What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 289 added, 297 removed, 962 unchanged (38% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Measurement of Income Tax Provision

Valuation of intangible assets and contingent consideration in business combinations

Description of the Matter

As more fully described in Notes 2 and 6 to the consolidated financial statements, the Company operates in domestic and international markets and is subject to tax law in the U.S., U.K., and other foreign tax jurisdictions.

The income tax provision is an estimate based on management’s understanding of current enacted tax laws and tax rates of each tax jurisdiction.

The Company’s accounting for income taxes involves the application of complex and changing tax laws, regulations, and case law in multiple jurisdictions as it relates to non-routine transactions such as acquisitions.

The Company utilizes judgment in the interpretation of tax laws, regulations, and case law as they apply to its tax positions.

For the year ended December 31, 2020, income tax benefit was $4.2 million.

Auditing management’s calculation of the provision for income taxes was complex because the provision for income taxes involved auditor judgment, due to the interpretation of tax laws, regulations, and case law across multiple jurisdictions, the application of those laws, regulations, and case law as it relates to non-routine transactions such as acquisitions, and evaluation of the application of such tax laws, regulations, and case law to the Company’s tax positions.

These matters are subject to legal and factual interpretation.

Our audit procedures required significant audit effort, including the use of our tax professionals to assist in evaluating the audit evidence obtained from our procedure

As disclosed in Note 1 to the consolidated financial statements, the Company’s growth strategy is to pursue acquisitions of complementary technologies and businesses as evidenced by the twenty-nine acquisitions made in the ten years ended December 31, 2021.

As disclosed in Note 3 to the consolidated financial statements, during 2021, the Company completed 3 acquisitions for total consideration of $112.5 million, which included $4.2 million of contingent consideration.

The acquisitions were accounted for as business combinations in accordance with ASC 805.

Auditing the Company's accounting for its acquisitions was complex due to the estimation uncertainty in the Company’s determination of the fair value of identified intangible assets, which primarily consist of developed technology of $9.9 million and customer relationships of $43.2 million, and contingent consideration of $4.2 million.

The estimation uncertainty was primarily due to the judgmental nature of the inputs and assumptions to the valuation models used to measure the fair value of these intangible assets and contingent consideration, as well as the sensitivity of the respective fair values to underlying assumptions.

The Company used the multi-period excess earnings and relief-from-royalty methods, which are variations of the income approach, to measure the customer relationships and developed technology intangible assets, respectively, and the binary option model to measure contingent consideration.

The significant assumptions used to estimate the fair value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results, including revenue growth rates, gross margin, operating expenses, technology obsolescence and customer attrition.

The significant assumptions used to estimate the fair value of the contingent consideration included discount rates and expected future annual revenue streams and the related probability of achievement.

These significant assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls relating to the provision for income taxes, inclusive of management’s review of the provision for income taxes and interpretation of tax laws, regulations, and case law.

For example, we tested the Company’s controls over management’s review of the underlying data used in the provision for income tax calculations and controls over management’s review of the analysis provided by advisors utilized in the application of tax law to the Company’s tax positions.

Among other audit procedures performed, we assessed the Company’s evaluation of tax laws, regulations, and case law, and tested the provision for income tax calculations including the completeness and accuracy of underlying data used in the calculations.

We involved our tax matter professionals to evaluate the Company’s interpretation and application of tax laws, regulations, and case law to the Company’s tax positions.

This included evaluating advice obtained by the Company.

We have also evaluated the Company’s income tax disclosures included in Notes 2 and 6 of the consolidated financial statements in relation to these matters.

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s accounting for acquisitions, which included management’s review of the determination of the key assumptions used in estimating the fair value of intangible assets and contingent consideration.

To test the estimated fair value of the identified intangible assets and contingent consideration our audit procedures for each of the acquisitions included, among others, reading the purchase agreement, evaluating the Company's use of the multi-period excess earnings method, relief-from-royalty method and binary option model, evaluating the significant assumptions used by the Company, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

We involved our valuation specialists to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates.

For example, we compared the forecasted results to historical operating results, industry peer results, economic trends, and other relevant factors.

We also assessed the historical accuracy of management’s estimates.

Revenue recognition for new products and services

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We also evaluated the impact of non-standard terms and conditions on the determination of the transaction price and pattern of revenue recognition.

Measurement of Income Tax Provision

Description of the Matter

The income tax provision is an estimate based on management’s understanding of current enacted tax laws and tax rates of each tax jurisdiction.

The Company utilizes judgment in the interpretation of tax laws, regulations, and case law as they apply to its tax positions.

For the year ended December 31, 2021, income tax benefit was $8.3 million.

These matters are subject to legal and factual interpretation.

Our audit procedures required significant audit effort, including the use of our tax professionals to assist in evaluating the audit evidence obtained from our procedures.

How We Addressed the Matter in Our Audit

We involved our tax matter professionals to evaluate the Company’s interpretation and application of tax laws, regulations, and case law to the Company’s tax positions.

This included evaluating advice obtained by the Company.

We have also evaluated the Company’s income tax disclosures included in Notes 2 and 6 of the consolidated financial statements in relation to these matters.

/s/ Ernst & Young LLP

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Deferred revenue 102,847 87,552

Due to sellers 416 14,276

Liabilities due to sellers of businesses 7,607 416

Operating lease liabilities, current 3,546 3,315

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Loss on debt extinguishment — — ( 2,317 )

Other income (expense), net ( 111 ) ( 3,240 ) ( 1,781 )

Other expense, net ( 253 ) ( 111 ) ( 3,240 )

Total other expense ( 31,879 ) ( 31,640 ) ( 27,870 )

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Net loss $ ( 58,212 ) $ ( 51,219 ) $ ( 45,371 )

Foreign currency translation adjustment 5,173 1,635 ( 3,762 )

Other comprehensive income (loss):

Foreign currency gain (loss) translation adjustment ( 6,301 ) 5,173 1,635

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries ( 602 ) 2,271 2,219

Unrealized gain (loss) on interest rate swaps 21,623 ( 32,455 ) 2,424

Other comprehensive income (loss):

$ 14,720 $ ( 25,011 ) $ 6,278

Comprehensive loss $ ( 43,492 ) $ ( 76,230 ) $ ( 39,093 )

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Stock-based compensation — — 25,754 — — 25,754

Cumulative ASC 606 adjustments — — — — 6,292 6,292

Foreign currency translation adjustment — — — 1,635 — 1,635

Unrealized translation gain on intercompany loans with foreign subsidiaries — — — 2,219 — 2,219

Unrealized gain on interest rate swaps — — — 2,424 — 2,424

Net loss — — — — ( 45,371 ) ( 45,371 )

Balance at December 31, 2019 25,250,120 $ 3 $ 345,127 $ ( 1,223 ) $ ( 131,046 ) $ 212,861

Issuance of common stock in business combination 7,898 — ( 30 ) — — ( 30 )

Issuance of stock under Company plans, net of shares withheld for tax 711,994 — ( 1,673 ) — — ( 1,673 )

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Stock-based compensation — — 41,692 — — 41,692

Cumulative adjustment related to adoption of accounting standard — — — — ( 108 ) ( 108 )

Foreign currency translation adjustment — — — 5,173 — 5,173

Unrealized translation gain on intercompany loans with foreign subsidiaries — — — 2,271 — 2,271

Unrealized gain on interest rate swaps — — — 2,424 — 2,424

Unrealized loss on interest rate swaps — — — ( 32,455 ) — ( 32,455 )

Net loss — — — — ( 51,219 ) ( 51,219 )

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Issuance of stock under Company plans, net of shares withheld for tax 1,109,434 — ( 708 ) — — ( 708 )

Issuance of stock, net of issuance costs 4,025,000 — 130,073 — — 130,073

Stock-based compensation — — 53,873 — — 53,873

Cumulative adjustment related to adoption of accounting standard — — — — ( 108 ) ( 108 )

Foreign currency translation adjustment — — — ( 6,301 ) — ( 6,301 )

Unrealized translation gain on intercompany loans with foreign subsidiaries — — — 2,271 — 2,271

Unrealized loss on interest rate swaps — — — ( 32,455 ) — ( 32,455 )

Unrealized translation loss on intercompany loans with foreign subsidiaries — — — ( 602 ) — ( 602 )

Unrealized gain on interest rate swaps — — — 21,623 — 21,623

Net loss — — — — ( 58,212 ) ( 58,212 )

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Depreciation and amortization 52,928 47,164 34,621

Change in fair value of liabilities due to sellers of businesses ( 4,510 ) ( 340 ) 241

Deferred income taxes ( 11,179 ) ( 7,533 ) ( 9,432 )

Amortization of deferred costs 8,948 4,684 3,476

Foreign currency re-measurement (gain) loss 272 58 305

Foreign currency re-measurement loss 25 272 58

Non-cash interest and other expense 2,249 2,233 1,398

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Additional consideration paid to sellers of businesses ( 1,938 ) ( 14,710 ) ( 16,693 )

Net cash provided by financing activities 107,899 363,768 149,923

Net cash provided by (used in) financing activities ( 8,180 ) 107,899 363,768

Effect of exchange rate fluctuations on cash ( 897 ) 456 203

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$ 11,670 $ ( 4,893 ) $ 16,108

Equipment acquired pursuant to financing lease obligations $ — $ 44 $ —

Issuance of common stock in business combination $ — $ — $ 44

See accompanying notes.

