definitely on the depressed side today.

Question: Scott Berg - Needham & Company, LLC - Analyst : Fair enough. All right. Let's go to Q&A. I've got two here so far. First question is, the increased growth investments over the last couple of years were designed to increase the organic growth rate at a modest level. Will the company consider pulling these back and drive higher free cash flow if they don't drive the revenue growth that they were expected to, initially? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 2:15PM, UPLD.OQ - Upland Software Inc at Needham Technology & Media Conference (Virtual)

Question: Scott Berg - Needham & Company, LLC - Analyst : Okay. (Conference Instructions) Next question here is -- I'll make this a little bit broader but the particular question is, any interest in selling the messaging business to reduce the noise in the story? I guess from a broader perspective, have you thought about divestitures, in general, in the platform?

Question: Scott Berg - Needham & Company, LLC - Analyst : Okay. Next question is, what is advantage -- I assume it's what is the advantage of being public, given your limited acquisition currency?

Question: Scott Berg - Needham & Company, LLC - Analyst : Yeah. The question is, what is the advantage of being public, given your limited acquisition currency? My guess is the question assumes if you were maybe private, is -- and a different financial background, when you have more of a balance sheet and assets, then maybe you'd be even more aggressive on the acquisition side.

Question: Scott Berg - Needham & Company, LLC - Analyst : Well, fair enough. That is all the questions we have today. (Conference Instructions) But gentlemen, I want to thank you for your time and best of luck with all the meetings today.