Good afternoon. My name is Hillary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Upland Software Second Quarter 2015 Financial Results Conference Call. [Operator Instructions] Thank you. Mr. Jack McDonald, Chairman and CEO of Upland Software, you may begin your conference.

Thank you, and good afternoon, everyone. Welcome to our Q2 earnings call. With me today on the phone, I've got Tim Mattox, our President and COO; and Mike Hill, our CFO. On today's call, I'm going to -- on the front end, quickly summarize our Q2 results, talk briefly about guidance and discuss some recent highlights. And after that, Mike Hill will provide a more detailed look at the Q2 numbers and share our guidance for Q3 and our reaffirmed guidance for the full year 2015. And then, Tim will cover sales and operating highlights from the second quarter. Following that, we'll open the call up for questions. But before we get started, let me ask Mike Hill to read the safe harbor statement and cover some other recent updates.

Thank you, Jack, and good afternoon, everyone. The press release announcing our second quarter results and our business outlook as well as a reconciliation of management's use of non-GAAP financial measures as compared to the most comparable GAAP measures is available on the Investor Relations section of our website at investor.uplandsoftware.com. During today's call, we may include statements that are considered forward-looking within the meanings of the securities laws. In addition, we may make additional forward-looking statements in response to your questions. These statements are subject to certain risks, assumptions and uncertainties that could cause our actual results to differ materially. We caution you to consider 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, which was filed on March 31, 2015, and our quarterly report, Form 10-Q, which was filed on May 15, 2015. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today, August 12, 2015. 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, we will refer to non-GAAP 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 to the most comparable GAAP measures in its press release announcing its second quarter results. To learn more about our outreach plans, please feel free to contact us at investor-relations@uplandsoftware.com. And with that, I'll turn the call back over to Jack.

Thanks, Mike. There's, I would say, 4 major headlines for today's call and for our Q2 results. First, we achieved record Q2 revenues and we beat versus consensus on both revenue and adjusted EBITDA, and Mike will have more details on that in a moment. Second, we are reaffirming our full year 2015 revenue guidance and we are raising -- we're raising our full year 2015 adjusted EBITDA guidance. Third, we've had another good traction quarter on the sales side, adding over 80 new customers in the second quarter, and Tim's going to speak more about that in a few minutes. And then, fourth, I would note that we are continuing to aggressively build our acquisition pipeline and pursue thoughtful acquisition opportunities for the second half of 2015. As discussed on the last call, with our new $60 million credit facility and close to $30 million in cash on hand and solid paper capacity, we have a very strong war chest for acquisitions. Now as always with M&A, there are no guarantees on timing. But we feel good about where we are and, again, are aggressively pursuing second half 2015 acquisition opportunities. So again, a great quarter. Since our IPO last year, we've now delivered 4 consecutive quarters of record revenues. So we're keeping our promises and remain excited about the remainder of the year. With that, I'm going to turn the call over to Mike, who's going to give you a more detailed look at Q2 numbers and share with you our guidance. Mike?

Thanks, Jack. I'll cover the financial results for our second quarter and our guidance for the third quarter and full year 2015. Total revenue for the second quarter was $17.7 million, an increase of 9% from a year ago, and $18.3 million or 13% growth on a constant currency basis. Recurring revenue from subscription and support grew 19% year-over-year to $14.0 million or 23% growth on a constant currency basis. Professional services revenue was $2.8 million for the quarter, down 25% year-over-year. Perpetual license revenue grew 29% year-over-year to $846,000. Moving down the P&L to gross margin. Overall gross margin was 63% during the second quarter, and product gross margin remained strong at 67%. Professional services gross margin was 38% during the second quarter, and we expect these margins to remain above 30%. Turning to our operating expenses. Research and development expense was $4.2 million for the second quarter, representing 23% of total revenue. We are seeing tremendous customer excitement around our product initiatives and hope to continue our investment in customer-driven innovation. Sales and marketing expense was $3.4 million, representing 19% of total revenue for the second quarter. General and administrative expense was $4.7 million in the second quarter, representing 27% of total revenue. However, excluding noncash stock compensation expense, G&A expense was $4.1 million in the second quarter, representing 23% of total revenue. Operating loss was $2.5 million in the second quarter of 2015 compared to loss of $1.2 million in the same period of 2014. GAAP net loss was $3.3 million compared to GAAP net loss of $2.4 million in the second quarter of 2014 and GAAP net loss of $3.7 million in the first quarter of 2015. Our second quarter 2015 adjusted EBITDA was $672,000 compared to $1 million in the second quarter of 2014 and…

