UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36720

UPLAND SOFTWARE, INC.

(Exact name of registrant as specified in its charter)


Delaware			27-2992077
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

401 Congress Ave., Suite 1850

Austin, Texas 78701

(Address, including zip code, of registrant’s principal executive offices)

(512) 960-1010

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

UPLD

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of ~~July 31, 2020, 25,368,192~~April 30, 2021, 30,100,217 shares of the registrant’s Common Stock were outstanding.

Table of Contents

Upland Software, Inc.

Table of Contents


		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements ~~(unaudited)~~
	Condensed Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	1
	Condensed Consolidated Statements of Operations for the Three ~~and Six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three ~~and Six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three ~~and Six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~	4
	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~	65
	Notes to Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	259
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4123
Item 4.	Controls and Procedures	4224
Part II.	OTHER INFORMATION	4325
Item 6.	Exhibits	4325
Exhibit Index			4426
Signature			4527

Table of Contents

Item 1. Financial Statements

Upland Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share information)

June 30, 2020 December 31, 2019
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 87,910 $ 175,024
Accounts receivable (net of allowance of $1,771 and $1,238 at June 30, 2020 and December 31, 2019, respectively) 48,656 50,938
Deferred commissions, current 4,150 3,059
Unbilled receivables 5,508 5,111
Prepaid and other 6,604 4,748
Total current assets 152,828 238,880
Tax credits receivable 4,378 4,186
Property and equipment, net 3,951 3,917
Operating lease right-of-use asset 13,598 8,056
Intangible assets, net 292,316 282,727
Goodwill 379,486 346,134
Deferred commissions, noncurrent 10,160 8,763
Other assets 2,666 4,165
Total assets $ 859,383 $ 896,828
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 1,976 $ 5,904
Accrued compensation 5,933 11,559
Accrued expenses and other current liabilities 14,118 15,344
Deferred revenue 81,032 76,558
Due to sellers 5,712 14,276
Operating lease liabilities, current 3,756 2,533
Current maturities of notes payable (includes unamortized discount of $2,216 and $2,207 at June 30, 2020 and December 31, 2019, respectively) 3,184 3,193
Total current liabilities 115,711 129,367
Notes payable, less current maturities (includes unamortized discount of $10,395 and $11,369 at June 30, 2020 and December 31, 2019, respectively) 520,155 521,881
Deferred revenue, noncurrent 2,244 496
Operating lease liabilities, noncurrent 11,217 5,862
Noncurrent deferred tax liability, net 24,577 25,685
Other long-term liabilities 33,242 676
Total liabilities 707,146 683,967
Stockholders’ equity:
Common stock, $0.0001 par value; 50,000,000 shares authorized: 25,365,735 and 25,250,120 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively) 3 3
Additional paid-in capital 363,328 345,127
Accumulated other comprehensive loss (45,700) (1,223)
Accumulated deficit (165,394) (131,046)
Total stockholders’ equity 152,237 212,861
Total liabilities and stockholders’ equity $ 859,383 $ 896,828



	March 31, 2021		December 31, 2020

Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	186,672	$	250,029
Accounts receivable (net of allowance of $1,203 and $1,465 at March 31, 2021 and December 31, 2020, respectively)	43,547		44,472
Deferred commissions, current	6,976		5,784
Unbilled receivables	5,088		4,561
Prepaid and other	8,540		12,694
Total current assets	250,823		317,540
Tax credits receivable	2,607		2,427
Property and equipment, net	3,429		2,778
Operating lease right-of-use asset	8,720		10,124
Intangible assets, net	305,877		279,975
Goodwill	448,558		383,598
Deferred commissions, noncurrent	13,327		12,962
Other assets	1,776		1,816
Total assets	$	1,035,117	$	1,011,220
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	12,912	$	5,395
Accrued compensation	8,761		8,138
Accrued expenses and other current liabilities	13,076		13,438
Deferred revenue	94,693		87,552
Due to sellers	11,172		416
Operating lease liabilities, current	3,461		3,315
Current maturities of notes payable (includes unamortized discount of $2,230 and $2,234 at March 31, 2021 and December 31, 2020, respectively)	3,170		3,166
Total current liabilities	147,245		121,420

Notes payable, less current maturities (includes unamortized discount of $8,864 and $9,414 at March 31, 2021 and December 31, 2020, respectively)	517,636		518,437
Deferred revenue, noncurrent	1,339		1,587
Operating lease liabilities, noncurrent	8,859		8,387
Noncurrent deferred tax liability, net	26,607		24,092
Interest rate swap liabilities	14,581		30,032
Other long-term liabilities	1,190		650
Total liabilities	717,457		704,605







Stockholders’ equity:

Common stock, $0.0001 par value; 50,000,000 shares authorized: 30,091,665 and 29,987,114 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively)	3		3
Additional paid-in capital	533,044		515,219
Accumulated other comprehensive loss	(12,330)		(26,234)
Accumulated deficit	(203,057)		(182,373)
Total stockholders’ equity	317,660		306,615
Total liabilities and stockholders’ equity	$	1,035,117	$	1,011,220

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

Upland Software, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except for share and per share information)



	Three Months Ended March 31,
		2021		2020
Revenue:
Subscription and support		$	70,653	$	63,891
Perpetual license		352		361
Total product revenue		71,005		64,252
Professional services		2,964		3,780
Total revenue		73,969		68,032
Cost of revenue:
Subscription and support		22,682		19,939
Professional services and other		1,745		2,262
Total cost of revenue		24,427		22,201
Gross profit		49,542		45,831
Operating expenses:
Sales and marketing		12,432		10,931
Research and development		10,940		9,118

General and administrative		24,369		16,676
Depreciation and amortization		9,743		9,271
Acquisition-related expenses		9,586		15,158
Total operating expenses		67,070		61,154
Loss from operations		(17,528)		(15,323)
Other expense:
Interest expense, net		(7,787)		(7,643)

Other income (expense), net		237		(1,402)
Total other expense		(7,550)		(9,045)
Loss before benefit from income taxes		(25,078)		(24,368)
Benefit from income taxes		4,394		4,287


Net loss		$	(20,684)	$	(20,081)


Net loss per common share:
Net loss per common share, basic and diluted		$	(0.69)	$	(0.81)


Weighted-average common shares outstanding, basic and diluted		29,970,050		24,906,932

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenue:
Subscription and support $ 67,699 $ 48,715 $ 131,590 $ 93,698
Perpetual license 491 575 852 1,232
Total product revenue 68,190 49,290 132,442 94,930
Professional services 3,125 3,723 6,905 6,576
Total revenue 71,315 53,013 139,347 101,506
Cost of revenue:
Subscription and support 21,200 14,622 41,139 27,896
Professional services 2,472 1,961 4,734 3,475
Total cost of revenue 23,672 16,583 45,873 31,371
Gross profit 47,643 36,430 93,474 70,135
Operating expenses:
Sales and marketing 11,820 7,989 22,751 14,971
Research and development 10,488 7,008 19,908 13,406
Refundable Canadian tax credits (194) (85) (496) (171)
General and administrative 17,655 12,042 34,331 22,036
Depreciation and amortization 9,037 5,744 18,308 11,003
Acquisition-related expenses 5,781 9,264 20,939 16,987
Total operating expenses 54,587 41,962 115,741 78,232
Loss from operations (6,944) (5,532) (22,267) (8,097)
Other expense:
Interest expense, net (7,873) (5,246) (15,516) (10,362)
Other expense, net (15) (692) (1,417) (1,453)
Total other expense (7,888) (5,938) (16,933) (11,815)
Loss before provision for income taxes (14,832) (11,470) (39,200) (19,912)
Benefit from income taxes 673 6,101 4,960 6,713
Net loss $ (14,159) $ (5,369) $ (34,240) $ (13,199)
Net loss per common share:
Net loss per common share, basic and diluted $ (0.57) $ (0.24) $ (1.37) $ (0.61)
Weighted-average common shares outstanding, basic and diluted 25,032,996 22,619,805 25,057,715 21,531,216

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

Upland Software, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

(in thousands)


	Three Months Ended March 31,
		2021		2020
Net loss		$	(20,684)	$	(20,081)
Foreign currency translation adjustment		(2,387)		(3,459)
Unrealized translation gain (loss) on foreign currency denominated intercompany loans		840		(7,313)
Unrealized gain (loss) on interest rate swaps		15,451		(31,401)
Comprehensive loss		$	(6,780)	$	(62,254)

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Net loss $ (14,159) $ (5,369) $ (34,240) $ (13,199)
Foreign currency translation adjustment 1,219 1,249 (2,240) 612
Unrealized translation gain (loss) on foreign currency denominated intercompany loans 132 (3,006) (7,181) —
Unrealized loss on interest rate swaps (3,655) — (35,056) —
Comprehensive loss $ (16,463) $ (7,126) $ (78,717) $ (12,587)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

Upland Software, Inc.

Consolidated Statement of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)


		Three Months Ended June 30, 2020																											Three Months Ended March 31, 2021
		Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit					Total Stockholders’ Equity			Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
		Shares	Amount															Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
Balance at March 31, 2020		25,305,427	$	3	$	353,720							$	(43,396)			$									(151,235)	$	159,092

Balance at December 31, 2020														Balance at December 31, 2020	29,987,114				$	3		$	515,219		$	(26,234)	$	(182,373)	$	306,615

Issuance of stock under Company plans, net of shares withheld for tax	Issuance of stock under Company plans, net of shares withheld for tax	60,308	—		(1,372)		—		—		(1,372)			Issuance of stock under Company plans, net of shares withheld for tax	104,551				—			1			—		—		1

Stock-based compensation	Stock-based compensation	—	—		10,980		—		—		10,980			Stock-based compensation	—				—			17,824			—		—		17,824

Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—		1,219		—		1,219			Foreign currency translation adjustment	—				—			—			(2,387)		—		(2,387)
Unrealized translation gain on foreign currency denominated intercompany loans		—	—		—		132		—		132
Unrealized gain loss on interest rate swaps		—	—		—		(3,655)		—		(3,655)
Unrealized translation gain on intercompany loans with foreign subsidiaries														Unrealized translation gain on intercompany loans with foreign subsidiaries	—				—			—			840		—		840
Unrealized gain on interest rate swaps														Unrealized gain on interest rate swaps	—				—			—			15,451		—		15,451
Net loss	Net loss	—	—		—		—		(14,159)		(14,159)			Net loss	—				—			—			—		(20,684)		(20,684)
Balance at June 30, 2020		25,365,735	$	3	$	363,328	$	(45,700)	$	(165,394)	$	152,237
Balance at March 31, 2021														Balance at March 31, 2021	30,091,665				$	3		$	533,044		$	(12,330)	$	(203,057)	$	317,660

Six Months Ended June 30, 2020
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Stockholders’
Equity
Shares Amount
Balance at December 31, 2019 25,250,120 $ 3 $ 345,127 $ (1,223) $ (131,046) $ 212,861
Issuance of stock under Company plans, net of shares withheld for tax 115,615 — (2,086) — — (2,086)
Issuance of stock, net of issuance costs — — (13) — — (13)
Stock-based compensation — — 20,300 — — 20,300
Cumulative adjustment related to adoption of accounting standard — — — — (108) (108)
Foreign currency translation adjustment — — — (2,240) — (2,240)
Unrealized translation loss on foreign currency denominated intercompany loans — — — (7,181) — (7,181)
Unrealized gain loss on interest rate swaps — — — (35,056) — (35,056)
Net loss — — — — (34,240) (34,240)
Balance at June 30, 2020 25,365,735 $ 3 $ 363,328 $ (45,700) $ (165,394) $ 152,237

~~Table of Contents~~

Three Months Ended June 30, 2019
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Stockholders’
Equity
Shares Amount
Balance at March 31, 2019 21,443,226 $ 2 $ 183,700 $ (5,132) $ (93,505) $ 85,065
Issuance of stock under Company plans, net of shares withheld for tax 9,481 — (3,021) — — (3,021)
Issuance of stock, net of issuance costs 3,795,000 1 151,152 — — 151,153
Stock-based compensation — — 6,901 — — 6,901
Foreign currency translation adjustment — — — 1,249 — 1,249
Unrealized translation gain on foreign currency denominated intercompany loans — — — (3,006) — (3,006)
Net loss — — — — (5,369) (5,369)
Balance at June 30, 2019 25,247,707 $ 3 $ 338,732 $ (6,889) $ (98,874) $ 232,972

Six Months Ended June 30, 2019
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Stockholders’
Equity
Shares Amount
Balance at December 31, 2018 21,489,112 $ 2 $ 180,481 $ (7,501) $ (85,675) $ 87,307
Issuance of common stock in business combination 3,651 — (30) — — (30)
Issuance of stock under Company plans, net of shares withheld for tax (40,056) — (4,400) — — (4,400)
Issuance of stock, net of issuance costs 3,795,000 1 151,152 — — 151,153
Stock-based compensation — — 11,529 — — 11,529
Foreign currency translation adjustment — — — 612 — 612
Net loss — — — — (13,199) (13,199)
Balance at June 30, 2019 25,247,707 $ 3 $ 338,732 $ (6,889) $ (98,874) $ 232,972


	Three Months Ended March 31, 2020
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	25,250,120	$	3	$	345,127	$	(1,223)	$	(131,046)	$	212,861

Issuance of stock under Company plans, net of shares withheld for tax	55,307	—		(714)		—		—		(714)
Issuance of stock, net of issuance costs	—	—		(13)		—		—		(13)
Stock-based compensation	—	—		9,320		—		—		9,320
Cumulative adjustment related to adoption of accounting standard	—	—		—		—		(108)		(108)
Foreign currency translation adjustment	—	—		—		(3,459)		—		(3,459)
Unrealized translation loss on intercompany loans with foreign subsidiaries	—	—		—		(7,313)		—		(7,313)
Unrealized loss on interest rate swaps	—	—		—		(31,401)		—		(31,401)
Net loss	—	—		—		—		(20,081)		(20,081)
Balance at March 31, 2020	25,305,427	$	3	$	353,720	$	(43,396)	$	(151,235)	$	159,092

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

Upland Software, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)




	Three Months Ended March 31,
	2021		2020
Operating activities
Net loss	$	(20,684)	$	(20,081)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	12,468		11,737

Deferred income taxes	(5,340)		(4,348)
Amortization of deferred costs	1,767		894
Foreign currency re-measurement loss	14		587
Non-cash interest and other expense	554		552
Non-cash stock compensation expense	17,824		9,320




Changes in operating assets and liabilities, net of purchase business combinations:
Accounts receivable	3,575		(1,664)
Prepaids and other	(1,015)		(2,778)
Accounts payable	4,540		(3,439)
Accrued expenses and other liabilities	(1,776)		(5,942)
Deferred revenue	576		9,853
Net cash provided by (used in) operating activities	12,503		(5,309)
Investing activities
Purchase of property and equipment	(282)		(296)
Purchase of customer relationships	0		(201)
Purchase business combinations, net of cash acquired	(72,618)		(67,651)

Net cash used in investing activities	(72,900)		(68,148)
Financing activities
Payments on finance leases	(4)		(55)
Proceeds from notes payable, net of issuance costs	0		(72)
Payments on notes payable	(1,350)		(1,350)



Taxes paid related to net share settlement of equity awards	0		(768)
Issuance of common stock, net of issuance costs	1		41

Additional consideration paid to sellers of businesses	(742)		(1,000)
Net cash used in financing activities	(2,095)		(3,204)
Effect of exchange rate fluctuations on cash	(865)		325
Change in cash and cash equivalents	(63,357)		(76,336)
Cash and cash equivalents, beginning of period	250,029		175,024
Cash and cash equivalents, end of period	$	186,672	$	98,688
Supplemental disclosures of cash flow information:
Cash paid for interest, net of interest rate swaps	$	7,282	$	7,435
Cash paid for taxes	$	493	$	508

Non-cash investing and financing activities:
Business combination consideration including holdbacks and earnouts	$	11,061	$	345

Six Months Ended June 30,
2020 2019
Operating activities
Net loss $ (34,240) $ (13,199)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 23,395 15,152
Deferred income taxes (4,985) (12,024)
Amortization of deferred costs 1,920 1,735
Foreign currency re-measurement loss 497 (212)
Non-cash interest and other expense 1,108 565
Non-cash stock compensation expense 20,300 11,529
Changes in operating assets and liabilities, net of purchase business combinations:
Accounts receivable 5,188 8,410
Prepaids and other (6,743) 2,415
Accounts payable (6,258) (483)
Accrued expenses and other liabilities (7,101) (5,756)
Deferred revenue 2,415 (2,736)
Net cash provided by (used in) operating activities (4,504) 5,396
Investing activities
Purchase of property and equipment (696) (364)
Purchase of customer relationships (201) —
Purchase business combinations, net of cash acquired (67,651) (82,824)
Net cash used in investing activities (68,548) (83,188)
Financing activities
Payments on finance leases (83) (357)
Proceeds from notes payable, net of issuance costs (142) 39,339
Payments on notes payable (2,700) (13,749)
Taxes paid related to net share settlement of equity awards (2,140) (4,811)
Issuance of common stock, net of issuance costs 41 151,535
Additional consideration paid to sellers of businesses (9,580) (3,340)
Net cash provided by (used in) financing activities (14,604) 168,617
Effect of exchange rate fluctuations on cash 542 798
Change in cash and cash equivalents (87,114) 91,623
Cash and cash equivalents, beginning of period 175,024 16,738
Cash and cash equivalents, end of period $ 87,910 $ 108,361
Supplemental disclosures of cash flow information:
Cash paid for interest, net of interest rate swaps $ 14,861 $ 10,298
Cash paid for taxes $ 1,260 $ 1,691
Sales commissions paid, net of amortization of deferred commissions $ 2,488 $ 1,184
Non-cash investing and financing activities:
Business combination consideration including holdbacks and earnouts $ 345 $ 5,175
Equipment acquired pursuant to financing lease obligations $ — $ 44

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Upland Software, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of ~~the~~ Upland Software, Inc. and its wholly owned subsidiaries (collectively referred to as “Upland”, the “Company”, “we” or “us”). All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. ~~There have been no significant changes in the Company’s accounting policies since December 31, 2019, except as discussed below with respect to the Company’s adoption of ASU 2016-13.~~

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. In the opinion of management of the Company, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, in all material respects, and include all adjustments of a normal recurring nature necessary for a fair presentation. The results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2020~~2021 or for any other period.

