What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-04 · 181 added, 121 removed, 560 unchanged (35% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share information) March 31, 2022 December 31, 2021

(in thousands, except for share and per share information) June 30, 2022 December 31, 2021

Assets (unaudited)

1 unchanged sentence

Cash and cash equivalents $ 138,284 $ 189,158

Accounts receivable (net of allowance of $ 1,089 and $ 1,107 at March 31, 2022 and December 31, 2021, respectively)

Accounts receivable (net of allowance of $ 951 and $ 1,107 at June 30, 2022 and December 31, 2021, respectively)

35,120 50,499

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Operating lease liabilities, current 3,840 3,546

Current maturities of notes payable (includes unamortized discount of $ 2,234 and $ 2,233 at March 31, 2022 and December 31, 2021, respectively)

Current maturities of notes payable (includes unamortized discount of $ 2,233 and $ 2,233 at June 30, 2022 and December 31, 2021, respectively)

Total current liabilities 170,538 156,444

Notes payable, less current maturities (includes unamortized discount of $ 6,735 and $ 7,287 at March 31, 2022 and December 31, 2021, respectively)

Notes payable, less current maturities (includes unamortized discount of $ 6,192 and $ 7,287 at June 30, 2022 and December 31, 2021, respectively)

513,558 515,163

8 unchanged sentences

50,000,000 shares authorized:

31,320,765 and 31,096,548 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)

31,632,628 and 31,096,548 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively)

Additional paid-in capital 594,080 568,384

Accumulated other comprehensive income (loss) 12,359 ( 11,514 )

Accumulated other comprehensive loss ( 2,344 ) ( 11,514 )

Accumulated deficit ( 279,809 ) ( 240,585 )

5 unchanged sentences

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Subscription and support $ 75,017 $ 72,405 $ 148,644 $ 143,058

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Total other expense ( 5,977 ) ( 8,341 ) ( 14,157 ) ( 15,891 )

Loss before benefit from income taxes ( 22,957 ) ( 25,078 )

Benefit from income taxes 126 4,394

Loss before benefit from (provision for) income taxes ( 16,865 ) ( 17,504 ) ( 39,822 ) ( 42,582 )

Benefit from (provision for) income taxes 472 ( 1,538 ) 598 2,856

Net loss $ ( 16,393 ) $ ( 19,042 ) $ ( 39,224 ) $ ( 39,726 )

4 unchanged sentences

Upland Software, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

Three Months Ended March 31,

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

2022 2021 2022 2021

Net loss $ ( 16,393 ) $ ( 19,042 ) $ ( 39,224 ) $ ( 39,726 )

Other comprehensive income:

Other comprehensive income (loss):

Foreign currency translation adjustment ( 17,356 ) 1,324 ( 18,403 ) ( 1,063 )

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries ( 5,503 ) 940 ( 6,796 ) 1,780

Unrealized gain on interest rate swaps 26,213 15,451

Other comprehensive income:

Unrealized gain (loss) on interest rate swaps 8,156 ( 3,172 ) 34,369 12,279

Other comprehensive income (loss):

$ ( 14,703 ) $ ( 908 ) $ 9,170 $ 12,996

Comprehensive income (loss) $ 1,042 $ ( 6,780 )

Comprehensive loss $ ( 31,096 ) $ ( 19,950 ) $ ( 30,054 ) $ ( 26,730 )

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

Upland Software, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Common Stock Additional

5 unchanged sentences

Shares Amount

Balance at March 31, 2022 31,320,765 $ 3 $ 579,638 $ 12,359 $ ( 263,416 ) $ 328,584

Issuance of stock under Company plans, net of shares withheld for tax 311,863 — ( 435 ) — — ( 435 )

Stock-based compensation — — 14,877 — — 14,877

Foreign currency translation adjustment — — — ( 17,356 ) — ( 17,356 )

Unrealized translation loss on foreign currency denominated intercompany loans — — — ( 5,503 ) — ( 5,503 )

Unrealized gain on interest rate swaps — — — 8,156 — 8,156

Net loss — — — — ( 16,393 ) ( 16,393 )

Balance at June 30, 2022 31,632,628 $ 3 $ 594,080 $ ( 2,344 ) $ ( 279,809 ) $ 311,930

