UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June 30, 2019~~March 31, 2020

¨☐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)



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

~~401 Congress Avenue, Suite 1850~~ ~~Austin, Texas~~	~~78701~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~

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: (512) 960-1010~~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

~~Large accelerated filer~~

~~Accelerated filer~~

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

¨☐

Emerging growth company

x☐

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. x¨

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 ~~August 2, 2019, 25,248,526~~May 1, 2020, 25,305,427 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, 2019~~March 31, 2020 and December 31, ~~2018~~2019	1
		Condensed Consolidated Statements of Operations for the Three ~~and Six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~	2
		Condensed Consolidated Statements of Comprehensive Loss for the Three ~~and Six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~	3
		Condensed Consolidated Statements of Stockholders' Equity for the Three months ended March 31, 2020 and ~~Six Months Ended June 30,~~March 31, 2019 ~~and June 30, 2018~~	4
		Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~	65
		Notes to Condensed Consolidated Financial Statements	76
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2624
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	4138
Item 4.		Controls and Procedures	4239
Part II.		OTHER INFORMATION	4340
Item 6.		Exhibits	4340
~~Signature~~Exhibit Index				4541
~~Exhibit Index~~Signature				4442

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, 2019			December 31, 2018				March 31, 2020		December 31, 2019
	(unaudited)							(unaudited)
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	108,361		$	16,738		Cash and cash equivalents	$	98,688	$	175,024
Accounts receivable (net of allowance of $1,742 and $1,405 at June 30, 2019 and December 31, 2018, respectively)	36,758			40,841
Accounts receivable (net of allowance of $1,519 and $1,238 at March 31, 2020 and December 31, 2019, respectively)							Accounts receivable (net of allowance of $1,519 and $1,238 at March 31, 2020 and December 31, 2019, respectively)	55,398		50,938
Deferred commissions, current	3,280			2,633			Deferred commissions, current	3,645		3,059
Unbilled receivables	3,995			3,694			Unbilled receivables	5,689		5,111
Prepaid and other	4,620			3,382			Prepaid and other	7,452		4,748
Total current assets	157,014			67,288			Total current assets	170,872		238,880
Canadian tax credits receivable	1,857			1,573
Tax credits receivable							Tax credits receivable	4,219		4,186
Property and equipment, net	3,568			2,827			Property and equipment, net	4,035		3,917
Operating lease right-of-use asset	6,325			—			Operating lease right-of-use asset	12,353		8,056
Intangible assets, net	207,232			179,572			Intangible assets, net	302,948		282,727
Goodwill	273,363			225,322			Goodwill	377,745		346,134
Deferred commissions, noncurrent	7,957			6,292			Deferred commissions, noncurrent	9,427		8,763
Other assets	264			324			Other assets	1,934		4,165
Total assets	$	657,580		$	483,198		Total assets	$	883,533	$	896,828
Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Current liabilities:							Current liabilities:
Accounts payable	$	3,555		$	3,494		Accounts payable	$	4,794	$	5,904
Accrued compensation	5,840			6,581			Accrued compensation	5,202		11,559
Accrued expenses and other current liabilities	17,863			16,666			Accrued expenses and other current liabilities	15,756		15,344
Deferred revenue	59,568			57,626			Deferred revenue	87,785		76,558
Due to sellers	18,032			17,267			Due to sellers	14,731		14,276
Operating lease liabilities, current	2,614			—			Operating lease liabilities, current	3,828		2,533
Current maturities of notes payable (includes unamortized discount of $0 and $1,109 at June 30, 2019 and December 31, 2018, respectively)	—			6,015
Current maturities of notes payable (includes unamortized discount of $2,209 and $2,207 at March 31, 2020 and December 31, 2019, respectively)							Current maturities of notes payable (includes unamortized discount of $2,209 and $2,207 at March 31, 2020 and December 31, 2019, respectively)	3,191		3,193
Total current liabilities	107,472			107,649			Total current liabilities	135,287		129,367
Notes payable, less current maturities (includes unamortized discount of $4,134 and $2,381 at June 30, 2019 and December 31, 2018, respectively)	305,335			273,713

Notes payable, less current maturities (includes unamortized discount of $10,887 and $11,369 at March 31, 2020 and December 31, 2019, respectively)							Notes payable, less current maturities (includes unamortized discount of $10,887 and $11,369 at March 31, 2020 and December 31, 2019, respectively)	521,013		521,881
Deferred revenue, noncurrent	246			578			Deferred revenue, noncurrent	2,567		496
Operating lease liabilities, noncurrent	4,097			—			Operating lease liabilities, noncurrent	11,515		5,862
Noncurrent deferred tax liability, net	6,773			13,311			Noncurrent deferred tax liability, net	24,472		25,685
Other long-term liabilities	685			640			Other long-term liabilities	29,587		676
Total liabilities	424,608			395,891			Total liabilities	724,441		683,967

Stockholders’ equity:							Stockholders’ equity:
Common stock, $0.0001 par value; 50,000,000 shares authorized: 25,247,707 and 21,489,112 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively)	3			2

Common stock, $0.0001 par value; 50,000,000 shares authorized: 25,305,427 and 25,250,120 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively)							Common stock, $0.0001 par value; 50,000,000 shares authorized: 25,305,427 and 25,250,120 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively)	3		3
Additional paid-in capital	338,732			180,481			Additional paid-in capital	353,720		345,127
Accumulated other comprehensive loss	(6,889		)	(7,501		)	Accumulated other comprehensive loss	(43,396)		(1,223)
Accumulated deficit	(98,874		)	(85,675		)	Accumulated deficit	(151,235)		(131,046)
Total stockholders’ equity	232,972			87,307			Total stockholders’ equity	159,092		212,861
Total liabilities and stockholders’ equity	$	657,580		$	483,198		Total liabilities and stockholders’ equity	$	883,533	$	896,828

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,
	2020		2019
Revenue:
Subscription and support	$	63,891	$	44,983
Perpetual license	361		657
Total product revenue	64,252		45,640
Professional services	3,780		2,853
Total revenue	68,032		48,493
Cost of revenue:
Subscription and support	19,939		13,274
Professional services	2,262		1,514
Total cost of revenue	22,201		14,788
Gross profit	45,831		33,705
Operating expenses:
Sales and marketing	10,931		6,982
Research and development	9,420		6,398
Refundable Canadian tax credits	(302)		(86)
General and administrative	16,676		9,994
Depreciation and amortization	9,271		5,259
Acquisition-related expenses	15,158		7,723
Total operating expenses	61,154		36,270
Loss from operations	(15,323)		(2,565)
Other expense:
Interest expense, net	(7,643)		(5,116)
Other expense, net	(1,402)		(761)
Total other expense	(9,045)		(5,877)
Loss before provision for income taxes	(24,368)		(8,442)
Benefit from income taxes	4,287		612


Net loss	$	(20,081)	$	(7,830)


Net loss per common share:
Net loss per common share, basic and diluted	$	(0.81)	$	(0.38)


Weighted-average common shares outstanding, basic and diluted	24,906,932		20,442,626

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenue:
Subscription and support $ 48,715
$ 33,154
$ 93,698
$ 60,883
Perpetual license 575
683
1,232
2,309
Total product revenue 49,290
33,837
94,930
63,192
Professional services 3,723
2,109
6,576
4,369
Total revenue 53,013
35,946
101,506
67,561
Cost of revenue:
Subscription and support 14,622
9,580
27,896
18,829
Professional services 1,961
1,269
3,475
2,665
Total cost of revenue 16,583
10,849
31,371
21,494
Gross profit 36,430
25,097
70,135
46,067
Operating expenses:
Sales and marketing 7,989
5,248
14,971
9,656
Research and development 7,008
5,286
13,406
10,177
Refundable Canadian tax credits (85 ) (203 ) (171 ) (305 )
General and administrative 12,042
8,464
22,036
15,464
Depreciation and amortization 5,744
3,853
11,003
5,983
Acquisition-related expenses 9,264
3,140
16,987
6,242
Total operating expenses 41,962
25,788
78,232
47,217
Loss from operations (5,532 ) (691 ) (8,097 ) (1,150 )
Other expense:
Interest expense, net (5,246 ) (3,143 ) (10,362 ) (5,637 )
Other income (expense), net (692 ) (524 ) (1,453 ) (221 )
Total other expense (5,938 ) (3,667 ) (11,815 ) (5,858 )
Loss before provision for income taxes (11,470 ) (4,358 ) (19,912 ) (7,008 )
Benefit from (provision for) income taxes 6,101
(872 ) 6,713
(1,383 )
Net loss $ (5,369 ) $ (5,230 ) $ (13,199 ) $ (8,391 )
Net loss per common share:
Net loss per common share, basic and diluted $ (0.24 ) $ (0.26 ) $ (0.61 ) $ (0.42 )
Weighted-average common shares outstanding, basic and diluted 22,619,805
19,901,599
21,531,216
19,830,401

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,
	2020		2019
Net loss	$	(20,081)	$	(7,830)
Foreign currency translation adjustment	(3,459)		(637)
Unrealized translation gain (loss) on foreign currency denominated intercompany loans	(7,313)		3,006
Unrealized loss on interest rate swaps	(31,401)		—
Comprehensive loss	$	(62,254)	$	(5,461)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Net loss $ (5,369 ) $ (5,230 ) $ (13,199 ) $ (8,391 )
Foreign currency translation adjustment (1,757 ) (2,227 ) 612
(2,680 )
Comprehensive loss $ (7,126 ) $ (7,457 ) $ (12,587 ) $ (11,071 )

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, 2018
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Stockholders’
Equity
Shares Amount
Balance at March 31, 2018 21,526,426
$ 2
$ 176,939
$ (2,856 ) $ (77,997 ) $ 96,088
Issuance of stock under Company plans, net of shares withheld for tax (9,688 ) —
(2,899 ) —
—
(2,899 )
Stock-based compensation —
—
4,022
—
—
4,022
Foreign currency translation adjustment —
—
—
(2,227 ) —
(2,227 )
Net loss —
—
—
—
(5,230 ) (5,230 )
Balance at June 30, 2018 21,516,738
$ 2
$ 178,062
$ (5,083 ) $ (83,227 ) $ 89,754


	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 foreign currency denominated intercompany loans	—	—		—		(7,313)		—		(7,313)
Unrealized gain 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

Six Months Ended June 30, 2018
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Stockholders’
Equity
Shares Amount
Balance at December 31, 2017 20,768,401
$ 2
$ 174,944
$ (2,403 ) $ (81,128 ) $ 91,415
Issuance of stock under Company plans, net of shares withheld for tax 748,337
—
(3,460 ) —
—
(3,460 )
Issuance of stock, net of issuance costs —
—
(21 ) —
—
(21 )
Stock-based compensation —
—
6,599
—
—
6,599
Cumulative ASC 606 adjustments —
—
—
—
6,292
6,292
Foreign currency translation adjustment —
—
—
(2,680 ) —
(2,680 )
Net loss —
—
—
—
(8,391 ) (8,391 )
Balance at June 30, 2018 21,516,738
$ 2
$ 178,062
$ (5,083 ) $ (83,227 ) $ 89,754


	Three Months Ended March 31, 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	(49,537)	—		(1,379)		—		—		(1,379)

Stock-based compensation	—	—		4,628		—		—		4,628

Foreign currency translation adjustment	—	—		—		(637)		—		(637)
Unrealized translation gain on foreign currency denominated intercompany loans	—	—		—		3,006		—		3,006
Net loss	—	—		—		—		(7,830)		(7,830)
Balance at March 31, 2019	21,443,226	$	2	$	183,700	$	(5,132)	$	(93,505)	$	85,065

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

Table of Contents

Upland Software, Inc.

Condensed Consolidated ~~Statement~~Statements of ~~Stockholders’ Equity~~Cash Flows

(unaudited)

(in ~~thousands, except share amounts)~~thousands)




	Three Months Ended March 31,
	2020		2019
Operating activities
Net loss	$	(20,081)	$	(7,830)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	11,737		7,387

Deferred income taxes	(4,348)		(2,811)
Amortization of deferred costs	894		801
Foreign currency re-measurement loss	587		(171)
Non-cash interest and other expense	552		283
Non-cash stock compensation expense	9,320		4,628



Changes in operating assets and liabilities, net of purchase business combinations:
Accounts receivable	(1,664)		5,980
Prepaids and other	(2,778)		(1,268)
Accounts payable	(3,439)		(269)
Accrued expenses and other liabilities	(5,942)		(766)
Deferred revenue	9,853		(1,087)
Net cash provided by (used in) operating activities	(5,309)		4,877
Investing activities
Purchase of property and equipment	(296)		(173)
Purchase of customer relationships	(201)		—
Purchase business combinations, net of cash acquired	(67,651)		(2,999)

Net cash used in investing activities	(68,148)		(3,172)
Financing activities
Payments on finance leases	(55)		(233)
Proceeds from notes payable, net of issuance costs	(72)		(120)
Payments on notes payable	(1,350)		(1,781)



Taxes paid related to net share settlement of equity awards	(768)		(1,504)
Issuance of common stock, net of issuance costs	41		96

Additional consideration paid to sellers of businesses	(1,000)		(1,258)
Net cash used in financing activities	(3,204)		(4,800)
Effect of exchange rate fluctuations on cash	325		379
Change in cash and cash equivalents	(76,336)		(2,716)
Cash and cash equivalents, beginning of period	175,024		16,738
Cash and cash equivalents, end of period	$	98,688	$	14,022
Supplemental disclosures of cash flow information:
Cash paid for interest, net of interest rate swaps	$	7,435	$	4,854
Cash paid for taxes	$	508	$	758
Sales commissions paid, net of amortization of deferred commissions	$	1,250	$	1,184
Non-cash investing and financing activities:
Business combination consideration including holdbacks and earnouts	$	345	$	—

Equipment acquired pursuant to financing lease obligations	$	—	$	44

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 —
—
—
(1,757 ) —
(1,757 )
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

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

~~Upland Software, Inc.~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(unaudited)~~

~~(in thousands)~~

Six Months Ended June 30,
2019 2018
Operating activities
Net loss $ (13,199 ) $ (8,391 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 15,152
9,217
Deferred income taxes (12,024 ) 275
Amortization of deferred commissions 1,735
1,115
Foreign currency re-measurement (gain) loss (212 ) 269
Non-cash interest and other expense 565
404
Non-cash stock compensation expense 11,529
6,599
Changes in operating assets and liabilities, net of purchase business combinations:
Accounts receivable 8,410
2,963
Prepaids and other 2,415
(2,545 )
Accounts payable (483 ) (476 )
Accrued expenses and other liabilities (5,756 ) (3,898 )
Deferred revenue (2,736 ) (1,792 )
Net cash provided by operating activities 5,396
3,740
Investing activities
Purchase of property and equipment (364 ) (515 )
Purchase business combinations, net of cash acquired (82,824 ) (45,362 )
Net cash used in investing activities (83,188 ) (45,877 )
Financing activities
Payments on capital leases (357 ) (505 )
Proceeds from notes payable, net of issuance costs 39,339
49,375
Payments on notes payable (13,749 ) (1,876 )
Taxes paid related to net share settlement of equity awards (4,811 ) (3,862 )
Issuance of common stock, net of issuance costs 151,535
382
Additional consideration paid to sellers of businesses (3,340 ) (4,294 )
Net cash provided by financing activities 168,617
39,220
Effect of exchange rate fluctuations on cash 798
(372 )
Change in cash and cash equivalents 91,623
(3,289 )
Cash and cash equivalents, beginning of period 16,738
22,326
Cash and cash equivalents, end of period $ 108,361
$ 19,037
Supplemental disclosures of cash flow information:
Cash paid for interest $ 10,298
$ 5,260
Cash paid for taxes $ 1,691
$ 1,856
Noncash investing and financing activities:
Business combination consideration including holdbacks and earnouts $ 5,175
$ 6,781
Equipment acquired pursuant to capital 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"~~(“GAAP”). The condensed consolidated financial statements include the accounts of the ~~Company~~Upland Software, Inc. and its wholly owned ~~subsidiaries.~~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, 2020, 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"~~(“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, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2019~~2020 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 ~~2018~~2019 Annual Report on Form 10-K filed with the SEC on March ~~15, 2019.~~2, 2020.