The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on ~~March 2, 2020.~~February 25, 2021.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses. Significant items subject to such estimates include those related to revenue recognition, deferred commissions, allowance for credit losses, stock-based compensation, contingent consideration, acquired intangible assets, the useful lives of intangible assets and property and equipment, the fair value of the Company’s interest rate swaps and income taxes. In accordance with GAAP, management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from those estimates.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. Upland is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of ~~August 7, 2020,~~May 5, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable and ~~accounts receivable.~~the Company’s interest rate swap hedges. The Company’s cash and cash equivalents are placed with high-quality financial institutions, which, at times, may exceed federally insured limits. The Company has not experienced any losses in these accounts, and the Company does not believe it is exposed to any significant credit risk related to cash and cash equivalents. The Company provides credit, in the normal course of business, to a number of its customers. To manage accounts receivable credit risk, the Company performs periodic credit evaluations of its customers and maintains current expected credit losses which considers such factors as historical loss information, geographic location of customers, current market conditions, and reasonable and supportable forecasts. The $0.5 million increase in the allowance for credit losses as of June 30, 2020, compared to December 31, 2019, was primarily related to CXM sales which have higher historical write-off rates compared to the Company’s other product revenue streams.

No individual customer represented more than 10% of total revenues ~~for the~~ three ~~or six~~ months ended ~~June 30, 2020,~~March 31, 2021, or more than 10% of accounts receivable as of ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

Derivatives

~~The~~In connection with borrowing funds under the Company’s credit facility the Company has entered into a floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt. These interest rate swaps effectively ~~convert~~converted the entire balance of the Company's $540 million term loans from variable interest payments to fixed interest rate payments, based on an annualized fixed rate of 5.4%, for ~~the~~a 7 year term of ~~the~~ debt. ASC 815 requires entities to recognize derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. The Company assessed the effectiveness of the hedging relationship under the hypothetical derivative method and noted that all of the critical terms of the hypothetical derivative and hedging instrument were the same. The hedging relationship continues to limit the Company’s exposure to the variability in interest rates under the Company’s term loans and related cash outflows. As such, the Company has deemed this hedging relationship as highly effective in offsetting cash flows attributable to hedged risk (variability in forecasted monthly interest payments) for the term of the term loans and interest rate swap agreements. All derivative financial instruments are recorded at fair value as a net asset or liability in the accompanying condensed consolidated balance sheets. As of ~~June 30,~~March 31, 2021 and December 31, 2020 the fair value of the interest rate swaps included in ~~Other long term-liabilities~~Interest rate swap liabilities in the Company's condensed consolidated balance sheets was ~~$32.6 million. As of December 31, 2019, the fair value of the interest rate swaps included in Other assets in the Company's condensed consolidated balance sheet was $2.4 million.~~$14.6 million and $30.0 million, respectively.

The change in the fair value of the hedging instruments is recorded in Other comprehensive income. Amounts deferred in Other comprehensive income will be reclassified to Interest expense in the accompanying condensed consolidated statements of operations in the period in which the hedged item affects earnings.

Fair Value of Financial Instruments

The Company ~~accounts for~~recognizes financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financial assets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

These tiers include Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.

The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and long–term debt. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value, primarily due to short maturities. The carrying values of the Company’s debt instruments approximated their fair value based on rates currently available to the Company.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In March 2020, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying ~~U.S.~~ GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company ~~does not anticipate~~is evaluating the ~~adoption~~impact of this standard ~~to have a material impact~~ on ~~its~~our consolidated financial statements.

~~Recently adopted accounting pronouncements~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,~~ to eliminate, add and modify certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for annual and interim periods beginning after December 15, 2019, but entities are permitted to early adopt either the entire standard or only

~~the provisions that eliminate or modify the requirements. The Company adopted this guidance in the first quarter of 2020 with no material impact on its consolidated financial statements.~~

~~In June 2016, the FASB issued~~ ~~ASU 2016-13~~, ~~Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments~~, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of 2020 and as a result of the adoption recorded a cumulative-effect adjustment to decrease the beginning balance of Accumulated deficit in the amount of $0.1 million, which represents the accelerated recognition of credit losses related to our trade receivables under the expected credit loss model of calculating our current expected credit losses compared to the previous incurred loss model.

2. Acquisitions

The Company performs quantitative and qualitative analyses to determine the significance of each acquisition to the financial statements the Company. Based on these analyses the below acquisitions were deemed to be insignificant on an individual and cumulative basis.

~~2020~~

2021 Acquisitions

Acquisitions completed during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 include the following:

•BlueVenn - On February 28, 2021 the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BlueVenn Group Limited, a company limited by shares organized and existing under the laws of England and Wales (“BlueVenn”), a cloud-based customer data platform. Revenues recorded since the acquisition date through March 31, 2021 were approximately $1.0 million.

•Second Street - On January 19, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Second Street Media, Inc., a Missouri corporation (“Second Street”), an audience engagement platform. Revenues recorded since the acquisition date through March 31, 2021 were approximately $2.0 million.

2020 Acquisition

The acquisition completed during the year ended December 31, 2020 were:

•Localytics - On February 6, 2020, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Char Software, Inc (dba Localytics), a Delaware corporation (“Localytics”), a provider of mobile app personalization and analytics solutions. ~~Revenues recorded since the acquisition date through June 30, 2020 were approximately $7.1 million.~~

~~2019 Acquisitions~~

~~Acquisitions completed during the year ended December 31, 2019 include the following:~~

•~~Postup~~ - On April 18, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of Postup Holdings, LLC, a Texas limited liability company (“Postup”), and Postup Digital, LLC, a Texas limited liability company, an Austin-based company providing email and audience development solutions for publishing & media brands.

•~~Kapost~~ - On May 24, 2019, the Company completed of its purchase of the shares comprising the entire issued share capital of Daily Inches, Inc., d/b/a Kapost, a Delaware corporation (“Kapost”), a leading content operations platform provider for sales and marketing.

•~~Cimpl~~ - On August 21, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of Cimpl, Inc., a Canadian corporation (“Cimpl”), a leading cloud-based telecom expense management platform.

•~~InGenius~~ - On October 1, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of InGenius Software Inc., a Canadian corporation (“InGenius”), a Computer Telephony Integration (CTI) solution for enterprise contact centers.

•~~Altify~~ - On October 4, 2019, the Company’s wholly owned subsidiary, Upland Software UK, a limited company incorporated under the laws of England and Wales, entered into an agreement to purchase the shares comprising the entire issued share capital of Altify Ireland Limited, a private company limited by shares organized and existing under the laws of Ireland (“Altify”), a customer revenue optimization (CRO) cloud solution for sales and the extended revenue teams.

Consideration

The following table summarizes the consideration transferred for the acquisitions described above (in thousands):

Localytics Altify InGenius Cimpl Kapost Postup
Cash $ 67,655 $ 84,000 $ 26,428 $ 23,071 $ 45,000 $ 34,825
Holdback ⁽¹⁾
345 — 3,000 2,600 5,000 175
Contingent consideration ⁽²⁾
1,000 — 4,865 — — —
Working capital adjustment — — — — (601) —
Total consideration $ 69,000 $ 84,000 $ 34,293 $ 25,671 $ 49,399 $ 35,000


	BlueVenn		Second Street		Localytics
Cash	$	53,535	$	25,436	$	67,655
Holdback (1)	2,429		5,000		345
Contingent consideration (2)	2,742		1,650		1,000



Working capital adjustment (3)	0		104		(5,238)
Total consideration	$	58,706	$	32,190	$	63,762

(1)Represents the cash holdbacks subject to indemnification claims that are payable 12 months following closing for Second Street and Localytics ~~InGenius, Cimpl, Kapost~~ and ~~Postup.~~18 months following closing for BlueVenn.

(2)Represents the acquisition date fair value of anticipated earn-out payments, which are based on the estimated probability of attainment of the underlying future performance-based conditions at the time of acquisition. The maximum potential payout for the ~~InGenius~~BlueVenn, Second Street and Localytics earn-outs were ~~$15.0~~$22.4 million, $3.0 million and $1.0 million, respectively. The earn-out for Localytics was paid in full during the year ended December 31, 2020 based on an ending fair value of $1.0 million. Refer to Note 3 for further discussion regarding the calculation of fair value of acquisition related earn-outs.

(3)Working capital and other adjustments includes a $5.2 million settlement in total consideration for Localytics related to a representation and warranty insurance settlement which is included in prepaids and other current assets on the Company’s consolidated balance sheets as of December 31, 2020.

Fair Value of Assets Acquired and Liabilities Assumed

The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting and, accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The purchase accounting for the ~~2019 acquisition~~2021 acquisitions of ~~Altify~~BlueVenn and ~~the 2020 acquisition of Localytics~~Second Street are preliminary as the Company has not ~~obtained~~finalized the purchase price allocations for these acquisitions and ~~evaluated all~~have not finalized the valuation of the ~~detailed information necessary~~earnout related to ~~finalize the opening balance sheet amounts in all respects, specifically the tax impact not being finalized as of June 30, 2020.~~BlueVenn. Management has recorded the purchase price allocations based upon acquired company information that is currently available. Management expects to complete its purchase price ~~allocations~~allocation for ~~these acquisitions in~~BlueVenn and Second Street no later than the ~~second half~~first quarter of ~~2020.~~2022.

The following condensed table presents the preliminary and finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions in during the year ended December 31, ~~2019~~2020 and through the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as well as assets and liabilities (in thousands):

Preliminary Final
Localytics Altify InGenius Cimpl Kapost Postup
Year Acquired 2020 2019 2019 2019 2019 2019
Cash $ — $ 730 $ 11 $ 142 $ — $ 19
Accounts receivable 3,648 6,629 1,456 1,041 3,901 1,054
Other current assets 6,325 889 317 278 1,066 1,373
Tax credits receivable — 916 1,489 1,383 — —
Operating lease right-of-use asset 7,605 1,085 1,099 230 2,136 —
Property and equipment 409 139 364 233 686 743
Customer relationships 30,500 50,954 11,208 12,430 23,735 10,667
Trade name 300 1,112 424 216 787 468
Technology 6,600 7,648 4,576 3,240 5,756 2,943
Goodwill 40,109 34,426 24,141 12,928 20,953 21,973
Other assets 6 378 — 6 — —
Total assets acquired 95,502 104,906 45,085 32,127 59,020 39,240
Accounts payable (2,382) (1,499) (128) (305) (50) (447)
Accrued expense and other (6,752) (3,901) (2,807) (1,206) (3,724) (530)
Deferred tax liabilities (4,721) (7,083) (4,897) (4,595) (1,954) (3,248)
Deferred revenue (4,812) (7,907) (2,960) (350) (3,893) (15)
Operating lease liabilities (7,835) (516) — — — —
Total liabilities assumed (26,502) (20,906) (10,792) (6,456) (9,621) (4,240)
Total consideration $ 69,000 $ 84,000 $ 34,293 $ 25,671 $ 49,399 $ 35,000


	Preliminary				Final
	BlueVenn		Second Street		Localytics
Year Acquired	2021		2021		2020

Cash	$	1,115	$	0	$	0
Accounts receivable	1,491		1,105		3,648
Other current assets	1,413		89		6,323

Operating lease right-of-use asset	1,357		489		7,605
Property and equipment	676		156		409
Customer relationships	15,530		14,600		30,500
Trade name	224		200		300
Technology	4,337		3,400		6,600

Goodwill	47,136		18,054		33,543
Other assets	24		13		6
Total assets acquired	73,303		38,106		88,934
Accounts payable	(2,783)		(230)		(2,382)
Accrued expense and other	(1,956)		(372)		(6,761)
Deferred tax liabilities	(3,404)		(4,325)		(3,382)
Deferred revenue	(5,097)		(500)		(4,812)
Operating lease liabilities	(1,357)		(489)		(7,835)

Total liabilities assumed	(14,597)		(5,916)		(25,172)
Total consideration	$	58,706	$	32,190	$	63,762

The Company uses third party valuation consultants to determine the fair values of assets acquired and liabilities assumed. Tangible assets are valued at their respective carrying amounts, which approximates their estimated fair value. The valuation of identifiable intangible assets reflects management’s estimates based on, among other factors, use of established valuation methods. Customer relationships are valued using the multi-period excess earnings method. Developed technology and trade names are valued using the relief-from-royalty method.

The following table summarizes the weighted-average useful lives, by major finite-lived intangible asset class, for intangibles acquired during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and the year ended December 31, ~~2019~~2020 (in years):

Useful Life
June 30, 2020 December 31, 2019
Customer relationships 8.0 9.8
Trade name 2.0 9.2
Developed technology 5.0 7.9
Total weighted-average useful life 7.4 9.5


	Useful Life
	March 31, 2021	December 31, 2020
Customer relationships	7.0	8.0
Trade name	2.0	2.0
Developed technology	5.0	5.0

Total weighted-average useful life	6.5	7.4

During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to management's estimates and assumptions. The change in the preliminary acquisition-date fair value of assets and liabilities for Altify during the six months ended June 30, 2020 was related primarily to a $1.0 million decrease in deferred tax liabilities.

The goodwill of ~~$154.5~~$98.7 million for the above acquisitions is primarily attributable to the synergies expected to arise after the acquisition. Goodwill deductible for tax purposes at the time of acquisition was ~~$6.2~~$2.0 million.

Total transaction related expenses incurred with respect to acquisition activity during the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~ were ~~$0.2~~$4.0 million and ~~$3.6 million, respectively, and during the six months ended June 30, 2020 and June 30, 2019 were $3.5 million and $4.0~~$3.3 million, respectively. Transaction related expenses, excluding transformation costs, include expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses. Transaction costs are included in acquisition-related expenses in our condensed consolidated statement of operations.

Other Acquisitions and Divestitures

From time to time we may purchase or sell customer relationships that meet certain criteria. During the ~~six months ended June 30, 2020 and~~ year ended December 31, ~~2019,~~2020, we completed customer relationship acquisitions totaling $0.2 ~~million and $1.6 million, respectively.~~

In the fourth quarter of 2019, Upland divested of certain minor non-strategic customer contracts and related website management and analytics assets. As a result, during the year ended December 31, 2019 the Company recognized a $2.0 million non-cash expense on divestiture which is included in the Other income (expense), net line item in the Company’s condensed consolidated statement of operations, for the year ended December 31, 2019. The assets divested consisted primarily of $2.2 million in deferred commission costs, $1.1 million in intangible assets (customer relationship and related technology), $0.2 million in allocated goodwill, and $1.0 million of liabilities primarily consisting of deferred revenue.million.

3. Fair Value Measurements

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. GAAP sets forth a three–tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three tiers are Level 1, defined as observable inputs, such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, which therefore requires an entity to develop its own assumptions.

As of ~~December~~March 31, ~~2019,~~2021, the Company ~~has~~had contingent accrued earnout business acquisition consideration liabilities for which fair values are measured as Level 3 instruments. These contingent consideration liabilities were recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels, or changes in assumed discount periods and rates and changes in foreign exchange rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3. Any gain (loss) related to subsequent changes in the fair value of contingent consideration is recorded in acquisition-related expense or other income (expense) in the Company's condensed consolidated statement of operations based on management's assessment of the nature of the liability. Earnout consideration liabilities are included in Due to sellers in the Company's condensed consolidated balance sheets.

In connection with entering into, and expanding, the Company's current credit facility, as discussed further in Note 6. Debt, the Company entered into interest rate swaps for the full 7 year term of the Company's term loans, effectively fixing our interest rate at 5.4% for the full value $540 million of the term loans. The fair value of the Company's swaps are measured at the end of each interim reporting period based on the then assessed fair value and adjusted if necessary. As the fair value measure is based on the market approach, they are categorized as Level 2. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 the fair value of the interest rate swaps are included in ~~Other long term-liabilities and Other assets, respectively,~~Interest rate swap liabilities on the Company's condensed consolidated balance sheets.

Liabilities measured at fair value on a recurring basis are summarized below (in thousands):


	Fair Value Measurements at March 31, 2021
	(unaudited)
	Level 1		Level 2		Level 3		Total


Liabilities:
Earnout consideration liability	$	0	$	0	$	4,350	$	4,350
Interest rate swap liabilities	$	0	$	14,581	$	0	$	14,581


		Fair Value Measurements at June 30, 2020
		(unaudited)															Fair Value Measurements at December 31, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total

Liabilities:	Liabilities:									Liabilities:
Interest rate swap liabilities										Interest rate swap liabilities	$	0	$	30,032	$	0	$	30,032

Interest rate swap liability		$	—	$	32,632	$	—	$	32,632

Fair Value Measurements at December 31, 2019
Level 1 Level 2 Level 3 Total
Assets:
Interest rate swap asset $ — $ 2,424 $ — $ 2,424
Liabilities:
Earnout consideration liability $ — $ — $ 4,394 $ 4,394

The following table presents additional information about earnout consideration liabilities measured at fair value on a recurring basis and for which the Company has utilized significant unobservable (Level 3) inputs to determine fair value (in thousands) (unaudited):


	~~June 30, 2020~~
	~~(unaudited)~~
~~Balance at December 31, 2019~~	$	~~4,394~~

~~Remeasurement adjustments:~~
~~Gain included in earnings~~	~~155~~ Balance at December 31, 2020		$

0

Acquisitions and settlements:

Acquisitions	~~1,000~~4,392

Settlements⁽¹⁾	~~(5,549)~~0

Remeasurement adjustments:
Gain included in earnings	0

Foreign currency translation adjustments	(42)
Balance at ~~June 30, 2020~~March 31, 2021	$	—4,350

~~(1) Includes payments~~Quantitative Information about Level 3 Fair Value Measurements

The significant unobservable inputs used in the fair value measurement of ~~$1.0 million and $4.5 million for~~ the ~~outstanding balance of earnout~~Company's contingent consideration liabilities ~~related to the acquisition of Localytics and InGenius, respectively,~~designated as ~~describe in Note 2. Acquisitions.~~Level 3 are as follows:

Fair Value at March 31, 2021

Valuation Technique

Significant Unobservable Inputs

Contingent acquisition consideration:
(BlueVenn and Second Street)

4,350

Binary option model

Expected future annual revenue streams and probability of achievement

Sensitivity to Changes in Significant Unobservable Inputs

As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future annual revenues as developed by the Company's management and the probability of achievement of those revenue forecast. Significant increases (decreases) in these unobservable inputs in isolation would likely result in a significantly (lower) higher fair value measurement.

Debt

The Company believes the carrying value of its long-term debt at ~~June 30, 2020~~March 31, 2021 approximates its fair value based on the variable interest rate feature or based upon interest rates currently available to the Company.

The estimated fair value and carrying value of the Company's debt, before debt discount, at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are ~~$536.0~~$531.9 million and ~~$538.7~~$533.3 million, ~~respectively, based on valuation methodologies using interest rates currently available to the Company, which are Level 2 inputs.~~respectively.

4. Goodwill and Other Intangible Assets

Changes in the Company’s goodwill balance for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 are summarized in the table below (in thousands):


Balance at December 31, ~~2019~~2020	$	~~346,134~~383,598
Acquired in business combinations	~~39,646~~65,190

~~Adjustment related to prior year business combinations~~	~~(996)~~
~~Adjustment related to finalization of current year business combinations~~	~~463~~
Foreign currency translation adjustment	~~(5,761)~~(230)
Balance at ~~June 30, 2020~~March 31, 2021	$	~~379,486~~448,558

Net intangible assets include the estimated acquisition-date fair values of customer relationships, marketing-related assets, ~~and~~ developed technology, and non-compete agreements that the Company recorded as part of its business acquisitions.