Three Months Ended June 30, 2021

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Stockholders’

Shares Amount

Balance at March 31, 2021 30,091,665 $ 3 $ 533,044 $ ( 12,330 ) $ ( 203,057 ) $ 317,660

Issuance of stock under Company plans, net of shares withheld for tax 321,581 — 177 — — 177

Stock-based compensation — — 13,550 — — 13,550

Foreign currency translation adjustment — — — 1,324 — 1,324

Unrealized translation gain on foreign currency denominated intercompany loans — — — 940 — 940

Unrealized loss on interest rate swaps — — — ( 3,172 ) — ( 3,172 )

Net loss — — — — ( 19,042 ) ( 19,042 )

Balance at June 30, 2021 30,413,246 $ 3 $ 546,771 $ ( 13,238 ) $ ( 222,099 ) $ 311,437

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

Six Months Ended June 30, 2022

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Stockholders’

Shares Amount

Balance at December 31, 2021 31,096,548 $ 3 $ 568,384 $ ( 11,514 ) $ ( 240,585 ) $ 316,288

5 unchanged sentences

Net loss — — — — ( 39,224 ) ( 39,224 )

Balance at March 31, 2022 31,320,765 $ 3 $ 579,638 $ 12,359 $ ( 263,416 ) $ 328,584

Three Months Ended March 31, 2021

Balance at June 30, 2022 31,632,628 $ 3 $ 594,080 $ ( 2,344 ) $ ( 279,809 ) $ 311,930

Six Months Ended June 30, 2021

Common Stock Additional

12 unchanged sentences

Net loss — — — — ( 39,726 ) ( 39,726 )

Balance at March 31, 2021 30,091,665 $ 3 $ 533,044 $ ( 12,330 ) $ ( 203,057 ) $ 317,660

Balance at June 30, 2021 30,413,246 $ 3 $ 546,771 $ ( 13,238 ) $ ( 222,099 ) $ 311,437

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

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities

48 unchanged sentences

In the opinion of management of the Company, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, in all material respects, and include all adjustments of a normal recurring nature necessary for a fair presentation.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other period.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other period.

The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022.

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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 May 4, 2022, the date of issuance of this Quarterly Report on Form 10-Q.

Upland is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of August 9, 2022, the date of issuance of this Quarterly Report on Form 10-Q.

These estimates may change as new events occur and additional information is obtained.

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To manage accounts receivable credit risk, the Company performs periodic credit evaluations of its customers and maintains current expected credit losses which considers such factors as historical loss information, geographic location of customers, current market conditions, and reasonable and supportable forecasts.

No individual customer represented more than 10% of total revenues for the three months ended March 31, 2022, or more than 10% of accounts receivable as of March 31, 2022 or December 31, 2021.

No individual customer represented more than 10% of total revenues for the six months ended June 30, 2022, or more than 10% of accounts receivable as of June 30, 2022 or December 31, 2021.

Cash Flow Hedges— Interest Rate Swap Agreements

In connection with borrowing funds under the Company’s credit facility, the Company has entered into a floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt.

In August 2019 and in connection with borrowing funds under the Company’s credit facility, the Company entered into a floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt.

These interest rate swaps effectively 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 a 7-year term of debt.

5 unchanged sentences

All derivative financial instruments are recorded at fair value as a net asset or liability in the accompanying condensed consolidated balance sheets.

As of March 31, 2022, the fair value of the interest rate swaps included in assets in the Company's condensed consolidated balance sheets was $ 17.8 million.

As of June 30, 2022, the fair value of the interest rate swaps included in assets in the Company's condensed consolidated balance sheets was $ 26.0 million.

As of December 31, 2021, the fair value of the interest rate swaps included in liabilities in the Company's condensed consolidated balance sheets was $ 8.4 million.

13 unchanged sentences

Recent Accounting Pronouncements

Recently issued accounting pronouncements - Adopted

In August 2020, the Financial Standards Accounting Board (“FASB”) issued an accounting standard on the topic of debt with conversion and other options, accounting standards update (“ASU”) 2020-06.

The amendment in this update simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock.

This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share.

The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.