Thanks, Mike, and good afternoon, everyone. I'm going to cover our sales, product and operating areas. First, stepping back, I think the results show that our enterprise customers are achieving greater success and improved outcomes by relying on the Upland family of products. Upland continues to demonstrate to both new and existing customers why our products are the choice for those that demand exceptional technology and service. This is particularly pronounced in verticals where we're seeing success with multiple products, such as health care, financial services, government and higher education. On the sales front, as Jack mentioned, we acquired 81 new customers, of which 10 were major accounts. We saw particular strength in our expansion sales to existing customers, with 7 customers moving above the $0.25 million annual recurring revenue threshold. Some of the major renewal and expansion examples for the second quarter were: a large media company that signed an agreement for our Web Content Management application with a total value of over $570,000 per year; an automotive components OEM expanded its relationship with Upland to $270,000 annually for our project and portfolio management tool; a large financial services company expanded by 50% its yearly commitment to Upland's IT Financial Management offering, resulting in a contract of over $300,000 per year; and a large automotive supplier expanded its commitment to Upland's project and portfolio management tool to nearly $400,000 per year. On the cross-sell front, we continue to build and progress the pipeline. We believe that the health care, financial services, government and higher-education verticals provide the strongest opportunities for cross-sell, as our products continue to prove themselves to customers in those segments. In addition, our 2 latest acquisitions, Mobile Commons and Eclipse, continue to form -- perform well. The Mobile Commons' robust 2-way text messaging platform is allowing…

Okay. So again, another record quarter on revenues and strong sales results. We are reaffirming full year revenue guidance, raising full year adjusted EBITDA guidance and aggressively on the trail for second half 2015 acquisition. So with that, operator, let's now open the call up for questions.

[Operator Instructions] And your first question comes from the line of Bhavan Suri of William Blair.

Jack, Mike and Tim, congrats on the strong EBITDA performance there. Good to see. I'll start off just with a quick growth question. Obviously, subscription, nice growth. What was organic growth? Can you provide any color on organic growth in the quarter?

Yes, Bhavan. This is Mike. So organic revenue growth and recurring revenue year-to-date remains in the low to mid-single digits on a constant currency basis.

Okay, okay. And then, as you look at the cross-sell pipeline, Tim, you mentioned, when you look at some of the expansions, I guess, 2 questions. First, you touched on project and portfolio management. If you were to break that down on products, is that PowerSteering? Is that Tenrox? What's driving it? What's the one you're seeing good growth in? And then, what's the next natural fit to those customers, given they are expanding usage of one product to cross-sell in terms of the natural fit from a cross-sell perspective?

Sure, sure. So in the PPM space, we have 3 offerings. One is, on a high end, our PowerSteering offering, and that's for enterprise customers that really want a highly configurable tool that they can customize to their particular environment, one that's highly scalable. Some examples are major G&A reductions or reengineering or Lean Six Sigma initiatives that we're supporting. And so they typically get sold into larger environments with established PMO, or project management offices. We also have EPM Live, which is a SharePoint-based tool. Also fairly customizable, but really appropriate environments where customers have committed to the Microsoft environment and the SharePoint platform, in particular. And then, we have one of our more recent acquisitions from late last year, Eclipse, which is more of an out-of-the-box solution for companies that don't really have a centralized project management office, but they've outgrown Microsoft Project server, and they really are looking for a more robust solution then to get up and going with time-to-value quickly. So that's the portfolio we have there, but we do find that when we are successful in that context, there is interest, whether it's in resource management, time and expense management, which Tenrox is very adept at, certainly, in the IT departments of those organizations where they're managing their resources, almost like an internal professional services organization, Tenrox is a great fit there. We've seen interest in the advanced workflow product, FileBound, which, last call, you might recall, we integrated in with our PowerSteering offering. Some of the specific applications or usages of that are with capital expense approval. So projects oftentimes have capital expenses associated with them, and rather than go outside the PowerSteering tool for some manual approvals for that or emails, we've implemented and integrated FileBound, so that can all be done automatically. So those are the -- some of the areas of opportunity. We're also seeing a lot of the maturation of the pipeline for cross-sell that came from our user conference, where we exposed our customers to a wide range, the full portfolio of our products and saw a lot of interest in our 2-way text messaging platform, Mobile Commons, as well.

Yes, that's really helpful, Tim. And I'll just dive down on FileBound for a second. That's obviously -- you've got a lot of resellers there. And again, when we were at your conference, we spoke to a fair number. But how has the reseller traction been with some of the other products? Is there interest to -- for the resellers to go sell PowerSteering or Mobile Commons or something like that? Or are they still largely focused on FileBound?