The following is a summary of the Company’s intangible assets, net (in thousands):


	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
March 31, 2021:
Customer relationships	1-10	$	348,678	$	98,022	$	250,656
Trade name	1.5-10	9,700		4,992		4,708
Developed technology	4-9	87,044		36,627		50,417
Non-compete agreements	3	1,148		1,052		96
Total intangible assets		$	446,570	$	140,693	$	305,877

Estimated Useful
Life (Years) Gross
Carrying Amount Accumulated
Amortization Net Carrying
Amount
June 30, 2020:
Customer relationships 1-10 $ 308,385 $ 69,974 $ 238,411
Trade name 1.5-10 8,966 4,255 4,711
Developed technology 4-9 76,800 27,989 48,811
Non-compete agreements 3 1,148 765 383
Total intangible assets $ 395,299 $ 102,983 $ 292,316


		Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
December 31, 2019:
December 31, 2020:									December 31, 2020:
Customer relationships	Customer relationships	1-10	$	283,005	$	53,984	$	229,021	Customer relationships	1-10	$	318,941	$	89,131	$	229,810
Trade name	Trade name	1.5-10	8,827		3,884		4,943		Trade name	1.5-10	9,283		4,763		4,520
Developed technology	Developed technology	4-9	71,522		23,333		48,189		Developed technology	4-9	79,382		33,929		45,453
Non-compete agreements	Non-compete agreements	3	1,148		574		574		Non-compete agreements	3	1,148		956		192
Total intangible assets	Total intangible assets		$	364,502	$	81,775	$	282,727	Total intangible assets		$	408,754	$	128,779	$	279,975

The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life. During the six months ended June 30, 2020, the Company considered whether the current market and economic conditions arising from the COVID-19 pandemic could be a potential indicator of impairment of the Company’s intangible assets and goodwill. Based on management’s qualitative reviewManagement recorded no ~~impairment~~impairments of intangible assets or goodwill ~~was identified. During~~during the ~~fourth quarter of 2019, management made~~three months ended March 31, 2021 or the decision to sunset and divest certain minor non-strategic customer contracts and related website management and analytics assets. The remaining useful life of certain customer relationship assets included in the sunset asset group were reduced by 1 year ~~to 2.5 years which represents the term left on the current active contracts.~~ended December 31, 2020. Total amortization expense during the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~ was ~~$11.2~~$12.0 million and ~~$7.2 million, respectively, and the six months ended June 30, 2020 and June 30, 2019 was $22.4 million and $14.0~~$11.2 million, respectively.

~~The Company has historically performed its annual goodwill and indefinite-lived intangible asset impairment test as~~As of ~~October~~March 31,^st~~. During~~ 2021, the ~~first quarter of 2020 the Company decided to change the date of its annual impairment test to the first day of its fourth fiscal quarter, October 1~~^st. This change was made to improve alignment with our quarterly financial reporting process and our annual planning and budgeting process. In connection with the change in the date of our annual goodwill and indefinite-lived intangible asset impairment test the Company will also perform a qualitative assessment as of October 31, 2020 to ensure the change does not result in the delay, acceleration or avoidance of an impairment charge.

~~Estimated~~estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):

Amortization
Expense
Year ending December 31:
Remainder of 2020 $ 22,079
2021 42,822
2022 40,290
2023 38,244
2024 35,603
2025 and thereafter 113,278
Total $ 292,316


	Amortization Expense
Year ending December 31:
Remainder of 2021	$	37,579
2022	47,365
2023	45,030
2024	42,678
2025	39,382
2026 and thereafter	93,843
Total	$	305,877

5. Income Taxes

The Company’s income tax benefit ~~from (provision for)~~for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~ reflects its estimate of the effective tax rates expected to be applicable for the full years, adjusted for any discrete events that are recorded in the period in which they occur. The estimates are re-evaluated each quarter based on the estimated tax expense for the full year.

The tax benefit of ~~$0.7 million and $5.0~~$4.4 million recorded for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 is primarily related to the deferred tax benefit attributable to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with the ~~Localytics~~Second Street business combination, as discussed in Note 2. Acquisitions, and foreign income taxes associated with our combined non-U.S. operations. These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards. The release of valuation allowance is attributable to ASC 805-740-30-3 and acquisitions of domestic entities with deferred tax liabilities that, upon acquisition, allowed us to recognize certain deferred tax assets of approximately ~~$4.4~~$4.3 million during the three months ended March 31, 2021 that had previously been offset by a valuation allowance. ~~Approximately $0.5~~

The tax benefit of $4.3 million ~~of this benefit was recognized~~recorded for the three months ended ~~June 30, 2020.~~

~~The tax benefit of $6.1 million and $6.7 million recorded for the three and six months ended June 30, 2019, respectively,~~March 31, 2020 is primarily related to the deferred tax benefit attributable to the release of valuation allowance ~~and~~related to the acquisition of deferred tax ~~benefit of losses expected to be generated~~liabilities associated with the Localytics business combination, as discussed in ~~the United Kingdom by entities acquired during the fourth quarter of 2018.~~Note 2. Acquisitions, and foreign income taxes associated with our combined non-U.S. operations. These ~~deferred~~ tax benefits are offset by ~~current income tax expense associated with our Canadian, Irish and Israeli operations,~~ changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards. The release of valuation allowance is attributable to ASC 805-740-30-3 and acquisitions of domestic entities with deferred tax liabilities that, upon acquisition, allowed us to recognize certain deferred tax assets of approximately $5.9 million that had previously been offset by a valuation allowance. This entire benefit was recognized for the three month period ended June 30, 2019.

The Company has historically incurred operating losses in the United States and, given its cumulative losses and limited history of profits, has recorded a valuation allowance against its United States net deferred tax assets, exclusive of tax deductible goodwill, at ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ respectively. As of ~~June 30, 2020,~~March 31, 2021, Upland had ~~$353~~$355 million of total net operating loss carryforwards of which approximately ~~$211~~$214 million will be available for utilization prior to expiration. These balances include the net operating losses disclosed as of December 31, ~~2019~~2020 and the estimated net operating losses acquired in the current year via acquisitions based on information available as of ~~June 30, 2020.~~March 31, 2021. The net operating loss carryforwards available for utilization prior to expiration consist of approximately ~~$180~~$185 million and ~~$31~~$29 million of U.S. federal and foreign net operating loss carryforwards, respectively.

The Company has reflected any uncertain tax positions primarily within its long-term taxes payable and a portion within deferred tax assets. The Company and its subsidiaries file tax returns in the U.S. federal jurisdiction and in several state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before December 31, ~~2016~~2017 and is no longer subject to state and local or foreign income tax examinations by tax authorities for years ending before December 31, ~~2015.~~2016. The Company is not currently under audit for federal, state or any foreign jurisdictions. U.S. operating losses generated in years prior to ~~2016~~2017 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized.

6. Debt

Long-term debt consisted of the following at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (in thousands):

June 30, 2020 December 31, 2019
Senior secured loans (includes unamortized discount of $12,611 and $13,576 based on an imputed interest rate of 5.8% and 5.8%, at June 30, 2020 and December 31, 2019, respectively) $ 523,339 $ 525,074
Less current maturities (3,184) (3,193)
Total long-term debt $ 520,155 $ 521,881



	March 31, 2021		December 31, 2020
Senior secured loans (includes unamortized discount of $11,094 and $11,648 based on an imputed interest rate of 5.8% and 5.8%, at March 31, 2021 and December 31, 2020, respectively)	$	520,806	$	521,603





Less current maturities	(3,170)		(3,166)
Total long-term debt	$	517,636	$	518,437

Credit Facility

On August 6, 2019, the Company entered into a credit agreement (the “Credit Facility”) which provides for (i) a fully-drawn $350 million, 7 year, senior secured term loan B facility (the “Term Loan”) and (ii) a new $60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of ~~June 30, 2020.~~March 31, 2021. The Credit Facility replaced the Company's previous credit agreement. All outstanding balances under our previous credit facility were paid off using proceeds from our new Credit Facility.

On November 26, 2019 (the “Closing Date”), the Company entered into a First Incremental Assumption Agreement (the “Incremental Assumption Agreement”) which provides for a term loan facility to be established under the Credit Facility in an aggregate principal amount of $190.0 million (the “2019 Incremental Term Loan”) which is in addition to the existing $350.0 million term loans outstanding under the Credit ~~Agreement~~Facility and the $60.0 million revolving credit facility under the Credit ~~Agreement.~~Facility.

Payment terms

The Term Loans (including the 2019 Incremental Term Loan) are repayable on a quarterly basis beginning on December 31, 2019 by an amount equal to 0.25% (1.00% per annum) of the aggregate principal amount of such loan. Any amount remaining unpaid is due and payable in full on August 6, 2026 (the “Term Loan Maturity Date”).

At the option of the Company, the Term Loans (including the 2019 Incremental Term Loan) accrue interest at a per annum rate based on (i) the Base Rate plus a margin of 2.75% or (ii) the rate (not less than 0.00%) for Eurodollar deposits quoted on the LIBOR01 or LIBOR02 pages on the Reuters Screen, or as otherwise determined in accordance with the Credit ~~Agreement~~Facility (based on a period equal to 1, 2, 3 or 6 months or, if available and agreed to by all relevant Lenders and the Agent, 12 months or such period of less than 1 month) plus a margin of 3.75%. The Base Rate for any day is a rate per annum equal to the greatest of (i) the prime rate in effect on such day, (ii) the federal funds effective rate (not less than 0.00%) in effect on such day plus ½ of 1.00%, and (ii) the Eurodollar rate for a one month interest period beginning on such day plus 1.00%.

Accrued interest on the loans will be paid quarterly or, with respect to loans that are accruing interest based on the Eurodollar rate, at the end of the applicable interest rate period.

Interest rate swaps

On August 6, 2019, the Company ~~also~~ entered into an interest rate hedge instrument for the full 7 year term, effectively fixing our interest rate at 5.4% for the Term Loan. In addition, on November 26, 2019, the Company entered into interest rate swap agreements to hedge the interest rate risk associated with the Company’s floating rate obligations under the 2019 Incremental Term Loan. These interest rate swaps fix the Company's interest rate (including the hedge premium) at 5.4% for the term of the Credit ~~Agreement.~~Facility. The interest rate associated with our new $60 million, 5 year, ~~the~~ Revolver remains floating.

The interest rate swap has been designated as a cash flow hedge and is valued using a market approach, which is a Level 2 valuation technique. At ~~June 30, 2020,~~March 31, 2021, the fair value of the interest rate swap was ~~$32.6~~a $14.6 million liability as a result of a decline

in short term interest ~~rates.~~rates since entering into the swap agreements. The decrease in the fair value of the interest rate swap liability during the three months ended March 31, 2021 is the result of an increase in short term interest rates compared to December 31, 2020. In the next twelve months, the Company estimates that ~~$5.4~~$2.8 million will be reclassified from Accumulated other comprehensive income (loss) and recorded as an increase to Interest expense.

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
(Loss) gain recognized in Other comprehensive income on derivative financial instruments $ (3,655) $ (35,056)
(Loss) gain reclassified from Other comprehensive income to Interest expense $ 1,520 $ 1,454
Total Interest expense in which the effects of cash flow hedges are recorded $ 5,794 $ 13,191


	Three Months Ended March 31,
	2021		2020
(Loss) gain recognized in Other comprehensive income on derivative financial instruments	$	15,451	$	(31,401)
(Loss) gain on interest rate swap (included in Interest expense on our consolidated statement of operations)	$	(2,010)	$	66

Revolver

Loans under the Revolver are available up to $60 million. The Revolver provides a sub-facility whereby the Company may request letters of credit (the “Letters of Credit”) in an aggregate amount not to exceed, at any one time outstanding, $10.0 million for the Company. The aggregate amount of outstanding Letters of Credit are reserved against the credit availability under the Maximum Revolver Amount. The Company incurs a 0.50% per annum unused line fee on the unborrowed balance of the Revolver which is paid quarterly.

Loans under the Revolver may be borrowed, repaid and reborrowed until August 6, 2024 (the “Maturity Date”), at which time all amounts borrowed under the Revolver must be repaid. As of ~~June 30, 2020,~~March 31, 2021, the Company had no borrowings outstanding under the Revolver or related sub-facility.

Covenants

The Credit ~~Agreement~~Facility contains customary affirmative and negative covenants. The negative covenants limit the ability of the Loan Parties to, among other things (in each case subject to customary exceptions for a credit facility of this size and type):

•Incur additional indebtedness or guarantee indebtedness of others;

•Create liens on their assets;

•Make investments, including certain acquisitions;

•Enter into mergers or consolidations;

•Dispose of assets;

•Pay dividends and make other distributions on the Company’s capital stock, and redeem and repurchase the Company’s capital stock;

•Enter into transactions with affiliates; and

•Prepay indebtedness or make changes to certain agreements.

The Credit Facility has no financial covenants as long as less than 35% of the Revolver is drawn as of the last day of any fiscal quarter. If 35% of the Revolver is drawn as of the last day of a given fiscal quarter the Company will be required to maintain a Total Leverage Ratio (the ratio of funded indebtedness as of such date less the amount of unrestricted cash and cash equivalents of the Company and its guarantors in an amount not to exceed $50.0 million, to adjusted EBITDA (calculated on a pro forma basis including giving effect to any acquisition)), measured on a quarter-end basis for each four consecutive fiscal quarters then ended, of not greater than 6.00 to 1.00.

In addition, the Credit Facility contains customary events of default subject to customary cure periods for certain defaults that include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness, change in control, bankruptcy and insolvency defaults and material judgment defaults. The occurrence of an event of default could result in the acceleration of Term Loans and Revolver and a right by the agent and

lenders to exercise remedies. At the election of the lenders, a default interest rate shall apply on all obligations during an event of default, at a rate per annum equal to 2.00% above the applicable interest rate. The Term Loan and Revolver are secured by substantially all of the Company's assets. As of ~~June 30, 2020~~March 31, 2021 the Company was in compliance with all covenants under the Credit Facility.

Cash interest costs averaged 5.4% and ~~6.0%~~5.4% for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and for the year ended December 31, ~~2019,~~2020, respectively. In addition, as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 the Company had ~~$12.6~~$11.1 million and ~~$13.6~~$11.6 million, respectively, of unamortized deferred financing costs associated with the Credit Facility. These financing costs will be amortized to non-cash interest expense over the remaining term of the Credit Facility.

7. Net Loss Per Share

The following table sets forth the computations of loss per share (in thousands, except share and per share amounts):


	Three Months Ended March 31,
	2021		2020

Numerator:
Net Loss	$	(20,684)	$	(20,081)



Denominator:
Weighted–average common shares outstanding, basic and diluted	29,970,050		24,906,932
Net loss per common share, basic and diluted	$	(0.69)	$	(0.81)

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Numerator:
Net Loss $ (14,159) $ (5,369) $ (34,240) $ (13,199)
Denominator:
Weighted–average common shares outstanding, basic and diluted 25,032,996 22,619,805 25,057,715 21,531,216
Net loss per common share, basic and diluted $ (0.57) $ (0.24) $ (1.37) $ (0.61)

Due to the net losses for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ respectively, basic and diluted loss per share were the ~~same, as the effect of all potentially dilutive securities would have been anti–dilutive.~~same. The following table sets forth the anti–dilutive common share equivalents as of ~~June 30, 2020~~March 31, 2021 and ~~June 30, 2019:~~

June 30,
2020 2019
Stock options 320,840 345,792
Restricted stock awards 197,623 773,860
Restricted stock units 1,778,557 891,329
Performance restricted stock units 66,297 —
Total anti–dilutive common share equivalents 2,363,317 2,010,981
March 31, 2020:


	March 31,
	2021	2020

Stock options	263,186	320,913
Restricted stock awards	34,508	318,045
Restricted stock units	2,234,764	1,848,066
Performance restricted stock units	127,734	66,297
Total anti–dilutive common share equivalents	2,660,192	2,553,321

8. Commitments and Contingencies

Purchase Commitments

The Company has purchase commitments related to hosting services, third-party technology used in the Company's solutions and for other services the Company purchases as part of normal operations. In certain cases these arrangements require a minimum annual purchase commitment. As of June 30, 2020, the remaining aggregate minimum purchase commitment under these arrangements was approximately $8.3 million through 2024. Obligations under contracts that we can cancel without a significant penalty are not included.

In addition, the Company purchased software development services pursuant to a technology services agreement with DevFactory FZ-LLC for the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~ totaling ~~$1.8~~$2.4 million and ~~$1.2 million, respectively, and for the six months ended June 30, 2020 and June 30, 2019 were approximately $3.7 million and $2.5~~$1.9 million, respectively. The remaining purchase obligation after ~~June 30, 2020~~March 31, 2021 through December 31, ~~2020~~2021 is ~~$3.7~~$7.2 million. See Note ~~12.~~11. Related Party Transactions for more information regarding our purchase commitment to this related party.

Litigation

In the normal course of business, the Company may become involved in various lawsuits and legal proceedings. At this time, the Company is not involved in any current or pending legal proceedings, and does not anticipate any legal proceedings, that may have a material adverse affect on the Company's condensed consolidated balances sheets or condensed consolidated statement of operations.

In addition, when we acquire companies, we require that the sellers provide industry standard indemnification for breaches of representations and warranties contained in the acquisition agreement and we will withhold payment of a portion of the purchase price for a period of time in order to satisfy any claims that we may make for indemnification. In certain transactions, we agree with the sellers to purchase a representation and warranty insurance policy that will pay such claims for indemnification. From time to time we may have one or more claims for indemnification pending. Similarly, we may have one or more ongoing ~~negotiation~~negotiations related to the amount of an earnout. Gain contingencies related to indemnification claims are not recognized in our condensed consolidated financial statements until realized.

9. Stockholders' Equity

Registration Statement

On ~~December 12, 2018, the Company~~August 10, 2020, we filed a registration statement on Form S-3 (File No. ~~333-228767)~~333-243728) (the ~~“S-3”~~“2020 S-3”), ~~to register Upland securities in~~which became effective automatically upon its filing and covers an ~~aggregate~~unlimited amount of ~~up to $250.0 million for offerings from time to time. On May 13, 2019, the Company completed a registered underwritten public offering pursuant to the~~securities. The 2020 S-3, of 3,795,000 shares of the Company's $0.0001 par value common stock for an offering price to the public of $42.00 per share. This included the 495,000 shares issuable pursuant to a fully exercised option to purchase additional shares granted to the underwriters of the offering. The net proceeds of the offering of $151.1 million, net of issuance costs of $8.3 million, were used for general business purposes, including the funding of acquisitions.will remain effective through August 2023.

Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) consists of two elements, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) items are recorded in the stockholders’ equity section of our condensed consolidated balance sheets and excluded from net ~~income.~~income (loss). Our other comprehensive income (loss) consists primarily of foreign currency translation adjustments for subsidiaries with functional currencies other than the U.S. dollar, unrealized translation gains (losses) on ~~foreign currency denominated~~ intercompany loans with foreign subsidiaries, and unrealized gains (losses) on interest rate swaps.

The following table shows the components of accumulated other comprehensive loss, net of income taxes, (“AOCI”) in the stockholders’ equity section of our condensed consolidated balance sheets at the dates indicated (in thousands):


	March 31, 2021		December 31, 2020
Foreign currency translation adjustment	$	(1,743)	$	644
Unrealized translation gain on intercompany loans with foreign subsidiaries	3,994		3,154
Unrealized loss on interest rate swaps	(14,581)		(30,032)
Total accumulated other comprehensive loss	$	(12,330)	$	(26,234)

June 30, 2020 December 31, 2019
Foreign currency translation adjustment $ (6,770) $ (4,530)
Unrealized translation gain (loss) on foreign currency denominated intercompany loans (6,298) 883
Unrealized gain (loss) on interest rate swaps (32,632) 2,424
Total accumulated other comprehensive loss $ (45,700) $ (1,223)

~~Income~~The unrealized translation gain on intercompany loans with foreign subsidiaries as of March 31, 2021 is net of income tax expense of $2.2 million. The tax expense related to unrealized translation gains on intercompany loans for the three months ended March 31, 2021 and March 31, 2020 was $0.2 million and $0.0 million, respectively. The income tax expense/benefit allocated to each component of other comprehensive income (loss) for all other periods and components is not material. The Company reclassifies taxes from AOCI to earnings as the items to which the tax effects relate are similarly reclassified.

The functional currency of our foreign subsidiaries are primarily the local currencies. Results of operations for foreign subsidiaries are translated ininto United States dollars using the average exchange rates on a monthly basis during the year. The assets and liabilities of those subsidiaries are translated into United States dollars using the exchange rates in effect at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss.

The Company has ~~foreign currency denominated~~ intercompany loans that were used to fund the acquisitions of foreign subsidiaries. Due to the long-term nature of the ~~loan,~~loans, the ~~foreign currency~~unrealized translation gains (losses) resulting from re-measurement are recognized as a component of accumulated other comprehensive income (loss). ~~As of April 1, 2020 the Company amended the loan agreements to be denominated in U.S dollar.~~

Stock-Based Compensation

The Company ~~recognized~~recognizes stock-based compensation expense from all awards in the following expense categories (in thousands):


	Three Months Ended March 31,
	2021		2020
Cost of revenue	$	442	$	318
Research and development	714		615
Sales and marketing	1,137		549
General and administrative (1)	15,531		7,838
Total	$	17,824	$	9,320

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Cost of revenue $ 570 $ 353 $ 888 $ 513
Research and development 1,019 632 1,634 953
Sales and marketing 898 365 1,447 504
General and administrative 8,493 5,551 16,331 9,559
Total $ 10,980 $ 6,901 $ 20,300 $ 11,529

(1)

In March 2021 our former co-President and Chief Operating Officer (“COO”) resigned from his positions and entered into an advisory agreement with the Company pursuant to which he will serve as a strategic advisor to the Company through December 31, 2022. Stock-based compensation for the three months ended March 31, 2021 includes $6.3 million in incremental stock-based compensation expense related to the deemed modification of the unvested portion of grants held by our former COO at the time of transition, even though these shares continue to vest over their existing vesting schedule through 2022. In accordance with ASC 718, the fair value of these awards were modified and all related expense accelerated on the date of modification as a result of the reduction in required service.

Restricted Stock Units

Beginning in 2019, the Company began granting restricted stock units under its 2014 Stock Incentive Plan, in lieu of restricted stock awards, primarily for stock plan administrative purposes. Restricted stock unit activity during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was as follows:

Number of
Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2019 790,807 $ 39.55
Units granted 1,281,523 40.30
Units vested (205,053) 40.55
Awards forfeited (88,720) 42.09
Unvested balances at June 30, 2020 1,778,557 $ 39.85


	Number of Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2020	1,261,290	$	39.92
Units granted	1,096,662	48.92
Units vested	(104,143)	39.96
Awards forfeited	(19,045)	38.43
Unvested balances at March 31, 2021	2,234,764	$	44.35

Performance Based Restricted Stock Units

In 2020 and 2021 50 percent of the awards made to our Chief Executive Officer were performance based restricted stock units ("PRSUs"). The PRSU ~~agreement provides~~agreements provide that the quantity of units subject to vesting may range from 0% to 300% of the units granted per the table below based on the Company's absolute total shareholder return at the end of the eighteen month performance ~~period.~~periods. Units granted per the table below are based on a 100% target payout. Compensation expense is recognized over the required service period of the grant and is determined based on the grant date fair value of the award and is not subject to fluctuation due to achievement of the underlying market-based target. ~~The Company did not grant PRSUs prior to 2020.~~

PRSU activity during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was as follows:


	Number of PRSUs Outstanding	Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2020	66,297	$	79.72
Units granted	61,437	86.56


Unvested balances at March 31, 2021	127,734	$	83.01

Number of
PRSUs Outstanding Weighted-Average Grant Date Fair Value (1)
Unvested balances at December 31, 2019 — $ —
Units granted 66,297 79.72
Unvested balances at June 30, 2020 66,297 $ 79.72

~~(1) Fair value is calculated based on the grant closing stock price of $41.48 as of February 24, 2020 multiplied by a fair value factor of 192.20% as determined using a Monte Carlo simulation.~~

Significant assumptions used in the Monte Carlo simulation model for the PRSUs granted during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and year ended December 31, 2020 are as follows:


			~~June 30, 2020~~
~~Expected volatility~~			~~45.1%~~
~~Risk-free interest rate~~			~~1.3%~~
~~Remaining performance period (in years)~~			~~1.35~~
~~Dividend yield~~			—


	March 31, 2021	December 31, 2020
Expected volatility	53.6%	45.1%
Risk-free interest rate	0.1%	1.3%
Remaining performance period (in years)	1.35	1.35
Dividend yield	0	0

Restricted Stock Awards

Restricted share activity during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was as follows:

Number of
Restricted Shares
Outstanding Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2019 371,217 $ 28.26
Awards vested (149,590) 27.20
Awards forfeited (24,004) 28.45
Unvested balances at June 30, 2020 197,623 $ 29.03


	Number of Restricted Shares Outstanding	Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2020	34,508	$	30.13

Awards vested	0	0
Awards forfeited	0	0
Unvested balances at March 31, 2021	34,508	$	30.13

Stock Option Activity

Stock option activity during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was as follows:

Number of
Options
Outstanding Weighted–
Average
Exercise
Price
Outstanding at December 31, 2019 329,698 $ 8.57
Options exercised (8,712) 6.13
Options expired (146) 1.79
Outstanding at June 30, 2020 320,840 $ 8.64


	Number of Options Outstanding	Weighted– Average Exercise Price
Outstanding at December 31, 2020	264,002	$	8.93

Options exercised	(408)	1.56

Options expired	(408)	1.56
Outstanding at March 31, 2021	263,186	$	8.96

10. Revenue Recognition

Revenue Recognition Policy

Revenues are recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services over the term of the agreement, generally when made available to the customers. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenues are recognized net of sales credits and allowances. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Revenue is recognized based on the following five step model in accordance with ASC 606, Revenue from Contracts with Customers:

•Identification of the contract with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, the Company satisfies a performance obligation

Performance obligations under our contracts consist of subscription and support, perpetual licenses, and professional services revenues within a single operating segment.

2018

Subscription and Support Revenues

The Company's software solutions are available for use as hosted application arrangements under subscription fee agreements without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company's solution is made available to the customer. As our customers have access to use our solutions over the term of the contract agreement we believe this method of revenue recognition provides a faithful depiction of the transfer of services provided. Our subscription contracts are generally 1 to 3 years in length. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or subscription and support revenues, depending on whether the revenue recognition criteria have been met. Additional fees for monthly usage above the levels included in the standard subscription fee are recognized as subscription and support revenue at the end of each month and is invoiced concurrently. Subscription and support revenue includes revenue related to the Company’s digital engagement application which provides short code connectivity for its two-way short message service (“SMS”) programs and campaigns. As discussed further in the “Principal vs. Agent Considerations” section below, the Company recognizes revenue related to these messaging-related subscription contracts on a gross basis.

Perpetual License Revenues

The Company also records revenue from the sales of proprietary software products under perpetual licenses. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. The Company’s products do not require significant customization.

Professional Services Revenue

Professional services provided with subscription and support licenses and perpetual licenses consist of implementation fees, data extraction, configuration, and training. The Company’s implementation and configuration services do not involve significant customization of the software and are not considered essential to the functionality. Revenues from professional services are recognized over time as such services are performed. Revenues for fixed price services are generally recognized over time applying input methods to estimate progress to completion. Revenues for consumption-based services are generally recognized as the services are performed.

~~Messaging-related Revenue~~

The Company recognizes subscription revenue for its digital engagement application which provides short code connectivity for its two-way SMS programs and campaigns. The Company evaluates whether it is appropriate to recognize revenue based on the gross amount billed to its customers for these services or net of telecom messaging costs incurred from third parties in fulfilling the Company’s service obligations. Since the Company is primarily obligated in these transactions, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, revenue is recorded on a gross basis. While none of the factors individually are considered presumptive or determinative, in reaching conclusions on gross versus net revenue recognition, the Company places the most weight on the analysis of whether or not it is the primary obligor in the arrangement.

Significant Judgments

Performance Obligations and Standalone Selling Price

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. The Company has contracts with customers that often include multiple performance obligations, usually including professional services sold with either individual or multiple subscriptions or perpetual licenses. For these contracts, the Company ~~accounts for~~records individual performance obligations separately if they are distinct by allocating the contract's total transaction price to each performance obligation in an amount based on the relative standalone selling price ~~or SSP,~~(“SSP”), of each distinct good or service in the contract.

Judgment is required to determine the SSP for each distinct performance obligation. A residual approach is only applied in limited circumstances when a particular performance obligation has highly variable and uncertain SSP and is bundled with other performance obligations that have observable SSP. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, historical standalone sales, customer demographics, geographic locations, and the number and types of users within our contracts.

~~Other~~Principal vs. Agent Considerations

The Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) for vendor reseller ~~agreements. Generally, the Company reports revenues from these types of contracts on a gross basis, meaning the amounts billed to customers are recorded as revenues,~~agreements and ~~expenses incurred are recorded as cost of revenues.~~messaging-related subscription agreements. Where the Company is the principal, it first obtains control of the inputs to the specific good or service and directs

their use to create the combined output. The Company's control is evidenced by its involvement in the integration of the good or service on its platform before it is transferred to its customers, and is further supported by the Company being primarily responsible to its customers and having a level of discretion in establishing pricing. While none of the factors individually are considered presumptive or determinative, in reaching conclusions on gross versus net revenue recognition, the Company places the most weight on the analysis of whether or not it is the primary obligor in the arrangement.

Generally, the Company reports revenues from vendor reseller agreements on a gross basis, meaning the amounts billed to customers are recorded as revenues, and expenses incurred are recorded as cost of revenues. As the Company is primarily

obligated in its messaging-related subscription contracts, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, revenue is recorded on a gross basis with related telecom messaging costs incurred from third parties recorded as cost of revenues. Revenues provided from agreements in which the Company is an agent are immaterial.

Contract Balances

The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables, and deferred revenues. Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in unbilled receivables, which are expected to be billed during the succeeding twelve-month period and are recorded in Unbilled receivables in our condensed consolidated balance sheets. A contract liability results when we receive prepayments or deposits from customers in advance for implementation, maintenance and other services, as well as subscription fees. Customer prepayments are generally applied against invoices issued to customers when services are performed and billed. We recognize contract liabilities as revenues upon satisfaction of the underlying performance obligations. Contract liabilities that are expected to be recognized as revenues during the succeeding twelve-month period are recorded in Deferred revenue and the remaining portion is recorded in 'Deferred revenue noncurrent' on the accompanying condensed consolidated balance sheets at the end of each reporting period.

Deferred revenues primarily consist of amounts that have been billed to or received from customers in advance of revenue recognition and prepayments received from customers in advance for maintenance and other services, as well as initial subscription fees. We recognize deferred revenues as revenues when the services are performed, and the corresponding revenue recognition criteria are met. Customer prepayments are generally applied against invoices issued to customers when services are performed and billed. Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products ~~our~~or services and customer types, we require payment before the products or services are delivered to the customer.

~~Contract Balances~~

The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables, and deferred revenues. Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in unbilled receivables, which are expected to be billed during the succeeding twelve-month period and are recorded in 'Unbilled receivables' in our condensed consolidated balance sheets. A contract liability results when we receive prepayments or deposits from customers in advance for implementation, maintenance and other services, as well as subscription fees. Customer prepayments are generally applied against invoices issued to customers when services are performed and billed. We recognize contract liabilities as revenues upon satisfaction of the underlying performance obligations. Contract liabilities that are expected to be recognized as revenues during the succeeding twelve-month period are recorded in 'Deferred revenue' and the remaining portion is recorded in 'Deferred revenue noncurrent' on the accompanying condensed consolidated balance sheets at the end of each reporting period.

Unbilled Receivables

Unbilled receivables represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for software licenses already delivered and professional services already performed, but ~~billed~~invoiced in arrears and for which the Company believes it has an unconditional right to payment. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, unbilled receivables were ~~$5.5~~$5.1 million and ~~$5.1~~$4.6 million, respectively.

Deferred Commissions

Sales commissions earned by our sales force, and related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer. Deferred commissions and other costs for new customer contracts are capitalized upon contract signing and amortized on a systematic basis that is consistent with the transfer of goods and services over the expected life of the customer relationships, which has been determined to be approximately 6 ~~years~~years. The expected life of our customer relationships is based on historical data and ~~managements judgment in a pattern similar to how revenue is recognized.~~management estimates, including estimated renewal terms and the useful life of the associated underlying technology. Commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts, as such, deferred commissions related to renewals are capitalized and amortized over the estimated contractual renewal term of 18 months. We utilized the 'portfolio approach' practical expedient permitted under ASC 606-10-10-4, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics as the effects on the financial statements of this approach would not differ materially from applying the guidance to individual contracts. The portion of capitalized costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred commissions, current, and the remainder is recorded in long-term assets as deferred commissions, net of current portion. Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations. Deferred commissions are reviewed for impairment whenever events or circumstances

indicate their carrying value may not be recoverable consistent with the Company's long-lived assets policy. No indicators of impairment were identified during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

The following table presents the activity impacting deferred commissions for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 (in thousands):


Balance at December 31, ~~2019~~2020	$	~~11,822~~18,746


Capitalized deferred commissions	~~4,388~~3,263
Amortization of deferred commissions	~~(1,900)~~(1,706)
Balance at ~~June 30, 2020~~March 31, 2021	$	~~14,310~~20,303

Deferred Revenue

Deferred revenue represents either customer advance payments or billings for which the aforementioned revenue recognition criteria have not yet been met.

Deferred revenue is mainly unearned revenue related to subscription services and support services. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we recognized ~~$51.1~~$39.4 million and ~~$2.3~~$1.1 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period. In addition, during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 we recognized ~~$3.3~~$1.2 million in revenue that was included in the acquired deferred revenue balance of our ~~2020 acquisition~~2021 acquisitions as disclosed in Note 2.2, Acquisitions.

Remaining Performance Obligations

As of ~~June 30, 2020,~~March 31, 2021, approximately ~~$242.8~~$265.7 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately ~~70%~~68% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

Disaggregated Revenue

The Company disaggregates revenue from contracts with customers by geography and revenue generating activity, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Revenue by geography is based on the ship-to address of the customer, which is intended to approximate where the customers' users are located. The ship-to country is generally the same as the billing country. The Company has operations primarily in the U.S., United Kingdom and Canada. Information about these operations is presented below (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenues:
Subscription and support:
   United States $ 50,619 $ 34,436 $ 96,590 $ 64,275
   United Kingdom 9,350 9,432 19,346 18,748
   Canada 3,360 1,348 7,942 3,732
   Other International 4,370 3,499 7,712 6,943
      Total subscription and support revenue 67,699 48,715 131,590 93,698
Perpetual license:
   United States 222 484 504 1,052
   United Kingdom — 8 16 17
   Canada 36 15 57 57
   Other International 233 68 275 106
      Total perpetual license revenue 491 575 852 1,232
Professional services:
   United States 2,197 2,555 4,907 4,535
   United Kingdom 375 693 1,189 1,184
   Canada 96 172 234 292
   Other International 457 303 575 565
      Total professional service revenue 3,125 3,723 6,905 6,576
Total revenue $ 71,315 $ 53,013 $ 139,347 $ 101,506


	Three Months Ended March 31,
	2021		2020
Revenues:
Subscription and support:
United States	$	52,955	$	45,971
United Kingdom	9,394		9,996
Canada	3,338		4,582
Other International	4,966		3,342
Total subscription and support revenue	70,653		63,891
Perpetual license:
United States	253		282
United Kingdom	11		16
Canada	42		21
Other International	46		42
Total perpetual license revenue	352		361

Professional services:
United States	2,044		2,711
United Kingdom	664		814
Canada	88		138
Other International	168		117
Total professional service revenue	2,964		3,780
Total revenue	$	73,969	$	68,032

~~12.~~11. Related Party Transactions

We are a party to 2 agreements with companies controlled by a non-management investor in the Company:

•On March 28, 2017, the Company entered into an amendment to the Amended and Restated Technology Services Agreement with DevFactory FZ LLC ("DevFactory") to extend the initial term end date from December 31, 2017 to December 31, 2021. Additionally, the Company amended the option for either party to renew annually for one additional year. The effective date of the amendment is January 1, 2017. DevFactory is an affiliate of ESW Capital LLC (a non-management investor), which holds more than 5% of the Company's capital stock. The Company has an outstanding purchase commitment in ~~2020~~2021 for software development services pursuant to this agreement in the amount of ~~$7.3~~$9.6 million. For years after ~~2020,~~2021, the purchase commitment amount for software development services will be equal to the prior year purchase commitment increased (decreased) by the percentage change in total revenue for the prior year as compared to the preceding year. For example, if ~~2020~~2021 total revenues increase by 10% as compared to ~~2019~~2020 total revenues, then the ~~2021~~2022 purchase commitment will increase by approximately ~~$0.8~~$1.0 million from the ~~2020~~2021 purchase commitment amount to approximately ~~$8.1~~$10.6 million. The Company purchased software development services pursuant to this agreement with DevFactory of ~~$1.8~~$2.4 million and ~~$1.2~~$1.9 million during the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019, respectively, and for the six months ended June 30, 2020 and June 30, 2019 were approximately $3.7 million and $2.5 million,~~ respectively. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 amounts included in accounts payable and accrued liabilities owed to this company totaled ~~$1.8~~$2.4 million and ~~$1.2~~$1.9 million, respectively.