The guidance is effective for interim and annual periods beginning after December 15, 2021.

The Company adopted this guidance in the first quarter of fiscal 2022 and it did not have a material impact on its results of operations, financial position and disclosures as the fair value option accounting model used by the Company is not impacted by this ASU.

However, this standard may be applicable should the recently announced Securities Purchase Agreement as discussed in “ Note 12.

Subsequent Events ” close during the third quarter.

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 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.

2 unchanged sentences

These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

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

The Company evaluated the impact of this standard and determined it did not have a material impact on on our consolidated financial statements.

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 accounting standard codification

(“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.

The new guidance will require companies to apply the definition of a performance obligation under accounting standard codification (“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.

5 unchanged sentences

2022 Acquisitions

Acquisitions completed during the three months ended March 31, 2022 include the following:

Acquisitions completed during the six months ended June 30, 2022 include the following:

• BA Insight - On February 22, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BA Insight Inc., (“BA Insight”), a cloud-based enterprise knowledge management solution.

Revenues recorded since the acquisition date through March 31, 2022 were approximately $ 0.8 million.

Revenues recorded since the acquisition date through June 30, 2022 were approximately $ 2.8 million.

Revenues recorded for BA Insight for the quarter ended June 30, 2022 were approximately $ 2.0 million.

• Objectif Lune - On January 07, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Objectif Lune Inc., a Quebec proprietary company (“Objectif Lune”), cloud-based document workflow product.

Revenues recorded since the acquisition date through March 31, 2022 were approximately $ 4.8 million.

Revenues recorded since the acquisition date through June 30, 2022 were approximately $ 10.5 million.

Revenues recorded for Objectif Lune for the quarter ended June 30, 2022 were approximately $ 5.6 million.

2021 Acquisition

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The maximum potential payout for the BlueVenn and Second Street earn-outs were $ 21.7 million and $ 3.0 million, respectively.

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

As of March 31, 2022, the earnout payments for BlueVenn and Second Street were finalized resulting in no payments made.

1 unchanged sentence

The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting and, accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition.

The purchase accounting for the 2022 acquisitions of BA Insight and Objectif Lune and the 2021 acquisition of Panviva are preliminary as the Company has not finalized the overall impact of these acquisitions.

The purchase accounting for the 2022 acquisitions of BA Insight and Objectif Lune are preliminary as the Company has not finalized the overall 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 BA Insight and Objectif Lune no later than the first quarter of 2023 and no later than the second quarter of 2022 for Panviva.

The following condensed table presents the preliminary and finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions during the year ended December 31, 2021 and through the three months ended March 31, 2022, as well as assets and liabilities (in thousands):

Management expects to complete the purchase accounting for BA Insight and Objectif Lune no later than the first quarter of 2023.

The following condensed table presents the preliminary and finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions during the year ended December 31, 2021 and through the six months ended June 30, 2022, as well as assets and liabilities (in thousands):

Preliminary Final

9 unchanged sentences

Technology 2,000 5,512 2,194 4,337 3,400

Favorable Leases — 291 — — —

Goodwill 25,605 22,937 16,604 44,892 16,586

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Developed technology and trade names are valued using the relief-from-royalty method.

The following table summarizes the weighted-average useful lives, by major finite-lived intangible asset class, for intangibles acquired during the three months ended March 31, 2022 and the year ended December 31, 2021 (in years):

March 31, 2022 December 31, 2021

The following table summarizes the weighted-average useful lives, by major finite-lived intangible asset class, for intangibles acquired during the six months ended June 30, 2022 and the year ended December 31, 2021 (in years):

June 30, 2022 December 31, 2021

Customer relationships 7.0 7.0

1 unchanged sentence

Developed technology 6.2 5.0

Favorable Leases 6.3 0

Total weighted-average useful life 6.8 6.6

2 unchanged sentences

Goodwill that is deductible for tax purposes at the time of the acquisitions was $ 2.0 million.

Total transaction related expenses incurred with respect to acquisition activity during the three months ended March 31, 2022 and March 31, 2021 were $ 4.5 million and $ 4.0 million, respectively.

Transaction related expenses, excluding transformation costs, include expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses.