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Upland Software, Inc.

(“Upland” or the “Company”) is a provider of cloud-based enterprise work management software that enables organizations to plan, manage and execute projects and work.

(“Upland,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, is a provider of cloud-based enterprise work management software that enables organizations to plan, manage and execute projects and work.

Upland’s four cloud offerings address a broad range of enterprise work management needs, from strategic planning to task execution in the following functional areas:

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Basis of Presentation

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP.

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

There have been no changes in the Company’s accounting policies since December 31, 2019, except as discussed below with respect to the Company’s adoption of ASU 2016-13.

There have been no significant changes in the Company’s accounting policies since December 31, 2020.

Use of Estimates

The preparation of the accompanying 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 consolidated financial statements, and the reported amounts of revenues and expenses.

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses.

Significant items subject to such estimates include those related to revenue recognition, deferred commissions, allowance for credit losses, stock-based compensation, contingent consideration, acquired intangible assets, the useful lives of intangible assets and property and equipment, and income taxes.

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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.

We assessed the impact of COVID-19 on the estimates and assumptions and determined there was no material impact.

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 February 24, 2022, the date of issuance of this Annual Report on Form 10-K.

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Accounts Receivable and Allowance for Credit Losses

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments .

The adoption of ASU 2016-13 resulted in recording a cumulative-effect adjustment to decrease the beginning balance (at January 1, 2020) of Accumulated deficit in the amount of $ 0.1 million, which represented the accelerated recognition of credit losses related to our trade receivables under the expected credit loss model of calculating our current expected credit losses compared to the previous incurred loss model.

The Company extends credit to the majority of its customers.

Issuance of credit is based on ongoing credit evaluations by the Company of customers’ financial condition and generally requires no collateral.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest.

Invoices generally require payment within 30 to 60 days from the invoice date.

Trade accounts receivable are recorded at the

invoiced amount and do not bear interest.

Invoices generally require payment due upon receipt of invoice.

The Company generally does not charge interest on past due payments, although the Company's contracts with its customers usually allow it to do so.

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Cumulative adjustment related to adoption of ASU 2016-13 — 108 —

Provision 1,115 1,720 875

Provision for credit losses 694 1,115 1,720

Writeoffs, net of recoveries ( 1,052 ) ( 996 ) ( 1,887 )

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The Company performs periodic credit evaluations of its customers and generally does not require collateral.

No individual customer represented more than 10% of total revenues nor more than 10% of accounts receivable in the years ended December 31, 2020, 2019, or 2018.

No individual customer represented more than 10% of total revenues or more than 10% of accounts receivable in the years ended December 31, 2021, 2020 or 2019.

Property and Equipment

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Business Combinations

We apply the provisions of ASC 805, Business Combinations, in accounting for our acquisitions which requires the acquisition purchase price to be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates.

We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations , in accounting for our acquisitions which requires the acquisition purchase price to be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates.

The excess of the purchase price over these estimated fair values is recorded to goodwill.

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During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to our initial estimates and assumptions.

Upon conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to acquisition related expenses in our consolidated statement of operations.

Upon conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to Acquisition-related expenses on our consolidated statement of operations.

Tangible assets are valued at their respective carrying amounts, which approximates their estimated fair value.

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The purchase price transferred in our acquisitions often contain holdback and contingent consideration provisions.

Holdbacks are subject to reduction for indemnification claims and are typically payable within 12 to 18 months of the acquisition date and are recorded in due to sellers in our consolidated balance sheets.

Holdbacks are subject to reduction for indemnification claims and are typically payable within 12 to 18 months of the acquisition date and are recorded in Liabilities due to sellers of businesses on our consolidated balance sheets.

Contingent consideration typically includes earnout payments payable within 6 to 18 months of the date of acquisition based on attainment of certain performance goals.

Contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted, if necessary.

Holdback and contingent consideration liabilities are recorded in due to sellers in our consolidated balance sheet.

The estimated fair value of contingent consideration related to potential earnout payments is calculated utilizing a binary option model, and this amount is recorded in due to sellers in the consolidated balance sheets.

Holdback and contingent consideration liabilities are recorded in Liabilities due to sellers of businesses on our consolidated balance sheet based on their estimated fair values.

The estimated fair value of contingent consideration related to potential earnout payments is calculated utilizing a binary option model, and this amount is recorded in Liabilities due to sellers of businesses on our consolidated balance sheets.

The fair value of contingent consideration is estimated on a quarterly basis through a collaborative effort by our sales and finance departments.

Changes in the fair value of contingent consideration subsequent to the purchase price finalization are recorded as acquisition related expenses or other income (expense) in our consolidated statements of operations based on management’s assessment of the nature of the liability.

Changes in the fair value of contingent consideration subsequent to the purchase price finalization are recorded as Acquisition-related expenses or Other income (expense), net on our consolidated statements of operations based on management’s assessment of the nature of the liability.

In the event a holdback is reduced subsequent to the finalization of purchase accounting, the reduction is recorded as a gain in Acquisition-related expenses or Other income (expense), net on our consolidated statements of operations based on management’s assessment of the nature of the liability.

Goodwill and Other Intangibles

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If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period.

The Company has historically performed its annual goodwill and indefinite-lived intangible asset impairment test as of October 31st.

During the first quarter of 2020, the Company changed the date of its annual impairment test to the first day of its fourth fiscal quarter, October 1st.

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 also performed a qualitative assessment as of October 31, 2020 to ensure the change did not result in the delay, acceleration or avoidance of an impairment charge.

No impairment of goodwill was identified during the years ended December 31, 2021, 2020 or 2019.

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Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable.

The Company evaluates the recoverability of intangible assets by comparing their carrying amounts to the future

net undiscounted cash flows expected to be generated by the intangible assets.

The Company evaluates the recoverability of intangible assets by comparing their carrying amounts to the future net undiscounted cash flows expected to be generated by the intangible assets.

If such intangible assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the intangible assets exceeds the fair value of the assets.

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Eligible internal and external costs associated with significant upgrades and enhancements incurred during the application development stage are capitalized as property and equipment.

During the fiscal years ended December 31, 2020, 2019, and 2018, there were no internal use software development costs capitalized under ASC 350-40, Internal-Use Software.

During the years ended December 31, 2021, 2020 or 2019, there were no internal use software development costs capitalized under ASC 350-40, Internal-Use Software .

ASC 350-40 also requires hosting arrangements that are service contracts to follow the guidance for internal-use software to determine which implementation costs can be capitalized.

In accordance with ASC 350-40, (i) capitalized implementation costs must are classified in the same balance sheet line item as the amounts prepaid for the related hosting arrangement;

In accordance with ASC 350-40, (i) capitalized implementation costs are classified in the same balance sheet line item as the amounts prepaid for the related hosting arrangement;

(ii) amortization of capitalized implementation costs are presented in the same income statement line item as the service fees for the related hosting arrangement;

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These costs related primarily to the implementation of a new ERP system.

These capitalized implementation costs will be amortized over the expected term of the arrangement and are amortized in the same line item in the consolidated statements of operations as the expense for fees for the associated hosting arrangement.

Refundable Tax Credits

Refundable tax credits related to current expenses are accounted for as a reduction of the research and development costs.

Such credits relate to the Company's operations in Canada, the United Kingdom, and Ireland and are not dependent upon taxable income.

Credits are accrued in the year in which the research and development costs or the capital expenditures are incurred, provided the Company is reasonably certain that the credits will be received.

The government credit must be examined and approved by the tax authorities, and it is possible that the amounts granted will differ from the amounts recorded.

These capitalized implementation costs will be amortized over the expected term of the arrangement and are amortized in the same line item on our consolidated statements of operations as the expense for fees for the associated hosting arrangement.

Debt Issuance Costs

The Company capitalizes underwriting, legal, and other direct costs incurred related to the issuance of debt, which are recorded as a direct deduction from the carrying amount of the related debt liability and amortized to interest expense over the term of the related debt using the effective interest rate method.

Upon the extinguishment of the related debt, any unamortized capitalized deferred financing costs are recorded to interest expense.

In 2019 the Company wrote off approximately $ 2.3 million of deferred financing costs associated with the pay down of its prior credit facility in connection with entering into the Company’s new Credit Agreement as discussed in Note 7.

In 2020 and 2018, the Company had no write offs of deferred financing costs.

The Company capitalizes underwriting, legal, and other direct costs incurred related to the issuance of debt, which are recorded as a direct deduction from the carrying amount of the related debt liability and amortized to interest expense, net over the term of the related debt using the effective interest rate method.

Upon the extinguishment of the related debt, any unamortized capitalized debt issuance costs are recorded to Interest expense, net on our consolidated statement of operations.

During the year ended December 31, 2019, the Company wrote off debt issuance costs of $ 2.3 million as a Loss on debt extinguishment on our consolidated statements of operations, as a result of the paydown of our previous credit facility in connection with entering into the Company’s Credit Facility (as hereinafter defined) and discussed in “Note 7.