•The Company purchased services from Crossover, Inc. ("Crossover"), a company controlled by ESW Capital, LLC ~~(a non-management investor)~~ during the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~ of approximately ~~$1.4~~$1.0 million and ~~$0.9 million, respectively, and for the six months ended June 30, 2020 and June 30, 2019 were approximately $2.5 million and $1.9~~$1.1 million, respectively. Crossover provides a proprietary technology system to help the Company identify, screen, select, assign, and connect with necessary resources from time to time to perform technology software development and other services throughout the Company, and track productivity of such resources. While there are 0 purchase commitments with Crossover, the Company continues to use its services in ~~2020.~~2021. As of ~~June 30, 2020~~March 31, 2021 and

December 31, ~~2019~~2020 amounts included in accounts payable and accrued liabilities owed to this company totaled ~~$1.4~~$0.8 million and ~~$0.4~~$0.6 million, respectively.

The Company has an arrangement with a former subsidiary, Visionael Corporation ("Visionael"), to provide management, human resource, payroll and administrative services. John T. McDonald, the Company's Chief Executive Officer and Chairman of the Board, beneficially holds ~~an approximate~~approximately 26.18% interest in Visionael. ~~The Company received fees~~Fees earned from this arrangement ~~of $15,000 and $15,000 during~~for the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 were $0 and ~~June 30, 2019,~~$15,000, respectively. In connection with its arrangement with Visionael, the Company has provided advances to Visionael to help cover short term working capital needs. As of March 31, 2021 and December 31, 2020 advances to Visionael included in Prepaid and other on the Company’s condensed consolidated balance sheets totaled $0.0 million and $0.4 million, respectively, ~~and $30,000 and $30,000~~net of allowance for credit losses. During the ~~six~~three months ended ~~June 30, 2020 and June 30, 2019, respectively.~~March 31, 2021 the Company recognized an allowance for credit loss of $0.4 million against the remaining outstanding balance.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed on ~~March 2, 2020.~~February 25, 2021. In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements concerning the following:

•our financial performance and our ability to achieve or sustain profitability or predict future results;

•our plans regarding future acquisitions and our ability to consummate and integrate acquisitions;

•our ability to expand our go to market operations, including our marketing and sales organization, and successfully increase sales of our products;

•our ability to obtain financing in the future on acceptable terms or at all;

•our expectations with respect to revenue, cost of revenue and operating expenses in future periods;

•our ability to adapt to the impacts on the global economy associated with the ongoing COVID-19 pandemic;

•our ability to attract and retain customers;

•our ability to successfully enter new markets and manage our international expansion;

•our ability to comply with privacy laws and regulations;

•our ability to deliver high-quality customer service;

•the growth of demand for enterprise work management applications;

•our plans regarding, and our ability to effectively manage, our growth;

•maintaining our senior management team and key personnel;

•~~our ability to maintain and expand our direct sales organization;~~

•the performance of our resellers;

•our ability to adapt to changing market conditions and competition;

•our ability to adapt to technological change and continue to innovate;

•~~the anticipated impact on our business of the COVID-19 pandemic and related public health measures;~~

•economic and financial conditions;

•our ability to integrate our applications with other software applications;

•maintaining and expanding our relationships with third parties;

•costs associated with defending intellectual property infringement and other claims;

•our ability to maintain, protect and enhance our brand and intellectual property;

•our expectations with regard to trends, such as seasonality, which affect our business;

•our expectations with regard to revenue from perpetual licenses and professional services;

•our plans with respect to foreign currency exchange risk and inflation;

•our beliefs regarding how our applications benefit customers and what our competitive strengths are;

•the operation, reliability and security of our third-party data centers;

•the risk that we did not consider another contingency included in this list;

•our expectations as to the payment of dividends; and

•other risk factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on ~~March 2, 2020,~~February 25, 2021, as updated by this Quarterly Report on Form 10-Q and periodically updated as necessary in our future quarterly reports on Form 10-Q and other filings that we make with the SEC.

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The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from our forward-looking statements, including risks and uncertainties detailed in this and our other reports and filings with the SEC. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

We provide cloud-based enterprise work management software. We define enterprise work management software as software applications that enable organizations to plan, manage and execute projects and work. Our family of applications enables users to manage their projects, professional workforce and IT investments, automate document-intensive business processes, and effectively engage with their customers, prospects, and community via the web and mobile technologies.

The continued growth of an information-based economy has given rise to a large and growing group of knowledge workers who operate in dynamic work environments as part of geographically dispersed and virtual teams. We believe that manual processes and legacy on- premise enterprise systems are insufficient to address the needs of the modern work environment. In order for knowledge workers to be successful, they need to interact with intuitive enterprise work systems in a collaborative way, including real-time access. Today, legacy processes and systems are being disrupted and replaced by cloud-based enterprise work management software that improves visibility, collaboration and productivity.

In response to these changes, we are providing organizations and their knowledge workers with software applications that better align resources with business objectives and increase visibility, governance, collaboration, quality of customer experience, and responsiveness to changes in the business environment. This results in increased work capacity, higher productivity, better execution, and greater levels of customer engagement. Our applications are easy-to-use, scalable, and offer real-time collaboration for knowledge workers distributed on a local or global scale. Our software applications address diverse enterprise work challenges and our ~~four cloud offerings are as follows:~~customers currently use our applications in the following functional areas:

•~~Customer Experience Management Cloud~~Marketing.~~The Upland Customer Experience Management Cloud, or CXM Cloud, enables organizations~~ Digital marketing, e-commerce, and customer service teams use our applications to ~~manage the complete customer lifecycle from awareness to acquisition to advocacy~~interact with consumers across multiple channels -to acquire new customers, drive product and service utilization, resolve issues, and build brand loyalty. Our applications deliver value to CX-focused organizations across a variety of use cases including mobile messaging, mobile application marketing, VoC, email ~~short message service, or SMS, multimedia messaging service, or MMS, web, social,~~marketing, knowledge management and ~~mobile apps.~~call center productivity. Our teams bring deep industry experience in orchestrating campaigns and interactions that consumers want and value.

•~~Enterprise~~Sales. Sales teams employ our applications to drive growth through deeper customer engagement, reduced sales cycle times, and ~~Marketing Cloud.~~ ~~The Upland Enterprise Sales~~overall improved collaboration between sales, marketing, and ~~Marketing Cloud, or ESM Cloud, enables~~other customer-facing functions. We offer applications that help organizations optimize their sales opportunity and account management processes, coordinate proposal and reference activities, collaborate on the creation and publication of digital content, and gain increased control over key sales and marketing ~~organizations~~workflows, activities, and budgets.

•Contact Center. Customer service and support environments use our applications to ~~optimize sales activities, digital content production, automate key proposal~~enable agents to resolve issues and ~~reference processes,~~engage customers. We offer applications that improve customer experience and ~~track key metrics~~reduce call volume and cycle times through customer self-service products and VoC technology that captures customer sentiment in real-time. Upland also offers products that improve call center agent productivity by providing more direct access to ~~more effectively~~knowledge and ~~predictably drive revenue retention~~to customer sentiment thereby improving both inbound call outcomes and ~~growth.~~proactive outbound success. Additional solutions help call center leadership to manage agent performance and measure real-time performance relative to call resolution and customer sentiment, improve performance through gamification, and gather agent feedback to keep employee engagement high.

•Project ~~and IT Management Cloud.~~Management. ~~The Upland Project~~Business leaders and ~~IT Management Cloud, or PITM Cloud, enables professional services and information technology (“IT”) organizations~~PMOs use our applications to ~~better manage services delivery,~~optimize project portfolios, balance capacity against demand, improve financial-based decision making, align execution of projects to strategy across large organizations, and manage the entire project delivery lifecycle. Our applications deliver value to project management across a variety of use cases including continuous improvement, enterprise ~~knowledge sharing~~IT, new product development, and ~~spending across projects~~services departments along with industry depth in higher education, public sector, and ~~IT/telecom infrastructure.~~healthcare IT.

•~~Document Workflow Cloud.~~Information Technology ~~The Upland Document Workflow Cloud, or DW Cloud, enables enterprises~~. IT departments use our applications to manage a variety of IT activities and resources across the enterprise. Our applications help information technology departments ensure they are delivering against the objectives of the business by helping them select and prioritize the right investments, gain greater control of resource

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demand and allocation, and track and report benefit realization. Our applications enable executives to gain better insight into IT spending to help prevent cost overruns and understand the nature of consumption.

•Business Operations. Multiple functional departments use our applications to streamline operations and accelerate business performance across their value chains. Upland solutions in this area range from supply chain collaboration and factory management, back office document and vendor management, to applications that improve sales responsiveness.

•Human Resources and Legal. HR, legal departments, and law firms use our applications to improve collaboration and operational control and streamline routine processes. We offer applications that automate document ~~intensive business processes with data~~management and workflow including, contracts, records, and other documentation that require enhanced security ~~through scan~~ and ~~fax platforms, data monitoring~~compliance requirements. Other applications support HR-specific workflows including onboarding, employee management, termination, HR support, and ~~breach prevention capabilities,~~time and ~~the automated routing of content to its final destination.~~expense management.

We sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel. In addition to our direct sales organization, we have an indirect sales organization, which sells to distributors and value-added resellers. We employ a land-and-expand go-to-market strategy. After we demonstrate the value of an initial application to a customer, our sales and account management teams work to expand the adoption of that initial application across the customer, as well as cross-sell additional applications to address other enterprise work management needs of the customer. Our customer success organization supports our direct sales efforts by managing the post-sale customer lifecycle.

Our subscription agreements are typically sold either on a per-seat basis or on a minimum contracted volume basis with overage fees billed in arrears, depending on the application being sold. We service customers ranging from large global corporations and government agencies to small- and medium-sized businesses. We have more than ~~9,000~~10,000 customers with over 1,000,000 users across a broad range of industries, including financial services, retail, technology, manufacturing, legal, education, consumer goods, media, telecommunications, government, non-profit, food and beverage, healthcare and life sciences.

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Through a series of acquisitions and integrations, we have established a diverse family of software applications under the Upland brand and in the product solution categories listed above, each of which addresses a specific enterprise work management need. Our revenue has grown from ~~$22.8~~$98.0 million in ~~2012~~2017 to ~~$222.6~~$291.8 million in ~~2019 (and to $139.3 million for~~2020, representing a cumulative annual growth rate of 44%. During the ~~six~~three months ended ~~June 30, 2020), representing an approximate 878% growth rate between 2012 and 2019. During the six months ended June 30, 2020~~March 31, 2021 foreign revenue as a percent of total revenue decreased to ~~27%~~25% compared to ~~30%~~26% during the year ended December 31, ~~2019.~~2020. See Note 10. Revenue Recognition in the notes to our unaudited condensed consolidated financial statements for more information regarding our revenue as it relates to domestic and foreign operations.

In the fourth quarter of 2019, in connection with the periodic review of its business and in light of Upland’s new go-to-market strategy that is centered on thematic solution suites of related products, Upland has determined to divest of and/or sunset certain minor non-strategic customer contracts and related website management and analytics assets (collectively referred to as “Sunset Assets”). Refer to Note 2. Acquisitions and Note 4. Goodwill and Other Intangible Assets in our condensed consolidated financial statements for further discussion.

To support continued growth, we intend to pursue acquisitions within our core enterprise solution suites of complementary technologies and businesses. This will expand our product families, customer base, and market access resulting in increased benefits of scale. Consistent with our growth strategy, we have made ~~twenty-six~~twenty-eight acquisitions from February 2012 through ~~June 30, 2020.~~March 31, 2021.

COVID-19 Impact

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which ~~continues to spread throughout~~has created significant economic uncertainty across the ~~U.S. and the world~~globe and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. WeAs the administration of vaccine programs progresses and cases decline, we continue to evaluate our plans to reopen our facilities and resume business travel for our employees.We cannot predict the extent to which the COVID-19 outbreak will continue to impact our business or operating results, which is highly dependent on inherently uncertain future developments, including the severity of COVID-19 and the actions taken by governments and private businesses in relation to COVID-19 containment. As our platform is offered as a subscription-based service, the effect of the outbreak may not be fully reflected in our operating results until future periods, if at all. As of the date of this report, we do not yet know the extent of the negative impact on our ability to attract, serve, retain or upsell customers. Furthermore, existing and potential customers may choose to reduce or delay technology spending in response to the COVID-19 outbreak, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact our operating results, financial condition and prospects.

As a result of the pandemic, Upland has taken certain measures to support the health and well-being of our employees, customers, partners and communities during this time of uncertainty. Prior to the wide-spread implementation of stay-at-home measures, approximately 60 percent of our employee and contractor workforce was already remote. This enabled us to quickly convert the entire company to remote work status to ensure the safety of our employees, while still allowing us to continue serving our customers without disruption. In addition, while we typically host virtual user conferences for our customers, we do not anticipate hosting any in person user group meetings for the remainder of 2020.

As approximately 95% of our revenue is associated with recurring revenue with minimal organic growth assumptions the disruptions related to the pandemic did not have a material adverse impact on our financial results for the six months ended June 30, 2020. While we have limited exposure to the industry verticals that have been hardest hit by the pandemic (including the travel, transportation, entertainment and retail industries) we have seen an impact to new bookings and churn which we attribute to COVID-19. ~~We currently expect~~The continued impact to ~~see a continued~~bookings and churn is uncertain. In 2020, the impact to new bookings and churn ~~during the second half of 2020 as a result of the pandemic, which may be partially mitigated~~attributable to Covid-19 was more than offset by strength in our cloud offerings that enable our customers to digitally transform their organizations at a time when they must adapt to remote work and digital engagement even more ~~quickly. We expect that current cash~~quickly and ~~cash equivalent balances and cash flows generated from operations will be sufficient to meet our domestic and international working capital needs for at least the next 12 months. We anticipate a pause~~strong sales into political campaigns in the ~~pace~~US, which will decrease in 2021.

During the second, third and fourth quarters of 2020 we paused our acquisition activity ~~until, at least, the fourth quarter of 2020 while we continue~~in order to gauge the overall economic impact of the pandemic and focus on evaluating our pipeline of opportunities. AsThis resulted in a ~~result, we anticipate~~steady decrease in acquisition related ~~costs~~expenses over this period. With acquisition activity picking up again in the first quarter of 2021, including the

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acquisitions of BlueVenn and Second Street, these quarterly acquisition related expenses will increase in proportion to ~~continue to decrease for~~ the ~~remainder~~size, timing and complexity of ~~2020.~~future acquisitions.

Key Metrics

In addition to the GAAP financial measures described below in “Components of Operating Results,” we regularly review the following key metrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions.

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Adjusted EBITDA

We monitor our Adjusted EBITDA to help us evaluate the effectiveness and efficiency of our operations. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus depreciation and amortization expense, interest expense, net, other expense (income), net, provision for (benefit from) income taxes, stock-based compensation expense, acquisition-related expenses, and purchase accounting adjustments for deferred revenue.

The following table ~~presents~~represents a reconciliation of net loss from continuing operations, the most comparable GAAP measure, to Adjusted EBITDA for each of the periods indicated.

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(dollars in thousands)
Reconciliation of net loss to Adjusted EBITDA:
Net loss $ (14,159) $ (5,369) $ (34,240) $ (13,199)
Add:
Depreciation and amortization expense 11,658 7,765 23,395 15,152
Interest expense, net 7,873 5,246 15,516 10,362
Other expense (income), net 15 692 1,417 1,453
Benefit from income taxes (673) (6,101) (4,960) (6,713)
Stock-based compensation expense 10,980 6,901 20,300 11,529
Acquisition-related expense 5,781 9,264 20,939 16,987
Purchase accounting deferred revenue discount 2,272 685 5,973 1,282
Adjusted EBITDA $ 23,747 $ 19,083 $ 48,340 $ 36,853


	Three Months Ended March 31,
		2021		2020

		(dollars in thousands)
Reconciliation of net loss to Adjusted EBITDA:
Net loss		$	(20,684)	$	(20,081)
Add:

Depreciation and amortization expense		12,468		11,737
Interest expense, net		7,787		7,643

Other expense (income), net		(237)		1,402
Benefit from income taxes		(4,394)		(4,287)
Stock-based compensation expense		17,824		9,320
Acquisition-related expense		9,586		15,158


Purchase accounting deferred revenue discount		494		3,701
Adjusted EBITDA		$	22,844	$	24,593

We believe that Adjusted EBITDA provides useful information to management, investors and others in understanding and evaluating our operating results for the following reasons:

•Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;

•our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance because Adjusted EBITDA eliminates the impact of items that we do not consider indicative of our core operating performance;

•Adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of Adjusted EBITDA as an analytical tool has limitations such as:

•depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements; however, much of the depreciation and amortization currently reflected relates to amortization of acquired intangible assets as a result of business combination purchase accounting adjustments, which will not need to be replaced in the future;

•Adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;

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•Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation;

•Adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and,

•other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.

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Because of these limitations, you should consider Adjusted EBITDA together with other financial performance measures, including various cash flow metrics, net loss and our other GAAP results.

Results of Operations

Consolidated Statements of Operations Data

The following tables set forth our results of operations for the specified periods, as well as our results of operations for the specified periods as a percentage of revenue. The period-to-period comparisons of results of operations are not necessarily indicative of results for future periods.