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 ~~doubtful accounts,~~credit losses, stock-based compensation, contingent consideration, acquired intangible assets, the useful lives of intangible assets and property and equipment, 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 May 8, 2020, 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 and accounts receivable. 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. ~~The~~To manage accounts receivable credit risk, the Company performs periodic credit evaluations of its customers and ~~generally does~~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. Changes in the allowance for credit losses were not ~~require collateral.~~ material for the three months ended March 31, 2020.

No individual customer represented more than 10% of total revenues for the three or ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, or more than 10% of accounts receivable as of ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

Derivatives

The Company 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 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 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 March 31, 2020 the fair value of the interest rate swaps included in Other long term-liabilities in the Company's condensed consolidated balance sheets was $29.0 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 sheets was $2.4 million.

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 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

In March 2020, the 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 ~~yet~~anticipate the adoption of this standard to have a material impact on its 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 ~~is currently evaluating~~adopted this guidance in the ~~effect that the adoption~~first quarter of ~~ASU 2018-13 will have~~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 ~~is currently evaluating the effect that the adoption of ASU 2016-13 will have on its financial statements.~~

~~Recently adopted accounting pronouncements~~

~~In January 2018, the FASB issued ASU 2018-02~~ ~~Income Statement - Reporting Comprehensive Income (ASC 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI)~~, which gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Act related to items in Additional Other Comprehensive Income (AOCI) that the FASB refers to as having been “stranded” in AOCI. The guidance is effective for annual and interim periods beginning after December 15, 2018, and is applicable to the Company in fiscal year 2019; however, early adoption is permitted. The Company adopted ASU 2018-02 as of January 1, 2019 and elected not to reclassify the income tax effect of the Tax Act from AOCI to retained earnings. The adoption of ASU 2018-02 resulted in no impact to the Company's financial statements.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which amends and simplifies existing guidance to allow companies to more accurately present the economic effects of risk management activities in the financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance in the first quarter of ~~2019 with no material impact on its consolidated financial statements.~~

~~In February 2016,~~2020 and as a result of the ~~FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. The new standard supersedes the present U.S. GAAP standard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods. Early adoption is permitted and in the original guidance the modified retrospective application was required, however, in July 2018 the FASB issued ASU 2018-11 which permits entities with another transition method in which the effective date would be the date of initial application of transition. Under this optional transition method, we would recognizerecorded a cumulative-effect adjustment to decrease the ~~opening~~beginning balance of ~~retained earnings~~Accumulated deficit in the ~~period~~amount of ~~adoption. We adopted ASU 2016-02 as of January 1, 2019 using~~$0.1 million, which represents the modified retrospective approach and the optional transition method. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward historical lease classifications.

Adoption of the new standard resulted in the recording operating lease right-of-use assets and operating lease liabilities on our consolidated balance sheets, but did not have an impact on the Company's beginning retained earnings, consolidated statement of operations or statement of cash flows. The most significant impact was theaccelerated recognition of ~~right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. As of June 30, 2019, total right-of-use assets~~credit losses related to our ~~operating leases was $6.3 million and~~trade receivables under the expected credit loss model of calculating our current ~~and non-current operating lease liabilities were approximately $2.6 million and $4.1 million, respectively.~~

expected credit losses compared to the previous incurred loss model.

2. Acquisitions

~~We perform~~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, with~~basis.

2020 Acquisitions

Acquisitions completed during the ~~exception~~three months ended March 31, 2020 include the following:

•Localytics - On February 6, 2020, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of ~~Rapide Communication LTD,~~Char Software, Inc (dba Localytics), a ~~private company limited by shares organized~~Delaware corporation (“Localytics”), a provider of mobile app personalization and ~~existing under~~analytics solutions. Revenues recorded since the ~~laws of England and Wales doing business as Rant & Rave (“Rant & Rave”). Refer to “Pro Forma Financials” disclosed below.~~acquisition date through March 31, 2020 were approximately $2.5 million.

2019 Acquisitions

Acquisitions completed during the ~~six months~~year ended ~~June 30,~~December 31, 2019 include the following:

•Postup ~~Holdings~~ - 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 Holdings”~~Postup”), and Postup Digital, LLC, a Texas limited liability company, ~~(“Postup Digital”),~~ an Austin-based company providing email and audience development solutions for publishing & media brands. ~~Revenues recorded since the acquisition date through June 30, 2019 were approximately $2.4 million.~~

•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. ~~Revenues recorded since the acquisition date through June 30, 2019 were approximately $1.4 million.~~

~~2018 Acquisitions~~

~~Acquisitions completed during the year ended December 31, 2018 include the following:~~

~~Interfax~~•Cimpl - On ~~March~~August 21, ~~2018,~~2019, the ~~Company’s wholly owned subsidiary, PowerSteering Software Limited, a limited liability company organized and existing under the laws of England and Wales (“PowerSteering UK”),~~Company completed its purchase of the shares comprising the entire issued share capital of ~~Interfax Communications Limited ("Interfax")~~Cimpl, Inc., ~~an Irish-based software company providing secured cloud-based messaging solutions, including enterprise cloud fax and secure document distribution.~~

~~RO Innovation~~ ~~- On June 27, 2018, the Company completed its purchase of RO Innovation, Inc. ("RO Innovation"~~a Canadian corporation (“Cimpl”), a leading cloud-based ~~customer reference solution for creating, deploying, managing, and measuring customer reference and sales enablement content.~~

telecom expense management platform.

~~Rant & Rave~~•InGenius - On October ~~3, 2018,~~1, 2019, the ~~Company’s wholly owned subsidiary, PowerSteering UK,~~Company completed its purchase of the shares comprising the entire issued ~~voting~~ share capital of ~~Rant & Rave,~~InGenius Software Inc., a ~~leading provider of cloud-based customer engagement solutions.~~

Canadian corporation (“InGenius”), a Computer Telephony Integration (CTI) solution for enterprise contact centers.

~~Adestra~~•Altify - On ~~December 12, 2018,~~October 4, 2019, the ~~Company completed its~~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 ~~Adestra Ltd.~~Altify Ireland Limited, a private company limited by shares organized and existing under the laws of Ireland (“~~Adestra”~~Altify”), a ~~leading provider of enterprise-grade email marketing, transaction~~customer revenue optimization (CRO) cloud solution for sales and ~~automation software.~~

the extended revenue teams.

Consideration

The following table summarizes the consideration ~~transfered~~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

Kapost Postup Holdings Adestra Rant & Rave RO Innovation Interfax
Cash $ 45,000
$ 34,825
$ 55,242
$ 58,470
$ 12,469
$ 35,000
Holdback ⁽¹⁾
5,000
175
4,432
6,500
1,781
5,000
Contingent consideration ⁽²⁾
—
—
—
—
—
—
Working capital adjustment —
—
—
(211 ) (87 ) —
Total consideration $ 50,000
$ 35,000
$ 59,674
$ 64,759
$ 14,163
$ 40,000


~~(1)~~	~~Represents cash holdbacks subject to indemnification claims that are payable 12 months from closing for Kapost, Postup, Adestra, Rant & Rave and RO Innovation and 18 months from closing for Interfax.~~

~~(2)~~

Contingent consideration includes potential future earn-out payments related to the acquisition of RO Innovation for up to $7.5 million which was valued at $0.0 million as of the acquisition date based on the probability of attainment of future performance-based goals. During the six months ended June 30, 2019 we paid $1.5 million based on the final valuation of this earn-out. Refer to Note 3 for further discussion regarding the calculation of fair value of acquisition related earn-outs.

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

~~Unaudited Pro Forma Information~~

(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 ~~pro forma statements of operations data~~maximum potential payout for the ~~three~~InGenius and ~~six months ended~~ ~~June 30, 2019~~Localytics earn-outs are $15.0 million and ~~June 30, 2018, shown in~~$1.0 million, respectively. Refer to Note 3 for further discussion regarding the table below, give effect to the Rant & Rave acquisition, described above, as if it had occurred at January 1, 2017. These amounts have been calculated after applying our accounting policies and adjusting the resultscalculation of Rant & Rave to reflect: the reversal and deferral of commissions expense, the costs of debt financing incurred to acquire Rant & Rave, the additional intangible amortization and the adjustments to acquired deferred revenue that would have been recognized assuming the fair value ~~adjustments had been applied and incurred since January 1, 2017. This pro forma data is presented for informational purposes only and does not purport to be indicative~~ of ~~our future results of operations.~~

~~The table below shows the pro forma statements of operations data, adjusted for the~~ acquisition ~~of Rant & Rave had the acquisition occurred in the year ended December 31, 2017, for the three and six months ended~~ ~~June 30, 2019 and June 30, 2018 (in thousands):~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenue $ 53,013
$ 42,065
$ 101,506
$ 79,555
Net loss ⁽¹⁾
$ (5,369 ) $ (6,877 ) $ (13,199 ) $ (10,055 )

~~(1)~~ While some recurring adjustments impact the pro forma figures presented, the decrease in pro forma net loss compared to our net loss presented on the consolidated statements of operations for the three and six months ended June 30, 2019 and June 30, 2018 includes nonrecurring adjustments removing acquisition costs from 2018 and reflects these costs in the year ended December 31, 2017, the year the acquisition was assumed to be completed for pro forma purposes.related earn-outs.

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 ~~price allocations~~accounting for the 2019 ~~acquisitions~~acquisition of ~~Kapost and Postup~~Altify and the ~~2018 acquisitions~~2020 acquisition of ~~Rant & Rave and Adestra~~Localytics are preliminary as the Company has not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts in all respects, specifically the tax ~~impacts~~impact not being finalized as of ~~the 2018 Tax Act for Adestra and Rant & Rave and~~March 31, 2020. In addition, the valuation of intangible assets for ~~Postup and Kapost.~~Localytics was not finalized as of March 31, 2020. Management has recorded the purchase price allocations based upon acquired company information that is currently available. Management expects to complete its purchase price allocations for ~~Kapost and Postup~~these acquisitions in the ~~fourth quarter~~second half of ~~2019 and Rant & Rave and Adestra in the third quarter of 2019.~~

2020.

The following condensed table presents the preliminary and finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions in ~~2018~~during the year ended December 31, 2019 and through the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, 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	39,646		34,426		24,141		12,928		20,953		21,973
Other assets	6		378		—		6		—		—
Total assets acquired	95,039		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	(4,258)		(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	(26,039)		(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 Finalized
Kapost Postup Holdings Adestra Rant & Rave RO Innovation Interfax
Year Acquired 2019 2019 2018 2018 2018 2018

Cash $ —
$ —
$ 145
$ 696
$ 197
$ 1,396
Accounts receivable 3,918
1,043
2,814
3,468
1,563
1,587
Other current assets 4,575
2,002
1,395
3,836
1,299
1,341
Property and equipment 687
743
796
131
15
286
Operating lease right-of-use asset 2,136
—
—
—
—
—
—
Customer relationships 23,735
10,667
27,542
29,981
6,688
22,577
Trade name 787
468
710
1,099
111
649
Technology 5,756
2,943
6,001
6,565
1,670
5,236
Noncompetes —
—
—
—
1,148
—
Goodwill 22,159
22,815
28,932
32,589
7,568
13,862
Other assets —
—
—
—
—
14
Total assets acquired 63,753
40,681
68,335
78,365
20,259
46,948
Accounts payable (64 ) (448 ) (543 ) (1,577 ) (229 ) (737 )
Accrued expense and other (5,031 ) (1,794 ) (1,758 ) (6,114 ) (1,921 ) (2,847 )
Deferred tax liabilities (2,432 ) (3,424 ) (5,104 ) (3,896 ) (2,129 ) (3,364 )
Deferred revenue (4,090 ) (15 ) (1,256 ) (2,019 ) (1,817 ) —
Operating lease liabilities (2,136 ) —
—
—
—
—
Total liabilities assumed (13,753 ) (5,681 ) (8,661 ) (13,606 ) (6,096 ) (6,948 )
Total consideration $ 50,000
$ 35,000
$ 59,674
$ 64,759
$ 14,163
$ 40,000

The Company uses third party valuation consultants to determine the fair values of assets acquired and liabilities assumed. Tangible assets ~~were~~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 ~~were~~are valued using ~~an income approach, which estimates fair value based on~~ the multi-period excess earnings ~~and cash flow capacity of the subject asset.~~method. Developed technology ~~was~~and trade names are valued using ~~a cost-to-recreate approach.~~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, 2019~~March 31, 2020 and the year ended December 31, ~~2018~~2019 (in years):


	Useful Life			Useful Life
	June 30, 2019	December 31, 2018		March 31, 2020	December 31, 2019
Customer relationships	9.4	9.8	Customer relationships	8.0	9.8
Trade name	8.9	8.0	Trade name	2.0	9.2
Developed technology	7.3	6.7	Developed technology	5.0	7.9
Non-Compete Agreements	0.0	3.0

Total weighted-average useful life	9.0	9.1	Total weighted-average useful life	7.4	9.5

During the measurement period, which may be up to one year from the acquisition date, ~~we record~~the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to ~~our~~management's estimates and assumptions. The change in the preliminary acquisition-date fair value of assets and liabilities for ~~Adestra~~Altify during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was related primarily to a ~~$3.3~~$1.0 million decrease in ~~intangibles (customer relationships, trade name and technology) due to a change in valuation estimates.~~deferred tax liabilities.