In 2021 and 2020, the Company had no write offs of debt issuance costs.

The Company entered into floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt.

These interest rate swaps effectively converted the entire balance of the Company's $ 540 million term loans from variable interest payments to fixed interest rate payments, based on an annualized fixed rate of 5.4 %, for the 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.

These interest rate swaps effectively converted the entire balance of the Company's $ 540 million original principal 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, Derivatives and Hedging , 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.

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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 Consolidated Balance Sheets.

The fair value of interest rate swaps included in Interest rate swap liabilities in the Company's consolidated balance sheets was December 31, 2020 was $ 30.0 million.

As of December 31, 2019, the fair value of the interest rate swaps included in Other assets in the Company's consolidated balance sheet 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 consolidated statements of operations in the period in which the hedged item affects earnings.

All derivative financial instruments are recorded at fair value as a net asset or liability on our consolidated balance sheets.

The fair value of interest rate swaps included in Interest rate swap liabilities on our consolidated balance sheets as of December 31, 2021 and 2020 was $ 8.4 million and $ 30.0 million, respectively.

The change in the fair value of the hedging instruments is recorded in Unrealized gain (loss) on interest rate swaps on our consolidated stateme nts of comprehensive income.

Amounts deferred in Unrealized gain (loss) on interest rate swaps in our consolidated statements of comprehensive income will be reclassified to Interest expense, net on our consolidated statements of operations in the period in which the hedged item affects earnings.

Fair Value of Financial Instruments

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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 adopted ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement , in the first quarter of 2020.

Under ASU 2018-13, 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 business entities will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, and long–term debt.

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Revenue Recognition

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers .

Refer to “Note 13 Revenue Recognition” for a detailed discussion of accounting policies related to revenue recognition, including deferred revenue and deferred commissions.

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Advertising costs are expensed in the period incurred.

Advertising expenses were $ 87,000 , $ 132,000 and $ 79,000 for the years ended December 31, 2020, 2019, or 2018, respectively.

Advertising costs are recorded in sales and marketing expenses in the accompanying consolidated statement of operations.

Advertising expenses were $ 0.9 million, $ 0.1 million and $ 0.1 million for the years ended December 31, 2021, 2020 or 2019, respectively.

Advertising costs are recorded in Sales and marketing expenses on our consolidated statement of operations.

The Company uses the asset and liability method of accounting for income taxes.

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This determination includes the review of contracts with third parties to identify the existence of potential embedded leases.

Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and noncurrent operating lease liabilities on the Company’s consolidated balance sheets.

Operating leases are included in operating lease right-of-use (“ROU”) assets, current and noncurrent operating lease liabilities on the Company’s consolidated balance sheets.

Finance leases are included in property and equipment, accrued expenses and other liabilities, and other noncurrent liabilities on the Company’s consolidated balance sheets.

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Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

The lease ROU asset is reduced for tenant incentives and excludes any initial direct costs incurred.

The lease ROU asset includes any initial direct costs incurred and is reduced for any tenant incentives.

As the Company’s leases do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate.

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We record forfeitures as they occur.

The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period.

The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized on our consolidated statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period.

We value restricted stock and restricted stock units at the closing price of our common stock on the grant date.

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Compensation expense for awards with marked-based conditions is recognized over the required service period of the grant based on the grant date fair value of the award and is not subject to fluctuation due to achievement of the underlying market-based condition.

Significant assumptions used in the Monte Carlo simulation model for the PRSUs granted during the twelve months ended December 31, 2020 are as follows.

No PRSUs were granted during the years ended December 31, 2019 and 2018, respectively.

Significant assumptions used in the Monte Carlo simulation model for the PRSUs granted during the year ended December 31, 2021 and 2020 are as follows.

No PRSUs were granted during the year ended December 31, 2019.

Year Ended December 31,

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Dividend yield — —

The following table summarizes the weighted-average grant-date fair value of options granted during 2018 and the assumptions used to develop their fair values.

No stock options were awarded during the years ended December 31, 2020 and 2019.

Year Ended December 31,

Weighted average grant-date fair value of options $ 11.42

Expected volatility 33.4 %

Risk-free interest rate 2.8 %

Expected life in years 5.00

Dividend yield —

Comprehensive Loss

The Company utilizes the guidance in Accounting Standards Codification (ASC) Topic 220, Comprehensive Income, for the reporting and display of comprehensive loss and its components in the consolidated financial statements.

Comprehensive loss consists of net loss, 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 Company utilizes the guidance in ASC 220, Income Statement—Reporting Comprehensive Income , for the reporting and display of comprehensive loss and its components in the consolidated financial statements.

Comprehensive loss consists of net loss, foreign currency translation adjustments for subsidiaries with functional currencies other than the United States dollar (“USD”), unrealized translation gains (losses) on foreign currency denominated intercompany loans, and unrealized gains (losses) on interest rate swaps.

Refer to “Note 12.

Stockholders' Equity for a detail of the components of accumulated comprehensive income for the years ended December 31, 2020, 2019, or 2018.

Stockholders' Equity—Accumulated Other Comprehensive Income (Loss)” for further discussion of the components of accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 or 2019.

Foreign Currency Transactions

The functional currency of our foreign subsidiaries are the local currencies.

Results of operations for foreign subsidiaries are translated in United States dollars using the average exchange rates on a monthly basis during the year.

The assets and liabilities of those subsidiaries are translated into United States dollars using the exchange rates in effect at the balance sheet date.

The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss.

Assets and liabilities denominated in currencies other than the functional currency are remeasured using the current exchange rate for monetary accounts and historical exchange rates for nonmonetary accounts, with exchange differences on remeasurement included in other income (expense) in our statements of operations.

For the years ended December 31, 2020 and 2018 net gains related to remeasurement of foreign currency transactions of $ 0.2 million, and $ 0.3 million, respectively, were recorded in other income (expense) in our statements of operations.

For the year ended December 31, 2019 net losses related to remeasurement of foreign currency transactions of $ 0.5 million were recorded in other income (expense) in our statements of operations.

The functional currency of our foreign subsidiaries are primarily the local currencies.

Results of operations for foreign subsidiaries are translated in USD using the average exchange rates on a monthly basis during the year.

The assets and liabilities of those subsidiaries are translated into USD using the exchange rates in effect at the balance sheet date.

The related translation adjustments are recorded as a separate component of the Company’s consolidated statements of stockholders' equity in accumulated other comprehensive loss.

Assets and liabilities denominated in currencies other than the functional currency are remeasured using the current exchange rate for monetary accounts and historical exchange rates for non-monetary accounts, with exchange differences on remeasurement included in other expense, net in the accompanying statements of operations.

For the years ended December 31, 2021 and 2020 net gains related to remeasurement of foreign currency transactions of $ 48.6 thousand and $ 0.2 million, respectively, were recorded in Other expense, net on our consolidated statements of operations.

For the year ended December 31, 2019, net losses related to remeasurement of foreign currency transactions of $ 0.5 million were recorded in Other expense, net on our consolidated statements of operations.

We have foreign currency denominated intercompany loans that were used to fund the acquisition of foreign subsidiaries in 2018 and 2019.

Due to the long-term nature of the loans, the foreign currency gains (losses) resulting from remeasurement are recognized as a component of accumulated other comprehensive income (loss).

During the year ended December 31, 2020 the balances of these intercompany loans were converted to US dollars.

During the years ended December 31, 2020, 2019 and 2018 a translation gain of $ 2.3 million, gain of $ 2.2 million, and loss of $ 1.4 million, respectively, were recognized as a component of accumulated other comprehensive income (loss) related to long-term intercompany loans.

Due to the long-term nature of the loans, the foreign currency gains (losses) resulting from remeasurement are recognized as a separate component of the Company’s consolidated statements of stockholders' equity in accumulated other comprehensive loss.

During the years ended December 31, 2021, the balances of these intercompany loans were converted to USD.

During the years ended December 31, 2021, 2020 and 2019, a translation loss of $ 0.6 million, gain of $ 2.3 million, and gain of $ 2.2 million, respectively, were recognized as a component of accumulated other comprehensive loss in the Company’s statements of stockholders’ equity, related to long-term intercompany loans.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848):

In March 2020, the FASB issued Accounting Standards Update (“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.

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The Company does not 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 adopted this guidance in the first quarter of 2020 with no material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments , which changes the impairment model for most financial assets.

The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses.

ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018.

The Company adopted this guidance in the first quarter of 2020 and as a result of the adoption recorded a cumulative-effect adjustment to decrease the beginning balance of Accumulated deficit in the amount of $ 0.1 million, which represents the accelerated recognition of credit losses related to our trade receivables under the expected credit loss model of calculating our current expected credit losses compared to the previous incurred loss model.

The Company performs quantitative and qualitative analyses to determine the significance of each acquisition, to the consolidated financial statements of the Company.

Based on these analyses the below acquisitions were deemed to be

insignificant on an individual and cumulative basis, with the exception of Rapide Communication LTD, a private company limited by shares organized and existing under the laws of England and Wales doing business as Rant & Rave (“Rant & Rave”).

Refer to the pro forma disclosed below.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination.

The new guidance will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination.

Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date.

The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606.

