Ladies and gentlemen, thank you for standing by, and welcome to the Upland Software First Quarter 2017 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. The conference call will be simultaneously webcast on Upland's Investor Relations Web site, which can be accessed at investor.uplandsoftware.com. As a reminder, this conference call is being recorded. Following the completion of the conference call, a telephone replay and the webcast replay will be available on Upland's Investor Relations Web site at investor.uplandsoftware.com. By now everyone should have access to the first quarter 2017 earnings release, which was distributed today at approximately 4:00 PM Eastern Time. If you've not received the release, it's available on the Investor Relations tab of Upland's Web site at investor.uplandsoftware.com. I'd now like to turn the conference over to our host, Mr. Jack McDonald, Chairman and CEO of Upland Software. Please go ahead, sir.

Thank you. Good afternoon and welcome to our Q1 2017 earnings call. With me today are Tim Mattox, our President and COO; and Mike Hill, our CFO. So on today's call, I'm going to summarize here at the front end our results and some recent highlights. Mike will then take a more detailed look at the Q1 numbers as well as sharing with you our guidance for the second quarter and full-year 2017. And then Tim will cover an operations and sales review from the first quarter. After that, we'll open the call up for questions. But before we get started, Mike Hill is going to read the Safe Harbor statement. Mike?

Thank you, Jack, and good afternoon everyone. The press release announcing our quarterly 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 Web site at investor.uplandsoftware.com. During today's call, we will include statements that are considered forward-looking within the meanings of 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 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, May 11, 2017. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements, whether as a result of new information, future events, or otherwise. On this call, Upland will refer to non-GAAP 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 our press release announcing our first quarter 2017 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. So, a great quarter. We feel really great about our outlook for Q2 and for 2017 as a whole. It really feels like the business is starting to fire on all cylinders. So, I'd say four major headlines today. A record first quarter, record Q2 and full-year 2017 guidance, again with the stage set for a very strong year. Continued execution on acquisitions with two strategic and accretive acquisitions already this year, and we feel very good about our M&A pipeline, and our ability to execute additional smart, accretive acquisitions. And then finally expanding margins we recently raised our long-term adjusted margin target from 35% to 40% and that's driven by the efficiencies we're seeing from the operating platform and also from scale benefits as the company grows to and ultimately to $100 million in revenue. So as said Upland is hitting its stride as an exquisite growth platform company with a proven ability to acquire great software product to do it dramatically in our focus product families and to quickly restructure them for improved profitability and sustainable growth and do it while delivering a world-class customer experience, increasing customer loyalty, consistent to strong growth and revenues and best-in-class expanding EBITDA margin. So let me drill down on each of those four headlines. On Q1 19% growth in recurring revenues, 26% adjusted EBITDA which more than doubled from the 11% of adjusted EBITDA we did in the first quarter of 2016. We had a strong new and expansion sales booking and coexist with the 11 consecutive quarter meeting or beating guidance. So we've done that now in every quarter since going public. Second headline on Q2 and 2017 guidance for Q2 we're looking at 18% growth in recurring revenues at the midpoint married to 30% EBITDA margin so…

Thanks Jack. Today I'll cover financial results for the first quarter and our outlook for the second quarter and full 2017. Total revenue for the first quarter was $20.8 million representing growth of 18%. Recurring revenues from subscription and support grew 19% year-over-year to $18.1 million. Professional services revenue was $1.9 million for the quarter at 5% year-over-year decline. Perpetual license revenue was $0.7 million for the first quarter for an increase of 118% year-over-year. As planned, professional services, had become a smaller portion of our overall revenue mix with recurring revenues now representing 87% of total revenue in Q1. Moving down to P&L to gross margins; overall, gross margin was 66% during the first quarter and our product gross margin remains strong at 69% or 75% when adding back depreciation of equipment and amortization of acquired intangible assets. Professional services gross margin was 41% for the first quarter. Turning to our operating expenses, research and development expense, net of refundable Canadian tax credits was $3.4 million for the first quarter representing 16% of total revenue. Sales and marketing expense was 3.2 million representing 16% of total revenue for the first quarter. General administrative expense was $5.9 million in the first quarter representing 28% of revenue. However excluding non-cash stock compensation for the first quarter G&A expense was $3.7 million or 17.8% of total revenue. Acquisition-related expenses were $3.7 million in the first quarter which were driven by a recent significant acquisition activity and I'll note that $1.1 million of these expenses were for our one-time non-cash charge to write off the remaining contractual commitment for the end needed portion of the Omtool office ways that we inherited in the acquisition during the quarter. Operating loss was $3.6 million in the first quarter compared to a loss of $4.2 million…