Total transaction related expenses incurred with respect to acquisition activity during the three months ended June 30, 2022 and June 30, 2021 were $ 0.4 million and $ 2.0 million, respectively, and during the six months ended June 30, 2022 and June 30, 2021 were $ 4.9 million and $ 6.1 million, respectively.

Transaction related expenses, excluding transformation costs,

include expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses.

Transaction costs are included in acquisition-related expenses in our condensed consolidated statement of operations.

1 unchanged sentence

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

We had no purchase or sale of customer relationships during the three months ended March 31, 2022 and March 31, 2021 .

We had no purchase or sale of customer relationships during the three and six months ended June 30, 2022 and June 30, 2021 .

Fair Value Measurements

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and Level 3, defined as unobservable inputs in which little or no market data exists, which therefore requires an entity to develop its own assumptions.

As of March 31, 2022 and December 31, 2021, the Company had no accrued earnout business acquisition contingent consideration liabilities for which fair values are measured as Level 3 instruments.

As of June 30, 2022 and December 31, 2021, the Company had no accrued earnout business acquisition contingent consideration liabilities for which fair values are measured as Level 3 instruments.

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

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As of March 31, 2022, the earnout payments for BlueVenn and Second Street were finalized resulting in no payments made.

In connection with entering into, and expanding, the Company's current credit facility, as discussed further in “Note 5—Debt”, the Company entered into interest rate swaps for the full 7 year term of the Company's term loans, effectively fixing our interest rate at 5.4 % for the full value $ 540 million of the original principal term loans.

In connection with entering into, and expanding, the Company's current credit facility, as discussed further in “ Note 6.

Debt—Credit Facility ”, the Company entered into interest rate swaps for the full 7 year term of the Company's term loans, effectively fixing our interest rate at 5.4 % for the full value $ 540 million of the original principal term loans.

The fair value of the Company's swaps are measured at the end of each interim reporting period based on the then assessed fair value and adjusted if necessary.

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

As of March 31, 2022 the fair value of the interest rate swap is included in the “Interest rate swap assets” section compared to December 31, 2021 in which the fair value of the interest rate swaps included in the liabilities section on the Company's condensed consolidated balance sheets.

As of June 30, 2022 the fair value of the interest rate swap is included in the “Interest rate swap assets” section compared to December 31, 2021 in which the fair value of the interest rate swaps included in the liabilities section on the Company's condensed consolidated balance sheets.

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

Fair Value Measurements at March 31, 2022

Fair Value Measurements at June 30, 2022

Level 1 Level 2 Level 3 Total

3 unchanged sentences

Interest rate swap liabilities $ — $ 8,409 $ — $ 8,409

The Company believes the carrying value of its long-term debt at March 31, 2022 approximates its fair value based on the variable interest rate feature or based upon interest rates currently available to the Company.

The estimated fair value of the Company's debt, before debt discount, at March 31, 2022 and December 31, 2021 are $ 526.5 million and $ 527.9 million, respectively.

The Company believes the carrying value of its long-term debt at June 30, 2022 approximates its fair value based on the variable interest rate feature or based upon interest rates currently available to the Company.

The estimated fair value of the Company's debt, before debt discount, at June 30, 2022 and December 31, 2021 are $ 525.2 million and $ 527.9 million, respectively.

Goodwill and Other Intangible Assets

Changes in the Company’s goodwill balance for the three months ended March 31, 2022 are summarized in the table below:

Changes in the Company’s goodwill balance for the six months ended June 30, 2022 are summarized in the table below:

($ in thousands) Goodwill

2 unchanged sentences

Adjustment related to prior year business combinations 1,466

Foreign currency translation adjustment ( 2,461 )

Balance at March 31, 2022 $ 505,246

Adjustment related to finalization of current year business combinations ( 226 )

Foreign currency translation adjustment and other ( 14,999 )

Balance at June 30, 2022 $ 492,481

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

4 unchanged sentences

Amortization Net Carrying

March 31, 2022:

June 30, 2022:

Customer relationships 1 - 10

6 unchanged sentences

1,148 1,148 —

Favorable Leases 6.3 287 23 264

Total intangible assets $ 476,947 $ 199,946 $ 277,001

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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.