These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company is evaluating the impact of this standard on our consolidated financial statements.

The Company performs quantitative and qualitative analyses to determine the significance of each acquisition to its consolidated financial statements.

As such, the acquisitions below were deemed to be insignificant on an individual and cumulative basis.

2021 Acquisitions

Acquisitions completed during the twelve months ended December 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 Char Software, Inc (dba Localytics), a Delaware corporation (“Localytics”), a provider of mobile app personalization and analytics solutions.

Acquisitions completed during the year ended December 31, 2021 include the following:

• Panviva - On June 24, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Panviva Pty Ltd, an Australian proprietary company (“Panviva”), a cloud-based enterprise knowledge management solution.

Revenues recorded since the acquisition date through December 31, 2021 were approximately $ 3.9 million.

We determined that disclosing the amount of Localytics related earnings included in the consolidated statements of operations is impracticable, as certain operations of Localytics were integrated into the operations of the Company from the date of acquisition.

• BlueVenn - On February 28, 2021 the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BlueVenn Group Limited, a company limited by shares organized and existing under the laws of England and Wales (“BlueVenn”), a cloud-based customer data platform.

Revenues recorded since the acquisition date through December 31, 2021 were approximately $ 12.6 million.

• Second Street - On January 19, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Second Street Media, Inc., a Missouri corporation (“Second Street”), an audience engagement platform.

Revenues recorded since the acquisition date through December 31, 2021 were approximately $ 10.2 million.

• See “Note 17.

Subsequent Events for discussion of the acquisition of Second Street Media, Inc., which was completed subsequent to December 31, 2020.

Subsequent Events” for discussion of the acquisitions of Objectif Lune Inc.

and BA-Insight, Inc., which were completed subsequent to December 31, 2021.

We determined that disclosing the amount of Panviva, BlueVenn and Second Street related earnings included in the consolidated statements of operations is impracticable, as certain operations of Panviva, BlueVenn and Second Street were integrated into the operations of the Company from the date of acquisition.

2020 Acquisitions

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

2019 Acquisitions

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

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

2018 Acquisitions

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

• Interfax - On March 21, 2018, the Company’s wholly owned subsidiary, PowerSteering UK, a limited liability company organized and existing under the laws of England and Wales (“PowerSteering UK”), completed its purchase of the shares comprising the entire issued share capital of Interfax Communications Limited (“Interfax”), 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 cloud-based customer reference solution for creating, deploying, managing, and measuring customer reference and sales enablement content.

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

• Adestra - On December 12, 2018, the Company completed its purchase of Adestra Ltd.

(“Adestra”), a leading provider of enterprise-grade email marketing, transaction and automation software.

Consideration

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

Localytics Altify InGenius Cimpl Kapost Postup Adestra Rant & Rave RO Innovation Interfax

Panviva BlueVenn Second Street Localytics Altify InGenius Cimpl Kapost Postup

Cash $ 19,931 $ 53,535 $ 25,436 $ 67,655 $ 84,000 $ 26,428 $ 23,071 $ 45,000 $ 34,825

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Total consideration $ 23,827 $ 57,962 $ 30,721 $ 63,762 $ 84,000 $ 34,293 $ 25,671 $ 49,399 $ 35,000

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

(2) Represents the acquisition date fair value of anticipated earn-out payments which are based on the estimated probability of attainment of the underlying future performance-based conditions at the time of acquisition.

The maximum potential payout for the InGenius earn-out was $ 15.0 million.

For the year ended December 31, 2018, contingent consideration included 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.

In addition to the contingent consideration detailed in the table above, during the year ended December 31, 2018 the Company incurred contingent consideration related to an asset acquisition from a former reseller of Interfax in connection with our acquisition of Interfax as discussed under “Other Acquisitions” below.

Refer to Note 4 for further discussion regarding the calculation of fair value of acquisition related earn-outs and subsequent payouts.

Unaudited Pro Forma Information

The pro forma statements of operations data for year ended December 31, 2018, shown in 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 results 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 for the respective years ending December 31 (in thousands):

Revenue $ 167,450

Net loss (1) $ ( 14,086 )

(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 year ended December 31, 2018 includes nonrecurring adjustment removing acquisition costs from 2018 and reflects these costs in the year ended 2017, the year the acquisition was assumed to be completed for pro forma purposes.

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

(2) Represents the acquisition date fair value of anticipated earnout payments which are based on the estimated probability of attainment of the underlying future performance-based conditions at the time of acquisition.

The maximum potential payout for the BlueVenn, Second Street, Localytics and InGenius earnouts were $ 21.7 million, $ 3.0 million, $ 1.0 million and $ 15.0 million, respectively.

As of December 31, 2021, the fair value of the earnouts for BlueVenn and Second Street were zero .

The earnout for Localytics and InGenius were paid in full during the year ended December 31, 2020 based on an ending fair value of $ 1.0 million and $ 4.5 million, respectively.

Refer to “Note 4.

Fair Value Measurements” for further discussion regarding the calculation of fair value of acquisition related earnouts and subsequent payouts.

(3) Working capital and other adjustments includes a $ 5.2 million reduction in total consideration for Localytics related to a representation and warranty insurance settlement which is included in Prepaids and other on our consolidated balance sheets as of December 31, 2020 and a $ 1.4 million reduction in total consideration for Second Street related to an indemnification claim which was charged to Liabilities due to sellers of businesses (Holdback) on our consolidated balance sheets during 2021.

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 accounting for the Company’s 2020, 2019 and 2018 acquisitions (as disclosed in the table below) are final.

The purchase accounting for the 2021 acquisitions of Panviva are BlueVenn are preliminary as the Company has not finalized the tax impact of these acquisitions.

Management has recorded the purchase price allocations based upon acquired company information that is currently available.

Management expects to complete the purchase accounting for BlueVenn no later than the first quarter of 2022 and no later than the second quarter of 2022 for Panviva.

The following condensed table presents the finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions closed in 2020 and 2021 (in thousands):

Localytics Altify InGenius Cimpl Kapost Postup

Preliminary Final

Panviva BlueVenn Second Street Localytics

Year Acquired 2021 2021 2021 2020

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Other current assets 4,985 1,983 89 6,323

Tax credits receivable — 916 1,489 1,383 — —

Operating lease right-of-use asset 197 1,357 489 7,605

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During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to management’s estimates and assumptions.

The change in the preliminary acquisition-date fair value of assets and liabilities for Altify during the twelve months ended December 31, 2020 was related primarily to a $ 1.0 million decrease in deferred tax liabilities.

The change in the preliminary acquisition-date fair value of assets and liabilities for Localytics during the twelve months ended December 31, 2020 was related primarily to a $ 0.9 million decrease in deferred tax liabilities.

The change in the preliminary acquisition-date fair value of assets and liabilities for Localytics during the year ended December 31, 2020 was related primarily to a $ 0.9 million decrease in deferred tax liabilities.

change in the preliminary acquisition-date fair value of assets and liabilities for BlueVenn and Panviva during the year ended December 31, 2021 was related primarily to an increase in identified intangible assets.

We expect to finalize our analysis of certain tax-related considerations during the first quarter of 2022.

The goodwill of $ 111.4 million for the above acquisitions is primarily attributable to the synergies expected to arise after the acquisition.

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Total transaction costs incurred with respect to acquisition activity in the years ended December 31, 2021, 2020 and 2019 were $ 6.6 million , $ 4.3 million and $ 11.3 million, respectively.

These costs are included in Acquisition-related expenses in our consolidated statement of operations.

These costs are included in Acquisition-related expenses on our consolidated statement of operations.

Other Acquisitions and Divestitures

From time to time we may purchase or sell customer relationships that meet certain criteria.

During the twelve months ended December 31, 2020 and 2019 we completed customer relationship acquisitions totaling $ 0.2 million and $ 1.6 million, respectively.

In connection with the acquisition of Interfax, the Company acquired certain assets and customer relationships of Interfax's U.S.

reseller (“Marketech”) for $ 2.0 million, excluding potential future earn-out payments of $ 1.0 million valued at $ 0.3 million as of the acquisition dated based on the probability of attainment of future performance-based goals.

During the year ended December 31, 2019 we paid $ 0.6 million based on the final valuation of this earn-out.

Refer to Note 4.

Fair Value Measurements for further discussion regarding the calculation of fair value of acquisition related earn-outs.

In the fourth quarter of 2019, Upland divested of certain minor non-strategic customer contracts and related website management and analytics assets.

As a result, during the year ended December 31, 2019 the Company recognized a $ 2.0 million non-cash expense on divestiture which is included in the Other income (expense), net line item in the Company’s consolidated statement of operations for the year ended December 31, 2019.

The assets divested consisted primarily of $ 2.2 million in deferred commission costs, $ 1.1 million in intangible assets (customer relationship and related technology), $ 0.2 million in allocated goodwill, and $ 1.0 million of liabilities primarily deferred revenue.

We had no purchase or sale of customer relationships during the year ended December 31, 2021.

During the year ended December 31, 2020, we completed customer relationship acquisitions totaling $ 0.2 million.

Fair Value Measurements

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As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.

Any gain (loss) related to subsequent changes in the fair value of contingent consideration is recorded in acquisition-related expense or other income (expense) in the Company's consolidated statements of operations based on management's assessment of the nature of the liability.