The goodwill of ~~$127.9~~$154.1 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 $2.4 million for Interfax, $2.7 million for RO Innovation and $5.6 million for Postup Holdings. There was no Goodwill deductible for tax purposes for our Adestra, Rant & Rave and Kapost acquisitions. Measurement period expenses recorded to other income (expense), net, related to acquisitions that took place within a prior period for the three months ended June 30, 2019 and June 30, 2018 were net expense of $0.3

~~million and $0.1 million, respectively, and for the six months ended June 30, 2019 and June 30, 2018 were net expense of $0.8 million and $0.2 million, respectively.~~$6.2 million.

Total transaction ~~costs, excluding integration and transformation costs,~~related expenses incurred with respect to acquisition activity during the three months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ were ~~$3.6~~$3.3 million and ~~$1.2~~$0.4 million, ~~respectively,~~respectively. Transaction related expenses, excluding transformation costs, include expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses.

Other Acquisitions and Divestitures

From time to time we may purchase or sell customer relationships that meet certain criteria. During the three months ended March 31, 2020 and year ended December 31, 2019 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 ~~six months~~year ended ~~June 30,~~December 31, 2019 ~~and June 30, 2018 were $4.0 million and $2.6 million, respectively.~~

~~Asset Acquisitions~~

~~In connection with the acquisition of Interfax,~~ the Company ~~acquired certain assets and customer relationships of Interfax's U.S. reseller (“Marketech”) for~~recognized a $2.0 million ~~excluding potential future earn-out payments~~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 ~~valued at $0.3 million as~~ of ~~the acquisition dated based on the probability~~liabilities primarily consisting of attainment of future performance-based goals. During the six months ended June 30, 2019 we paid $0.6 million based on the final valuation of this earn-out. Refer to Note 3 for further discussion regarding the calculation of fair value of acquisition related earn-outs.deferred revenue.

~~During the~~ ~~six~~ ~~months ended~~ ~~June 30, 2019~~ we acquired customer relationships for $0.6 million from a third-party reseller of our mobile messaging solution in exchange for a reduction in the account receivable balance owed to us by the reseller.

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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, the Company has 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. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.

~~Changes~~ Any gain (loss) related to subsequent changes in the fair value of ~~earnout~~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 ~~recorded~~included in Due to ~~other expense, net.~~ 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 March 31, 2020 and December 31, 2019 the fair value of

the interest rate swaps are included in Other long term-liabilities and Other assets, respectively, 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 June 30, 2019~~

~~(unaudited)~~

~~Level 1~~

~~Level 2~~

~~Level 3~~

~~Total~~

~~Earnout consideration liability~~

—


	Fair Value Measurements at March 31, 2020
	(unaudited)
	Level 1		Level 2		Level 3		Total


Liabilities
Earnout consideration liability	$	—	$	—	$	4,565	$	4,565
Interest rate swap liability	$	—	$	28,977	$	—	$	28,977

Fair Value Measurements at December 31, 2018
Level 1 Level 2 Level 3 Total
Earnout consideration liability $ —
$ —
$ 1,396
$ 1,396


	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 ~~decrease~~increase in cash earnouts from December 31, ~~2018~~2019 to ~~June 30, 2019~~March 31, 2020 is related primarily to ~~cash settlement~~the change in fair value of earnouts related to ~~Marketech and RO Innovation.~~InGenius.

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

June 30, 2019
(unaudited)
Balance at December 31, 2018 $ 1,396

Remeasurement adjustments:
Loss included in earnings ⁽¹⁾
712

Acquisitions and settlements:
Settlements ⁽²⁾
(2,108 )
Balance at June 30, 2019 $ —


~~(1)~~			~~Recorded as a component of other operating income (expense) in the Company's statement of operations, during the six months ended June 30, 2019.~~March 31, 2020


~~(2)~~	~~Includes a $1.5 million payment for the outstanding balance of earnout liabilities related to the acquisition of RO Innovation~~(unaudited)
Balance at December 31, 2019	$	4,394

Remeasurement adjustments:
Gain included in earnings	171



Acquisitions and ~~a $0.6 million payment for the outstanding balance of earnout liabilities related to the Marketech asset purchase as describe in Note 2. Acquisitions.~~settlements:

Acquisitions	1,000

Settlements ⁽¹⁾	(1,000)
Balance at March 31, 2020	$	4,565

(1) Includes a $1.0 million payment for the outstanding balance of earnout liabilities related to the acquisition of Localytics as describe in Note 2. Acquisitions.

The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:

Fair Value at March 31, 2020

Valuation Technique

Significant Unobservable Inputs

Contingent acquisition consideration:
(InGenius)

4,565

Binary option model

Expected future annual revenue streams and probability of achievement

Fair Value at December 31, 2018 Valuation Technique Significant Unobservable Inputs
Contingent acquisition consideration:
(Marketech and RO Innovation)
$ 1,396
Binary option model Expected future annual revenue streams and probability of achievement

Fair Value at December 31, 2019

Valuation Technique

Significant Unobservable Inputs

Contingent acquisition consideration:
(InGenius)

4,394

Binary option model

Expected future annual revenue streams and probability of achievement

Fair value of the InGenius earnout is calculated as the lessor of 1) new annualized recurring revenue ("ARR") added during the earnout valuation period multiplied by a contracted earnout multiplier; or 2) $15.0 million. On a quarterly basis management estimates the new ARR expected to be added during the earnout valuation period as of the reporting date.

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, 2019~~March 31, 2020 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, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are ~~$309.5~~$537.3 million and ~~$283.2~~$538.7 million, respectively, based on valuation methodologies using interest rates currently available to the Company, which are Level 2 inputs.

4. Goodwill and Other Intangible Assets

Changes in the Company’s goodwill balance for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 are summarized in the table below (in thousands):

Balance at December 31, 2018 $ 225,322
Acquired in business combinations 44,974
Adjustment related to prior year business combinations 2,748
Foreign currency translation adjustment 319
Balance at June 30, 2019 $ 273,363


Balance at December 31, 2019	$	346,134
Acquired in business combinations	39,646

Adjustment related to prior year business combinations	(996)

Foreign currency translation adjustment	(7,039)
Balance at March 31, 2020	$	377,745

Net intangible assets include the estimated acquisition-date fair values of customer relationships, marketing-related assets, and developed technology that the Company recorded as part of its business acquisitions. The $2.7 million adjustment to Goodwill during the six months ended June 30, 2019 is primarily related to changes in the ASC 805 valuation of intangible assets in the prior year business combination of Adestra.

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, 2020:
Customer relationships	1-10	$	307,854	$	61,530	$	246,324
Trade name	1.5-10	8,953		4,042		4,911
Developed technology	4-9	76,577		25,342		51,235
Non-compete agreements	3	1,148		670		478
Total intangible assets		$	394,532	$	91,584	$	302,948

Estimated Useful
Life (Years) Gross
Carrying Amount Accumulated
Amortization Net Carrying
Amount
June 30, 2019:
Customer relationships 1-10 $ 206,483
$ 40,756
$ 165,727
Trade name 1.5-10 7,086
3,596
3,490
Developed technology 4-8 57,010
19,760
37,250
Non-compete agreements 3 1,148
383
765
Total intangible assets $ 271,727
$ 64,495
$ 207,232


									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, 2018:
December 31, 2019:								December 31, 2019:
Customer relationships	1-10	$	173,592	$	30,650	$	142,942	Customer relationships	1-10	$	283,005	$	53,984	$	229,021
Trade name	1.5-10	6,113		3,334		2,779		Trade name	1.5-10	8,827		3,884		4,943
Developed technology	4-7	48,943		16,049		32,894		Developed technology	4-9	71,522		23,333		48,189
Non-compete agreements	3	1,148		191		957		Non-compete agreements	3	1,148		574		574
Total intangible assets		$	229,796	$	50,224	$	179,572	Total intangible assets		$	364,502	$	81,775	$	282,727

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. ~~There have been no indicators~~During the three months ended March 31, 2020, the Company considered the current market and economic condition arising from the COVID-19 pandemic to be a potential indicator of impairment of the Company’s intangible assets and goodwill. Based on management’s qualitative review no impairment of intangible assets or ~~change in~~goodwill was identified. During the fourth quarter of 2019, management made the decision to sunset and divest certain minor non-strategic customer contracts and related website management and analytics assets. The remaining useful life ~~during~~of certain customer relationship assets included in the ~~three and six months ended June 30, 2019 and June 30, 2018, respectively.~~sunset asset group were reduced by 1 year to 2.5 years which represents the term left on the current active contracts. Total amortization expense during the three months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ was ~~$7.2~~$11.2 million and ~~$4.5 million, respectively, and during the six months ended June 30, 2019 and June 30, 2018 was $14.0 million and $8.1~~$6.8 million, respectively.

The Company has historically performed its annual goodwill and indefinite-lived intangible asset impairment test as of October 31^st. During 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 annual amortization expense for the next five years and thereafter is as follows (in thousands):


	Amortization Expense
Year ending December 31:
Remainder of 2020	$	33,275
2021	42,822
2022	40,290
2023	38,244
2024	35,603
2025 and thereafter	112,714
Total	$	302,948

Amortization
Expense
Year ending December 31:
Remainder of 2019 $ 15,525
2020 29,359
2021 28,438
2022 26,129
2023 24,084
2024 and thereafter 83,697
Total $ 207,232

5. Income Taxes

The Company’s income tax ~~provision for~~benefit from (provision for) the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ 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 ~~$6.1 million and $6.7~~$4.3 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.

The tax ~~provision~~benefit of ~~$0.9 million and $1.4~~$0.6 million recorded for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 is primarily related to foreign income taxes associated with our ~~Canadian, Irish and Israeli~~combined non-U.S. 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.~~loss carryforwards.

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, 2020 and March 31, 2019, respectively. As of March 31, 2020, Upland had $321 million of total net operating loss carryforwards of which approximately $197 million will be available for utilization prior to expiration. These balances include the net operating losses disclosed as of December 31, 2019 and ~~June 30, 2018,~~the estimated net operating losses acquired in the current year via acquisitions based on information available as of March 31, 2020. The net operating loss carryforwards available for utilization prior to expiration consist of approximately $166 million and $31 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. ~~Federal,~~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 ~~returns have been filed in jurisdictions with varying statutes of limitations. Varying among the separate companies, tax~~examinations for years ~~1999 through 2018 remain~~ending before December 31, 2016 and is no longer subject to ~~examination~~state and local or foreign income tax examinations by ~~federal and most state~~ tax authorities ~~due~~for years ending before December 31, 2015. The Company is not currently under audit for federal, state or any foreign jurisdictions. U.S. operating losses generated in years prior to ~~our~~2016 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating ~~loss carryforwards. In foreign jurisdictions, tax years 2014 through 2018 remain subject to examination.~~losses are utilized.

6. Debt

Long-term debt consisted of the following at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2019		December 31, 2018				March 31, 2020		December 31, 2019
Senior secured loans (includes unamortized discount of $4,134 and $3,490 based on an imputed interest rate of 6.9%, at both June 30, 2019 and December 31, 2018, respectively)	$	305,335	$	279,728
Senior secured loans (includes unamortized discount of $13,096 and $13,576 based on an imputed interest rate of 5.9% and 5.8%, at March 31, 2020 and December 31, 2019, respectively)						Senior secured loans (includes unamortized discount of $13,096 and $13,576 based on an imputed interest rate of 5.9% and 5.8%, at March 31, 2020 and December 31, 2019, respectively)	$	524,204	$	525,074

Less current maturities	—		(6,015		)	Less current maturities	(3,191)		(3,193)
Total long-term debt	$	305,335	$	273,713		Total long-term debt	$	521,013	$	521,881

Credit Facility

On ~~May 14, 2015, we~~August 6, 2019, the Company entered into a credit agreement (the “Credit Facility”) between the Company, certain of its subsidiaries, and each of the lenders named in the Credit Facility. From time to time the Credit Facility is amended to expand the available borrowing limit in order to fund the Company's acquisitions. The Credit Facility has a maturity date of August 2, 2022.

~~The Credit Facility, as amended,~~which provides for (i) a ~~$400.0~~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 ~~including (i) a fully drawn $285.0 million term loan, (ii) a $30.0 million delayed draw term loan commitment~~ (the ~~“DDTL”~~“Revolver”) that was fully ~~drawn down during~~available as of March 31, 2020. The Credit Facility replaced the ~~three months ended June 30,~~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 ~~(iii)~~(the “Closing Date”), the Company entered into a ~~fully available $30.0 million revolving~~First Incremental Assumption Agreement (the “Incremental Assumption Agreement”) which provides for a term loan ~~commitment, and (iv) a $55.0 million uncommitted accordion.~~

~~Specifically,~~facility to be established under the Credit Facility ~~provides for $285.0 million of term debt comprised of (i) a fully drawn U.S. term loan facility~~ in an aggregate principal amount of ~~$279.8~~$190.0 million (the ~~“U.S.~~“2019 Incremental Term Loan”), which is in addition to the existing $350.0 million term loans outstanding under the Credit Agreement and ~~(ii)~~the $60.0 million revolving credit facility under the Credit Agreement.

Payment terms

The Term Loans (including the 2019 Incremental Term Loan) are repayable on a ~~fully drawn Canadian term loan facility in~~quarterly basis beginning on December 31, 2019 by an amount equal to 0.25% (1.00% per annum) of the aggregate principal amount of ~~$5.2 million~~such loan. Any amount remaining unpaid is due and payable in full on August 6, 2026 (the ~~“Canadian~~“Term Loan Maturity Date”).

At the option of the Company, the Term ~~Loan”~~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%) ~~(the Canadian~~for Eurodollar deposits quoted on the LIBOR01 or LIBOR02 pages on the Reuters Screen, or as otherwise determined in accordance with the Credit Agreement (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.

Lenders under the Credit Facility are entitled to a premium in the event of certain prepayments or repricings of the Term Loan ~~and~~made within six months of the ~~U.S.~~Closing Date in an amount equal to 1.00% times the aggregate principal amount of the initial Term Loan ~~together~~prepaid in connection with a repricing transaction or the aggregate principal amount of the initial Term Loan outstanding on such date that is subject to an effective pricing reduction pursuant to a repricing transaction, as applicable.

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. 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 March 31, 2020, the fair value of the interest rate swap was $29.0 million liability as a result of a decline in short term interest rates. In the next twelve months, the Company estimates that $4.7 million will be reclassified from Accumulated other comprehensive income (loss) and recorded as an increase to Interest expense.