Yes, Bhavan, largely, their focus is on FileBound. In some of the geographies where we don't have a direct sales force, there is some interest in selling. But our go-to-market motion with those other products is principally through a direct sales force, both inside and in the field. So not really a focus for us to push much with those partners the additional offerings, so those, certainly, will be opportunistic.

Got it, got it. One last one, for Mike Hill there for me. But subscription revenue was down marginally on a sequential basis, Mike. Was that largely currency? Or was there something else going on there?

Well, we're going to have -- Bhavan, we're going to have, from time to time, a little bit of lumpiness in subscription revenue as it trends from quarter-to-quarter, just due to one quarter that we had a few more customers go live, and so we have some catch-up recurring revenue that hits in that quarter versus the next that may push out. So I really just wouldn't read anything into those small sort of variations sequential quarter-to-quarter.

And your next question comes from the line of Terry Tillman from Raymond James.

This is Brian Peterson, in for Terry. I just want to echo my congratulations on the EBITDA and cash flow performance this quarter. Jack or Tim, just could you give us some perspective on the Enterprise Work Management space? Where are we in terms of market adoption today? And you look at the new deals that you're winning, are you mostly displacing Greenfield Solutions, Microsoft Office applications? What are you seeing out there competitively as well?

Sure. Jack, I'll take it, and you can comment if you'd like. So Terry, we definitely think it's sort of very early stage here in terms of what we're going after. And there are, in cases, Greenfield, as you put it, where folks are using -- they're either passing paper, sending a ton of e-mails, doing things with spreadsheets and not a real structured workflow. And so we're able to go in and add significant value as that work gets done in the middle office. And that's -- really, when you Enterprise Work Management, stepping back, it's making those knowledge workers in the middle office more productive. And so we are seeing Greenfield. That said, we do see opportunities with customers that have tried existing solutions that we compete against but haven't gotten the full value they were expecting, and we're able to go in and displace those and, through our strong professional services offerings, get the customer up and going and get the value they originally envisioned. So that's really the 2 natures of it. But yes, it's certainly a vibrant market. We're seeing a lot of activity happening, so kind of early days here.

Okay, great. And Mike, you beat the EBITDA number this quarter. Obviously, you're reaffirming your guidance for 8% to 12% margins in the fourth quarter. Any help on what the major levers are to get from the second quarter to the fourth quarter?

Yes. So Brian, we -- sales and marketing costs should become a little more efficient in Q3 as compared to Q2, because we did have our user conference in Q2, so there'll be a little bit of improvement there. And then, really, it's just -- I don't want to set too much expectations in terms of gross margin, but we are doing some efficiency measures in the cost of revenue in terms of consolidation of data centers and some cost of revenue related to some standard third-party contract software that we use for delivery at the platform type of stuff that everybody uses for cloud delivery hosting. So there'll be some improvements there, but it's just really kind of across the board as we get more and more efficient up and down the P&L.

And Mike -- this is Tim here. The other comment I would make is in our expansion revenue, which is selling to existing customers more of the same product, so expanding our relationship. And we're improving in our selling motion there, certainly, as our customer satisfaction continues to improve and our product foundations, that our renewal rates and customers wanting to do more with the given product that they have increases, we saw good performance this quarter in that. And that is a more profitable business for us to sell.

And your next question comes from the line of Richard Davis with Canaccord Genuity.

I just want to echo Terry Tillman's (sic) congratulations on the quarter. the question I had for you was you got the credit facility -- I mean, you and I both know that -- I was actually at our conference here, we had a guy who said he met a company, a private company that was literally doing $2 million ARR, and the guy was talking about being a unicorn. So as you know -- let's just say, expectations are a little high in some places. But talk to us, at least, about the M&A pipeline. And I think you have the right strategy to kind of go at it, but if you could kind of just flesh out any kind of changes, updates on that equation, that'll be awesome.

Yes. Thanks, Richard. The M&A pipeline is strong. We've, over the past couple of quarters, taken a number of steps to grow the number of opportunities. And we've got a number of opportunities now that are in the bottom of the funnel and actionable. So what we've done is continued outreach to a banker network that we [indiscernible] constantly and communicate with and educate in terms of the kind of acquisition opportunities that we're looking for. We've increased what we're doing on a retained-banker basis to source opportunities as well as our direct outreach to companies. So the pipeline has grown. We've got a good number of actionable opportunities. And again, as I've said at the top of the call, with M&A, there are no guarantees on timing or otherwise. But we feel good about where we are, and we're aggressively pursuing some opportunities for the second half. And as -- the second kind of part of your question was valuation expectations, and you're always going to have those unicorn perspectives in the market, and those aren't the kind of opportunities we're going after. We continue to look for quality companies that have major mid-sized and Fortune 2000 customer base that have those blue-chip clients, that have strong products with good recurring revenue and solid management teams; but like have investors that see that those businesses, on their own, are not going to be big IPOs or strategic exits, that they're not going to achieve escape velocity on their own and that have reasonable growth but aren't necessarily hyper growers. Where they see that, teamed up with Upland, they can do a better job by their clients by having the kind of scale to deliver the quality and support and infrastructure that enterprise customers demand. So we continue to see those opportunities. I think, plenty out there to get us to 2 or 3 acquisitions that we need to do per year to execute on our plan.