Earnout consideration liabilities are included in Due to sellers in the Company's consolidated balance sheets.

Any gain (loss) related to subsequent changes in the fair value of contingent consideration is recorded in Acquisition-related expense or Other income (expense), net on our consolidated statements of operations based on management's assessment of the nature of the liability.

Earnout consideration liabilities are included in Liabilities due to sellers of businesses on our consolidated balance sheets.

In connection with entering into, and expanding, the Company's credit facility, as discussed further in “Note 7.

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As the fair value measure is based on the market approach, they are categorized as Level 2.

As of December 31, 2020 and 2019 the fair value of the interest rate swaps are included in Interest rate swap liabilities and Other assets, respectively, on the Company's consolidated balance sheets.

As of December 31, 2021 and 2020 the fair value of the interest rate swaps are included in Interest rate swap liabilities and Other assets, respectively, on our consolidated balance sheets.

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

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Level 1 Level 2 Level 3 Total

$ — $ 2,424 $ — $ 2,424

Earnout consideration liability $ — $ — $ 4,394 $ 4,394

The decrease in cash earnouts from December 31, 2019 to December 31, 2020 is related to cash settlement of earnouts related to Localytics and InGenius.

Interest rate swap liability $ — $ 30,032 $ — $ 30,032

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

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Remeasurement adjustments:

Loss included in earnings 155 241

(Gain) loss included in earnings ( 4,169 ) 155

Foreign currency translation adjustments ( 16 ) —

Acquisitions and settlements:

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Settlements (1)

( 5,549 ) ( 2,108 )

Ending balance $ — $ —

(1) The year ended December 31, 2020 includes payments of $ 1.0 million and $ 4.5 million for the outstanding balance of earnout liabilities related to the acquisition of Localytics and InGenius, respectively, as described in “Note 3.

Acquisitions.The year ended December 31, 2019 includes payments of $ 1.5 million and $ 0.6 million for the outstanding balance of earnout liabilities related to the acquisition of RO Innovation and the Marketech asset purchase, respectively, as describe in Note 3.

Acquisitions”.

Quantitative Information about Level 3 Fair Value Measurements

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 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

As of December 31, 2020 the Company had no contingent consideration liabilities outstanding.

Sensitivity to Changes in Significant Unobservable Inputs

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Changes in the Company’s goodwill balance for each of the two years in the period ended December 31, 2021 are summarized in the table below (in thousands):

Goodwill Adjustments

Balance at December 31, 2019 $ 346,134

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Acquired in business combinations 85,102

Adjustment related to prior year business combinations (1)

Adjustment related to finalization of current year business combinations ( 7,266 )

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The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life.

During the twelve months ended December 31, 2020, the Company considered whether the current market and economic conditions arising from the COVID-19 pandemic could be a potential indicator of impairment of the Company’s intangible assets and goodwill.

Based on management’s qualitative review, no impairment of intangible assets or goodwill was identified.

During the years ended December 31, 2021 and 2020, the Company considered the current market environment and economic conditions arising from the ongoing COVID-19 pandemic as a potential indicator of impairment of its intangible assets and goodwill.

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.

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Total $ 279,920

The Company's loss from continuing operations before income taxes for the years ended December 31, was as follows (in thousands):

The Company's loss from continuing operations before income taxes for the year ended December 31, was as follows (in thousands):

Year Ended December 31,

2021 2020 2019

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The components of the provision (benefit) for income taxes attributable to continuing operations are as follows (in thousands):

Year Ended December 31,

2021 2020 2019

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federal net operating losses and $ 4.4 million of credit carryforwards before utilization.

Approximately $ 23.8 million of the foreign net operating loss carryforwards carry forward indefinitely with the remainder expiring beginning in 2039.

federal net operating loss and credit carryforwards will expire beginning in 2022, if not utilized, with $ 36.6 million of net operating losses carrying forward indefinitely.

The entirety of the $ 38.5 million of the foreign net operating loss carryforwards carry forward indefinitely.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred taxes as of December 31 are as follows (in thousands):

Year Ended December 31,

2021 2020 2019

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Net deferred taxes $ ( 22,793 ) $ ( 24,092 ) $ ( 25,685 )

Due to the uncertainty surrounding the timing of realizing the benefits of its domestic favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its domestic net deferred tax asset, exclusive of goodwill.

During the year ended December 31, 2020 and 2019, the valuation allowance increased by approximately $ 14.5 million and increased by approximately $ 5.7 million, respectively, due primarily to operations and acquisitions.

The valuation allowance change included a reduction of $ 2.4 million due to acquired net deferred tax liabilities as a result of domestic business combinations, which was recorded as an income tax benefit in the year ended December 31, 2020.

During the years ended December 31, 2021 and 2020, the valuation allowance decreased by approximately $ 7.1 million and increased by approximately $ 14.5 million, respectively.

The valuation allowance for the year ended December 31, 2021 decreased by approximately $ 5.7 million due to the tax effect of items recorded in other comprehensive income and approximately $ 6.4 million due to acquired net deferred tax liabilities as a result of domestic business combinations, which was recorded as an income tax benefit, which is partially offset with the remaining increase of approximately $ 5.0 million related primarily to current operations.

The valuation allowance for the year ended December 31, 2020 increased by approximately $ 10.7 million due to the tax effect of items recorded in other comprehensive income and decreased approximately $ 2.4 million due to acquired net deferred tax liabilities as a result of domestic business combinations, which was recorded as an income tax benefit, with the remaining increase of approximately $ 6.2 million related to primarily current operations.

At December 31, 2021, we did not provide deferred income taxes on temporary differences resulting from earnings of certain foreign subsidiaries which are indefinitely reinvested.

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Deferred income taxes are provided as necessary with respect to earnings that are not indefinitely reinvested.

The Company’s provision for income taxes differs from the expected tax expense (benefit) amount computed by applying the statutory federal income tax rate to income before taxes due to the following:

The Company’s provision for income taxes differs from the expected tax expense (benefit) computed by applying the statutory federal income tax rate to income before taxes due to the following:

Year Ended December 31,

2021 2020 2019

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Change in valuation allowance 1.1 % ( 8.8 ) % ( 10.8 ) %

Change in tax rates ( 2.6 ) % — % — %

Australia tax basis uplift 2.1 % — % — %

12.5 % 7.6 % 13.0 %

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The Company has determined it has the following unrecognized assets or liabilities related to uncertain tax positions as of December 31, 2021.

The Company does not anticipate any significant changes in such uncertainties and judgments during the next 12 months.

It is reasonably possible that a reduction of $ 0.8 million of unrecognized tax benefits may occur within the next 12 months due to the expiration of statutes of limitation, affecting our income tax provision and therefore benefit the resulting effective tax rate.

The actual amount could very depending on any actual settlement prior to the expiration of statutes of limitation.

To the extent the Company is required to recognize interest and penalties related to unrecognized tax liabilities, this amount will be recorded as an accrued liability, (in thousands).

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The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

As of December 31, 2020, the Company had $ 0.2 million accrued interest or penalties related to uncertain tax positions, none of which is expected to reverse in the next 12 months.

As of December 31, 2021, the Company had accrued $ 0.4 million of interest or penalties related to uncertain tax positions, none of which is expected to reverse in the next 12 months.

The Company and its subsidiaries file tax returns in the U.S.

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Credit Facility

On August 6, 2019, the Company entered into a credit agreement (the “Credit Facility”) which provides for (i) a fully-drawn $ 350 million, 7 year, senior secured term loan B facility (the “Term Loan”) and (ii) a new $ 60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of December 31, 2020.

The Credit Facility replaced the Company's previous credit agreement.

All outstanding balances under our previous credit agreement were paid off using proceeds from our Credit Facility.

On November 26, 2019 (the “Closing Date”), the Company entered into a First Incremental Assumption Agreement (the “Incremental Assumption Agreement”) which provides for a term loan facility to be established under the Credit Facility in an aggregate principal amount of $ 190.0 million (the “2019 Incremental Term Loan”), which is in addition to the existing $ 350 million term loans outstanding under the Credit Facility and the $ 60 million revolving credit facility under the Credit Facility.

On August 6, 2019, the Company entered into a credit agreement (the “Credit Facility”) which provides for (i) a fully-drawn $ 350 million, 7 year, senior secured term loan B facility (the “Term Loan”) and (ii) a $ 60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of December 31, 2021.

The Credit Facility replaced the Company's previous credit facility.

All outstanding balances under our previous credit facility were paid off using proceeds from our Credit Facility.

Payment terms

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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 December 31, 2020, the fair value of the interest rate swap was a $ 30.0 million liability as a result of a decline in short term interest rates during 2020.

In the next twelve months, the Company estimates that $ 5.5 million will be reclassified from Accumulated other comprehensive income (loss) and recorded as an increase/decrease to Interest expense.

At December 31, 2021, the fair value of the interest rate swap was a $ 8.4 million liability as a result of a increase in short term interest rates from 2020 to 2021.

In the next twelve months, the Company estimates that $ 1.9 million will be reclassified from Accumulated other comprehensive income (loss) to Interest expense, net on our consolidated statement of operations.