	Three Months Ended March 31, 2020
(Loss) gain recognized in Other comprehensive income on derivative financial instruments	$	(31,401)
(Loss) gain reclassified from Other comprehensive income to Interest expense	$	66
Total Interest expense in which the effects of cash flow hedges are recorded	$	(7,397)

Revolver

Loans under the Revolver are ~~referred~~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 March 31, 2020, the Company had no borrowings outstanding under the Revolver or related sub facility.

Covenants

The Credit Agreement 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 ~~“Term Loans”~~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 ~~also provides~~contains customary events of default subject to customary cure periods for ~~revolvers~~certain defaults that include, among others, non-payment defaults, inaccuracy of ~~$30.0 million, comprised~~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 ~~(i) a U.S. revolving credit facility~~an event of default could result in ~~an aggregate principal amount~~the acceleration of ~~up to $29.0 million (the “U.S. Revolver”),~~Term Loans and ~~(ii) a Canadian revolving credit facility in an aggregate principal amount of up to $1.0 million (the “Canadian Revolver”) (the Canadian~~ Revolver and a right by the ~~U.S.~~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 ~~referred to as~~secured by substantially all of the ~~“Revolver”).~~Company's assets. As of ~~June 30, 2019, there were no amounts drawn on its U.S. Revolver or Canadian Revolver loans outstanding under~~March 31, 2020 the ~~Credit Facility, and there~~Company was ~~$309.5 million outstanding on the Term Loans comprised of (i) $304.3 million~~ in ~~the U.S. Term Loan outstanding under the Credit Facility, and (ii) $5.1 million in the Canadian Term Loan outstanding~~compliance with all covenants under the Credit Facility.

Cash interest costs averaged ~~6.5%~~5.4% and ~~6.6% under the Credit Facility~~6.0% for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and for the year ended December 31, ~~2018,~~2019, respectively.

In ~~accordance with ASC 470-10-45-14, as it was our intent~~addition, as of ~~June 30,~~March 31, 2020 and December 31, 2019 the Company had $13.1 million and $13.6 million, respectively, of unamortized deferred financing costs associated with the Credit Facility. These financing costs will be amortized to ~~convert all short-term debt obligations to long-term as~~non-cash interest expense over the remaining term of the Credit Facility. As a result of ~~a planned entry into a new credit agreement, all debt oblations under our Credit Facility were classified as long-term as of June 30, 2019. See Note 13. Subsequent Events in~~ the ~~notes to our unaudited condensed consolidated financial statements for more information regarding the pay off~~paydown of our ~~Credit Facility in connection with~~previous credit facility, the Company was required to write off debt issuance cost of $2.3 million during the year ended December 31, 2019 as Loss on debt extinguishment, related to the unamortized debt discount on our ~~entry into a new credit agreement subsequent to June 30, 2019.~~previous term loan.

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,
	Three Months Ended June 30,						Six Months Ended June 30,							2020		2019
	2019			2018			2019			2018
Numerator:													Numerator:
Net Loss	$	(5,369	)	$	(5,230	)	$	(13,199	)	$	(8,391	)	Net Loss	$	(20,081)	$	(7,830)

Denominator:													Denominator:
Weighted–average common shares outstanding, basic and diluted	22,619,805			19,901,599			21,531,216			19,830,401			Weighted–average common shares outstanding, basic and diluted	24,906,932		20,442,626
Net loss per common share, basic and diluted	$	(0.24	)	$	(0.26	)	$	(0.61	)	$	(0.42	)	Net loss per common share, basic and diluted	$	(0.81)	$	(0.38)

Due to the net losses for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ respectively, basic and diluted loss per share were the same, as the effect of all potentially dilutive securities would have been anti–dilutive. The following table sets forth the anti–dilutive common share equivalents as of ~~June 30, 2019~~March 31, 2020 and ~~June 30, 2018:~~March 31, 2019:


	March 31,
	2020	2019

Stock options	320,913	390,754
Restricted stock awards	318,045	939,809
Restricted stock units	1,848,066	380,950
Performance restricted stock units	66,297	—
Total anti–dilutive common share equivalents	2,553,321	1,711,513

June 30,
2019 2018
Stock options 345,792
468,765
Restricted stock awards 773,860
1,500,280
Restricted stock units⁽¹⁾
891,329
—
Total anti–dilutive common share equivalents 2,010,981
1,969,045


~~(1)~~	During the three and six months ended June 30, 2019 the Company granted restricted stock units under its 2014 Equity Incentive Plan for the first time in lieu of restricted stock awards. See Note 10. Stockholders' Equity in the notes to our unaudited condensed consolidated financial statements for more information.

8. ~~Leases~~

~~Operating Leases~~

The Company leases office space under operating leases that expire between 2019 and 2025. The terms of the Company's non-cancelable operating lease arrangements typically contain fixed rent increases over the term of the lease, rent holidays and provide for additional renewal periods. Rent expense on these operating leases is recognized over the term of the lease on a straight-line basis.

~~Finance Leases~~

The current and long-term portion of finance lease obligations are recorded in other current liabilities and other long-term liabilities line items on the balance sheet, respectively. The Company's finance lease agreements are generally for four years and contain a bargain purchase option at the end of the lease term.

~~The components of lease expense were as follows (in thousands):~~

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Operating lease cost $ 636
1,147
Finance lease costs:
Amortization of right-of-use assets 209
459
Interest on lease liabilities 16
42
Total lease costs $ 861
1,648

~~Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:~~

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities (in thousands):
Operating cash flows from operating leases $ 731
$ 1,424
Operating cash flows form finance leases $ 24
$ 52
Financing cash flows from finance leases $ 173
$ 383
Right-of-use assets obtained in exchange for lease obligations (in thousands):
Operating leases $ 2,310
$ 2,310
Weighted average remaining lease term (in years):
Operating leases

3.9
Finance leases

1.2
Weighted average discount rate
Operating leases

6.4 %
Finance leases

6.0 %

~~Future minimum payments for operating and finance lease obligations and purchase commitments are as follows (in thousands):~~

Finance Leases Operating
Leases
Remainder of 2019 $ 185
$ 1,575
2020 85
1,786
2021 10
1,253
2022 10
1,132
2023 6
1,040
Thereafter —
1,010
Total minimum lease payments 296
7,796
Less amount representing interest (34 ) (1,085 )
Present value of lease liabilities $ 262
$ 6,711

Accrued expenses and other current liabilities $ 235
$ —
Operating lease liabilities, current —
2,614
Operating lease liabilities, noncurrent —
4,097
Other long-term liabilities 27
—
Total lease liabilities $ 262
$ 6,711

9. Commitments and Contingencies

Purchase Commitments

The Company has ~~an outstanding~~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 March 31, 2020, the remaining aggregate minimum purchase commitment ~~with Amazon Web Services (“AWS”) to support its cloud infrastructure in conjunction with the consolidation and elimination of~~under these arrangements was approximately $10.8 million through 2024. Obligations under contracts that we can cancel without a substantial portion of its physical cloud infrastructure formerly maintained around the United States, Canada and the UK. Total expense with AWS for the three months ended June 30, 2019 and June 30, 2018 were approximately $1.3 million and $0.9 million, respectively, and for the six months ended June 30, 2019 and June 30, 2018 were approximately $2.7 million and $1.5 million, respectively. The remaining purchase obligation after June 30, 2019 through June 30, 2021 is $2.7 million.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, 2020 and March 31, 2019 ~~and June 30, 2018~~ totaling ~~$1.2~~$1.9 million and ~~$0.8 million, respectively, and for the six months ended June 30, 2019 and June 30, 2018 were approximately $2.5 million and $1.6~~$1.2 million, respectively. The remaining purchase obligation after ~~June 30, 2019~~March 31, 2020 through December 31, ~~2019~~2020 is ~~$2.4~~$5.5 million. See Note ~~12 —~~12. 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 ~~financial position~~balances sheets or ~~results~~condensed consolidated statement of ~~operations of the Company.~~

operations.

~~10.~~

9. Stockholders' Equity

Registration Statement

On December 12, 2018, the Company filed a registration statement on Form S-3 (File No. 333-228767) (the “S-3”), to register Upland securities in an aggregate 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 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~~were used for general business purposes, including the funding of ~~future~~ acquisitions.

Accumulated Comprehensive Income (Loss)

~~Foreign Currency Translation~~Comprehensive income consists of two elements, net income 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. Our other comprehensive income (loss) consists 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, and unrealized gains (losses) on interest rate swaps.

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


	March 31, 2020		December 31, 2019
Foreign currency translation adjustment	$	(7,989)	$	(4,530)
Unrealized translation gain (loss) on foreign currency denominated intercompany loans	(6,430)		883
Unrealized gain (loss) on interest rate swaps	(28,977)		2,424
Total accumulated other comprehensive loss	$	(43,396)	$	(1,223)

Income tax expense/benefit allocated to each component of other comprehensive income (loss) is not material.

The functional currency of our foreign subsidiaries are the local currencies. Results of operations for foreign subsidiaries are translated in United ~~State~~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.

~~We have a~~The Company has foreign currency denominated intercompany ~~loan~~loans that ~~was~~were used to fund the ~~acquisition~~acquisitions of a foreign ~~subsidiary in October 2018.~~subsidiaries. Due to the long-term nature of the loan, the foreign currency gains (losses) resulting from re-measurement are recognized as a component of accumulated other comprehensive income (loss). During the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019, a foreign currency translation adjustment loss of ~~$3.0~~$7.3 million and ~~$0.0~~gain of $3.0 million, respectively, was recognized as a component of accumulated other comprehensive income (loss) related to this long-term intercompany loan.

Stock-Based Compensation

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


	Three Months Ended March 31,
	2020		2019
Cost of revenue	$	318	$	160
Research and development	615		322
Sales and marketing	549		139
General and administrative	7,838		4,007
Total	$	9,320	$	4,628

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Cost of revenue $ 353
$ 190
$ 513
$ 268
Research and development 632
375
953
488
Sales and marketing 365
154
504
199
General and administrative 5,551
3,303
9,559
5,644
Total $ 6,901
$ 4,022
$ 11,529
$ 6,599

Restricted Stock ~~Awards~~Units

~~Restricted share activity during the six months ended June 30, 2019 was as follows:~~

Number of
Restricted Shares
Outstanding Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2018 997,014
$ 23.93
Awards vested (219,987 ) 24.26
Awards forfeited (3,167 ) 26.92
Unvested balances at June 30, 2019 773,860
$ 23.82

~~Restricted Stock Units~~

~~During the six months ended June 30,~~Beginning in 2019, the Company ~~granted~~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, 2019~~March 31, 2020 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	1,221,273	40.82
Units vested	(104,212)	41.80
Awards forfeited	(59,802)	42.07
Unvested balances at March 31, 2020	1,848,066	$	40.18

Number of
Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2018 —
$ —
Units granted 961,495
39.15
Units vested (70,166 ) 34.94
Unvested balances at June 30, 2019 891,329
$ 39.48
Performance Based Restricted Stock Units

In 2020 50 percent of the awards made to our Chief Executive Officer were performance based restricted stock units ("PRSUs"). The PRSU agreement provides 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. 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 three months ended March 31, 2020 was as follows:


	Number of PRSUs Outstanding	Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2019	—	$	—
Units granted	66,297	41.48


Unvested balances at March 31, 2020	66,297	$	41.48

Restricted Stock Awards

Restricted share activity during the three months ended March 31, 2020 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	(29,502)	28.79
Awards forfeited	(23,670)	28.44
Unvested balances at March 31, 2020	318,045	$	28.20

Stock Option Activity

Stock option activity during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 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 forfeited	—	—
Options expired	(73)	1.79
Outstanding at March 31, 2020	320,913	$	8.64

Number of
Options
Outstanding Weighted–
Average
Exercise
Price
Outstanding at December 31, 2018 408,899
$ 8.08
Options exercised (62,242 ) 6.77
Options forfeited (556 ) 7.74
Options expired (309 ) 1.49
Outstanding at June 30, 2019 345,792
$ 8.33

~~11.~~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.

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 ~~one~~1 to ~~three~~3 years in length. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or 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 revenue at the end of each month and is invoiced concurrently.

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. 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 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, 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 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, and expenses incurred are recorded as cost of revenues. 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. Revenues provided from agreements in which the Company is an agent are immaterial.

~~Payment terms and conditions vary by contract type, although terms generally include a requirement~~Deferred revenues primarily consist of ~~payment within 30~~amounts that have been billed to ~~60 days and include no general rights of return. In instances where the timing~~or received from customers in advance of revenue recognition ~~differs~~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 ~~timing of invoicing, we have determined our contracts~~services are performed, and the corresponding revenue recognition criteria are met. Customer prepayments are generally ~~do not include a significant financing component. The primary purpose~~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 ~~terms~~and when payment is due is not significant. For certain products our services and customer types, we require payment before the products or services are delivered to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Example includes invoicing at the ~~beginning of a subscription term with revenue recognized ratably over the contract period.~~customer.

Contract Balances

The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables, ~~(contract assets),~~ and deferred ~~revenues (contract liabilities).~~revenues. Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in ~~contract assets. Contract assets~~unbilled receivables, which are expected to be billed during the succeeding twelve-month period and are recorded in 'Unbilled receivables' in our condensed consolidated ~~statement of operations.~~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 ~~initial~~ 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 in arrears and for which the Company believes it has an unconditional right to payment. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, unbilled receivables were ~~$4.0~~$5.7 million and ~~$3.7~~$5.1 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 ~~a particular~~new customer ~~agreement for initial~~ contracts are capitalized upon

contract signing and amortized over the expected life of the customer relationships, which has been determined to be approximately 6 years based on historical data and managements judgment ~~once~~in a pattern similar to how revenue ~~recognition criteria~~is recognized. Commissions paid on renewal contracts are ~~met.~~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, 2019.~~March 31, 2020.

The following table presents the activity impacting deferred commissions for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 (in thousands):

June 30, 2019
Deferred commissions beginning balance $ 8,925
Capitalized deferred commissions 4,047
Amortization of deferred commissions (1,735 )
Deferred commissions ending balance $ 11,237


Balance at December 31, 2019	$	11,822


Capitalized deferred commissions	2,144
Amortization of deferred commissions	(894)
Balance at March 31, 2020	$	13,072

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, 2019,~~March 31, 2020, we recognized ~~$39.5~~$30.4 million and ~~$2.2~~$1.6 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period. ~~During~~In addition, during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2020 we recognized ~~$39.7~~$1.7 million ~~of subscription services~~in revenue that was included in the acquired deferred revenue ~~balances at the beginning~~balance of ~~the period.~~our 2020 acquisition as disclosed in Note 2. Acquisitions.