Thanks Mike and good afternoon everyone. I am going to cover our sales, product and operating areas. The result in these areas continues to show that our enterprise customers are achieving greater success, improved outcomes by relying on Upland's family of products. Upland continues to demonstrate to both new and existing customer via product of the choice for those who requite exceptional technology and service. As Jack referenced earlier we have continued to focus our efforts on those areas that our customers value the most and build upon our UplandOne operating platform. On the sales front we continue to focus our efforts on expanding our relationship with existing customers solely not our improvements in our net promoter score. We expanded relationship at 94 existing customers including seven major expansions over 25,000 annual recurring revenues. Furthermore 21 of our expanding customer increased their annual recurring revenue by 25% or more. Examples of major renewals and expansions with our global technology consulting firm we committing to our projects and portfolio management platform for over 175,000 per year. A global agricultural products company recommitted to our project and portfolio management platform for over 70,000 per year and a global leader in water and energy technologies we committed to our IT and financial management platform for over 60,000 per year. Also in that, a large national media company expand use of our application to person text messaging platform by 50,000 per year and a global legal administration firm expanded use of our project and portfolio management platform for over 40,000 per year. 45 other major customers expanded to the tune of over 500,000 in aggregate as well. We also acquired 156 new customers of which seven were major accounts by leveraging references from our customer base. Some examples of major new customers include a…

Okay. Thank you, Tim. And at this point, we are ready to open the call up for questions. So operator if you would please do that.

[Operator Instructions] Your first question is from Bhavan Suri from William Blair.

Thank you, guys. Congratulations on the RightAnswers acquisition and obviously on the numbers of the EBITDA margin expansion. Just as a couple from me quickly; one, you sort of seen really nice new customer growth, you got the 156 obviously through the acquisition, you had a 106 last quarter. So, part of it is acquisition. I thought it would serve organic. Any breakout of how that splits up between the two? I mean sort of what's driving kind of acceleration, obviously acquisition helps, but are you seeing more customer adds become UplandOne platform or is too early to sort of see that benefit yet?

Yes, Bhavan. It's Tim here. We are certainly seeing strong expansion results and that's directly attributable to the UplandOne platform and its commitment to a 100% customer success. I think we will see continued momentum there particularly with things like the execute outreach program that I referenced and also are focus on the feedback we get from our net promoter score methodology. So expansion is going well we are acquiring a lot of new customers and as we talked about in prior calls a lot of those will come from happy customers who have gone on other companies or are referring us to their friends or colleagues in the industry. So that activity come at a fairly efficient pace with that we also test and explore other marketing vehicles but judge those closely against are alternatives we're acquiring revenue as well.

Got it. It's helpful. And I guess when you look at sort of the net dollar retention rate picking up and again you talk about the expansion existing customers driven by UplandOne it's happened now for a little while UplandOne is relatively new but you seen and that's our expansion rate pick up for a few quarters now sort of what's behind that and I guess it will continue flush this UplandOne but is there some other dynamic is playing?

I think it's a number of things, Bhavan, so you're right we had a 500 basis points improvement last year in net dollar renewal rate and I its attributable to the broader UplandOne platform which although we announced that more recently those component parts of the platform the efforts around that in place for a while. I would say customer input on product roadmaps, investment in foundational elements around speed, performance, scalability, and security those that helped drive higher renewal rate the investment we've made in new user interfaces for the products, the investment in mobile, the investment and both point to point and integration to the Upland integration manager which we power with Dell Boomi, all of those things have been I think big contributors to that improvement, you're also seeing the results of the customer success program and the outreach efforts that Tim related to. The other thing we've started to see more of is just additional cross-sell opportunities within these accounts, some of the new products that we're bringing on board now are like LightAnswers, we see some great potential for. So it's been a mix of items across the board and it's just that as an entrepreneur I could tell you having kind of it through this before, you reach sort of a critical mass point and a business where you've got the operating platform, the people, the properties, the critical mass around customer base and your ability to make investments in both product and customers while at the same time driving operating efficiency and it feels that we hit that inflection point, I think we're starting to see that in these positive numbers and we feel very good about that continuing into the future.