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Amount Percent of Revenue Amount Percent of Revenue Amount Percent of Revenue Amount Percent of Revenue
(dollars in thousands, except share and per share data)
Revenue:
Subscription and support $ 67,699 95 % $ 48,715 92 % $ 131,590 94 % $ 93,698 92 %
Perpetual license 491 1 % 575 1 % 852 1 % 1,232 1 %
Total product revenue 68,190 96 % 49,290 93 % 132,442 95 % 94,930 93 %
Professional services 3,125 4 % 3,723 7 % 6,905 5 % 6,576 7 %
Total revenue 71,315 100 % 53,013 100 % 139,347 100 % 101,506 100 %
Cost of revenue:
Subscription and support ⁽¹⁾⁽³⁾
21,200 30 % 14,622 28 % 41,139 30 % 27,896 27 %
Professional services ⁽¹⁾
2,472 3 % 1,961 3 % 4,734 3 % 3,475 4 %
Total cost of revenue 23,672 33 % 16,583 31 % 45,873 33 % 31,371 31 %
Gross profit 47,643 67 % 36,430 69 % 93,474 67 % 70,135 69 %
Operating expenses:
Sales and marketing ⁽¹⁾
11,820 17 % 7,989 15 % 22,751 16 % 14,971 15 %
Research and development ⁽¹⁾
10,488 15 % 7,008 13 % 19,908 14 % 13,406 13 %
Refundable tax credits (194) — % (85) — % (496) — % (171) — %
General and administrative ⁽¹⁾⁽²⁾
17,655 25 % 12,042 23 % 34,331 25 % 22,036 22 %
Depreciation and amortization 9,037 13 % 5,744 11 % 18,308 13 % 11,003 11 %
Acquisition-related expenses 5,781 7 % 9,264 17 % 20,939 15 % 16,987 16 %
Total operating expenses 54,587 77 % 41,962 79 % 115,741 83 % 78,232 77 %
Loss from operations (6,944) (10) % (5,532) (10) % (22,267) (16) % (8,097) (8) %
Other Expense:
Interest expense, net (7,873) (11) % (5,246) (10) % (15,516) (11) % (10,362) (10) %
Other income (expense), net (15) — % (692) (1) % (1,417) (1) % (1,453) (2) %
Total other expense (7,888) (11) % (5,938) (11) % (16,933) (12) % (11,815) (12) %
Loss before provision for income taxes (14,832) (21) % (11,470) (21) % (39,200) (28) % (19,912) (20) %
Benefit from income taxes 673 1 % 6,101 11 % 4,960 3 % 6,713 7 %
Net loss $ (14,159) (20) % $ (5,369) (10) % $ (34,240) (25) % $ (13,199) (13) %
Net loss per common share, basic and diluted $ (0.57) $ (0.24) $ (1.37) $ (0.61)
Weighted-average common shares outstanding, basic and diluted 25,032,996 22,619,805 25,057,715 21,531,216
⁽¹⁾Includes stock-based compensation detailed under Share-based Compensation in Note 9 — Stockholders' Equity.
⁽²⁾ Includes General and administrative stock-based compensation of $8.5 million and $5.6 million for the three months June 30, 2020 and June 30, 2019, respectively, and $16.3 million and $9.6 million for the six months ended June 30, 2020 and June 30, 2019, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 13% and 12% for the three months ended June 30, 2020 and June 30, 2019, respectively, and 13% and 12% for the six months ended June 30, 2020 and June 30, 2019, respectively..
⁽³⁾ Includes depreciation and amortization of $2.6 million and $2.0 million for the three months ended June 30, 2020 and June 30, 2019, respectively, and $5.1 million and $4.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively.


	Three Months Ended March 31,
		2021	2020
			Amount		Percent of Revenue		Amount		Percent of Revenue

			(dollars in thousands, except share and per share data)
Revenue:
Subscription and support			$	70,653	96	%	$	63,891	94	%
Perpetual license			352		—	%	361		1	%
Total product revenue			71,005		96	%	64,252		95	%
Professional services			2,964		4	%	3,780		5	%
Total revenue			73,969		100	%	68,032		100	%
Cost of revenue:
Subscription and support (1)(3)			22,682		31	%	19,939		29	%
Professional services and other (1)			1,745		2	%	2,262		4	%
Total cost of revenue			24,427		33	%	22,201		33	%
Gross profit			49,542		67	%	45,831		67	%
Operating expenses:
Sales and marketing (1)			12,432		17	%	10,931		16	%
Research and development (1)			10,940		15	%	9,118		14	%

General and administrative (1)(2)			24,369		33	%	16,676		25	%
Depreciation and amortization			9,743		13	%	9,271		14	%
Acquisition-related expenses			9,586		13	%	15,158		21	%
Total operating expenses			67,070		91	%	61,154		90	%
Loss from operations			(17,528)		(24)	%	(15,323)		(23)	%
Other Expense:
Interest expense, net			(7,787)		(11)	%	(7,643)		(11)	%

Other income (expense), net			237		1	%	(1,402)		(2)	%
Total other expense			(7,550)		(10)	%	(9,045)		(13)	%
Loss before provision for income taxes			(25,078)		(34)	%	(24,368)		(36)	%
Benefit from income taxes			4,394		6	%	4,287		6	%


Net loss			$	(20,684)	(28)	%	$	(20,081)	(30)	%





Net loss per common share, basic and diluted			$	(0.69)			$	(0.81)
Weighted-average common shares outstanding, basic and diluted			29,970,050				24,906,932

(1) Includes stock-based compensation detailed under Share-based Compensation in Note 9 — Stockholders' Equity.
(2) Includes General and administrative stock-based compensation of $15.5 million and $7.8 million for the three months March 31, 2021 and March 31, 2020, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 12% and 13% for the three months ended March 31, 2021 and March 31, 2020, respectively.


(3) Includes depreciation and amortization of $2.7 million and $2.5 million for the three months ended March 31, 2021 and March 31, 2020.

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Comparison of the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

Revenue

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
Revenue:
Subscription and support $ 67,699 $ 48,715 39 % $ 131,590 $ 93,698 40 %
Perpetual license 491 575 (15) % 852 1,232 (31) %
Total product revenue 68,190 49,290 38 % 132,442 94,930 40 %
Professional services 3,125 3,723 (16) % 6,905 6,576 5 %
Total revenue $ 71,315 $ 53,013 35 % $ 139,347 $ 101,506 37 %
Percentage of revenue:
Subscription and support 95 % 92 % 94 % 92 %
Perpetual license 1 % 1 % 1 % 1 %
Total product revenue 96 % 93 % 95 % 93 %
Professional services 4 % 7 % 5 % 7 %
Total revenue 100 % 100 % 100 % 100 %


	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
Revenue:
Subscription and support		$	70,653		$	63,891		11	%
Perpetual license		352			361			(2)	%
Total product revenue		71,005			64,252			11	%
Professional services		2,964			3,780			(22)	%
Total revenue		$	73,969		$	68,032		9	%

Percentage of revenue:
Subscription and support		96		%	94		%
Perpetual license		—		%	1		%
Total product revenue		96		%	95		%
Professional services		4		%	5		%
Total revenue		100		%	100		%

For the Three Months Ended ~~June 30, 2020~~March 31, 2021

Total revenue was ~~$71.3~~$74.0 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$53.0~~$68.0 million in the three months ended ~~June 30, 2019,~~March 31, 2020, an increase of ~~$18.3~~$6.0 million, or ~~35%~~9%. The acquisitions not fully in the comparative period contributed ~~$17.2~~$5.8 million to the increase after the reduction of ~~$2.2~~$0.5 million purchase accounting deferred revenue discount in the three months ended ~~June 30, 2020.~~March 31, 2021. Total revenue related to ~~Sunset Assets~~the divestiture and sunset of certain minor non-strategic customer contracts and related website management and analytics assets (collectively referred to as “Sunset Assets”) declined by ~~$1.1~~$0.5 million as a result of decreased sales and marketing focus on those Sunset Assets. Our organic business (the “Organic Business”) excludes acquisitions closed during or subsequent to the prior year comparable period and business operations related to Sunset Assets. Therefore, total revenue for our Organic Business increased by ~~$2.2~~$0.7 million. The three months ended March 31, 2020 included $2.1 million ~~, or 5%. The increase in~~of CXM usage revenue from ~~our Organic Business was primarily driven by an increase~~US election-year presidential campaigns which did not repeat in ~~CXM usage across verticals from election-year political campaigns~~the current period and ~~advocacy to media and retail.~~will not repeat for the remainder of 2021.

Subscription and support revenue was ~~$67.7~~$70.7 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$48.7~~$63.9 million in the three months ended ~~June 30, 2019,~~March 31, 2020, an increase of ~~$19.0~~$6.8 million, or ~~39%~~11%. The acquisitions not fully in the comparative period contributed ~~$16.6~~$5.7 million to the increase in subscription and support revenue after the reduction of ~~$2.2~~$0.5 million purchase accounting deferred revenue discount in the three months ended ~~June 30, 2020.~~March 31, 2021. Subscription and support revenue related to our Sunset Assets decreased ~~$0.9~~$0.5 million as a result of decreased sales and marketing focus on those Sunset Assets. ~~Therefore, subscription~~Subscription and support revenue for our Organic Business increased ~~by $3.3~~to $62.1 million ~~or 8%.~~from a basis of $60.5 million for the three months ended March 31, 2020. The three months ended March 31, 2020 included $2.1 million of CXM usage revenue from US election-year presidential campaigns which did not repeat in the current period and will not repeat for the remainder of 2021.

Perpetual license revenue was ~~$0.5~~$0.4 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$0.6~~$0.4 million in the three months ended ~~June 30, 2019,~~March 31, 2020.

Professional services revenue was $3.0 million in the three months ended March 31, 2021, compared to $3.8 million in the three months ended March 31, 2020, a decrease of ~~$0.1~~$0.8 million, or ~~15%~~22%. The acquisitions not fully in the comparative period contributed ~~no perpetual license revenue in the three months ended June 30, 2020. Therefore, perpetual license revenue for our Organic Business decreased by~~ $0.1 ~~million, or 15%.~~

Professional services revenue was $3.1 million in the three months ended June 30, 2020, compared to $3.7 million in the three months ended June 30, 2019, a decrease of $0.6 million, or 16%. The acquisitions not fully in the comparative period contributed $0.6 million to the increase in professional services revenue in the three months ended ~~June 30, 2020.~~March 31, 2021. Professional ~~services revenue related to our Sunset Assets decreased $0.2 million as a result of decreased sales and marketing focus on those Sunset Assets. Therefore, professional~~ services revenue for our Organic Business decreased by ~~$1.0~~$0.9 million ~~or 31%.~~due primarily to a reduction in on-site professional service work as a result of COVID-19 related travel impacts and restrictions.

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Cost of Revenue and Gross Profit Percentage


	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
Cost of revenue:
Subscription and support (1)		$	22,682		$	19,939		14	%
Professional services and other		1,745			2,262			(23)	%
Total cost of revenue		24,427			22,201			10	%
Gross profit		$	49,542		$	45,831

Percentage of total revenue:
Subscription and support (1)		31		%	29		%
Professional services and other		2		%	4		%
Total cost of revenue		33		%	33		%
Gross profit		67		%	67		%

(1) Includes depreciation, amortization and stock compensation expense as follows:
Depreciation		$	11		$	71
Amortization		$	2,714		$	2,395
Stock Compensation		$	442		$	318

For the ~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2021

~~Total~~Cost of subscription and support revenue was ~~$139.3~~$22.7 million in the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$101.5~~$19.9 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, an increase of ~~$37.8~~$2.8 million, or ~~37%~~14%. The acquisitions not fully in the comparative period contributed $35.4 million to the increase after the reduction of $5.9 million purchase accounting deferred revenue discount in the six months ended June 30, 2020. Total Revenue related to Sunset Assets declined by $2.0 million as a result of decreased sales and marketing focus on those Sunset Assets. Therefore, total revenue for the Organic Business increased by $4.4 million, or 5%. The increase in revenue from our Organic Business was primarily driven by an increase in CXM usage across verticals from election-year political campaigns and advocacy to media and retail.

Subscription and support revenue was $131.6 million in the six months ended June 30, 2020, compared to $93.7 million in the six months ended June 30, 2019, an increase of $37.9 million, or 40%. The acquisitions not fully in the comparative period contributed $33.7 million to the increase in subscription and support revenue after the reduction of $5.9 million purchase accounting deferred revenue discount in the six months ended June 30, 2020. Subscription and support revenue related to our Sunset Assets decreased $1.7 million as a result of decreased sales and marketing focus on those Sunset Assets. Therefore, subscription and support revenue for the Organic Business increased by $5.9 million, or 7%.

Perpetual license revenue was $0.9 million in the six months ended June 30, 2020, compared to $1.2 million in the six months ended June 30, 2019, a decrease of $0.3 million, or 31%. The acquisitions not fully in the comparative period contributed no perpetual license revenue in the six months ended June 30, 2020. Therefore, perpetual license revenue for the Organic Business decreased by $0.3 million, or 31%.

Professional services revenue was $6.9 million in the six months ended June 30, 2020, compared to $6.6 million in the six months ended June 30, 2019, an increase of $0.3 million, or 5%. The acquisitions not fully in the comparative period contributed $1.7 million to the increase in professional services revenue in the six months ended June 30, 2020. Professional services revenue related to our Sunset Assets decreased by $0.3 million as a result of decreased sales and marketing focus on those Sunset Assets. Therefore, professional services revenue for the Organic Business decreased by $1.1 million, or 18%.

~~Cost of Revenue and Gross Profit Percentage~~

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
Cost of revenue:
Subscription and support ⁽¹⁾
$ 21,200 $ 14,622 45 % $ 41,139 $ 27,896 47 %
Professional services 2,472 1,961 26 % 4,734 3,475 36 %
Total cost of revenue 23,672 16,583 43 % 45,873 31,371 46 %
Gross profit $ 47,643 $ 36,430 31 % $ 93,474 $ 70,135 33 %
Percentage of total revenue:
Subscription and support ⁽¹⁾
30 % 28 % 30 % 27 %
Professional services 3 % 3 % 3 % 4 %
Total cost of revenue 33 % 31 % 33 % 31 %
Gross profit 67 % 69 % 67 % 69 %
⁽¹⁾ Includes depreciation, amortization and stock compensation expense as follows:
Depreciation $ 45 $ 238 $ 116 $ 519
Amortization $ 2,576 $ 1,783 $ 4,971 $ 3,630
Stock Compensation $ 570 $ 353 $ 888 $ 513

~~For the Three Months Ended June 30, 2020~~

Cost of subscription and support revenue was $21.2 million in the three months ended June 30, 2020, compared to $14.6 million in the three months ended June 30, 2019, an increase of $6.6 million, or 45%. The acquisitions not fully in the comparative period contributed $5.4$1.8 million to the increase to cost of subscription and support revenue, primarily related to costs associated with the delivery of the ~~Postup, InGenius, Altify,~~Localytics, Second Street, and ~~Localytics~~BlueVenn products. Cost of subscription and support

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revenue related to our Sunset Assets ~~remained flat in the comparative periods.~~decreased $0.1 million. Therefore, cost of subscription and support revenue for our Organic Business increased by ~~$1.2~~$1.1 million, primarily related to ~~an increase in telecom messaging costs~~personnel and related ~~to an increase in CXM usage across verticals from election-year political campaigns and advocacy to media and retail.~~costs.

Cost of professional services and other revenue remained was ~~$2.5~~$1.7 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$2.0~~$2.3 million in the three months ended ~~June 30, 2019, an increase~~March 31, 2020, a decrease of ~~$0.5~~$0.6 million, or ~~26%~~23%. The acquisitions not fully in the comparative period ~~contributed $0.6 million~~did not contribute to the ~~increase to~~decrease in the cost of professional services ~~revenue, primarily related to an increase in personnel and related costs in the three months ended June 30, 2020.~~revenue. Therefore, cost of professional services revenue for our Organic Business decreased by ~~$0.1~~$0.6 million, primarily related to personnel and related expenses, most of which were the result of our planned operating efficiencies.

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Operating Expenses

Sales and Marketing Expense


	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
Sales and marketing (1)		$	12,432		$	10,931		14	%
Percentage of total revenue		17		%	16		%

(1) Includes stock compensation expense as follows:
Stock Compensation		$	1,137		$	549

For the ~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2021

~~Cost of subscription~~Sales and ~~support revenue~~marketing expense was ~~$41.1~~$12.4 million in the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$27.9~~$10.9 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, an increase of ~~$13.2~~$1.5 million, or ~~47%~~14%. The acquisitions not fully in the comparative period contributed $10.4 million to the increase to cost of subscription and support revenue, costs associated with the delivery of the Postup, Kapost, CIMPL, InGenius, Altify, and Localytics products. Cost of subscription and support revenue related to our Sunset Assets decreased $0.3 million primarily related to hosting and infrastructure costs. Therefore, cost of subscription and support revenue for the organic portion of our business increased by $3.1 million, primarily related to an increase in messaging costs related to an increase in CXM usage across verticals from election-year political campaigns and advocacy to media and retail.

Cost of professional services revenue was $4.7 million in the six months ended June 30, 2020, compared to $3.5 million in the six months ended June 30, 2019, an increase of $1.2 million, or 36%. The acquisitions not fully in the comparative period contributed $1.3 million to the increase to cost of professional services revenue, primarily related to an increase in personnel and related costs in the six months ended June 30, 2020. Therefore, cost of professional services revenue for our Organic Business decreased by $0.1 million.

~~Operating Expenses~~

~~Sales and Marketing Expense~~

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
Sales and marketing ⁽¹⁾
$ 11,820 $ 7,989 48 % $ 22,751 $ 14,971 52 %
Percentage of total revenue 17 % 15 % 16 % 15 %
⁽¹⁾ Includes stock compensation expense as follows:
Stock Compensation $ 898 $ 365 $ 1,447 $ 504

~~For the Three Months Ended June 30, 2020~~

Sales and marketing expense was $11.8 million in the three months ended June 30, 2020, compared to $8.0 million in the three months ended June 30, 2019, an increase of $3.8 million, or 48%. The acquisitions not fully in the comparative period contributed $4.0$0.4 million to the increase in sales and marketing expense, primarily consisting of personnel and related ~~costs in the three months ended June 30, 2020.~~costs. Sales ~~and marketing expense related to our Sunset Assets decreased by $0.2 million primarily due to reductions in personnel costs. Therefore, sales~~ and marketing expense for our Organic Business ~~remained flat~~increased $1.1 million in the comparative ~~periods.~~periods, primarily attributable to personnel and related costs associated with our new and ongoing go-to-market investments.

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	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
Research and development (1)		$	10,940		$	9,118		20	%




Percentage of total revenue		15		%	14		%



(1) Includes stock compensation expense as follows:
Stock Compensation		$	714		$	615

For the ~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2021

~~Sales~~Research and ~~marketing~~development expense was ~~$22.8~~$10.9 million in the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$15.0~~$9.1 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, an increase of ~~$7.8~~$1.8 million, or ~~52%~~20%. The acquisitions not fully in the comparative period contributed $7.9 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs in the six months ended June 30, 2020. Sales and marketing expense related to our Sunset Assets decreased by $0.4 million primarily due to reductions in personnel costs. Therefore, sales and marketing expense for the organic portion of our business increased by $0.3 million, primarily related to personnel and related costs.

~~Research and Development Expense~~

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
Research and development ⁽¹⁾
$ 10,488 $ 7,008 50 % $ 19,908 $ 13,406 49 %
Refundable tax credits (194) (85) 128 % (496) (171) 190 %
Total research and development $ 10,294 $ 6,923 49 % $ 19,412 $ 13,235 47 %
Percentage of total revenue:
Research and development 15 % 13 % 14 % 13 %
Refundable tax credits — % — % — % — %
Total research and development 15 % 13 % 14 % 13 %
⁽¹⁾ Includes stock compensation expense as follows:
Stock Compensation $ 1,019 $ 632 $ 1,634 $ 953

~~For the Three Months Ended June 30, 2020~~

Research and development expense was $10.5 million in the three months ended June 30, 2020, compared to $7.0 million in the three months ended June 30, 2019, an increase of $3.5 million, or 50%. The acquisitions not fully in the comparative period contributed $3.2$0.8 million to the increase in research and development expense primarily consisting of personnel and related ~~costs in the three months ended June 30, 2020.~~costs. Research ~~and development expense related to our Sunset Assets decreased by $0.1 million primarily due to reductions in personnel costs. Therefore, research~~ and development costs for our Organic Business increased by ~~$0.4~~$1.0 million primarily related to ~~an increase in non-cash stock compensation expense.~~outsourced technology development services costs.