Year Ended December 31

Gain (loss) recognized in Other comprehensive income on derivative financial instruments $ ( 32,455 ) $ 2,424

Gain (loss) on interest rate swap (included in Interest expense on our consolidated statement of operations) $ ( 5,500 ) $ 484

2021 2020 2019

Unrealized gain (loss) recognized in Other comprehensive income on interest rate swaps $ 21,623 $ ( 32,455 ) $ 2,424

Gain (loss) on interest rate swap (included in Interest expense, net on our consolidated statement of operations) $ ( 8,250 ) $ ( 5,500 ) $ 484

Loans under the Revolver are available up to $ 60 million, of which none is currently outstanding.

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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.

The Credit Agreement contains customary events of default subject to customary cure periods for certain defaults that include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness, change in control, bankruptcy and insolvency defaults and material judgment defaults.

The Credit Facility contains customary events of default subject to customary cure periods for certain defaults that include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness, change in control, bankruptcy and insolvency defaults and material judgment defaults.

The occurrence of an event of default could result in the acceleration of Term Loans and Revolver and a right by the agent and lenders to exercise remedies.

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The Term Loan and Revolver are secured by substantially all of the Company's assets.

As of December 31, 2020 the Company was in compliance with all covenants under the Credit Agreement.

Cash interest costs averaged 5.4 % and 6.0 % for the years ended December 31, 2020 and 2019, respectively.

In addition, as of December 31, 2020 the Company had incurred $ 11.6 million of unamortized financing costs associated with the Credit Facility.

These financing costs will be amortized to non-cash interest expense over the term of the Credit Agreement.

During the year ended December 31, 2019, as a result of the paydown of our previous credit facility, the Company was required to write off debt issuance cost of $ 2.3 million as a loss on debt extinguishment related to the unamortized debt discount on our previous term loan.

As of December 31, 2021 the Company was in compliance with all covenants under the Credit Facility.

Cash interest costs averaged 5.4 % for both the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company had $ 9.5 million of unamortized debt issuance costs associated with the Credit Facility.

These issuance costs will be amortized to Interest expense, net on our consolidated statement of operations, over the term of the Credit Facility.

During the year ended December 31, 2019, the Company wrote off debt issuance costs of $ 2.3 million as a Loss on debt extinguishment on our consolidated statement of operations, as a result of the paydown of our previous credit facility.

During the years ended December 31, 2021 and 2020, the Company had no write offs of debt issuance costs.

Debt Maturities

Under the terms of the Credit Agreement, future debt maturities of long-term debt excluding debt discounts at December 31, 2020 are as follows, (in thousands):

Under the terms of the Credit Facility, future debt maturities of long-term debt excluding debt discounts at December 31, 2021 are as follows, (in thousands):

Year ending December 31:

Thereafter 506,251

Less unamortized discount 9,520

Total debt outstanding, net of discount $ 518,330

Net Loss Per Share

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

The following table sets for the computations of loss per share:

Year Ended December 31,

2020 2019 2018

(In thousands, except share and per share amounts) 2021 2020 2019

$ ( 58,212 ) $ ( 51,219 ) $ ( 45,371 )

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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 current and long-term portion of finance lease obligations are included in Accrued expenses and other current liabilities and Other long-term liabilities line items on the consolidated balance sheet, respectively.

As of December 31, 2021, the Company no longer had any finance lease agreements.

At December 31, 2020, the Company's finance lease agreements were generally for four years and contained a bargain purchase option at the end of the lease term.

Lease Expense

Total office rent expense for the years ended December 31, 2021, 2020 and 2019 were approximately $ 6.2 million, $ 5.9 million and $ 2.9 million , respectively.

The $ 6.2 million office rent expense in 2021 includes approximately $ 4.4 million of transformation charges in conjunction with the closures of the Panviva, BlueVenn, Second Street and Localytics offices as we continue to consolidate and integrate these acquisitions.

The $ 5.9 million office rent expense in 2020 includes approximately $ 3.6 million of transformation charges in conjunction with the closures of the Localytics, Kapost and Altify offices as we continue to consolidate and integrate these acquisitions.

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Sublease income ( 1,068 ) ( 798 )

Total lease costs $ 6,032 3,242

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

Total lease expense $ 6,240 6,032

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

Year Ended December 31,

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Finance leases

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

Finance Leases Operating

2021 $ 7 $ 3,785

As of December 31, 2021, the Company no longer had any finance lease agreements.

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

Thereafter 44

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Present value of lease liabilities $ 10,319

Accrued expenses and other current liabilities $ 9 $ —

Operating lease liabilities, current 3,546

Operating lease liabilities, noncurrent 6,773

Other long-term liabilities 5 —

Total lease liabilities $ 10,319

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In certain cases these arrangements require a minimum annual purchase commitment.

As of December 31, 2020, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 48.9 million through 2025.

In addition, the Company has an outstanding purchase commitment in 2021 for software development services from DevFactory FZ-LLC (“DevFactory”) pursuant to a technology services agreement in the amount of $ 9.6 million.

On March 28, 2017, the Company and DevFactory executed an amendment to extend the initial term of the agreement 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 was January 1, 2017.

For years after 2021, the purchase commitment amount for software development services will be equal to the prior year purchase commitment increased (decreased) by the percentage change in total revenue for the prior year as compared to the preceding year.

For example, if 2021 total revenues increase by 10% as compared to 2020 total revenues, then the 2022 purchase commitment will increase by approximately $ 1.0 million from the 2021 purchase commitment amount to approximately $ 10.6 million.

Future minimum payments for purchase commitments are as follows (in thousands):

Purchase Commitments

Year Purchase Commitments

2022 $ 22,771

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In the normal course of business, the Company may become involved in various lawsuits and legal proceedings.

As of December 31, 2020, 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 effect on the consolidated financial position or results of operations of the Company.

As of December 31, 2021, 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 effect on its consolidated financial position or results of operations.

In addition, when we acquire companies, we require that the sellers provide industry standard indemnification for breaches of representations and warranties contained in the acquisition agreement and we will withhold payment of a portion of the purchase price for a period of time in order to satisfy any claims that we may make for indemnification.

In certain transactions, we agree with the sellers to purchase a representation and warranty insurance policy that will pay such claims for indemnification.

From time to time we may have one or more claims for indemnification pending.

Similarly, we may have one or more ongoing negotiations related to the amount of an earnout.

Gain contingencies related to indemnification claims are not recognized on our consolidated financial statements until realized.

Property and Equipment, Net

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Amortization of assets recorded under financing leases is included with depreciation expense.

Depreciation and amortization expense on property and equipment was $ 2.2 million, $ 2.2 million and $ 2.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.

During 2020 we recognized a $ 0.6 million loss on disposal of assets related primarily to leasehold improvements associated with the consolidation and integration of our recent acquisitions.The Company recorded no impairment of property and equipment and recorded no losses on the disposal of property and equipment during the years ended December 31, 2019, and 2018.

Depreciation and amortization expense on Property and equipment, net was $ 2.0 million, $ 2.2 million and $ 2.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

During 2020 we recognized a $ 0.6 million loss on disposal of assets related primarily to leasehold improvements associated with the consolidation and integration of prior year acquisitions.The Company recorded no impairment of property and equipment and recorded no losses on the disposal of property and equipment during the years ended December 31, 2021 and 2019.

Stockholders' Equity

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50,000,000 shares of common stock and 5,000,000 shares of preferred stock.

The common and preferred stock have a par value of $ 0.0001 per share.

The common and preferred stock has a par value of $ 0.0001 per share.

No shares of preferred stock are issued or outstanding.

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The holders of common stock are also entitled to receive dividends, when, if and as declared by our board of directors, whenever funds are legally available therefore, subject to the priority rights of any outstanding preferred stock.

Registration Statements

On December 12, 2018, the Company filed a registration statement on Form S-3 (File No.

333-228767) (the “2018 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 Form S-3 the Company withdrew its previous registration statement filed on May 12, 2017.

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, were used for general business purposes, including the funding of acquisitions.

On August 10, 2020, we filed a registration statement on Form S-3 (File No.

Registration Statement

On August 10, 2020, the Company filed a registration statement on Form S-3 (File No.

333-243728) (the “2020 S-3”), which became effective automatically upon its filing and covers an unlimited amount of securities.

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Comprehensive income (loss) consists of two elements, net income (loss) and other comprehensive income (loss).

Other comprehensive income (loss) items are recorded in the stockholders’ equity section of our consolidated balance sheets and excluded from net income.

Our other comprehensive income (loss) consists primarily of foreign currency translation adjustments for subsidiaries with functional currencies other than the U.S.

dollar, unrealized translation gains (losses) on intercompany loans with foreign subsidiaries, and unrealized gains (losses) on interest rate swaps.

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

Other comprehensive income (loss) items are recorded in the stockholders’ equity section on our consolidated balance sheets and excluded from net income (loss).

Other comprehensive income (loss) consists primarily of foreign currency translation adjustments for subsidiaries with functional currencies other than the USD, unrealized translation gains (losses) on intercompany loans with foreign subsidiaries, and unrealized gains (losses) on interest rate swaps.