Your final question comes from the line of Michael Huang with Needham & Company.

Just a couple of questions for you guys. So first of all, could you give us a view into the 81 customers that you signed up and 10 major accounts? I mean, are -- so how are they split across geographies and product areas? Is there any color that you could share there? And then, as a follow-up to that, I think customer adds, based on my numbers, were down a little bit quarter-on-quarter. I was just wondering, I mean, how should that metric be trending? And obviously, you're selling, both to existing customers and new. So maybe just give us a sense for overall transaction count.

Yes, Michael. In terms of the new customer acquisition, I touched on the verticals where we're seeing strength. And I would just reaffirm that those were the source of the new customers. So we're seeing interest in health care, higher ed, government and financial services. And that comprised roughly 70% of the revenue from new customers. No real geographic distinction, other than we're principally a U.S.-based company, although we do have opportunities that we're exploring in Europe, and we've got a data center out there as well, and we're seeing some good interest and pipeline there. A little bit in Asia, mainly through our FileBound resellers, but it's not really a focus for the company at this point. That's more an opportunity down the road. So that would be my comment on -- in terms of where the customers are coming from. In terms of the nature of the business, as I mentioned, the expansion business has picked up, and that really takes the form of selling additional seats, if you will, of an existing product or additional modules of a -- within a particular product, like Tenrox, as an example. And we did have some major expansion agreements that were signed that I alluded to. So for us, we -- as we talked about in the past, it's not necessarily a chase for new logos, although, certainly, we're acquiring new customers and seeing benefit from that and seeing a -- it could be a supporter in one company that leaves that company and they go to a new company, and they bring us in because they know what we can do for them. So we're seeing that. But really, really good yield out of our expansion efforts and selling to an existing base. Again, we have about 1,600 customers. So just going there to sell both more of the same product as well as trying to drive our cross-sell effort, we think, can yield really good results for us.

Great. And from a product standpoint, [indiscernible], you're -- you highlighted some of your new product capabilities across product areas. I was wondering, from your standpoint, I mean, which -- is there any particular product innovation that you're most excited about, maybe from an incremental sales standpoint? Is there anything out there that you think is really releasing some demand here? And maybe just kind of on that point, but where are you seeing the most product momentum right now?

Yes. I think, certainly, in the Professional Services Automation, we're seeing a lot of pipeline related to our Tenrox business. And it really is -- it's that and PowerSteering are the 2 companies that Upland has owned the longest, and we're seeing those businesses being able to deliver very high-quality experiences for the customer base and, therefore, build off of the strong foundation. So that's one area of particular strength. We are seeing interest in the -- what we call the digital engagement area, digital engagement offerings, and that would be both our content management system, Clickability, which is basically managing highly complex websites in a highly reliable way, sites that use lots of video and the like. And certainly, video has become more and more prevalent so that the need to have a platform that can handle that is significant. So we've seen both more business from existing Clickability customers but also the pipeline improving there. And on a related note, our 2-way text messaging platform -- interest in using that platform to drive traffic to websites and digital engagement. So back to the question of cross-sell and the user conference, we exposed the customer base to the Mobile Commons platform, and one of the keynote speakers was a really significant customer in the nonprofit area there. And that really drove it home for our broader customer base on the potential relevance for that. And the hidden secret in that business is, the 2-way text messaging, the results you can get from using that versus sending out blast emails and the like is significantly different and differentiated. So those are some areas of customer interest and particular strength.

And there are no other audio questions at this time.

Okay. Well, again, thank you very much for your time this afternoon, and if we did not get to a question or if there are additional questions you've got for us, please feel free to submit them to investor-relations@uplandsoftware.com, and on behalf of Tim and Mike, I want to thank all of you for joining us, and we will see you next quarter. Thanks very much.

Ladies and gentlemen, this concludes Upland Software's Second Quarter 2015 Financial Results Conference Call. You may access an audio replay and the webcast replay on the Upland Software Investor Relations website as of 8:30 p.m. Eastern Time today. Thank you for your participation. You may now disconnect.