~~Refundable tax credits were $0.2~~General and Administrative Expense


	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
General and administrative (1)		$	24,369		$	16,676		46	%
Percentage of total revenue		33		%	25		%

(1) Includes stock compensation expense as follows:
Stock Compensation		$	15,531		$	7,838

For the Three Months Ended March 31, 2021

General and administrative expense was $24.4 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$0.1~~$16.7 million in the three months ended ~~June 30, 2019.~~

~~For the Six Months Ended June 30,~~March 31, 2020,

~~Research and development expense was $19.9 million in the six months ended June 30, 2020, compared to $13.4 million in the six months ended June 30, 2019,~~ an increase of ~~$6.5~~$7.7 million, or ~~49%~~46%. ~~The acquisitions not fully in the comparative period contributed $5.9 million to the~~An increase in ~~research and development~~general administrative expense primarily consisting of personnel and related costs in the six months ended June 30, 2020. Research and development expense related to our Sunset Assets decreased by $0.1 million primarily due to reductions in personnel costs. Therefore, research and development costs for our Organic Business increased by $0.7 million primarily related to an increase in non-cash stock compensation expense.

~~Refundable Canadian tax credits were $0.5 million in the six months ended June 30, 2020, compared to $0.2 million in the six months ended June 30, 2019.~~

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~~General and Administrative Expense~~

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
General and administrative ⁽¹⁾
$ 17,655 $ 12,042 47 % $ 34,331 $ 22,036 56 %
Percentage of total revenue 25 % 23 % 25 % 22 %
⁽¹⁾ Includes stock compensation expense as follows:
Stock Compensation $ 8,493 $ 5,551 $ 16,331 $ 9,559

~~For the Three Months Ended June 30, 2020~~

~~General and administrative expense was $17.7 million in the three months ended June 30, 2020, compared to $12.0 million in the three months ended June 30, 2019, an increase~~ of ~~$5.7 million, or 47%. An increase in general administrative expense of $0.6~~$0.1 million was due to the acquisitions not fully in the comparative period, which consisted primarily of personnel and related costs and administrative ~~expenses in the three months ended June 30, 2020.~~expenses. Therefore, general and administrative expense for our Organic Business increased by ~~$5.1~~$7.6 million, which was driven primarily by a one-time increase in non-cash stock compensation expense ~~and personnel related expenses and costs incurred~~ related to the ~~implementation~~departure of our ~~new enterprise resource management (“ERP”) system.~~Chief Operating Officer.

~~For the Six Months Ended June 30, 2020~~

General and administrative expense was $34.3 million in the six months ended June 30, 2020, compared to $22.0 million in the six months ended June 30, 2019, an increase of $12.3 million, or 56%. An increase in general administrative expense of $1.6 million was due to the acquisitions not fully in the comparative period, which consisted primarily of personnel and related costs and administrative expenses in the six months ended June 30, 2020. Therefore, general and administrative expense for our Organic Business increased by $10.7 million, which was driven primarily by non-cash stock compensation expense and personnel related expenses and costs incurred related to the implementation of our new ERP system.

Depreciation and Amortization Expense

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
Depreciation and amortization:
    Depreciation $ 453 $ 323 40 % $ 914 $ 592 54 %
    Amortization 8,584 5,421 58 % 17,394 10,411 67 %
Total depreciation and amortization $ 9,037 $ 5,744 57 % $ 18,308 $ 11,003 66 %
Percentage of total revenue:
    Depreciation 1 % 1 % 1 % 2 %
    Amortization 12 % 10 % 12 % 10 %
Total depreciation and amortization 13 % 11 % 13 % 11 %


	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
Depreciation and amortization:
Depreciation		$	444		$	461		(4)	%
Amortization		9,299			8,810			6	%
Total depreciation and amortization		$	9,743		$	9,271		5	%


Percentage of total revenue:
Depreciation		—		%	1		%
Amortization		13		%	13		%
Total depreciation and amortization		13		%	14		%

For the Three Months Ended ~~June 30, 2020~~March 31, 2021

Depreciation and amortization expense was ~~$9.0~~$9.7 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$5.7~~$9.3 million in the three months ended ~~June 30, 2019,~~March 31, 2020, an increase of ~~$3.3~~$0.4 million, or ~~57%~~5%. The acquisitions not fully in the comparative period increased depreciation and amortization expense by ~~$3.4~~$1.0 million, ~~in the three months ended June 30, 2020.~~primarily related to acquired intangible assets such as customer relationships, developed technology and tradenames. Therefore, depreciation and amortization expense for our Organic Business decreased by ~~$0.1~~$0.6 million in the comparative ~~periods.~~periods due to assets becoming fully amortized.

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~~For the Six Months Ended June 30, 2020~~

Depreciation and amortization expense was $18.3 million in the six months ended June 30, 2020, compared to $11.0 million in the six months ended June 30, 2019, an increase of $7.3 million, or 66%. The acquisitions not fully in the comparative period increased depreciation and amortization expense by $7.3 million in the six months ended June 30, 2020.

Acquisition-related Expenses

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
Acquisition-related expenses $ 5,781 $ 9,264 (38) % $ 20,939 $ 16,987 23 %
Percentage of total revenue 7 % 17 % 15 % 16 %


	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
Acquisition-related expenses		$	9,586		$	15,158		(37)	%
Percentage of total revenue		13		%	21		%

Acquisition-related expenses are one-time expenses typically incurred for up to four quarters after each acquisition, with the majority of these costs being incurred within 6 to 9 months, to transform the acquired business into the Company's unified operating platform. These expenses can vary based on the size, timing and location of each acquisition. These acquisition-related expenses include transaction related expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses. These acquisition-related expenses also include transformational expenses such as severance, compensation for transitional personnel, office lease terminations, and vendor cancellations. Generally, without new acquisition activity, acquisition related expenses decline in subsequent sequential quarters and are no longer incurred after the first anniversary of the last closed acquisition.

For the Three Months Ended ~~June 30, 2020~~March 31, 2021

Acquisition-related expense was ~~$5.8~~$9.6 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$9.3~~$15.2 million in the three months ended ~~June 30, 2019,~~March 31, 2020, a decrease of ~~$3.5~~$5.6 million, or ~~38%~~37%. During the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 ~~and June 30, 2019~~ transaction related expenses were ~~$0.2~~$4.0 million and ~~$3.6~~$3.3 million, respectively, and transformational expenses were $5.6 million and ~~$5.7~~$11.9 million, respectively. Transaction costs ~~decreased~~increased compared to the same period in ~~2019~~2020 as a result of ~~a slowdown in~~the resumption of our acquisition activity in ~~2020~~2021 after halting acquisitions activity beginning in early 2021 as a result of the COVID-19 pandemic. We closed notwo transactions during the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~two transactions~~one transaction during the same period in prior year.

~~For the Six Months Ended June 30, 2020~~

Acquisition related expense was $20.9 million in the six months ended June 30, 2020, compared to $17.0 million in the six months ended June 30, 2019, an increase of $3.9 million, or 23%. During the six months ended June 30, 2020 and June 30, 2019 transaction related expenses were $3.5 million and $4.0 million, respectively, and The transformational expenses in both the current and year ago periods were ~~$17.4 million~~primarily related to temporary transitional personnel and ~~$13.0 million, respectively. Transformational expenses for the six months ended June 30, 2020 includes approximately $2.8 million of~~related costs along with accelerated rent ~~expense~~related expenses incurred in conjunction with the closures of offices ~~related to recently~~of our acquired companies as we ~~continue to~~ consolidate and integrate these acquisitions.

~~Other Income (Expense)~~

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 % Change 2020 2019 % Change
(dollars in thousands)
Other expense:
Interest expense, net $ (7,873) $ (5,246) 50 % $ (15,516) $ (10,362) 50 %
Other income (expense), net (15) (692) (98) % (1,417) (1,453) (2) %
Total other expense $ (7,888) $ (5,938) 33 % $ (16,933) $ (11,815) 43 %
Percentage of total revenue:
Interest expense, net (11) % (10) % (11) % (10) %
Other income (expense), net — % (1) % (1) % (2) %
Total other expense (11) % (11) % (12) % (12) %
Transformation expenses in 2020 include expenses related to the five acquisitions closed in 2019 as well as the one acquisition

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closed in 2020 compared to transformation expenses in 2021 related to the two acquisitions closed in 2021 and one acquisition closed in 2020.

Other Income (Expense)


	Three Months Ended March 31,
		2021			2020			% Change

		(dollars in thousands)
Other expense:
Interest expense, net		$	(7,787)		$	(7,643)		2	%

Other income (expense), net		237			(1,402)			(117)	%
Total other expense		$	(7,550)		$	(9,045)		(17)	%

Percentage of total revenue:
Interest expense, net		(11)		%	(11)		%

Other income (expense), net		1		%	(2)		%
Total other expense		(10)		%	(13)		%

For the Three Months Ended ~~June 30, 2020~~March 31, 2021

Interest expense was ~~$7.9~~$7.8 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$5.2~~$7.6 million in the three months ended ~~June 30, 2019,~~March 31, 2020, an increase in interest expense of ~~$2.7~~$0.2 million, or ~~50%~~2%. The increase in net interest expense is primarily attributable to ~~increased borrowing under~~a reduction in interest income on our ~~new credit facility used to fund our acquisitions. See~~outstanding cash balance as a result of a decrease in interest rates associated with the ~~“Liquidity and Capital Resources” section herein for further discussion regarding our new credit facility.~~COVID-19 pandemic.

Other ~~expense~~income was ~~$0.0~~$0.2 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to other expense of ~~$0.7~~$1.4 million in the three months ended ~~June 30, 2019.~~March 31, 2020. Other ~~expense~~income recognized in the three months ended ~~June 30, 2019 was due primarily to foreign currency exchange losses~~March 31, 2021 and other expense recognized during the three months ended March 31, 2010 were related primarily to ~~our UK entities.~~

~~For the Six Months Ended June 30, 2020~~

Interest expense was $15.5 million in the six months ended June 30, 2020, compared to $10.4 million in the six months ended June 30, 2019, an increase in interest expense of $5.1 million, or 50%. The increase is attributable to increased borrowing under our expanded term loan used to fund our acquisitions. Our interest rate swap, which fixes our interest rate at 5.4%, accounted for $1.5 million of the interest expense for the period as a result of the decrease in market interest rates resulting from the economic impact of the COVID-19 pandemic during the six months ended June 30, 2020.

Other expense was $1.4 million in the six months ended June 30, 2020, compared to other expense of $1.5 million in the six months ended June 30, 2019. Other expense was recognized in the six months ended June 30, 2020 and June 30, 2019 related primarily to foreign currency exchange ~~losses from~~gains (losses) in our UKforeign entities.

Benefit from Income Taxes


		Three Months Ended June 30,														Six Months Ended June 30,									Three Months Ended March 31,
		2020			2019			% Change		2020			2019			% Change			2021			2020			% Change

		(dollars in thousands)																									(dollars in thousands)
Benefit from income taxes	Benefit from income taxes	$	673		$	6,101		(89)	%	$	4,960		$	6,713		(26)	%	Benefit from income taxes	$	4,394		$	4,287		2	%
Percentage of total revenue	Percentage of total revenue	1		%	11		%			3		%	7		%			Percentage of total revenue	6		%	6		%

For the Three Months Ended ~~June 30, 2020~~March 31, 2021

Benefit from income taxes was ~~$0.7~~$4.4 million in the three months ended ~~June 30, 2020,~~March 31, 2021, compared to a benefit from income taxes of ~~$6.1~~$4.3 million in the three months ended ~~June 30, 2019, a decrease~~March 31, 2020, an increase of ~~$5.4~~$0.1 million. The ~~change in provision was~~benefits for each period are due primarily to ~~the~~ deferred tax ~~benefit~~benefits attributable to the release of valuation allowance ~~attributable~~related to the acquisitions of ~~domestic entities with~~ deferred tax liabilities ~~that, upon acquisition, allowed us to recognize certain deferred tax assets that had previously been offset by a valuation allowance.~~

~~For~~associated with business combinations completed during the ~~Six Months Ended June 30, 2020~~

Benefit from income taxes was $5.0 million in the six months ended June 30, 2020, compared to a benefit from income taxes of $6.7 million in the six months ended June 30, 2019, a decrease of $1.7 million. The change in provision was due primarily to decreases related the release of valuation allowance attributable to acquisitions of domestic entities with deferred tax liabilities that, upon acquisition, allowed us to recognize certain deferred tax assets that had previously been offset by a valuation allowance. The entire benefit for the six months ended June 30, 2019 was recognized for the three months ended June 30, 2019.respective periods.

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Liquidity and Capital Resources

To date, we have financed our operations primarily through the raising of capital including sales of our common stock, cash from operating activities, borrowing under our credit facility, and the issuance of notes to sellers in some of our acquisitions. We believe that current cash and cash equivalents, cash flows from operating activities, availability under our existing credit facility, as discussed below, and the ability to offer and sell securities pursuant to our registration statement, as discussed below, will be sufficient to fund our operations for at least the next twelve months. In addition, we intend to utilize the sources of capital available to us under our Credit Facility and registration statement to support our continued growth via acquisitions within our core enterprise solution suites of complementary technologies and businesses.

As of ~~June 30, 2020,~~March 31, 2021, we had cash and cash equivalents of ~~$87.9~~$186.7 million, $60.0 million of available borrowings under our credit facility, as discussed below, and ~~$536.0~~$531.9 million of borrowings outstanding under our credit facility. As of December 31, ~~2019,~~2020, we had cash and cash equivalents of ~~$175.0~~$250.0 million, $60.0 million of available borrowings under our Credit Facility, and ~~$538.7~~$533.3 million of borrowings outstanding under our ~~previous~~ credit facility. The ~~$87.1~~$63.3 million decrease in cash and cash equivalents from December 31, ~~2019~~2020 to ~~June 30, 2020~~March 31, 2021 includes $77.9 million in cash paid for our two acquisitions completed during 2021, net of $1.1 million in cash acquired, which was partially offset by a ~~$67.7~~$5.2 million ~~cash payment~~settlement in total consideration for ~~an acquisition~~Localytics related to a representation and warranty insurance settlement. Non-cash amounts that will be paid in future periods related to these acquisitions includes $7.4 million in holdback payments and $4.4 million in earnout payments that are due within 12 to 18 months of the ~~period.~~ closing dates of the underlying acquisitions. The earnouts are subject to attainment of future performance-based conditions.

Our cash and cash equivalents held by our foreign subsidiaries was ~~$26.2~~$16.0 million as of ~~June 30, 2020.~~March 31, 2021. If these funds held by our foreign subsidiaries are needed for our domestic operations, a repatriation of these funds would require us to accrue and pay dividend withholding taxes in the foreign jurisdictions where applicable and accrue and pay U.S. taxes to the extent such dividend income exceeds our ability to utilize net operating losses. However, our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had a working capital surplus of ~~$37.1~~$103.6 million and surplus of ~~$109.5~~$196.1 million, respectively, which ~~included $81.0~~includes $94.7 million and ~~$76.6~~$87.6 million of deferred revenue recorded as a current liability as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. This deferred revenue will be recognized as revenue in future periods in accordance with our revenue recognition policy.

Credit Facility

On August 6, 2019, we entered into a credit agreement (the “Credit Facility”) which provides for (i) a fully-drawn $350 million, 7 year, senior secured term loan B facility (the “Term Loan”) and (ii) a $60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of ~~June 30, 2020.~~March 31, 2021. The Credit Facility replaced our previous credit facility. All outstanding balances under our previous credit facility were paid off using proceeds from our current Credit Facility.

On November 26, 2019, the Company entered into a First Incremental Assumption Agreement (the “Incremental Assumption Agreement”) which provides for a term loan facility to be established under the Credit ~~Agreement~~Facility in an aggregate principal amount of $190 million (the “2019 Incremental Term Loan”) which is in addition to the existing $350 million term loans outstanding under the Credit Facility and the $60 million Revolver under the Credit Facility.

The Credit Facility has no financial covenants as long as less than 35% of the Revolver is drawn as of the last day of any fiscal quarter. The credit facility is secured by a security interest in substantially all of our assets and requires us to maintain certain financial covenants. The Credit Facility contains certain non-financial restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, pay dividends, incur additional indebtedness and liens, effect changes in management and enter into new businesses. As of ~~June 30, 2020~~March 31, 2021 we were in compliance with all covenants under the Credit Facility. See Note 6. Debt for more information regarding our Credit Facility and outstanding debt as of ~~June 30,~~March 31, 2021.

On August 6, 2019, the Company entered into an interest rate hedge instrument for the full 7 year term, effectively fixing our interest rate at 5.4% for the Term Loan. In addition, on November 26, 2019, the Company entered into interest rate swap agreements to hedge the interest rate risk associated with the Company’s floating rate obligations under the 2019 Incremental Term Loan. These interest rate swaps fix the Company's interest rate (including the hedge premium) at 5.4% for the term of the Credit Facility. The interest rate associated with our new $60 million, 5 year, Revolver remains floating.

The interest rate swap has been designated as a cash flow hedge and is valued using a market approach, which is a Level 2 valuation technique. At March 31, 2021, the fair value of the interest rate swap was a $14.6 million liability as a result of a decline in short term interest rates since entering into the swap agreements. The decrease in the fair value of the interest rate

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swap liability during the three months ended March 31, 2021 is the result of an increase in short term interest rates compared to December 31, 2020.

Registration ~~Statement~~Statements

On ~~December 12, 2018, the Company~~August 10, 2020, we filed a registration statement on Form S-3 (File No. ~~333-228767)~~333-243728) (the ~~“S-3”~~“2020 S-3”), ~~to register Upland securities in~~which became effective automatically upon its filing and covers an ~~aggregate~~unlimited amount of ~~up to $250.0 million for offerings from time to time. In connection with the filing of the~~securities. The 2020 S-3, the Company withdrew its previous registration statement filed on May 12, 2017 which registered Upland securities in an aggregate amount of up to $75.0 million of which $29.0 million in aggregate offering price remained available for issuance at the time of withdrawal.will remain effective through August 2023.

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On May 13, 2019, we completed a registered underwritten public offering pursuant to the S-3 of 3,795,000 shares of the Company's $0.0001 par value common stock for an offering price to the public of $42.00 per share. This included the 495,000 shares issuable pursuant to a fully exercised option to purchase additional shares granted to the underwriters of the offering. The net proceeds of the offering of $151.1 million, net of issuance costs of $8.3 million, will be used for general business purposes, including the funding of future acquisitions. As of June 30, 2020 an aggregate amount of up to $90.6 million of Upland securities remain available for issuance under the S-3.