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

Other comprehensive loss

Foreign currency translation adjustment $ ( 5,657 ) $ 644

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries 3,154 883

Unrealized gain (loss) on interest rate swaps ( 30,032 ) 2,424

Unrealized translation gain on intercompany loans with foreign subsidiaries 2,552 3,154

Unrealized loss on interest rate swaps ( 8,409 ) ( 30,032 )

Total accumulated other comprehensive loss $ ( 11,514 ) $ ( 26,234 )

The unrealized translation loss on intercompany loans with foreign subsidiaries as of December 31, 2020 is net of unrealized income tax expense of $ 2.0 million.

The income tax expense/benefit allocated to each component of other comprehensive income (loss) for all other periods and components is not material.

The Unrealized translation gain on intercompany loans with foreign subsidiaries as of December 31, 2021 is net of unrealized income tax expense of $ 1.9 million.

The income tax expense (benefit) allocated to each component of other comprehensive income (loss) for all other periods and components was not material.

The functional currency of our foreign subsidiaries are the local currencies.

Results of operations for foreign subsidiaries are translated in United States dollars using the average exchange rates on a monthly basis during the year.

The assets and liabilities of those subsidiaries are translated into United States dollars using the exchange rates in effect at the balance sheet date.

Results of operations for foreign subsidiaries are translated in USD using the average exchange rates on a monthly basis during the year.

The assets and liabilities of those subsidiaries are translated into USD using the exchange rates in effect at the balance sheet date.

The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss.

The Company had foreign currency denominated intercompany loans that were used to fund the acquisitions of foreign subsidiaries.

As of April 1, 2020 the Company amended the loan agreements to be denominated in U.S dollars.

As of April 1, 2020 the Company amended the loan agreements to be denominated in USD.

Due to the long-term nature of the loans, the unrealized translation gains (losses) resulting from re-measurement are recognized as a component of accumulated other comprehensive income (loss).

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In addition, the number of shares available for issuance under the 2014 Plan will be increased annually in an amount equal to the least of (i) 4 % of the outstanding Shares on the last day of the immediately preceding Fiscal Year or (ii) such number of Shares determined by the Board.

At December 31, 2020, there were 34,508 restricted stock awards, 1,261,290 restricted stock units and 66,297 performance based restricted stock units outstanding under the 2014 Plan.

Under both the 2010 Plan and 2014 Plan options granted to date generally vest over a four or three year period, with a maximum term of ten years .

At December 31, 2021, there were 1,379,747 restricted stock units and 63,537 performance based restricted stock units outstanding under the 2014 Plan.

Under both the 2010 Plan and 2014 Plan, options granted to date generally vest over a three or four year period, with a maximum term of ten years .

The Company also grants restricted stock awards (“RSAs”) which generally vest annually over a three or four year period.

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General and administrative (1)

42,743 32,900 20,901

Total $ 53,873 $ 41,692 $ 25,754

(1) In March 2021 our former co-President and Chief Operating Officer (“COO”) resigned from his positions and entered into an advisory agreement with the Company pursuant to which he will serve as a strategic advisor to the Company through December 31, 2022.

Stock-based compensation for the twelve months ended December 31, 2021 includes $ 6.3 million related to the acceleration and deemed modification of the unvested portion of grants held by our former COO at the time of transition, even though these shares continue to vest over their existing vesting schedule through 2022.

In accordance with ASC 718, Compensation—Stock Compensation , the fair value of these awards were modified and all related expense accelerated on the date of modification as a result of the reduction in required service.

Our income tax benefits recognized from stock-based compensation arrangements in each of the periods presented were immaterial due to cumulative losses and valuation allowances.

Restricted Stock Units

During the twelve months ended December 31, 2020 the Company granted restricted stock units under its 2014 Stock Incentive Plan, in lieu of restricted stock awards, primarily for stock plan administrative purposes.

During the year ended December 31, 2021 the Company granted 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 year ended December 31, 2021 is as follows:

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As of December 31, 2021, $ 55.2 million of unrecognized compensation cost related to unvested restricted stock awards and restricted stock units (including performance based awards) is expected to be recognized over a weighted-average period of 1.7 years.

The vesting of restricted stock during the year ended December 31, 2020 resulted in an excess tax deduction of approximately $ 4.7 million.

The expected tax benefit of approximately $ 3.6 million is included as part of the deferred tax asset associated with net operating loss carryforwards, currently fully offset by a valuation allowance.

Performance Based Restricted Stock Units

In 2020 fifty 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.

In 2020 and 2021, 50 % of the awards made to our Chief Executive Officer were performance based restricted stock units ("PRSUs").

The PRSU agreements provide that the quantity of units subject to vesting may range from 0 % to 300 % of the units granted per the table below based on the Company's absolute total shareholder return at the end of the eighteen month performance period for each award.

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 year ended December 31, 2021 is as follows:

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Units granted 63,537 84.87

Incremental PRSUs (1)

Units vested ( 135,345 ) 79.72

Unvested balances at December 31, 2021 63,537 $ 84.87

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

(1) Represents incremental PRSUs earned and vested during the period based on absolute shareholder return achievement over 100 % of target during the performance period.

The total fair value of PRSUs vested during the years ended December 31, 2021, 2020 and 2019 was $ 5.6 million, $ 0.0 million and $ 0.0 million , respectively.

Restricted Stock Awards

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The total fair value of options vested during the years ended December 31, 2021, 2020 and 2019 was approximately $ 0.0 million , $ 0.0 million and $ 0.0 million , respectively.

As of December 31, 2020, $ 0 unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 0 years.

As of December 31, 2021, there was no remaining unrecognized compensation cost related to stock options .

The Company received approximately $ 0.3 million in cash from option exercises under the respective Plans in 2021.

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The Company does not currently expect to repurchase shares from any source to satisfy such obligation under any of the Company’s stock option Plans.

The exercise of stock options during the year ended December 31, 2020 resulted in an excess tax deduction of approximately $ 1.9 million.

The expected tax benefit of approximately $ 0.8 million is included as part of the deferred tax asset associated with net operating loss carryforwards, currently fully offset by a valuation allowance.

Revenue Recognition

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• 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

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

Subscription and Support Revenue

The Company's software solutions are available for use as hosted application arrangements under subscription fee agreements without licensing perpetual rights to the software.

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Our subscription contracts are generally 1 to 3 years in length.

Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or subscription and support revenues, depending on whether the revenue recognition criteria have been met.

Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or subscription and support revenue, depending on whether the revenue recognition criteria have been met.

Additional fees for monthly usage above the levels included in the standard subscription fee are recognized as subscription and support revenue at the end of each month and is invoiced concurrently.

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Agent Considerations ” section below, the Company recognizes revenue related to these messaging-related subscription contracts on a gross basis.

Perpetual License Revenues

Perpetual License Revenue

The Company also records revenue from the sales of proprietary software products under perpetual licenses.

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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.

Revenue from professional services are recognized over time as such services are performed.

Revenue for fixed price services are generally recognized over time applying input methods to estimate progress to completion.

Revenue for consumption-based services are generally recognized as the services are performed.

Significant Judgments

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Agent Considerations

The Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) for vendor reseller agreements and messaging-related agreements.

Where the Company is the principal, it first obtains control of the inputs to the specific good or service and directs their use to create the combined output.

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While none of the factors individually are considered presumptive or determinative, in reaching conclusions on gross versus net revenue recognition, the Company places the most weight on the analysis of whether or not it is the primary obligor in the arrangement.

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

As the Company is primarily obligated in its messaging-related subscription contracts, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, we have concluded it is appropriate to record revenue on a gross basis with related telecom messaging costs incurred from third parties recorded as cost of revenues.

Revenues provided from agreements in which the Company is an agent are immaterial.

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

As the Company is primarily obligated in its messaging-related subscription contracts, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, we have concluded it is appropriate to record revenue on a gross basis with related pass-through telecom messaging costs incurred from third parties recorded as cost of revenue.

Revenue provided from agreements in which the Company is an agent are immaterial.

Contract Balances

The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables, and deferred revenues.

The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables, and deferred revenue.

Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in unbilled receivables, which are expected to be billed during the succeeding twelve-month period and are recorded in Unbilled receivables in our consolidated balance sheets.

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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 consolidated balance sheets at the end of each reporting period.

Deferred revenues primarily consist of amounts that have been billed to or received from customers in advance of revenue recognition and prepayments received from customers in advance for maintenance and other services, as well as initial subscription fees.

We recognize deferred revenues as revenues when the services are performed, and the corresponding revenue recognition criteria are met.

We recognize contract liabilities as revenue upon satisfaction of the underlying performance obligations.

Contract liabilities that are expected to be recognized as revenue during the succeeding twelve-month period are recorded in Deferred revenue and the remaining portion is recorded in Deferred revenue, noncurrent on the accompanying consolidated balance sheets at the end of each reporting period.

Deferred revenue primarily consist of amounts that have been billed to or received from customers in advance of revenue recognition and prepayments received from customers in advance for maintenance and other services, as well as initial subscription fees.

We recognize deferred revenue as revenue when the services are performed, and the corresponding revenue recognition criteria are met.

Customer prepayments are generally applied against invoices issued to customers when services are performed and billed.

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Sales commissions earned by our sales force, and related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer.