Management recorded no impairments of intangible assets or goodwill during the three months ended March 31, 2022 or the three months ended March 31, 2021.

Total amortization expense during the three months ended March 31, 2022 and March 31, 2021 was $ 13.8 million and $ 12.0 million, respectively.

As of March 31, 2022, the estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):

Management recorded no impairments of intangible assets or goodwill during the three and six months ended June 30, 2022 or the year ended December 31, 2021.

Total amortization expense was $ 13.5 million and $ 12.7 million during the three months ended June 30, 2022 and June 30, 2021, respectively, and $ 27.4 million and $ 24.7 million during the six months ended June 30, 2022 and June 30, 2021, respectively.

As of June 30, 2022, the estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):

Year ending December 31:

2 unchanged sentences

Total $ 277,001

The Company’s income tax benefit for the three months ended March 31, 2022 and March 31, 2021 reflects its estimate of the effective tax rates expected to be applicable for the full years, adjusted for any discrete events that are recorded in the period in which they occur.

The Company’s income tax benefit for the three months ended June 30, 2022, six months ended June 30, 2022 and 2021 and provision for the three months ended June 30, 2021 reflects its estimate of the effective tax rates expected to be applicable for the full years, adjusted for any discrete events that are recorded in the period in which they occur.

The estimates are re-evaluated each quarter based on the estimated tax expense for the full year.

The tax benefit of $ 0.1 million recorded for the three months ended March 31, 2022 is primarily related to foreign income taxes associated with our combined non-U.S.

These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards and the impact, recorded as discrete, of the deferred tax provision attributable to the tax gain associated with the transfer of goodwill between foreign and domestic jurisdictions.

The tax benefit of $ 4.4 million recorded for the three months ended March 31, 2021 is primarily related to the deferred tax benefit attributable to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with the Second Street business combination, as discussed in “Note 2.

The tax benefit from income taxes of $ 0.5 million and $ 0.6 million for the three and six months ended June 30, 2022 is primarily related to foreign income taxes associated with our combined non-U.S.

These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards and the impact, recorded as discrete for the three months ended March 31, 2022, of the deferred tax provision attributable to the tax gain associated with the transfer of goodwill between foreign and domestic jurisdictions.

The tax provision for incomes taxes of $ 1.5 million and benefit from income taxes of $ 2.9 million for the three and six months ended June 30, 2021 is primarily related to the deferred tax benefit attributable to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with the Second Street business combination, as discussed in “ Note 2.

Acquisitions ”, and foreign income taxes associated with our combined non-U.S.

1 unchanged sentence

The release of valuation allowance is attributable to ASC 805-740-30-3 and acquisitions of domestic entities with deferred tax liabilities that, upon acquisition, allowed us to recognize certain deferred tax assets of approximately $ 4.3 million during the three months ended March 31, 2021 that had previously been offset by a valuation allowance.

The Company has historically incurred operating losses in the United States and, given its cumulative losses and limited history of profits, has recorded a valuation allowance against its United States net deferred tax assets, exclusive of tax deductible goodwill, at March 31, 2022 and March 31, 2021, respectively.

The Company has reflected any uncertain tax positions primarily within its long-term taxes payable and a portion within deferred tax assets.

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operating losses generated in years prior to 2018 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized.

Long-term debt consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

Senior secured loans (includes unamortized discount of $ 8,969 and $ 9,520 based on an imputed interest rate of 5.8 % and 5.8 %, at March 31, 2022 and December 31, 2021, respectively)

Long-term debt consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Senior secured loans (includes unamortized discount of $ 8,425 and $ 9,520 based on an imputed interest rate of 5.8 % and 5.8 %, at June 30, 2022 and December 31, 2021, respectively)

$ 516,725 $ 518,330

2 unchanged sentences

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 March 31, 2022.

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

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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 March 31, 2022, the fair value of the interest rate swap was a $ 17.8 million asset as a result of an increase in short term interest rates since entering into the swap agreements.

The increase in the fair value of the interest rate swap asset during the three months ended March 31, 2022 is the result of an increase in short term interest rates during the respective periods.

At June 30, 2022, the fair value of the interest rate swap was a $ 26.0 million asset as a result of an increase in short term interest rates since entering into the swap agreements.