The following table summarizes our cash flows for the periods indicated:

Six Months Ended June 30,
2020 2019
(dollars in thousands)
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities $ (4,504) $ 5,396
Net cash used in investing activities (68,548) (83,188)
Net cash provided by (used in) financing activities (14,604) 168,617
Effect of exchange rate fluctuations on cash 542 798
Change in cash and cash equivalents (87,114) 91,623
Cash and cash equivalents, beginning of period 175,024 16,738
Cash and cash equivalents, end of period $ 87,910 $ 108,361


	Three Months Ended March 31,
	2021		2020

	(dollars in thousands)
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities	$	12,503	$	(5,309)
Net cash used in investing activities	(72,900)		(68,148)
Net cash used in financing activities	(2,095)		(3,204)
Effect of exchange rate fluctuations on cash	(865)		325
Change in cash and cash equivalents	(63,357)		(76,336)
Cash and cash equivalents, beginning of period	250,029		175,024
Cash and cash equivalents, end of period	$	186,672	$	98,688

Cash Flows from Operating Activities

Cash ~~used in~~provided by (used in) operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business. Included in net cash provided by ~~operating activities~~operations are one-time acquisition related expenses incurred for up to four quarters after each acquisition to transact and transform the acquired business into the Company's unified operating platform. Additionally, operating cash flows includes the impact of earn-outs payments in excess of original purchase accounting estimates. Our ~~operating assets and liabilities consist~~working capital consists primarily of cash, receivables from customers, prepaid assets, unbilled professional services, deferred commissions, accounts payable, accrued compensation and other accrued expenses, acquisition related earnout and holdback liabilities, lease liabilities, and deferred revenues. The volume of professional services rendered, the volume and timing of customer bookings and contract renewals, and the related timing of collections on those bookings and renewals, as well as the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances.

~~Our cash~~Cash provided by operating activities was $12.5 million for the ~~six~~three months ended ~~June 30, 2020 primarily reflects our net loss of $34.2 million, which includes $20.9~~March 31, 2021 compared to $5.3 million of ~~acquisition-related expenses,~~cash used for the three months ended March 31, 2020, an increase of $17.8 million. This increase in operating cash flow is generally attributable to the Company’s increased size and includes non-cash items comprised of $23.4 million of depreciation and amortization expense, $20.3 million of non-cash stock compensation expense, $1.9 million of amortization of deferred commissions, and $1.1 million of non-cash interest and other expense, and $0.5 million of foreign currency re-measurement losses which were partially offset by $5.0 million of deferred income taxes.scale. Working capital sources of cash for the three months ended March 31, 2021 included a ~~$5.2~~$3.6 million decrease in accounts receivable ~~and a $2.4 million increase in deferred revenue which was~~ related ~~primarily~~ to the timing of ~~collections.~~collections, an increase of $4.5 million in accounts payable related to timing of payments, and an increase of $0.6 million in deferred revenue. Working capital uses of cash for the three months ended March 31, 2021 included a ~~$6.7~~$1.0 million increase in prepaids and other related primarily to ~~payments of annual software/hosting fees, a $6.3 million decrease~~an increase in ~~accounts payable,~~deferred commissions and a ~~$7.1~~$1.8 million decrease in accrued expenses, which is attributable primarily to the payment of the Company’s annual bonus at the beginning of the year and ~~severance payments related to acquisitions completed in prior periods.~~timing differences.

A substantial source of cash is invoicing for subscriptions and support fees in advance, which is recorded as deferred revenue, and is included on our condensed consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of booked fees for our software subscriptions and support, which is amortized into revenue in accordance with our revenue recognition policy. We assess our liquidity, in part, through an analysis of new subscriptions invoiced, expected cash receipts on new and existing subscriptions, and our ongoing operating expense requirements.

Cash Flows from Investing Activities

Our primary investing activities have consisted of acquisitions of complementary technologies, products and businesses. As our business grows, we expect our primary investing activities to continue to further expand our family of software applications and infrastructure and support additional personnel.

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, cash used in investing activities consisted of ~~$67.7~~$77.9 million associated with the acquisition of ~~Localytics which closed during the six months ended June 30, 2020, the purchases of property~~BlueVenn and ~~equipment of $0.7~~Second Street, partially offset by a $5.2 million ~~and the purchase of customer relationships of $0.2 million.~~settlement in total consideration for Localytics

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related to a representation and warranty insurance settlement, and the purchases of property and equipment of $0.3 million. Cash used in investing activities increased $4.8 million for the three months ended March 31, 2021 compared to the same period in 2020 primarily as a result of closing two acquisitions during the period compared to one acquisition in the comparable prior year period.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced applications and professional service offerings, and acquisitions of complementary technologies, products and businesses.

Cash Flows from Financing Activities

Our primary financing activities have consisted of capital raised to fund our acquisitions, proceeds from debt obligations incurred to finance our acquisitions, repayments of our debt obligations, and share based employee payroll tax payment activity.

~~During~~Cash used in financing activities increased $1.1 million for the ~~six~~three months ended ~~June 30, 2020, we made payments on our notes payable balance of $2.7~~March 31, 2021 compared to the same period in 2020. The increase relates primarily to a $0.8 million ~~paid $9.6 million~~decrease in ~~additional consideration to sellers of acquired businesses related to holdback and earnout payments, paid $2.1 million in taxes related to~~ net share ~~settlements~~employee payroll tax settlement payments made during the three months ended March 31, 2021 compared to the same period in 2020 as a result of ~~restricted~~the employee payroll tax election in mid-2020 to sell shares to cover employee payroll taxes on stock ~~vesting events, and made principal payments of $0.1 million on finance leases.~~compensation vestings.

~~Contractual Obligations and Commitments~~

~~There have been no material changes to the contractual obligations table included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 2, 2020.~~

~~Off-Balance Sheet Arrangements~~

During the six months ended June 30, 2020 and June 30, 2019, respectively, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special-purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and the Use of Estimates

We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of our condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

The following critical accounting policies reflect significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

• revenue recognition and deferred revenue;

• stock-based compensation;

• deferred sales commissions and sales commission expense;

• income taxes; and

• business combinations and the recoverability of goodwill and long-lived assets.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May ~~8, 2020,~~5, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Other Key Accounting Policies

Our unaudited interim financial statements and other financial information for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, as presented herein and in Item 1 to this Quarterly Report on Form 10-Q, reflects no material changes in our critical accounting policies and estimates as set forth in our Annual report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the SEC on ~~March 9, 2020.~~February 25, 2021. Please refer to this Annual Report for a detailed description of our critical accounting policies that involve significant management judgment.

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We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

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Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, refer to Note 1. Significant Accounting Policies to our condensed consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and inflation risks, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. The statement of operations impact is mitigated by having an offsetting liability in deferred revenue to partially or completely offset against the outstanding receivable if an account should become uncollectible. Our cash balances are kept in customary operating accounts, a portion of which are insured by the Federal Deposit Insurance Corporation, and uninsured money market accounts. The majority of our cash balances in money market accounts are with ~~Wells Fargo, our~~the lender under our Credit Facility. To date, we have not used derivative instruments to mitigate the impact of our market risk exposures. We also have not used, nor do we intend to use, derivatives for trading or speculative purposes.

Interest Rate Risk

Our exposure to market risk for changes in interest rates primarily relates to our cash equivalents and any variable rate indebtedness. The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This objective is accomplished currently by making diversified investments, consisting only of money market mutual funds and certificates of deposit. In conjunction with our ~~new~~ $350 million, 7 year, term loan, and subsequent entry into an additional $190 million in incremental term loans under the Credit Facility, we entered into interest rate hedge instruments for the full 7 year term, effectively fixing our interest rate at 5.4%. However, the interest rate associated with our new $60 million, 5 year, revolving credit facility remains floating. As of ~~June 30, 2020,~~March 31, 2021, we had a principal balance of ~~$536.0~~$531.9 million under our Credit ~~Agreement.~~Facility. As there was no debt outstanding under our revolving credit facility as of ~~June 30, 2020,~~March 31, 2021, a hypothetical change of 100 basis points would result in ~~a maximum potential~~no change to total interest ~~expense of $0.0 million annually.~~expense.

Foreign Currency Exchange Risk

Our ~~results~~customers are generally invoiced in the currency of ~~operations and cash flows~~the country in which they are ~~subject to fluctuations due to changes in foreign currency exchange rates, which expose us to foreign exchange rate risk.~~located. In addition, we incur a portion of our operating expenses in foreign currencies, including Canadian dollars, British pounds and Euros, and in the future as we expand into other foreign countries, we expect to incur operating expenses in other foreign currencies. ~~In addition, our customers are generally invoiced in the currency of the country in which they are located. We~~As a result, we are exposed to foreign exchange rate fluctuations as the financial results of our international operations ~~are translated from the local functional currency into U.S. dollars upon consolidation. A decline in the U.S. dollar relative to foreign functional currencies would increase our non-U.S. revenue~~ and ~~improve our operating results. Conversely, if the U.S. dollar strengthens relative to foreign functional currencies,~~ our revenue and operating results ~~would~~could be adversely affected. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business ~~would~~could have resulted in a change in revenue of ~~$3.2~~$1.5 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. To date, we have not engaged in any currency hedging strategies. If we decide to hedge our foreign currency exchange rate exposure, we may not be able to hedge effectively due to lack of experience, unreasonable costs, or illiquid markets. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency exchange rates.

The non-financial assets and liabilities of our foreign subsidiaries are translated into United States dollars using the exchange rates in effect at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss. In addition, we have ~~a foreign currency denominated~~ intercompany loans that were used to fund the acquisition of a foreign subsidiaries during the years ended December 31, 2019 and December 31, 2018. Due to the long-term nature of these loans, the foreign currency gains (losses) resulting from remeasurement are recognized as a component of accumulated other comprehensive income (loss).

Inflation

We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of ~~June 30, 2020,~~March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were ~~not~~ effective as of such date as a result of the material weakness in our internal control over financial reporting related to our annual accounting for income taxes as described in Part II, Item 9A, "Controls and Procedures", of our most recently filed Annual Report on Form 10-K.

~~Notwithstanding the material weakness discussed above, our~~date. Our management has concluded that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows ~~(including supplemental disclosures of cash flow information related to cash paid for taxes)~~ for the periods presented in conformity with accounting principles generally accepted in the United States.

~~Status of Remediation Plan~~

Our management has begun implementing a remediation plan to address the operating effectiveness control deficiencies that led to the material weakness described above. Management’s plan of remediation includes adding additional resources to the Company’s tax and accounting teams and streamlining certain internal processes and systems, which management believes will improve the Company’s annual income tax review process and accelerate the Company’s accounting close process. We believe the remediation will be complete prior to the performance of these annual controls for the fiscal year ending December 31, 2020.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2020, we implemented a new global enterprise resource planning (“ERP”) system, which is expected to improve our transactional processing and financial reporting by providing more automation and standardization. While we believe that the implementation of the ERP system and related changes to internal controls will strengthen our ability to continue to scale our business and enhance our internal controls over financial reporting, there are inherent risks in implementing a new ERP system. We have taken the necessary steps to monitor and maintain appropriate internal control over financial reporting during the system change and will continue to monitor the impact of this implementation on our processes and procedures, as well as the impact on our internal controls over financial reporting.

There were no ~~other~~ changes to our internal control over financial reporting (as defined in Rules 13a- 15(f) and 15d- 15(f) of the Exchange Act) during the quarter ended ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.

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PART II – OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our ~~2019~~2020 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. ~~With the exception of the risk factor included below, there~~There have been no material changes during ~~2020~~2021 to the risk factors that were included in the Company's Form 10-K filed with the SEC on ~~March 2, 2020.~~

~~Risks Related to Our Business~~

~~The ongoing COVID-19 pandemic could adversely affect our business, results of operations and financial condition.~~

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world. The COVID-19 pandemic has resulted in travel restrictions prohibitions of non-essential activities, disruption and shutdown of businesses and greater uncertainty in global financial markets.

We cannot predict the extent to which the COVID-19 pandemic will impact our business or operating results, which is highly dependent on inherently uncertain future developments, including the severity of COVID-19 and the actions taken by governments and private businesses in relation to COVID-19 containment. As our platform is offered as a subscription-based service, the effect of the outbreak may not be fully reflected in our operating results until future periods, if at all. As of the date of this report, we do not yet know the extent of the negative impact on our ability to attract, serve, retain or upsell customers. Furthermore, existing and potential customers may choose to reduce or delay technology spending in response to the coronavirus outbreak, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact our operating results, financial condition and prospects.February 25, 2021.

Item 6. Exhibits

See the Exhibit Index immediately following this page, which is incorporated herein by reference.

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EXHIBIT INDEX

Exhibit Number

Exhibit Description

10.1*

Advisory Agreement between Upland Software, Inc. and Tim Mattox effective March 31, 2021.

31.1*

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			UPLAND SOFTWARE, INC.
Dated: ~~August 7, 2020~~May 5, 2021			/s/ Michael D. Hill
			Michael D. Hill
			Chief Financial Officer

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	June 30, 2020		December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	87,910	$	175,024
Accounts receivable (net of allowance of $1,771 and $1,238 at June 30, 2020 and December 31, 2019, respectively)	48,656		50,938
Deferred commissions, current	4,150		3,059
Unbilled receivables	5,508		5,111
Prepaid and other	6,604		4,748
Total current assets	152,828		238,880
Tax credits receivable	4,378		4,186
Property and equipment, net	3,951		3,917
Operating lease right-of-use asset	13,598		8,056
Intangible assets, net	292,316		282,727
Goodwill	379,486		346,134
Deferred commissions, noncurrent	10,160		8,763
Other assets	2,666		4,165
Total assets	$	859,383	$	896,828
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,976	$	5,904
Accrued compensation	5,933		11,559
Accrued expenses and other current liabilities	14,118		15,344
Deferred revenue	81,032		76,558
Due to sellers	5,712		14,276
Operating lease liabilities, current	3,756		2,533
Current maturities of notes payable (includes unamortized discount of $2,216 and $2,207 at June 30, 2020 and December 31, 2019, respectively)	3,184		3,193
Total current liabilities	115,711		129,367

Notes payable, less current maturities (includes unamortized discount of $10,395 and $11,369 at June 30, 2020 and December 31, 2019, respectively)	520,155		521,881
Deferred revenue, noncurrent	2,244		496
Operating lease liabilities, noncurrent	11,217		5,862
Noncurrent deferred tax liability, net	24,577		25,685
Other long-term liabilities	33,242		676
Total liabilities	707,146		683,967







Stockholders’ equity:

Common stock, $0.0001 par value; 50,000,000 shares authorized: 25,365,735 and 25,250,120 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively)	3		3
Additional paid-in capital	363,328		345,127
Accumulated other comprehensive loss	(45,700)		(1,223)
Accumulated deficit	(165,394)		(131,046)
Total stockholders’ equity	152,237		212,861
Total liabilities and stockholders’ equity	$	859,383	$	896,828


	Six Months Ended June 30, 2020
	Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	25,250,120	$	3	$	345,127	$	(1,223)	$	(131,046)	$	212,861

Issuance of stock under Company plans, net of shares withheld for tax	115,615	—		(2,086)		—		—		(2,086)
Issuance of stock, net of issuance costs	—	—		(13)		—		—		(13)
Stock-based compensation	—	—		20,300		—		—		20,300
Cumulative adjustment related to adoption of accounting standard	—	—		—		—		(108)		(108)
Foreign currency translation adjustment	—	—		—		(2,240)		—		(2,240)
Unrealized translation loss on foreign currency denominated intercompany loans	—	—		—		(7,181)		—		(7,181)
Unrealized gain loss on interest rate swaps	—	—		—		(35,056)		—		(35,056)
Net loss	—	—		—		—		(34,240)		(34,240)
Balance at June 30, 2020	25,365,735	$	3	$	363,328	$	(45,700)	$	(165,394)	$	152,237


	Three Months Ended June 30, 2019
	Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at March 31, 2019	21,443,226	$	2	$	183,700	$	(5,132)	$	(93,505)	$	85,065

Issuance of stock under Company plans, net of shares withheld for tax	9,481	—		(3,021)		—		—		(3,021)
Issuance of stock, net of issuance costs	3,795,000	1		151,152		—		—		151,153
Stock-based compensation	—	—		6,901		—		—		6,901

Foreign currency translation adjustment	—	—		—		1,249		—		1,249
Unrealized translation gain on foreign currency denominated intercompany loans	—	—		—		(3,006)		—		(3,006)
Net loss	—	—		—		—		(5,369)		(5,369)
Balance at June 30, 2019	25,247,707	$	3	$	338,732	$	(6,889)	$	(98,874)	$	232,972


	Six Months Ended June 30, 2019
	Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2018	21,489,112	$	2	$	180,481	$	(7,501)	$	(85,675)	$	87,307
Issuance of common stock in business combination	3,651	—		(30)		—		—		(30)
Issuance of stock under Company plans, net of shares withheld for tax	(40,056)	—		(4,400)		—		—		(4,400)
Issuance of stock, net of issuance costs	3,795,000	1		151,152		—		—		151,153
Stock-based compensation	—	—		11,529		—		—		11,529

Foreign currency translation adjustment	—	—		—		612		—		612
Net loss	—	—		—		—		(13,199)		(13,199)
Balance at June 30, 2019	25,247,707	$	3	$	338,732	$	(6,889)	$	(98,874)	$	232,972


	Localytics		Altify		InGenius		Cimpl		Kapost		Postup
Cash	$	67,655	$	84,000	$	26,428	$	23,071	$	45,000	$	34,825
Holdback ⁽¹⁾	345		—		3,000		2,600		5,000		175
Contingent consideration ⁽²⁾	1,000		—		4,865		—		—		—



Working capital adjustment	—		—		—		—		(601)		—
Total consideration	$	69,000	$	84,000	$	34,293	$	25,671	$	49,399	$	35,000


	Amortization Expense
Year ending December 31:
Remainder of 2020	$	22,079
2021	42,822
2022	40,290
2023	38,244
2024	35,603
2025 and thereafter	113,278
Total	$	292,316


	June 30,
	2020	2019

Stock options	320,840	345,792
Restricted stock awards	197,623	773,860
Restricted stock units	1,778,557	891,329
Performance restricted stock units	66,297	—
Total anti–dilutive common share equivalents	2,363,317	2,010,981


	Number of Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2019	790,807	$	39.55
Units granted	1,281,523	40.30
Units vested	(205,053)	40.55
Awards forfeited	(88,720)	42.09
Unvested balances at June 30, 2020	1,778,557	$	39.85


	Number of PRSUs Outstanding	Weighted-Average Grant Date Fair Value (1)
Unvested balances at December 31, 2019	—	$	—
Units granted	66,297	79.72


Unvested balances at June 30, 2020	66,297	$	79.72


	Number of Options Outstanding	Weighted– Average Exercise Price
Outstanding at December 31, 2019	329,698	$	8.57

Options exercised	(8,712)	6.13

Options expired	(146)	1.79
Outstanding at June 30, 2020	320,840	$	8.64