It's helpful, Jack. Thank you. And I will just squeeze one last one and maybe for you and or Tim, you touched on cross-sell Jack obviously a few seconds ago, Tim last quarter I think last earnings call, give us a little bit more color about cross-all sort of potentially suggested become more of a recurring theme expansion been the -- expansion of the existing product within the customer has been the theme for growth, organic growth for a while but you sort of alluded last quarter to sort of maybe starting to see more cross-sell, Jack obviously did, so just a little more color guys on sort of how that is progressing and which products seem to be fitting well in terms of the cross-sell the next products that consumer might buy? Thank you.

Sure. Yes, cross-sell has been a steady theme for us and areas where we're seeing positive results are integrating and linking our project and portfolio management tool PowerSteering with our enhanced resource management from Tenrox, so you can imagine someone managing an array of complex projects of which of those a subset of those, you want to track very closely timesheet and expenses and Tenrox provides that capability, so with the Upland Integration Manager we can seamlessly integrate those products and provide those enterprise class projects and portfolio management as well as very advanced resource management capabilities there. So fast forward a few years, you can imagine more of an umbrella brand over those products but today we're selling them as an integration, so we're seeing success there and increased pipeline there, also workflow automation and workflow is important component of a lot of prophecies that customers are employing and so we're seeing customers want to integrate our advanced workflow products and down to Tenrox as well as to our project and portfolio management tools. So there are areas that have seen success and we see interest in, Jack mentioned as well RightAnswers has direct applicability to certain products and we've already seen additions to the pipeline just in the few short weeks that we've been associated with that company. So, more to come on that, again in terms of time of execution and similar to new deals but in terms of cost of actually identifying and getting those deals in the funnel it's obviously much, much lower than acquiring a new customer.

Guys, thank you very much, appreciate it, thanks for taking my questions.

Yes.

Your next question is from Jeff Van Rhee from Craig-Hallum.

Great, thanks. Congrats guys, looks fairly nice year. A couple for me first just curious kind of out of a process standpoint if you look at Omtool and RightAnswers, how from a communication standpoint to the prior question about sort of cross-sell, up-sell just use those examples, how do you convey what you've now got as part of the broader suite to the existing installed base in those two instances?

Sure. Jeff, Tim here. Welcome. I think it's your analyst call, so great to have you board. Yes, we have a number of communication vehicles that we use to reach out to our customer base, one of the things we put in structured as a quarterly briefing to the customer base is led by the General Manager of that respective product family. So that gives us the opportunity to update not only on the particular product that a customer might be interested in whether it's a major release, roadmap update, service offering perhaps briefing them on our premier Success program which has been another effective upsell and retention vehicle for us. But also highlight things that are new to Upland and perhaps relevant to them, we cannot go too in depth on that but more or less just give a high level overview of what that offering is and then an opportunity for someone to inquire further raise their hand and we follow up more deeply with them. So that's the approach we will use in terms of getting some broader reach there and do further drilldowns related to that and it will have a little bit of a different flavor depending on the product family that a customer currently is busying, so we use that vehicle, we often get a lot of inbound increase just based of the announcement of a new company as well as Jack mentioned we refreshed our web properties and so we're able to convey that information very effectively. We do have a very strong customer success program, so we have customer success managers who are in continual contact with customers as well this is not only the business sponsor of Upland within that respective customer but all the way down to endusers as well, so we use that vehicle and empower them with the information they need to convey the information not only at the end user level but at the senior level. And through that we build a plans to figure out which customers are the most relevant to go after and then deploy the sales and pre-sales resources to execute on that.

Got it, got it, that is helpful. And then on the Premier Success Plan front, is any quantification you can provide obviously gold platinum, ways to upsell sort of wrapping that around the improving overall customer experience goal but specifically related to those success plans and their ability to attach and ultimately drive the higher end plans, any quantification you can give us either on where you are or some sense of trend of increasing attach?

Yes, we introduced that program a couple of quarters ago and really two components to it, one is as you mentioned upselling to enhance services offering and we look closely at the attach rates, we don't going to disclose those publicly but we've seen good receptivity to that, the other part of the program that contributes to our improved net DRR that was talked about earlier is for lack of a better term a legacy lock in option, which gives an existing customer the ability to extend their agreement that they currently have with us for a longer period of time thereby reducing the defect risk if you will. And so we're seeing success on both fronts in terms of both extension of the term of agreement which we think bodes well longer term for our churn as well as attach rates to those enhanced offerings, now the offerings themselves were iterating on, so in some businesses we had them pretty well honed and we're seeing improved in attach rates there and others we have more work to do. So we think there's still opportunity for us to continue to improve in that area but are pleased with the initial results.

Great, and I guess last from even then back to the pipeline of potential acquisition targets could you just expand maybe a bit more there what's different versus maybe six months ago quantity, size, scope which segments just a little better sense it sounds like there's been a general build I think you said it's the best you've ever seen but maybe just a layer deeper little better sense of color around what's there and what brings you to that higher level conclusion?

Yes, so I think what's driving the improved pipeline first and foremost is Upland's presence in the market, the success we've had as a business, how that has been reflected in the public markets and the equity markets and also our level of activity with two reasonably sized acquisitions this year and clearly we work to market that if you will within the banking community, so that we're top of mind as buyer that can deliver speed and certainty for acquisitions that fit fanatically with what we're doing and meet our goals around financial performance and accretion. What we're seeing Jeff is I think continued uptick in the size of opportunities in the pipeline, we had a period there a year or so ago where we were looking at smaller acquisitions and we said at the time that we believe that a little bit of the normalization if you will of the market was going to contribute to our ability to buy somewhat larger assets so, again between $10 million and $15 million of revenue nothing crazy from a size perspective. But it makes a difference when you can buy $10 million or $12 million or $14 million of revenue run rate as opposed to you know five or six and so I'd say that we're seeing an uptick in size. From quantity standpoint I think there's a, if you look at gross pipeline I think those numbers are you know similar to what we've seen historically is that sort of bottom of the funnel pipeline where we're seeing, an uptick and say wow there is a good number of actionable deals here that are fanatic within the product family. That are within the kind of size range where comfortable with and that makes sense from a financial standpoint for us. And I would say that in terms of sector it's pretty well distributed as I kind of kick down the kind of bottom of the funnel pipeline right now. There are good entries there in all three product family so, project in IT management, workflow automation and digital engagement I wouldn't say there's any kind of trend in terms of sector we're seeing strength across all three.

Great. Well, certainly busy start of the year, and congrats on a great quarter.

Thank you.

The next question is from Richard Baldry from ROTH Capital.

Thanks. As you taken your target for sort of long term adjusted EBITDA up significantly 30% to 40% can you think about the value sort of lifetime value of the customer sort of an inverse relationship theoretically between how, efficient you get an on an operating expense side versus potentially customer satisfaction, may be talk about their net promoter Score turn how you're feeling about those as you've been able to increase your efficiencies? Thanks.

Well, it's such a great question, and I would say one of both pleasant outcomes from the implementation of the up and one fact form has been the fact that we have increased margins at the same time that we've increased customer satisfaction and the reason and at first I can understand why that may seem kind of counterintuitive. But it's not when you kind of peel it back a little bit and look at what we're doing so, it starts with something as simple as orders and renewals where in the old model we had much higher cost CSMs performing that function and the new model we have low cost team members who are doing that function in a more dedicated way, in a more temp with ties and programmatic way. The ability to engage customers regularly and in a substantive way rather than having the expensive onsite the user conference at Disney or another great you know resort location we're able to do these quarterly virtual user conferences that Tim referred to earlier where we have substantive information for customers about the products that they're currently using, you may bring in you know success cases, customer case studies and also have an opportunity to inform customers, customers of that other product that Upland offers. It's a customer sat opportunity, it's very efficient to deliver and it also presents a marketing opportunity from an R&D standpoint the investments we've made in knowledge management in analytics, in automation, the partnership with that factory that we have those things have enabled us to have dramatic throughput on the actual you know code being developed and addressing those foundational elements that are referred to earlier. At the same time doing it in a very efficient way and of course that whole process…

And do you think broader perspective as you gain scale and your EBITDA margins both gain scale you know higher rates but also larger dollars what are you seeing as supportable in the lender community for multiple EBITDA they're willing to lend against as I would assume greater critical mass that offered more stability and you think that's getting to get easier thing as you scale?

Yes, another great question; yes, the answer is yes. There are sort of some very significant lines that you start across and we were at that point that very positive inflection point so, for example as my preferred to earlier were in conversations right now with a number of lenders about significantly increasing the size of our acquisition facilities, obviously the business I generating cash that we don't need cash for operating purposes we would use it only to do strategic acquisitions that are creative on a per share basis, adjusted EBITDA basis. And yes, as we get to this $100 million scale and you start looking at a business it's moving up to 40% EBITDA margins a lot of interest from the lending community, a lot of great partners to work with there and so, we feel very good about that will have plenty of higher power to execute against our acquisitions planning.

Thanks.

The next question is from Richard Davis from Canaccord Genuity.

Thanks guys. It's Mark on for Richard just one more for me more on the cross selling expansion seen again. So I just want to know how you look at the difference in opportunity between further expanding your major accounts versus increasing the size of your smaller accounts just how you differentiate them and what is your focus?

I think that obviously we look to drive customer satisfaction levels higher across the entire customer base but the opportunity from a dollar amount basis is greatest within those major accounts that we define as 25,000 a year or more and are and so there is an increased level of support and account planning and honestly I really feel like today we're just scratching the surface as we have and it kind of relates of this is the last question around Critical Mass this product family that we built today is getting pretty powerful in each of these three categories projects and IT management workflow, automation, digital engagement, when we were active two or three years ago our ability to bring to the table additional products for our customers to add was limited. Now it's a lot greater and this latest acquisition as I mentioned right answer is one more example but so many great products in our portfolio, concept for IT financial management, power steering of PBM [indiscernible] PSA, and these products are related to each other and then add to that the fact that they've now got the uniform user interfaces and the continuing investments we're making on the user experience side and the integration side so it's those larger accounts, and an increasing opportunity because of where we are with the products.

Okay, great. Thanks guys.

[Operator Instruction] Our next question is from Brian Peterson from Raymond James.

Good evening gentlemen, thanks for taking the question. So one is it hit on M&A and given the success that you've had with a lot of the recent deals and with off them on I just want to get your comfort level with ability to suggest a larger amount or larger deal sizes and how was that changed maybe from 12 to 18 months ago?

Yes, great question. I think that from a deal to a much greater capacity now than it was 12 or 18 months ago because the operating model is up and running in June and so again whether you're talking about orders and renewals or invoice in your account management or customer support or develop and development or marketing and sales you've got these established properties that you can now for the required products over to. And then we've got additional scale and of course we've made investments and on the people side in terms of season executives with experience around integration to further build out our team and execute that model. So, vastly increase capacity to get it done in terms of how that plays out my gut is you see that playing out in a greater number of deals that are slightly larger. So again we want to be in that $10 million to $15 million range of revenue maybe TV occasional 15 to 20. A new three or four deals like that a year that tremendous growth impact on a business our size we're not committing or guaranteeing we get that number down obviously, but we have the capacity to get that done and dramatic. The other way to go at it is to look at the big deal $50 million revenue north of $100 million purchase price kind of that a company deal and that's really just not the way we operate, it's not the way we operate a profession. And it's not the way we're planning on operating here, we're really one foot in front of the other kind of guys who like to manage risk appropriately we think we've got a differentiated offering from an as a buyer I should say and it's sort of $25 million range. So we've got so much headroom to grow the size of the acquired companies through to the feeling that we talked about at the time of the IPO which was up to 25 million, my gosh. You do three or four deal to 25 million a year and the growth rate is explosive. So we have a kind of opportunity in the segment we're playing and we've got the capacity to execute against and integrate three or four these a year, and part of the reason we're so excited and bullish on the opportunities we look out over the next few quarters the next few years.

Got it. Thanks, Jack. Maybe just one more I know it's been on the new customer add this quarter pretty strong at 156 I know it's mostly a referral sales model, but is there anything that you can give us on productivity levels of the U.S. has that improved or been significantly better than your expectations over the last few quarter? Thanks, guys.

Yes, Brian, Tim here. I would say from a rep productivity perspective it similar we've been running over for all models for a while here and Jack alluded to we don't do the spray and pray marketing to go after new customers. So those efficiency is pretty consistent. Obviously we're testing new things with new vehicles we'll see how the properties produce more in down leads and how we follow up on those. So at this point it's all about going after that install base with the expansion in cross-sell, seeing those referrals for new customers and most of these industries it's a small world the players know each other and our focus on 100% customer success in our actions driven their net promoter score methodology really are building a reputation. So I would say efficiency is similar from a sales perspective, and you should model in something similar there.

Thanks. Nice job, guys.

Thank you.

There are no further questions at this time. I will turn the call back over to the presenters.

Okay, great. Thank you so much. And we do have just as an IR note, Mike and I will be presenting at the Needham Conference next week in New York. I think it's Tuesday, that we will be there, and look forward to speaking everyone again on the second quarter call. So, thank you very much.

This concludes today's conference call. You may now disconnect.