The increase in the fair value of the interest rate swap asset during the three months ended June 30, 2022 is the result of an increase in short term interest rates during the

respective periods.

In the next twelve months, the Company estimates that $ 6.4 million will be reclassified from Accumulated other comprehensive income (loss) to Interest expense, net on our condensed consolidated statement of operations.

Three Months Ended March 31,

Gain recognized in Other comprehensive income on derivative financial instruments $ 26,213 $ 15,451

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

2022 2021 2022 2021

Unrealized Gain (loss) recognized in Other comprehensive income on derivative financial instruments $ 8,156 $ ( 3,172 ) $ 34,369 $ 12,279

Loss on interest rate swap (included in Interest expense on our consolidated statement of operations) $ ( 1,159 ) $ ( 2,058 ) $ ( 3,131 ) $ ( 4,068 )

4 unchanged sentences

Loans under the Revolver may be borrowed, repaid and reborrowed until August 6, 2024 (the “Maturity Date”), at which time all amounts borrowed under the Revolver must be repaid.

As of March 31, 2022, the Company had no borrowings outstanding under the Revolver or related sub-facility.

As of June 30, 2022, the Company had no borrowings outstanding under the Revolver or related sub-facility.

The Credit Facility contains customary affirmative and negative covenants.

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

As of March 31, 2022 the Company was in compliance with all covenants under the Credit Facility.

Cash interest costs averaged 5.4 % and 5.4 % for the three months ended March 31, 2022 and 2021, respectively.

In addition, as of March 31, 2022 and December 31, 2021 the Company had $ 9.0 million and $ 9.5 million, respectively, of unamortized deferred financing costs associated with the Credit Facility.

As of June 30, 2022 the Company was in compliance with all covenants under the Credit Facility.

Cash interest costs averaged 5.4 % and 5.4 % for the six months ended June 30, 2022 and 2021, respectively.

In addition, as of June 30, 2022 and December 31, 2021 the Company had $ 8.4 million and $ 9.5 million, respectively, of unamortized deferred financing costs associated with the Credit Facility.

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

1 unchanged sentence

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Net Loss $ ( 16,393 ) $ ( 19,042 ) $ ( 39,224 ) $ ( 39,726 )

1 unchanged sentence

Net loss per common share, basic and diluted $ ( 0.52 ) $ ( 0.63 ) $ ( 1.25 ) $ ( 1.32 )

Due to the net losses for the three months ended March 31, 2022 and March 31, 2021, respectively, basic and diluted loss per share were the same.

The following table sets forth the anti–dilutive common share equivalents as of March 31, 2022 and March 31, 2021:

Due to the net losses for the three and six months ended June 30, 2022 and June 30, 2021, respectively, basic and diluted loss per share were the same.

The following table sets forth the anti–dilutive common share equivalents as of June 30, 2022 and June 30, 2021:

Stock options 190,894 251,360

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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 condensed consolidated balance sheets and are excluded from net income (loss).

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

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

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Foreign currency translation adjustment $ ( 24,060 ) $ ( 5,657 )

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Unrealized gain (loss) on interest rate swaps 25,959 ( 8,409 )

Total accumulated other comprehensive income (loss) $ 12,359 $ ( 11,514 )

The unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of March 31, 2022 is net of income tax expense of $ 1.4 million.

The tax benefit related to unrealized translation gains (losses) on intercompany loans for the three months ended March 31, 2022 was $ 0.5 million and a tax expense of $ 0.2 million for the three months ended March 31, 2021.

Total accumulated other comprehensive loss $ ( 2,344 ) $ ( 11,514 )

The unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of June 30, 2022 is net of income tax expense of $ 0.4 million.

The tax benefit related to unrealized translation gains (losses) on intercompany loans for the three and six months ended June 30, 2022 was $ 1.0 million and $ 1.5 million, respectively.

The tax expense related to unrealized translation gains on intercompany loans for the three and six months ended June 30, 2021 was $ 0.1 million and $ 0.3 million, respectively.