Deferred commissions and other costs for new customer contracts are capitalized upon contract signing and amortized over the expected life of the customer relationships, which has been determined to be approximately 6 years based on historical data and management’s estimate in a pattern similar to how revenue is recognized.

Deferred commissions and other costs for new customer contracts are capitalized upon contract signing and amortized on a systematic basis that is consistent with the transfer of goods and services over the expected life of the customer relationships, which has been determined to be approximately 6 years.

The expected life of our customer relationships is based on historical data and management estimates, including estimated renewal terms and the useful life of the associated underlying technology.

Commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts, as such, deferred commissions related to renewals are capitalized and amortized over the estimated contractual renewal term of 18 months.

We utilized the 'portfolio approach' practical expedient, 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 consolidated statements of operations.

The portion of capitalized costs expected to be amortized during the succeeding twelve-month period is recorded as Deferred commissions, current, and the remainder is recorded as Deferred commissions, noncurrent, in our consolidated balance sheets.

Amortization expense is included in sales and marketing expenses on our 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 as described in “Note 2.

Summary of Significant Accounting Policies”.

No indicators of impairment were identified during the year ended December 31, 2021.

The following table presents the activity impacting deferred commissions for the year ended December 31, 2021 (in thousands):

Deferred commissions beginning balance $ 11,822

Deferred Commissions

Deferred commissions balance at December 31, 2020 $ 18,746

Capitalized deferred commissions 14,581

Amortization of deferred commissions ( 8,695 )

Deferred commissions ending balance $ 18,746

Deferred commissions balance at December 31, 2021 $ 24,632

Commissions capitalized in excess of amortization of deferred commissions for the year ended December 31, 2021 were $ 5.9 million.

Deferred Revenue

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Deferred revenue is mainly unearned revenue related to subscription services and support services.

During the twelve months ended December 31, 2020, we recognized $ 69.6 million and $ 3.3 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

In addition, during the twelve months ended December 31, 2020 we recognized $ 4.6 million in revenue that was included in the acquired deferred revenue balance of our 2020 acquisition as disclosed in Note 3.

During the year ended December 31, 2021, we recognized $ 83.1 million and $ 2.2 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

In addition, during the year ended December 31, 2021 we recognized $ 7.8 million in revenue that was included in the acquired deferred revenue balance of our 2021 acquisitions as disclosed in “Note 3.

Acquisitions”.

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Employee Benefit Plans

The Company has established one voluntary defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code.

The Company has established various international defined contribution plans and one voluntary defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code.

The Company made no contributions to the 401(k) plans for the years ended December 31, 2021, 2020 and 2019.

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Accordingly, we considered ourselves to be in a single operating and reporting segment structure.

See Note 13 Revenue Recognition for a detail of revenue by geography.

See “Note 13 Revenue Recognition—Disaggregated Revenue” for a detail of revenue by geography.

Identifiable Long-Lived Assets

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Related Party Transactions

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

• On March 28, 2017, the Company and DevFactory executed an amendment to the agreement to extend the initial term to December 31, 2021.

We are a party to two agreements, as detailed below, with companies controlled by ESW Capital LLC (“ESW”), a non-management investor in the Company which historically held more than 5 % of the Company's capital stock.

As of July 9, 2021, ESW’s ownership in Upland was reduced to 4.8 % at which point DevFactory and Crossover (as hereinafter defined) were no longer considered related parties.

• On March 28, 2017, the Company and DevFactory FZ-LLC (“DevFactory”) executed an amendment to the agreement to extend the initial term 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 was 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 2022 for software development services pursuant to a technology services agreement in the amount of $ 10.0 million.

For years after 2022, 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.

During the years ended December 31, 2020, 2019, and 2018, the Company purchased software development services pursuant to a technology services agreement with DevFactory FZ-LLC (“DevFactory”), in the amount of $ 7.4 million, $ 4.9 million, and $ 3.2 million, respectively.

During the years ended December 31, 2021, 2020 and 2019, the Company purchased software development services pursuant to a technology services agreement with DevFactory, in the amount of $ 9.6 million, $ 7.4 million, and $ 4.9 million, respectively.

At December 31, 2021 and December 31, 2020, amounts included in accounts payable owed to this company totaled $ 0.0 million and $ 0.0 million , respectively.

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As of December 31, 2021 and December 31, 2020 amounts included in accounts payable and accrued liabilities owed to this company totaled $ 0.9 million and $ 0.6 million, respectively.

The Company has an arrangement with a former subsidiary, Visionael Corporation (“Visionael”), to provide management, human resource/payroll, and administrative services.

McDonald, the Company's Chief Executive Officer and Chairman of the Board, beneficially holds an approximate 26.18 % interest in Visionael.

Fees earned from this arrangement during the years ended December 31, 2020, 2019, and 2018 were $ 45,000 , $ 60,000 , and $ 60,000 , respectively.

The Company previously had an arrangement with a former subsidiary, Visionael Corporation ("Visionael"), to provide management, human resource, payroll and administrative services.

McDonald, the Company's Chief Executive Officer and Chairman of the Board, beneficially holds approximately 26.18 % interest in Visionael.

In connection with its arrangement with Visionael, the Company has provided advances to Visionael to help cover short term working capital needs.

As of December 31, 2020 and December 31, 2019 advances to Visionael included in Prepaid and other on the Company’s condensed consolidated balance sheets totaled $ 0.4 million and $ 0.3 million, respectively, net of an allowance for credit losses of $ 0.3 million and $ 0.0 million respectively.

Visionael ceased operations effective July 31, 2021 and the Company did not receive any fees or pay advances to Visionael during the year ended December 31, 2021.

Fees earned from this arrangement during the year ended December 31, 2020 and 2019 were $ 45,000 , and $ 60,000 , respectively.

As of December 31, 2021 and December 31, 2020 advances to Visionael included in Prepaid and other on the Company’s consolidated balance sheets totaled $ 0.0 million and $ 0.4 million, respectively, net of allowance for credit losses.

During the years ended December 31, 2021 and 2020, the Company recognized allowance for credit losses of $ 0.4 million and $ 0.3 million, respectively, against the remaining outstanding balance.

Subsequent Events

On January 19, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Second Street Media, Inc., a Missouri corporation (“Second Street”), pursuant to a Share Purchase Agreement dated January 19, 2021 (“Purchase Agreement”), by and among Upland, Second Street, and the company’s selling shareholders.

Second Street will be integrated into and expand on the functionality offered in Upland’s Customer Experience Management product suite.

The purchase price paid for Second Street was $ 25.4 million in cash at closing and a $ 5.0 million cash holdback payable in 12 months (subject to indemnification claims).

The foregoing excludes any potential future earn-out payments tied to additional performance based goals with a maximum payout of $ 3.0 million.

The Company recorded the purchase of the acquisition 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 allocation for the 2021 acquisition is 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.

Management expects to finalize its purchase price allocation for this acquisition in the last half of 2021.

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions that occurred after December 31, 2020 through the date the consolidated financial statements were available for issuance.

On January 7, 2022, the Company entered into an agreement to purchase Objectif Lune Inc., a corporation organized under the laws of Quebec (“Objectif Lune”), certain affiliated companies (the “Affiliates”) and certain holding companies associated with the Sellers (the “HoldCos” and together with Objectif Lune and the Affiliates, the “Companies”) pursuant to a Share Purchase Agreement dated January 7, 2022, by and among Upland, 9457-5032 Quebec Inc., a corporation existing under the laws of Quebec and a wholly-owned subsidiary of Upland, the Companies, those persons listed in the share purchase agreement as Sellers, and 9070-7282 Québec Inc.

In connection with this acquisition, Upland also acquired certain assets from a United States based reseller of Objectif Lune’s products.

Objectif Lune will be integrated into and expand on the functionality offered in Upland’s document workflow product suite.

The aggregate consideration paid for the Companies and the US reseller assets was $ 29.0 million in cash at closing (net of cash acquired), paid out of cash on hand, and a $ 5.3 million cash holdback payable in 12 months (subject to indemnification claims).

On February 23, 2022, the Company entered into an agreement to purchase BA-Insight, Inc., a Delaware corporation (“BA”), pursuant to an Agreement and Plan of Merger dated February 23, 2022 (“Merger Agreement”), by and among Upland, Brontes Acquisition Corporation (“Merger Sub”) and Fortis Advisors LLC, in its capacity as a representative of the Stockholders.

Pursuant to the Merger Agreement and the Delaware General Corporation Law, Merger Sub merged with and into BA with BA continuing as the surviving company of the Merger and wholly owned subsidiary of the Company.

The purchase price paid for Brontes was $ 33.4 million in cash at closing (net of cash acquired), paid out of cash on hand, and a $ 0.6 million cash holdback payable payable in 15 months (subject to indemnification claims).

The purchase price allocation for the 2022 acquisitions is 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.

Management expects to finalize its purchase price allocation for these acquisition in the last half of 2022.

In accordance with ASC 855, Subsequent Events , which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions that occurred after December 31, 2021 through the date the consolidated financial statements were available for issuance.

During this period the Company did not have any material reportable subsequent events other than the acquisitions disclosed above.

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What changed 10-K

Item 8. Financial Statements and Supplementary Data