Remaining Performance Obligations

As of ~~June 30, 2019,~~March 31, 2020, approximately ~~$161.1~~$245.5 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately ~~71%~~67% 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 March 31,
	2020		2019
Revenues:
Subscription and support:
United States	$	45,971	$	29,839
United Kingdom	9,996		9,316
Canada	4,582		2,384
Other International	3,342		3,444
Total subscription and support revenue	63,891		44,983
Perpetual license:
United States	282		568
United Kingdom	16		9
Canada	21		42
Other International	42		38
Total perpetual license revenue	361		657

Professional services:
United States	2,711		1,980
United Kingdom	814		491
Canada	138		120
Other International	117		262
Total professional service revenue	3,780		2,853
Total revenue	$	68,032	$	48,493

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenues:
Subscription and support:
   United States $ 34,436
$ 26,471
$ 64,275
$ 48,719
   United Kingdom 9,432
1,494
18,748
2,762
   Canada 1,348
1,531
3,732
2,729
   Other International 3,499
3,658
6,943
6,673
      Total subscription and support revenue 48,715
33,154
93,698
60,883
Perpetual license:
   United States 484
378
1,052
1,018
   United Kingdom 8
40
17
90
   Canada 15
40
57
180
   Other International 68
225
106
1,021
      Total perpetual license revenue 575
683
1,232
2,309
Professional services:
   United States 2,555
1,567
4,535
3,206
   United Kingdom 693
69
1,184
150
   Canada 172
161
292
348
   Other International 303
312
565
665
      Total professional service revenue 3,723
2,109
6,576
4,369
Total revenue $ 53,013
$ 35,946
$ 101,506
$ 67,561

12. Related Party Transactions

We are a party to ~~two~~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, which holds more than 5% of the Company's capital stock. The Company has an outstanding purchase commitment in ~~2019~~2020 for software development services pursuant to this agreement in the amount of ~~$4.9~~$7.3 million. For years after ~~2019,~~2020, 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 ~~2019~~2020 total revenues increase by 10% as compared to ~~2018~~2019 total revenues, then the ~~2020~~2021 purchase commitment will increase by approximately ~~$0.5~~$0.8 million from the ~~2019~~2020 purchase commitment amount to approximately ~~$5.4~~$8.1 million. The Company purchased software development services pursuant to this agreement with DevFactory of ~~$1.2~~$1.9 million and ~~$0.8~~$1.2 million during the three months ended ~~June 30,~~March 31, 2020 and March 31, 2019, respectively. As of March 31, 2020 and ~~June 30, 2018, respectively, and $2.5~~December 31, 2019 amounts included in accounts payable owed to this company totaled $1.9 million and ~~$1.6~~$1.2 million, ~~during the six months ended June 30, 2019 and June 30, 2018,~~ 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, 2020 and March 31, 2019 ~~and June 30, 2018~~ of approximately ~~$0.9~~$1.1 million and ~~$0.8 million, respectively, and during the six months ended June 30, 2019 and June 30, 2018 approximately $1.9 million and $1.6~~$1.0 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 no0 purchase commitments with Crossover, the Company continues to use its services in ~~2019.~~2020. As of

March 31, 2020 and December 31, 2019 amounts included in accounts payable owed to this company totaled $0.6 million and $0.4 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 26.18% interest in Visionael. The Company received fees from this arrangement during the three months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~ totaling $15,000 and $15,000, ~~respectively, and during the six months ended June 30, 2019 and June 30, 2018 totaling~~ ~~$30,000~~ ~~and~~ ~~$30,000~~, respectively.

~~13. Subsequent Events~~

On August 6, 2019, we entered into a new fully-drawn $350 million, 7 year, senior secured term loan B facility and a new undrawn $60 million, 5 year, revolving credit facility. The new credit facilities replaced our existing Credit Facility and paid off all outstanding amounts under our existing Credit Facility at closing.

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In conjunction with our new $350 million, 7 year, term credit facility we entered into an interest rate hedge instrument 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.

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, ~~2018,~~2019, filed on March ~~15, 2019.~~2, 2020. 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.

~~Factors or risks that could cause our actual results to differ from the results we anticipate~~ These forward-looking statements include, but are not limited ~~to:~~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 attract and retain customers;~~

~~our ability to deliver high-quality customer service;~~

~~the growth of demand for enterprise work management applications;~~

~~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 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 changing market conditions~~attract and ~~competition;~~retain customers;

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

~~the operation and reliability of our third-party data centers and hosting providers;~~

•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 ~~consultants~~growth;

•maintaining our senior management team and ~~contractors;~~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 ~~ability~~expectations with regard to ~~comply~~trends, such as seasonality, which affect our business;

•our expectations with ~~privacy laws~~regard to revenue from perpetual licenses and ~~regulations;~~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; and

•other risk factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~15, 2019,~~2, 2020, 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 ~~in the following enterprise solution categories:~~and our four cloud offerings are as follows:

•Customer Experience ~~Management.~~Management Cloud.The Upland Customer Experience Management Cloud, or CXM ~~solutions enable~~Cloud, enables organizations to manage the complete customer ~~relationships~~lifecycle from awareness to acquisition to advocacy across multiple channels - including email, short message service, or SMS, multimedia messaging service, or MMS, web, social, and mobile apps.

•Enterprise Sales and Marketing Cloud. The Upland ~~products within this solution suite include Upland Mobile Messaging, Rant & Rave, Adestra,~~Enterprise Sales and ~~RightAnswers.~~

~~Sales Enablement.~~ ~~Upland Sales Enablement solutions enable~~Marketing Cloud, or ESM Cloud, enables sales and marketing organizations to ~~automate delivery of processes,~~optimize sales activities, digital content ~~systems,~~production, automate key proposal and reference processes, and track key metrics ~~at multiple stages of the sales process. Upland products within this solution suite include Qvidian, RO Innovation,~~to more effectively and ~~LeadLander.~~

predictably drive revenue retention and growth.

~~Professional Services Automation.~~ Upland Professional Services Automation, or PSA, solutions enable services organizations to manage professional services delivery and related functions. Upland products within this solution suite include Tenrox, RightAnswers, FileBound, RO Innovation, and Qvidian.

•Project and ~~Financial Management.~~IT Management Cloud. The Upland Project and ~~Financial~~IT Management ~~solutions enable enterprises~~Cloud, or PITM Cloud, enables professional services and information technology (“IT”) organizations to better manage services delivery, project portfolios, enterprise knowledge sharing and ~~track, analyze~~spending across projects and ~~manage IT, cloud, and~~ IT/telecom ~~spending.~~infrastructure.

•Document Workflow Cloud. The Upland ~~products within this solution suite include PowerSteering, Eclipse PPM, RightAnswers, and ComSci.~~

~~Enterprise Knowledge Management.~~ ~~Upland Enterprise Knowledge Management,~~Document Workflow Cloud, or ~~KM, solutions enable knowledge-sharing across different departments within an organization. Upland products within this solution suite include RightAnswers, Tenrox, and PowerSteering.~~

~~Secure Document Services.~~ ~~Upland Secure Document Services solutions enable organizations~~DW Cloud, enables enterprises to manage and automate document intensive business processes with data security ~~of data~~ through scan and fax platforms, data monitoring and breach prevention capabilities, and the automated routing of content to its final destination. ~~Upland products within this solution suite include AccuRoute, FileBound, and InterFAX.~~

~~Document Lifecycle Automation.~~ Upland Document Lifecycle solutions enable users to digitize, organize, automate, integrate, analyze and optimize high volume processes. Upland products within this solution suite include AccuRoute, FileBound, Qvidian, and RO Innovation.

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 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 million in 2012 to ~~$149.9~~$222.6 million in ~~2018~~2019 (and to ~~$101.5~~$68.0 million for the ~~six~~three months ended ~~June 30, 2019)~~March 31, 2020), representing an approximate ~~558%~~878% growth rate between 2012 and 2018. Historically, our revenues have been primarily generated in the United States, however, as a result of acquisitions made over the past three years of companies with more international presence, domestic revenue as a percentage of total revenue has decreased.2019. During the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 foreign revenue as a percent of total revenue ~~increased~~decreased to ~~31%~~28% compared to ~~22%~~30% during the year ended December 31, 2018. The increase in foreign revenue as a percent of total revenue is due to the acquisitions of Rant & Rave and Adestra during the fourth quarter of 2018, as a majority of each company's operations reside outside the United States.2019. See Note ~~11.~~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-two~~twenty-six acquisitions from February 2012 through ~~June 30, 2019.~~March 31, 2020.

COVID-19 Impact

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 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. We cannot predict the extent to which the COVID-19 outbreak 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 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 last month, 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 until Fall of 2020.

As approximately 94% 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 first quarter of fiscal 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 currently expect a moderate reduction in projected revenue for fiscal 2020 as a result of the pandemic. We expect that current cash 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 slowdown in the pace of our acquisition activities in the second and third quarters of 2020 while we continue to gauge the overall economic impact of the pandemic and related containment measures.

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.

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 income taxes, stock-based compensation expense, acquisition-related expenses, and purchase accounting adjustments for deferred revenue.

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The following table presents 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 March 31,
	Three Months Ended June 30,						Six Months Ended June 30,							2020		2019
	2019			2018			2019			2018
	(dollars in thousands)													(dollars in thousands)
Reconciliation of net income (loss) to Adjusted EBITDA:
Reconciliation of net loss to Adjusted EBITDA:													Reconciliation of net loss to Adjusted EBITDA:
Net loss	$	(5,369	)	$	(5,230	)	$	(13,199	)	$	(8,391	)	Net loss	$	(20,081)	$	(7,830)
Add:													Add:

Depreciation and amortization expense	7,765			5,045			15,152			9,217			Depreciation and amortization expense	11,737		7,387
Interest expense, net	5,246			3,143			10,362			5,637			Interest expense, net	7,643		5,116

Other expense (income), net	692			524			1,453			221			Other expense (income), net	1,402		761
Provision for income taxes	(6,101		)	872			(6,713		)	1,383
Benefit from income taxes													Benefit from income taxes	(4,287)		(612)
Stock-based compensation expense	6,901			4,022			11,529			6,599			Stock-based compensation expense	9,320		4,628
Acquisition-related expense	9,264			3,140			16,987			6,242			Acquisition-related expense	15,158		7,723

Purchase accounting deferred revenue discount	685			1,029			1,282			2,418			Purchase accounting deferred revenue discount	3,701		597
Adjusted EBITDA	$	19,083		$	12,545		$	36,853		$	23,326		Adjusted EBITDA	$	24,593	$	17,770

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;

•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.

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.

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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 March 31,
	2020						2019
	Amount		Percent of Revenue		Amount		Percent of Revenue

	(dollars in thousands, except share and per share data)
Revenue:
Subscription and support	$	63,891	94	%	$	44,983	93	%
Perpetual license	361		1	%	657		1	%
Total product revenue	64,252		95	%	45,640		94	%
Professional services	3,780		5	%	2,853		6	%
Total revenue	68,032		100	%	48,493		100	%
Cost of revenue:
Subscription and support ⁽¹⁾⁽³⁾	19,939		29	%	13,274		27	%
Professional services ⁽¹⁾	2,262		4	%	1,514		3	%
Total cost of revenue	22,201		33	%	14,788		30	%
Gross profit	45,831		67	%	33,705		70	%
Operating expenses:
Sales and marketing ⁽¹⁾	10,931		16	%	6,982		14	%
Research and development ⁽¹⁾	9,420		14	%	6,398		13	%
Refundable tax credits	(302)		—	%	(86)		—	%
General and administrative ⁽¹⁾⁽²⁾	16,676		25	%	9,994		21	%
Depreciation and amortization	9,271		14	%	5,259		11	%
Acquisition-related expenses	15,158		21	%	7,723		16	%
Total operating expenses	61,154		90	%	36,270		75	%
Loss from operations	(15,323)		(23)	%	(2,565)		(5)	%
Other Expense:
Interest expense, net	(7,643)		(11)	%	(5,116)		(11)	%

Other income (expense), net	(1,402)		(2)	%	(761)		(1)	%
Total other expense	(9,045)		(13)	%	(5,877)		(12)	%
Loss before provision for income taxes	(24,368)		(36)	%	(8,442)		(17)	%
Benefit from income taxes	4,287		6	%	612		1	%


Net loss	$	(20,081)	(30)	%	$	(7,830)	(16)	%





Net loss per common share, basic and diluted	$	(0.81)			$	(0.38)
Weighted-average common shares outstanding, basic and diluted	24,906,932				20,442,626

⁽¹⁾Includes stock-based compensation detailed under Share-based Compensation in Note 10 — Stockholders' Equity.
⁽²⁾ Includes General and administrative stock-based compensation of $7.8 million and $4.0 million for the three months March 31, 2020 and March 31, 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 March 31, 2020 and March 31, 2019, respectively.


⁽³⁾ Includes depreciation and amortization of $2.5 million and $2.1 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

Three Months Ended June 30, Six Months Ended June 30,

2019 2018 2019 2018

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 $ 48,715
92 % $ 33,154
92 % $ 93,698
92 % $ 60,883
90 %
Perpetual license 575
1 % 683
2 % 1,232
1 % 2,309
3 %
Total product revenue 49,290
93 % 33,837
94 % 94,930
93 % 63,192
93 %
Professional services 3,723
7 % 2,109
6 % 6,576
7 % 4,369
7 %
Total revenue 53,013
100 % 35,946
100 % 101,506
100 % 67,561
100 %
Cost of revenue:

Subscription and support ⁽¹⁾⁽³⁾
14,622
28 % 9,580
27 % 27,896
27 % 18,829
28 %
Professional services ⁽¹⁾
1,961
3 % 1,269
3 % 3,475
4 % 2,665
4 %
Total cost of revenue 16,583
31 % 10,849
30 % 31,371
31 % 21,494
32 %
Gross profit 36,430
69 % 25,097
70 % 70,135
69 % 46,067
68 %
Operating expenses:

Sales and marketing ⁽¹⁾
7,989
15 % 5,248
15 % 14,971
15 % 9,656
14 %
Research and development ⁽¹⁾
7,008
13 % 5,286
15 % 13,406
13 % 10,177
15 %
Refundable Canadian tax credits (85 ) — % (203 ) (1 )% (171 ) — % (305 ) — %
General and administrative ⁽¹⁾⁽²⁾
12,042
23 % 8,464
24 % 22,036
22 % 15,464
23 %
Depreciation and amortization 5,744
11 % 3,853
11 % 11,003
11 % 5,983
9 %
Acquisition-related expenses 9,264
17 % 3,140
8 % 16,987
16 % 6,242
9 %
Total operating expenses 41,962
79 % 25,788
72 % 78,232
77 % 47,217
70 %
(Loss) from operations (5,532 ) (10 )% (691 ) (2 )% (8,097 ) (8 )% (1,150 ) (2 )%
Other Expense:

Interest expense, net (5,246 ) (10 )% (3,143 ) (9 )% (10,362 ) (10 )% (5,637 ) (8 )%
Other income (expense), net (692 ) (1 )% (524 ) (1 )% (1,453 ) (2 )% (221 ) (1 )%
Total other expense (5,938 ) (11 )% (3,667 ) (10 )% (11,815 ) (12 )% (5,858 ) (9 )%
Loss before provision for income taxes (11,470 ) (21 )% (4,358 ) (12 )% (19,912 ) (20 )% (7,008 ) (11 )%
Benefit from (provision for) income taxes 6,101
11 % (872 ) (3 )% 6,713
7 % (1,383 ) (1 )%
Net loss $ (5,369 ) (10 )% $ (5,230 ) (15 )% $ (13,199 ) (13 )% $ (8,391 ) (12 )%
Net loss per common share, basic and diluted $ (0.24 ) $ (0.26 ) $ (0.61 ) $ (0.42 )
Weighted-average common shares outstanding, basic and diluted 22,619,805
19,901,599
21,531,216
19,830,401

⁽¹⁾Includes stock-based compensation detailed under Share-based Compensation in Note 10 — Stockholders' Equity.
⁽²⁾ Includes General and administrative stock-based compensation of $5.6 million and $3.3 million for the three months June 30, 2019 and June 30, 2018, respectively, and $9.6 million and $5.6 million for the six months ended June 30, 2019 and June 30, 2018, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 12% and 14% for the three months ended June 30, 2019 and June 30, 2018, respectively, and 12% and 14% for the six months ended June 30, 2019 and June 30, 2018, respectively.
⁽³⁾ Includes depreciation and amortization of $2.0 million and $1.2 million for the three months ended June 30, 2019 and June 30, 2018, respectively, and $4.1 million and $3.2 million for the six months ended June 30, 2019 and June 30, 2018, respectively.

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Comparison of the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~

Revenue


	Three Months Ended March 31,
	2020			2019			% Change

	(dollars in thousands)
Revenue:
Subscription and support	$	63,891		$	44,983		42	%
Perpetual license	361			657			(45)	%
Total product revenue	64,252			45,640			41	%
Professional services	3,780			2,853			32	%
Total revenue	$	68,032		$	48,493		40	%

Percentage of revenue:
Subscription and support	94		%	93		%
Perpetual license	1		%	1		%
Total product revenue	95		%	94		%
Professional services	5		%	6		%
Total revenue	100		%	100		%

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % Change 2019 2018 % Change
(dollars in thousands)
Revenue:
Subscription and support $ 48,715
$ 33,154
47 % $ 93,698
$ 60,883
54 %
Perpetual license 575
683
(16 )% 1,232
2,309
(47 )%
Total product revenue 49,290
33,837
46 % 94,930
63,192
50 %
Professional services 3,723
2,109
77 % 6,576
4,369
51 %
Total revenue $ 53,013
$ 35,946
47 % $ 101,506
$ 67,561
50 %

Percentage of revenue:
Subscription and support 92 % 92 % 92 % 90 %
Perpetual license 1 % 2 % 1 % 3 %
Total product revenue 93 % 94 % 93 % 93 %
Professional services 7 % 6 % 7 % 7 %
Total revenue 100 % 100 % 100 % 100 %

For the Three Months Ended ~~June 30, 2019~~March 31, 2020

Total revenue was ~~$53.0~~$68.0 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$35.9~~$48.5 million in the three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$17.1~~$19.5 million, or ~~47%~~40%. The acquisitions not fully in the comparative period contributed ~~$15.2~~$18.2 million to the increase after the reduction of ~~$0.7~~$3.7 million purchase accounting deferred revenue discount in the three months ended ~~June 30, 2019.~~March 31, 2020. Total Revenue related to Sunset Assets declined by $0.9 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 divested and/or decided to sunset. Therefore, total revenue for ~~the organic business~~our Organic Business increased by ~~$1.9~~$2.2 million, or 5%.

Subscription and support revenue was ~~$48.7~~$63.9 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$33.2~~$45.0 million in the three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$15.6~~$18.9 million, or ~~47%~~42%. The acquisitions not fully in the comparative period contributed ~~$14.0~~$17.2 million to the increase in subscription and support revenue after the reduction of ~~$0.7~~$3.7 million purchase accounting deferred revenue discount in the three months ended ~~June 30, 2019.~~March 31, 2020. Subscription and support revenue related to our Sunset Assets decreased $0.9 million as a result of decreased sales and marketing focus on those Sunset Assets Therefore, subscription and support revenue for ~~the organic business~~our Organic Business increased by ~~$1.6~~$2.6 million, or 5%6%.

Perpetual license revenue was ~~$0.6~~$0.4 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to $0.7 million in the three months ended ~~June 30, 2018.~~March 31, 2019, a decrease of $0.3 million, or 45%. The acquisitions not fully in the comparative period contributed no perpetual license revenue in the three months ended ~~June 30, 2019.~~March 31, 2020. Therefore, perpetual license revenue for ~~the organic business~~our Organic Business decreased by ~~$0.1~~$0.3 million, or ~~16%~~45%.

Professional services revenue was ~~$3.7~~$3.8 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$2.1~~$2.9 million in the three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$1.6~~$0.9 million, or ~~77%~~32%. The acquisitions not fully in the comparative period contributed ~~$1.1~~$1.0 million to the increase in professional services revenue in the three months ended ~~June 30, 2019.~~March 31, 2020. Therefore, professional services revenue for ~~the organic business increased~~our Organic Business decreased by ~~$0.5~~$0.1 million, or ~~23%~~4%.

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Cost of Revenue and Gross Profit Percentage


	Three Months Ended March 31,
	2020			2019			% Change

	(dollars in thousands)
Cost of revenue:
Subscription and support ⁽¹⁾	$	19,939		$	13,274		50	%
Professional services	2,262			1,514			49	%
Total cost of revenue	22,201			14,788			50	%
Gross profit	$	45,831		$	33,705		36	%

Percentage of total revenue:
Subscription and support ⁽¹⁾	29		%	27		%
Professional services	4		%	3		%
Total cost of revenue	33		%	30		%
Gross profit	67		%	70		%

⁽¹⁾ Includes depreciation, amortization and stock compensation expense as follows:
Depreciation	$	71		$	281
Amortization	$	2,395		$	1,847
Stock Compensation	$	318		$	160

For the ~~Six~~Three Months Ended ~~June 30, 2019~~March 31, 2020

~~Total~~Cost of subscription and support revenue was ~~$101.5~~$19.9 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$67.6~~$13.3 million in the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$33.9~~$6.6 million, or 50%. The acquisitions not fully in the comparative period contributed $30.4 million to the increase after the reduction of $1.3 million purchase accounting deferred revenue discount in the six months ended June 30, 2019. Therefore, total revenue for the organic business increased by $3.5 million, or 6%.

Subscription and support revenue was $93.7 million in the six months ended June 30, 2019, compared to $60.9 million in the six months ended June 30, 2018, an increase of $32.8 million, or 54%. The acquisitions not fully in the comparative period contributed $28.7 million to the increase in subscription and support revenue after the reduction of $1.3 million purchase accounting deferred revenue discount in the six months ended June 30, 2019. Therefore, subscription and support revenue for the organic business increased by $4.1 million, or 7%.

Perpetual license revenue was $1.2 million in the six months ended June 30, 2019, compared to $2.3 million in the six months ended June 30, 2018. The acquisitions not fully in the comparative period contributed no perpetual license revenue in the six months ended June 30, 2019. Therefore, perpetual license revenue for the organic business decreased by $1.2 million, or 47%.

Professional services revenue was $6.6 million in the six months ended June 30, 2019, compared to $4.4 million in the six months ended June 30, 2018, an increase of $2.2 million, or 51%. 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, 2019. Therefore, professional services revenue for the organic business increased by $0.5 million, or 11% .

~~Cost of Revenue and Gross Profit Percentage~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % Change 2019 2018 % Change
(dollars in thousands)
Cost of revenue:
Subscription and support ⁽¹⁾
$ 14,622
$ 9,580
53 % $ 27,896
$ 18,829
48 %
Professional services 1,961
1,269
55 % 3,475
2,665
30 %
Total cost of revenue 16,583
10,849
53 % 31,371
21,494
46 %
Gross profit $ 36,430
$ 25,097
45 % $ 70,135
$ 46,067
52 %

Percentage of total revenue:
Subscription and support ⁽¹⁾
28 % 27 % 27 % 28 %
Professional services 3 % 3 % 4 % 4 %
Total cost of revenue 31 % 30 % 31 % 32 %
Gross profit 69 % 70 % 69 % 68 %

⁽¹⁾ Includes depreciation, amortization and stock compensation expense as follows:

Depreciation $ 238
$ 427
$ 519
$ 863

Amortization $ 1,783
$ 765
$ 3,630
$ 2,370

Stock Compensation $ 353
$ 190
$ 513
$ 268

~~For the Three Months Ended June 30, 2019~~

Cost of subscription and support revenue was $14.6 million in the three months ended June 30, 2019, compared to $9.6 million in the three months ended June 30, 2018, an increase of $5.0 million, or 53%. The acquisitions not fully in the comparative period contributed $4.1$4.9 million to the increase to cost of subscription and support revenue, primarily related to ~~mobile messaging~~ costs associated with the ~~newly acquired Rant & Rave product line, increased amortization~~delivery of ~~acquired intangible assets in~~ the ~~three months ended June 30, 2019 related to~~Postup, Localytics, and InGenius products and hosting and infrastructure costs of the acquisitions not fully in the comparative ~~period,~~period. Cost of subscription and ~~increased~~support revenue related to our Sunset Assets decreased by $0.2 million primarily due to reductions in hosting and infrastructure ~~costs associated with the newly acquired Rant & Rave, Adestra, PostUp, and Kapost product lines.~~costs. Therefore, cost of subscription and support revenue for ~~the organic portion of~~ our ~~business~~Organic Business increased by ~~$0.9~~$1.9 million, primarily related to an increase in ~~mobile~~ messaging costs ~~associated with the Upland Mobile Messaging product line.~~related to our CXM Cloud.

Cost of professional services revenue was ~~$2.0~~$2.3 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$1.3~~$1.5 million in the three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$0.7~~$0.8 million, or ~~55%~~49%. The acquisitions not fully in the comparative period contributed ~~$0.6~~$0.8 million to the increase to cost of professional services revenue, primarily related to an increase in personnel and related costs in the three months ended ~~June~~ March 31, 2020.

Operating Expenses

Sales and Marketing Expense


	Three Months Ended March 31,
	2020			2019			% Change

	(dollars in thousands)
Sales and marketing ⁽¹⁾	$	10,931		$	6,982		57	%
Percentage of total revenue	16		%	14		%

⁽¹⁾ Includes stock compensation expense as follows:
Stock Compensation	$	549		$	139

30 ~~2019. Therefore, cost~~

Table of ~~professional services revenue for the organic portion of our business increased by $0.1 million, primarily related to outsourced contractor fees.~~Contents

For the ~~Six~~Three Months Ended ~~June 30, 2019~~March 31, 2020

~~Cost of subscription~~Sales and ~~support revenue~~marketing expense was ~~$27.9~~$10.9 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$18.8~~$7.0 million in the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$9.1~~$3.9 million, or ~~48%~~57%. The acquisitions not fully in the comparative period contributed $8.9 million to the increase to cost of subscription and support revenue, primarily related to mobile messaging costs associated with the newly acquired Rant & Rave product line, increased amortization of acquired intangible assets in the six months ended June 30, 2019 related to the acquisitions not fully in the comparative period, and

increased hosting and infrastructure costs associated with the newly acquired Rant & Rave, Adestra, PostUp, and Kapost product lines. Therefore, cost of subscription and support revenue for the organic portion of our business increased by $0.2 million, primarily related to an increase in mobile messaging costs associated with the Upland Mobile Messaging product line.

Cost of professional services revenue was $3.5 million in the six months ended June 30, 2019, compared to $2.7 million in the six months ended June 30, 2018, an increase of $0.8 million, or 30%. The acquisitions not fully in the comparative period contributed $0.9 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, 2019. Therefore, cost of professional services revenue for the organic portion of our business decreased by $0.1 million, primarily related to personnel and related expenses, most of which were the result of our planned operating efficiencies.

~~Operating Expenses~~

~~Sales and Marketing Expense~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % Change 2019 2018 % Change
(dollars in thousands)
Sales and marketing ⁽¹⁾
$ 7,989
$ 5,248
52 % $ 14,971
$ 9,656
55 %
Percentage of total revenue 15 % 15 % 15 % 14 %

⁽¹⁾ Includes stock compensation expense as follows:

Stock Compensation $ 365
$ 154
$ 504
$ 199

~~For the Three Months Ended June 30, 2019~~

Sales and marketing expense was $8.0 million in the three months ended June 30, 2019, compared to $5.2 million in the three months ended June 30, 2018, an increase of $2.8 million, or 52%. The acquisitions not fully in the comparative period contributed $2.0$3.9 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs in the three months ended ~~June 30, 2019.~~March 31, 2020. 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 ~~the organic portion of~~ our ~~business~~Organic Business increased by ~~$0.8~~$0.2 million, primarily related to personnel and related ~~costs as well as sales systems~~costs.

Research and ~~tools.~~Development Expense


	Three Months Ended March 31,
	2020			2019			% Change

	(dollars in thousands)
Research and development ⁽¹⁾	$	9,420		$	6,398		47	%
Refundable tax credits	(302)			(86)			251	%
Total research and development	$	9,118		$	6,312		44	%

Percentage of total revenue:
Research and development	14		%	13		%
Refundable tax credits	—		%	—		%
Total research and development	14		%	13		%

⁽¹⁾ Includes stock compensation expense as follows:
Stock Compensation	$	615		$	322

For the ~~Six~~Three Months Ended ~~June 30, 2019~~March 31, 2020

~~Sales~~Research and ~~marketing~~development expense was ~~$15.0~~$9.4 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$9.7~~$6.4 million in the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$5.3~~$3.0 million,or ~~55%~~47%. The acquisitions not fully in the comparative period contributed $3.4 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs in the six months ended June 30, 2019. Therefore, sales and marketing expense for the organic portion of our business increased by $1.9 million, primarily related to personnel and related costs as well as sales systems and tools.

~~Research and Development Expense~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % Change 2019 2018 % Change
(dollars in thousands)
Research and development ⁽¹⁾
$ 7,008
$ 5,286
33 % $ 13,406
$ 10,177
32 %
Refundable Canadian tax credits (85 ) (203 ) (58 )% (171 ) (305 ) (44 )%
Total research and development $ 6,923
$ 5,083
36 % $ 13,235
$ 9,872
34 %

Percentage of total revenue:
Research and development 13 % 15 % 13 % 15 %
Refundable Canadian tax credits — % (1 )% — % — %
Total research and development 13 % 14 % 13 % 15 %

⁽¹⁾ Includes stock compensation expense as follows:

Stock Compensation $ 632
$ 375
$ 953
$ 488

~~For the Three Months Ended June 30, 2019~~

~~Research and development expense was $7.0 million in the three months ended June 30, 2019, compared to $5.3 million in the three months ended June 30, 2018, an increase of $1.7 million,or 33%. The acquisitions not fully in the comparative period contributed $1.4~~$2.6 million to the increase in research and development expense primarily consisting of personnel and related costs in the three months ended ~~June 30, 2019.~~March 31, 2020. Therefore, research and development costs for ~~the organic portion of~~ our ~~business~~Organic Business increased by ~~$0.3~~$0.4 million primarily related to an increase in non-cash stock compensation expense.

Refundable ~~Canadian~~ tax credits were $0.3 million in the three months ended March 31, 2020, compared to $0.1 million in the three months ended ~~June 30, 2019, compared to $0.2~~March 31, 2019.

General and Administrative Expense


	Three Months Ended March 31,
	2020			2019			% Change

	(dollars in thousands)
General and administrative ⁽¹⁾	$	16,676		$	9,994		67	%
Percentage of total revenue	25		%	21		%

⁽¹⁾ Includes stock compensation expense as follows:
Stock Compensation	$	7,838		$	4,007

Table of Contents

For the Three Months Ended March 31, 2020

General and administrative expense was $16.7 million in the three months ended ~~June 30, 2018.~~

~~For the Six Months Ended June 30, 2019~~

~~Research and development expense was $13.4 million in the six months ended June 30, 2019,~~March 31, 2020, compared to $10.2 million in the six months ended June 30, 2018, an increase of $3.2 million, or 32%. The acquisitions not fully in the comparative period contributed $2.9 million to the increase in research and development expense primarily consisting of personnel and related costs in the six months ended June 30, 2019. Therefore, research and development costs for the organic portion of our business increased by $0.3 million primarily related to an increase in non-cash stock compensation expense.

~~Refundable Canadian tax credits were $0.2 million in the six months ended June 30, 2019, compared to $0.3 million in the six months ended June 30, 2018.~~

~~General and Administrative Expense~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % Change 2019 2018 % Change
(dollars in thousands)
General and administrative ⁽¹⁾
$ 12,042
$ 8,464
42 % $ 22,036
$ 15,464
42 %
Percentage of total revenue 23 % 24 % 22 % 23 %

⁽¹⁾ Includes stock compensation expense as follows:

Stock Compensation $ 5,551
$ 3,303
$ 9,559
$ 5,644

~~For the Three Months Ended June 30, 2019~~

~~General and administrative expense was $12.0~~$10.0 million in the three months ended ~~June 30,~~March 31, 2019, ~~compared to $8.5 million in the three months ended June 30, 2018,~~ an increase of ~~$3.5~~$6.7 million, or ~~42%~~67%. An increase in general administrative expense of ~~$0.5~~$1.1 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, 2019.~~March 31, 2020. Therefore, general and administrative expense for ~~the organic portion of~~ our ~~business~~Organic Business increased by ~~$3.0 million, which was driven primarily by non-cash stock compensation expense and personnel related expenses.~~

~~For the Six Months Ended June 30, 2019~~

General and administrative expense was $22.0 million in the six months ended June 30, 2019, compared to $15.5 million in the six months ended June 30, 2018, an increase of $6.6 million, or 42%. An increase in general administrative expense of $1.3 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, 2019. Therefore, general and administrative expense for the organic portion of our business increased by $5.3$5.6 million, which was driven primarily by non-cash stock compensation expense and personnel related expenses.

Depreciation and Amortization Expense


																		Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,									2020			2019			% Change
	2019			2018			% Change		2019			2018			% Change
	(dollars in thousands)																	(dollars in thousands)
Depreciation and amortization:																	Depreciation and amortization:
Depreciation	$	323		$	133		143	%	$	592		$	253		134	%	Depreciation	$	461		$	269		71	%
Amortization	5,421			3,720			46	%	10,411			5,731			82	%	Amortization	8,810			4,990			77	%
Total depreciation and amortization	$	5,744		$	3,853		49	%	$	11,003		$	5,984		84	%	Total depreciation and amortization	$	9,271		$	5,259		76	%


Percentage of total revenue:																	Percentage of total revenue:
Depreciation	1		%	1		%			1		%	1		%			Depreciation	1		%	1		%
Amortization	10		%	10		%			10		%	8		%			Amortization	13		%	10		%
Total depreciation and amortization	11		%	11		%			11		%	9		%			Total depreciation and amortization	14		%	11		%

For the Three Months Ended ~~June 30, 2019~~March 31, 2020

Depreciation and amortization expense was ~~$5.7~~$9.3 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$3.9~~$5.3 million in the three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$1.9~~$4.0 million, or ~~49%~~76%. The acquisitions not fully in the comparative period increased depreciation and amortization expense by ~~$2.4~~$3.9 million in the three months ended ~~June 30, 2019, while the~~March 31, 2020. Therefore, depreciation and amortization expense for ~~the organic portion of~~ our ~~business decreased~~Organic Business increased by ~~$0.5 million as a result of assets acquired in earlier years becoming fully amortized or depreciated.~~

~~For the Six Months Ended June 30, 2019~~

~~Depreciation and amortization expense was $11.0~~$0.1 million in the ~~six months ended June 30, 2019, compared to $6.0 million in the six months ended June 30, 2018, an increase of $5.0 million, or 84%. The acquisitions not fully in the~~ comparative period increased depreciation and amortization expense by $5.2 million in the six months ended June 30, 2019, while the depreciation and amortization expense for the organic portion of our business decreased by $0.2 million as a result of assets acquired in earlier years becoming fully amortized or depreciated.periods.

Acquisition-related Expenses


	Three Months Ended March 31,
	2020			2019			% Change

	(dollars in thousands)
Acquisition-related expenses	$	15,158		$	7,723		96	%
Percentage of total revenue	21		%	16		%

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % Change 2019 2018 % Change
(dollars in thousands)
Acquisition-related expenses $ 9,264
$ 3,140
195 % $ 16,987
$ 6,242
172 %
Percentage of total revenue 17 % 8 % 16 % 9 %

~~For the Three Months Ended June 30, 2019~~

~~Acquisition related expense was $9.3 million in the three months ended June 30, 2019, compared~~Acquisition-related expenses are one-time expenses typically incurred for up to $3.1 million in the three months ended June 30, 2018, an increase of $6.2 million, or 195%. These acquisition related expenses vary by acquisition and are expensed as incurred. We typically incur acquisition-related expenses for the first year subsequent tofour quarters after each acquisition, with the majority of these costs being incurred within 6 to 9 months, ~~from~~to transform the ~~date of acquisition.~~acquired business into the Company's unified operating platform. These expenses can vary based on the size, timing and ~~timing~~location of each ~~transaction.~~

~~For the Six Months Ended June 30, 2019~~

~~Acquisition related expense was $17.0 million in the six months ended June 30, 2019, compared to $6.2 million in the six months ended June 30, 2018, an increase of $10.8 million, or 172%.~~acquisition. These ~~acquisition~~acquisition-related expenses include transaction related expenses ~~vary by acquisition~~such as banker fees, legal and ~~are expensed as incurred. We typically incur~~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. If the ~~first~~Company ceased acquisition activity today, acquisition-related expenses would reduce in sequential subsequent quarters and within a year ~~subsequent to each acquisition, with the majority of~~ these ~~costs being incurred within 6 to 9 months from the date of acquisition. These~~acquisition-related expenses ~~can vary based on the size and timing of each transaction.~~

~~Other Income (Expense)~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 % Change 2019 2018 % Change
(dollars in thousands)
Other expense:
Interest expense, net $ (5,246 ) $ (3,143 ) 67 % $ (10,362 ) $ (5,637 ) 84 %
Other income (expense), net (692 ) (524 ) 32 % (1,453 ) (221 ) 557 %
Total other expense $ (5,938 ) $ (3,667 ) 62 % $ (11,815 ) $ (5,858 ) 102 %

Percentage of total revenue:
Interest expense, net (10 )% (9 )% (10 )% (8 )%
Other income (expense), net (1 )% (1 )% (2 )% (1 )%
Total other expense (11 )% (10 )% (12 )% (9 )%
would no longer be incurred.

For the Three Months Ended ~~June 30, 2019~~March 31, 2020

~~Interest~~ Acquisition-related expense was ~~$5.2~~$15.2 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$3.1~~$7.7 million in the three months ended ~~June 30, 2018,~~March 31, 2019,an increase of $7.5 million, or 96%. During the three months ended March 31, 2020 and March 31, 2019 transaction related expenses were $3.3 million and $0.4 million, respectively, and transformational expenses were $11.9 million and $7.3 million, respectively.

Table of Contents

Acquisition-related expenses incurred during the three months ended March 31, 2020 increased primarily as a result of the increased number of acquisitions, one acquisition closed in the three months ended March 31, 2020 compared to no acquisitions closed during the same period in 2019. In addition, acquisition related expense during the three months ended March 31, 2020 includes approximately $2.5 million of accelerated rent expense incurred in conjunction with the closures of the Localytics, Kapost and Altify offices as we continue to consolidate and integrate these acquisitions.

Other Income (Expense)


	Three Months Ended March 31,
	2020			2019			% Change

	(dollars in thousands)
Other expense:
Interest expense, net	$	(7,643)		$	(5,116)		49	%

Other income (expense), net	(1,402)			(761)			84	%
Total other expense	$	(9,045)		$	(5,877)		54	%

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

Other income (expense), net	(2)		%	(1)		%
Total other expense	(13)		%	(12)		%

For the Three Months Ended March 31, 2020

Interest expense was $7.6 million in the three months ended March 31, 2020, compared to $5.1 million in the three months ended March 31, 2019, an increase in interest expense of ~~$2.1~~$2.5 million, or ~~67%~~49%. The increase is attributable to increased borrowing under our ~~expanded~~new credit facility used to fund our acquisitions.

See the “Liquidity and Capital Resources” section herein for further discussion regarding our new credit facility.

Other expense was ~~$0.7~~$1.4 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to other expense of ~~$0.5~~$0.8 million in the three months ended ~~June 30, 2018.~~March 31, 2019. Other expense ~~was~~ recognized in the three months ended ~~June 30, 2019~~March 31, 2020 was due primarily to a foreign currency exchange losses related primarily to our UK entities.

~~For the Six Months Ended June 30, 2019~~

~~Interest~~ expense was $10.4 million in the six months ended June 30, 2019, compared to $5.6 million in the six months ended June 30, 2018, an increase in interest expense of $4.8 million, or 84%. The increase is attributable to increased borrowing under our expanded credit facility used to fund our acquisitions.

Other expense was $1.5 million in the six months ended June 30, 2019, compared to other expense of $0.2 million in the six months ended June 30, 2018. Other expense was recognized in the three months ended June 30, 2019 due primarily to a foreign currency exchange losses related to our UK entities.

Benefit from ~~(Provision for)~~ Income Taxes


																		Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,									2020			2019			% Change
	2019			2018			% Change		2019			2018			% Change
	(dollars in thousands)																	(dollars in thousands)
Benefit from (provision for) income taxes	$	6,101		$	(872	)	(800	)%	$	6,713		$	(1,383	)	(585	)%
Benefit from income taxes																	Benefit from income taxes	$	4,287		$	612		600	%
Percentage of total revenue	11		%	(3		)%			7		%	(1		)%			Percentage of total revenue	6		%	1		%

For the Three Months Ended ~~June 30, 2019~~March 31, 2020

Benefit ~~for~~from income taxes was ~~$6.1~~$4.3 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to a ~~provision for~~benefit from income taxes of ~~$0.9~~$0.6 million in the three months ended ~~June 30, 2018,~~March 31, 2019, a decrease of ~~$7.0~~$3.7 million.The change in provision was due primarily to ~~decreases related~~the deferred tax benefit attributable to ~~losses expected to be generated in the United Kingdom for the year,~~ the release of valuation ~~allowance attributable to acquisitions~~allowance.

Table 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, and increases related to the addition of profitable operations in Ireland and Israel.Contents

~~For the Six Months Ended June 30, 2019~~

Benefit for income taxes was $6.7 million in the six months ended June 30, 2019, compared to a provision for income taxes of $1.4 million in the six months ended June 30, 2018, a decrease of $8.1 million.The change in provision was due primarily to decreases related to losses expected to be generated in the United Kingdom for the year, 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, and increases related to the addition of profitable operations in Ireland and Israel.

Liquidity and Capital Resources

To date, we have financed our operations primarily through the raising of capital ~~raising~~ 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,~~March 31, 2020, we had cash and cash equivalents of $98.7 million, $60.0 million of available borrowings under our credit facility, as discussed below, and $537.3 million of borrowings outstanding under our credit facility. As of December 31, 2019, we had cash and cash equivalents of $108.4 million, $30.0 million of available borrowings under our loan and security agreements (excluding the $55.0 million uncommitted Accordion in our Credit Agreement), and $309.5 million of borrowings outstanding under our loan and security agreements. As of December 31, 2018, we had cash and cash equivalents of $16.7$175.0 million, $60.0 million of available borrowings under our ~~loan~~Credit Facility, and ~~security agreements (excluding the $55.0 million uncommitted Accordion in our Credit Agreement), and $283.2~~$538.7 million of borrowings outstanding under our ~~loan and security agreements.~~previous credit facility. Our cash and cash equivalents held by our foreign subsidiaries was ~~$21.4~~$23.3 million as of ~~June 30, 2019.~~March 31, 2020. If these funds held by our foreign subsidiaries are needed for our domestic operations, wea repatriation of these funds would ~~be required~~require us to accrue and pay dividend withholding taxes in the foreign jurisdictions where applicable and accrue and pay U.S. taxes to ~~repatriate these funds.~~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, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had a working capital surplus of ~~$49.5~~$35.6 million and deficit of ~~$40.4~~$109.5 million, respectively, which included ~~$59.6~~$87.8 million and ~~$57.6~~$76.6 million of deferred revenue recorded as a current liability as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. This deferred revenue will be recognized as revenue in future periods in accordance with our revenue recognition policy.

Credit Facility

On ~~May 14, 2015,~~August 6, 2019, we entered into a credit agreement (the “Credit Facility”) ~~between~~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 March 31, 2020. 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 ~~certain of its subsidiaries, and each of the lenders named in~~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. From time~~Agreement in an aggregate principal amount of $190 million (the “2019 Incremental Term Loan”) which is in addition to ~~time we enter into amendments to~~the existing $350 million term loans outstanding under the Credit Facility ~~typically to expand~~and the ~~available borrowing limit in order to fund the Company's acquisitions. As of June 30, 2019~~$60 million Revolver under the Credit Facility, as amended, provides for $400.0 million in borrowing capacity, including a $309.5 million outstanding term loan including a fully drawn $30.0 million delayed draw term loan commitment, a $30.0 million revolving loan commitment, and a $55.0 million uncommitted accordion. OurFacility.

The Credit Facility ~~matures on August 2, 2022.~~

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~~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, 2019~~March 31, 2020 we were in compliance with all covenants under the Credit Facility. See Note ~~6 -~~6. Debt for more information regarding our Credit Facility and outstanding debt as of ~~June 30, 2019.~~

On August 6, 2019, we entered into a new $350 million, 7 year, senior secured term loan B facility and a new undrawn $60 million, 5 year, revolving credit facility. The new credit facilities replaced our existing Credit Facility and paid off all outstanding amounts under our existing Credit Facility at closing. See Note 13 - Subsequent Events in the notes to our unaudited condensed consolidated financial statements for more information regarding the pay off of borrowings under our old Credit Facitliy in connection with entering into our new credit facility subsequent to June 30, 2019.March 31, 2020.

Registration Statement

On December 12, 2018, the Company filed a registration statement on Form S-3 (File No. 333-228767) (the “S-3”), to register Upland securities in an aggregate amount of up to $250.0 million for offerings from time to time. In connection with the filing of the 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.

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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 March 31, 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:


								Three Months Ended March 31,
	Six Months Ended June 30,							2020		2019
	2019			2018
	(dollars in thousands)							(dollars in thousands)
Consolidated Statements of Cash Flow Data:							Consolidated Statements of Cash Flow Data:
Net cash provided by operating activities	$	5,396		$	3,740
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	$	(5,309)	$	4,877
Net cash used in investing activities	(83,188		)	(45,877		)	Net cash used in investing activities	(68,148)		(3,172)
Net cash provided by financing activities	168,617			39,220
Net cash used in financing activities							Net cash used in financing activities	(3,204)		(4,800)
Effect of exchange rate fluctuations on cash	798			(372		)	Effect of exchange rate fluctuations on cash	325		379
Change in cash and cash equivalents	91,623			(3,289		)	Change in cash and cash equivalents	(76,336)		(2,716)
Cash and cash equivalents, beginning of period	16,738			22,326			Cash and cash equivalents, beginning of period	175,024		16,738
Cash and cash equivalents, end of period	$	108,361		$	19,037		Cash and cash equivalents, end of period	$	98,688	$	14,022

Cash Flows from Operating Activities

Cash 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 are one-time acquisition related expenses incurred for up to four quarters after each acquisition to 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 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 and the related timing of collections on those bookings, as well as payments of our accounts payable, accrued payroll and related benefits, affect these account balances.

Our cash provided by operating activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 primarily reflects our net loss of ~~$13.2~~$20.1 million, ~~plus~~which includes $15.2 million of acquisition-related expenses, and includes non-cash ~~expenses that included $15.2~~items comprised of $11.7 million of depreciation and amortization ~~$11.5~~expense, $9.3 million of non-cash stock compensation expense, ~~$1.7~~$0.9 million of amortization of deferred commissions, and $0.6 million of non-cash interest and other expense, and $0.6 million of foreign currency re-measurement losses which were partially offset by ~~$12.0~~$4.3 million of deferred income taxes, ~~of which approximately $5.9 million relates to a decrease in deferred tax liabilities, and $0.2 million of foreign currency re-measurement gains.~~ Working capital sources of cash included a ~~$8.4~~$9.9 million ~~decrease~~increase in ~~accounts receivable and $2.4 million decrease in prepaids and other.~~deferred revenue which was related primarily to timing of collections on annual billings related to recent acquisitions. Working capital uses of cash included a ~~$0.5~~$2.8 million increase in prepaids and other related primarily to payments of annual software/hosting fees, a $1.7 million increase in accounts receivable, a $3.4 million decrease in accounts payable, ~~a $2.7 million decrease in deferred revenu~~eand a ~~$5.8~~$5.9 million decrease in accrued expenses, which ~~includes $1.6 million~~is attributable primarily to the payment of ~~acquisition related earn-out payments.~~the Company’s annual bonus during the current quarter.

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 ~~sheet~~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, 2019,~~March 31, 2020, cash used in investing activities consisted of ~~$82.8~~$67.7 million associated with ~~a acquisitions~~the acquisition of Localytics which closed during the three months ended ~~December~~March 31, ~~2018 and two acquisitions closed during~~2020, the ~~six months ended June 30, 2019, and~~ purchases of property and equipment of ~~$0.4~~$0.3 million, and the purchase of customer relationships of $0.2 million.

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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 operations, proceeds from debt obligations incurred to finance our operations, repayments of our debt obligations and share based payment activity.

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we ~~borrowed $39.3~~made payments on our notes payable balance of $1.4 million, of term loans payable, of which $13.7 million were repaid, received net cash of $151.5 million from issuance of stock, primarily related to the offering described in the “Registration Statement” section above, paid ~~$3.3~~$1.0 million in additional consideration to sellers of acquired businesses related to earnout payments, paid ~~$4.8~~$0.8 million in taxes related to net share settlements of restricted stock vesting events, and made principal payments of ~~$0.4~~$0.1 million on finance leases.

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~~three months ended ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and June 30, 2018,~~ 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, 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, 2019,~~March 31, 2020, 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, ~~2018~~2019 filed with the SEC on March 9, ~~2019.~~2020. 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.

~~Under Section 107(b)~~Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of ~~the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply~~these pronouncements on our condensed consolidated financial statements, refer to ~~private companies. We are choosing~~Note 1. Significant Accounting Policies to ~~opt out~~our condensed consolidated financial statements.

Table of such extended transition period, however, and we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.Contents

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 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. ~~Any draws under~~In conjunction with our new $350 million, 7 year, term loan, and ~~security agreements bear~~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 ~~a variable~~5.4%. However, the interest rate ~~tied to the prime rate.~~associated with our new $60 million, 5 year, revolving credit facility remains floating. As of ~~June 30, 2019,~~March 31, 2020, we had a principal balance of ~~$304.3 million~~$537.3 under our ~~U.S. Loan Agreement and $5.1 million~~Credit Agreement. As there was no debt outstanding under our ~~Canadian Loan Agreement. Based on the principal balance outstanding on our Credit Facility~~revolving credit facility as of ~~June 30, 2019,~~March 31, 2020, a hypothetical change of 100 basis points would result in a maximum potential change to interest expense of ~~$0.3~~$0.0 million annually.

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, which expose us to foreign exchange rate risk. 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 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 be adversely affected. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have resulted in a change in revenue of ~~$3.0~~$1.7 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. To date, we have not engaged in any hedging strategies. 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 ~~loan~~loans that ~~was~~were used to fund the acquisition of a foreign ~~subsidiary~~subsidiaries during the ~~year~~years ended December 31, 2019 and December 31, 2018. Due to the long-term nature of ~~the loan,~~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, 2019,~~March 31, 2020, 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.~~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 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

There were no 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 March 31, 2020 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 ~~2018~~2019 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. ~~There~~With the exception of the risk factor included below, there have been no material changes during ~~2019~~2020 to the risk factors that were included in the Company's Form ~~10-K.~~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.

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

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*

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*

101.SCH***

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

101.CAL***

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

101.DEF***

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

101.LAB***

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

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.~~

* Filed herewith.


**	~~Furnished herewith.~~

~~***~~

The financial information contained in these XBRL documents is unaudited and these are not the official publicly filed financial statements of Upland Software, Inc. Investors should continue to rely on the official filed version of the furnished documents and not rely on this information in making investment decisions. In accordance with Rule 402 of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

** 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 9, 2019~~May 8, 2020		/s/ Michael D. Hill
		Michael D. Hill
		Chief Financial Officer



	Three Months Ended June 30, 2018
	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
Balance at March 31, 2018	21,526,426		$	2	$	176,939		$	(2,856	)	$	(77,997	)	$	96,088
Issuance of stock under Company plans, net of shares withheld for tax	(9,688	)	—		(2,899		)	—			—			(2,899		)
Stock-based compensation	—		—		4,022			—			—			4,022
Foreign currency translation adjustment	—		—		—			(2,227		)	—			(2,227		)
Net loss	—		—		—			—			(5,230		)	(5,230		)
Balance at June 30, 2018	21,516,738		$	2	$	178,062		$	(5,083	)	$	(83,227	)	$	89,754



	Six Months Ended June 30, 2018
	Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
Balance at December 31, 2017	20,768,401	$	2	$	174,944		$	(2,403	)	$	(81,128	)	$	91,415
Issuance of stock under Company plans, net of shares withheld for tax	748,337	—		(3,460		)	—			—			(3,460		)
Issuance of stock, net of issuance costs	—	—		(21		)	—			—			(21		)
Stock-based compensation	—	—		6,599			—			—			6,599
Cumulative ASC 606 adjustments	—	—		—			—			6,292			6,292
Foreign currency translation adjustment	—	—		—			(2,680		)	—			(2,680		)
Net loss	—	—		—			—			(8,391		)	(8,391		)
Balance at June 30, 2018	21,516,738	$	2	$	178,062		$	(5,083	)	$	(83,227	)	$	89,754



	Three Months Ended June 30, 2019
	Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
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	—	—		—			(1,757		)	—			(1,757		)
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		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
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



	Kapost		Postup Holdings		Adestra		Rant & Rave			RO Innovation			Interfax
Cash	$	45,000	$	34,825	$	55,242	$	58,470		$	12,469		$	35,000
Holdback ⁽¹⁾	5,000		175		4,432		6,500			1,781			5,000
Contingent consideration ⁽²⁾	—		—		—		—			—			—
Working capital adjustment	—		—		—		(211		)	(87		)	—
Total consideration	$	50,000	$	35,000	$	59,674	$	64,759		$	14,163		$	40,000



	Preliminary												Finalized
	Kapost			Postup Holdings			Adestra			Rant & Rave			RO Innovation				Interfax
Year Acquired	2019			2019			2018			2018			2018				2018

Cash	$	—		$	—		$	145		$	696		$	197			$	1,396
Accounts receivable	3,918			1,043			2,814			3,468			1,563				1,587
Other current assets	4,575			2,002			1,395			3,836			1,299				1,341
Property and equipment	687			743			796			131			15				286
Operating lease right-of-use asset	2,136			—			—			—			—			—	—
Customer relationships	23,735			10,667			27,542			29,981			6,688				22,577
Trade name	787			468			710			1,099			111				649
Technology	5,756			2,943			6,001			6,565			1,670				5,236
Noncompetes	—			—			—			—			1,148				—
Goodwill	22,159			22,815			28,932			32,589			7,568				13,862
Other assets	—			—			—			—			—				14
Total assets acquired	63,753			40,681			68,335			78,365			20,259				46,948
Accounts payable	(64		)	(448		)	(543		)	(1,577		)	(229		)		(737		)
Accrued expense and other	(5,031		)	(1,794		)	(1,758		)	(6,114		)	(1,921		)		(2,847		)
Deferred tax liabilities	(2,432		)	(3,424		)	(5,104		)	(3,896		)	(2,129		)		(3,364		)
Deferred revenue	(4,090		)	(15		)	(1,256		)	(2,019		)	(1,817		)		—
Operating lease liabilities	(2,136		)	—			—			—			—				—
Total liabilities assumed	(13,753		)	(5,681		)	(8,661		)	(13,606		)	(6,096		)		(6,948		)
Total consideration	$	50,000		$	35,000		$	59,674		$	64,759		$	14,163			$	40,000



	Fair Value at December 31, 2018		Valuation Technique	Significant Unobservable Inputs
Contingent acquisition consideration: (Marketech and RO Innovation)	$	1,396	Binary option model	Expected future annual revenue streams and probability of achievement



	Amortization Expense
Year ending December 31:
Remainder of 2019	$	15,525
2020	29,359
2021	28,438
2022	26,129
2023	24,084
2024 and thereafter	83,697
Total	$	207,232



	June 30,
	2019	2018
Stock options	345,792	468,765
Restricted stock awards	773,860	1,500,280
Restricted stock units⁽¹⁾	891,329	—
Total anti–dilutive common share equivalents	2,010,981	1,969,045



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	636	1,147
Finance lease costs:
Amortization of right-of-use assets	209		459
Interest on lease liabilities	16		42
Total lease costs	$	861	1,648



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities (in thousands):
Operating cash flows from operating leases	$	731	$	1,424
Operating cash flows form finance leases	$	24	$	52
Financing cash flows from finance leases	$	173	$	383
Right-of-use assets obtained in exchange for lease obligations (in thousands):
Operating leases	$	2,310	$	2,310
Weighted average remaining lease term (in years):
Operating leases			3.9
Finance leases			1.2
Weighted average discount rate
Operating leases			6.4		%
Finance leases			6.0		%



	Finance Leases			Operating Leases
Remainder of 2019	$	185		$	1,575
2020	85			1,786
2021	10			1,253
2022	10			1,132
2023	6			1,040
Thereafter	—			1,010
Total minimum lease payments	296			7,796
Less amount representing interest	(34		)	(1,085		)
Present value of lease liabilities	$	262		$	6,711

Accrued expenses and other current liabilities	$	235		$	—
Operating lease liabilities, current	—			2,614
Operating lease liabilities, noncurrent	—			4,097
Other long-term liabilities	27			—
Total lease liabilities	$	262		$	6,711



	Number of Restricted Shares Outstanding		Weighted-Average Grant Date Fair Value
Unvested balances at December 31, 2018	997,014		$	23.93
Awards vested	(219,987	)	24.26
Awards forfeited	(3,167	)	26.92
Unvested balances at June 30, 2019	773,860		$	23.82



	Number of Options Outstanding		Weighted– Average Exercise Price
Outstanding at December 31, 2018	408,899		$	8.08
Options exercised	(62,242	)	6.77
Options forfeited	(556	)	7.74
Options expired	(309	)	1.49
Outstanding at June 30, 2019	345,792		$	8.33



	June 30, 2019
Deferred commissions beginning balance	$	8,925
Capitalized deferred commissions	4,047
Amortization of deferred commissions	(1,735		)
Deferred commissions ending balance	$	11,237