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

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The Company recognizes stock-based compensation expense from all awards in the following expense categories included in our condensed consolidated statements of income were as follows (in thousands):

Three Months Ended March 31,

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

2022 2021 2022 2021

Cost of revenue $ 575 $ 563 $ 977 $ 1,005

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General and administrative (1)

12,146 10,426 21,141 25,957

Total $ 14,877 $ 13,550 $ 26,496 $ 31,374

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

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

In accordance with ASC 718, 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.

(1) Includes accelerated stock-based compensation expense of $ 4.4 million for the three months ended June 30, 2022 and $ 4.4 million and $ 6.3 million for the six months ended June 30, 2022 and June 30, 2021, respectively, in accordance with ASC 718, Compensation—Stock Compensation.

2014 Equity Incentive Plan

Beginning in 2019, the Company began granting restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) under its 2014 Equity Incentive Plan (the “2014 EIP”), in lieu of restricted stock awards, primarily for stock plan administrative purposes.

Restricted Stock Units

RSU activity during the three months ended March 31, 2022 was as follows:

Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value

Unvested balances at December 31, 2021 1,379,747 $ 44.69

Units granted 1,232,525 20.82

Units vested ( 220,550 ) 43.24

Awards forfeited ( 73,633 ) 38.12

Unvested balances at March 31, 2022 2,318,089 $ 32.35

Performance-Based Restricted Stock Units

Performance-Based Restricted Stock Units (“PRSU”)

In 2022 and 2021, fifty percent of the awards granted to our Chief Executive Officer were PRSUs.

The 2022 and 2021 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 (“TSR”) at the end of the eighteen month performance periods.

Units granted per the table below are based on a 100 % target payout.

Compensation expense is recognized over the required service period of the grant and is determined based on the grant date fair value of the award (valued using the Monte Carlo simulation model) and is not subject to fluctuation due to achievement of the underlying market-based target.

PRSU activity during the three months ended March 31, 2022 was as follows:

PRSUs Outstanding Weighted-Average Grant Date Fair Value

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

Units granted 93,750 54.03

Awards forfeited ( 2,100 ) 35.45

Unvested balances at March 31, 2022 155,187 $ 66.91

Significant assumptions used in the Monte Carlo simulation model for the PRSUs granted during the three months ended March 31, 2022 and year ended December 31, 2021 are as follows:

March 31, 2022 December 31, 2021

At the end of the performance period, the 2021 PRSU resulted in no units granted.

The following table summarizes PRSU and RSU activity during the six months ended June 30, 2022 :

Number of Units Weighted-Average Grant Date Fair Value

Unvested restricted units outstanding as of December 31, 2021 1,443,284 $ 45.77

Granted 1,366,275 22.90

Vested ( 563,899 ) 41.40

Forfeited (1)

( 259,450 ) 46.29

Unvested restricted units outstanding as of June 30, 2022 1,986,210 $ 31.21

(1) Includes forfeited awards related to the 2021 PRSUs.

At June 30, 2022, or the end of the performance period for the 2021 PRSUs, none of the awards vested.

The PRSU and RSU activity table above includes PRSU units granted that are based on a 100 % target payout.

Compensation expense is recognized over the required service period of the grant.

The fair value of the RSUs is determined based on the grant date fair value of the award.

The fair value of the PRSUs is determined using the Monte Carlo simulation model and is not subject to fluctuation due to achievement of the underlying market-based target.

Significant assumptions used in the Monte Carlo simulation model for the PRSUs granted during the six months ended June 30, 2022 and year ended December 31, 2021 are as follows:

June 30, 2022 December 31, 2021

Expected volatility 49.5 % 53.6 %

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Stock Option Activity

Stock option activity during the three months ended March 31, 2022 was as follows:

Stock option activity during the six months ended June 30, 2022 was as follows:

Outstanding Weighted–

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Options exercised ( 36,711 ) 4.96

Outstanding at March 31, 2022 191,212 $ 9.95

Outstanding at June 30, 2022 190,894 $ 9.96

Revenue Recognition

Revenue Recognition Policy

Revenues are recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services over the term of the agreement, generally when made available to the customers.

Revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services over the term of the agreement, generally when made available to the customers.

We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.

Revenues are recognized net of sales credits and allowances.

Revenue is recognized net of sales credits and allowances.

Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

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

The Company's control is evidenced by its involvement in the integration of the good or service on its platform before it is transferred to its customers, and is further supported by the Company being primarily responsible to its customers and having a level of discretion in establishing pricing.

Company's control is evidenced by its involvement in the integration of the good or service on its platform before it is transferred to its customers, and is further supported by the Company being primarily responsible to its customers and having a level of discretion in establishing pricing.

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

Generally, the Company reports 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, revenue is recorded on a gross basis with related telecom messaging costs incurred from third parties 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, revenue is recorded on a gross basis with related 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.

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Unbilled receivables represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for software licenses already delivered and professional services already performed, but invoiced in arrears and for which the Company believes it has an unconditional right to payment.

As of March 31, 2022 and December 31, 2021, unbilled receivables were $ 5.4 million and $ 4.8 million, respectively.

As of June 30, 2022 and December 31, 2021, unbilled receivables were $ 5.2 million and $ 4.8 million, respectively.

Deferred Commissions

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indicate their carrying value may not be recoverable consistent with the Company's long-lived assets policy.

No indicators of impairment were identified during the three months ended March 31, 2022.

The following table presents the activity impacting deferred commissions for the three months ended March 31, 2022 :

No indicators of impairment were identified during the six months ended June 30, 2022.

The following table presents the activity impacting deferred commissions for the six months ended June 30, 2022 :

($ in thousands) Deferred Commissions

2 unchanged sentences

Amortization of deferred commissions ( 5,816 )

Balance at March 31, 2022 $ 25,587

Commissions capitalized in excess of amortization of deferred commissions for the three months ended March 31, 2022 were $ 1.0 million.

Balance at June 30, 2022 $ 25,867

Commissions capitalized in excess of amortization of deferred commissions for the three and six months ended June 30, 2022 were $ 0.3 million and $ 1.2 million, respectively.

Deferred Revenue

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

During the three months ended March 31, 2022, we recognized $ 44.6 million and $ 1.6 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

In addition, during the three months ended March 31, 2022 we recognized $ 3.2 million in revenue that was included in the acquired deferred revenue balance of our 2022 acquisitions as disclosed in “Note 2.

During the six months ended June 30, 2022, we recognized $ 71.5 million and $ 2.3 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 six months ended June 30, 2022 we recognized $ 6.6 million in revenue that was included in the acquired deferred revenue balance of our 2022 acquisitions as disclosed in “ Note 2.

Acquisitions .”

Remaining Performance Obligations

As of March 31, 2022, approximately $ 306.1 million of revenue is expected to be recognized from remaining performance obligations.

As of June 30, 2022, approximately $ 298.6 million of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 70 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

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The ship-to country is generally the same as the billing country.

The Company has operations primarily in the U.S., United Kingdom and Canada.

The Company has operations primarily in the United States, United Kingdom and Canada.

Information about these operations is presented below (in thousands):

Three Months Ended March 31,

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

2022 2021 2022 2021

Subscription and support:

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United Kingdom 162 — 291 11

Canada 101 10 177 52

Other International 861 67 1,697 113

8 unchanged sentences

Related Party Transactions

The Company does not have any material related party transactions to report for the three months ended March 31, 2022.

The Company does not have any material related party transactions to report for the three and six months ended June 30, 2022.

Subsequent Events

Securities Purchase Agreement

On July 14, 2022, Upland entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Ulysses Aggregator, LP (the “Purchaser”), an affiliate of HGGC, LLC, to issue and sell at closing 115,000 shares of a new designated Series A Preferred Stock, par value $ 0.0001 per share (the “Series A Preferred Stock”), at a price of $ 1,000 per share (the “Initial Liquidation Preference”) for an aggregate purchase price of $ 115.0 million (the “Investment”).

The holders of Series A Preferred Stock will be entitled to dividends (i) at the rate of 4.5 % per annum until but excluding the seven year anniversary of the closing, and (ii) at the rate of 7 % per annum on and after the seven year anniversary of the closing, and are also entitled to fully participate in any dividends or other distributions declared or paid on our common stock on an as-converted basis.

Dividends will be payable quarterly in arrears, and may be paid, at our option, in cash or by paying dividends in kind .

Our ability to pay cash dividends is subject to the restrictions under the Credit Facility.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements