Upland Software Inc (UPLD) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Upland Software First Quarter 2017 Earnings Call. (Operator Instructions) The conference call will be simultaneously webcast on Upland's Investor Relations website, which can be accessed at investor.uplandsoftware.com.

As a reminder, this conference call is being recorded. Following the completion of the conference call, a telephone replay and a webcast replay will be available on Upland's Investor Relations website at investor.uplandsoftware.com.

By now everyone should have access to the first quarter 2017 earnings release, which was distributed today at approximately 4 p.m. Eastern Time. If you've not received the release, it's available on the Investor Relations tab of Upland's website at investor.uplandsoftware.com.

I'd now like to turn the conference over to our host, Mr. Jack McDonald, Chairman and CEO of Upland Software. Please go ahead, sir.

Thank you. Good afternoon, and welcome to our Q1 2017 earnings call. With me today are Tim Mattox, our President and COO; and Mike Hill, our CFO.

So on today's call, I'm going to summarize here, at the front end, our results and some recent highlights. Mike will then take a more detailed look at the Q1 numbers as well as sharing with you our guidance for the second quarter and full year 2017. And then Tim will cover an operations and sales review of the first quarter. After that, we'll open the call up for questions.

But before we get started, Mike Hill is going to read the safe harbor statement. Mike?

Thank you, Jack, and good afternoon, everyone. The press release announcing our quarterly results and our business outlook as well as a reconciliation of management's use of non-GAAP financial measures as compared to the most comparable GAAP measures is available on the Investor Relations section of our website at investor.uplandsoftware.com.

During today's call, we will include statements that are considered forward-looking within the meanings of securities laws. In addition, we may make additional forward-looking statements in response to your questions. These statements are subject to certain risks, assumptions and uncertainties that could cause our actual results to differ materially. We caution you to consider risk factors and other uncertainties that could cause actual results to differ materially from those in the forward-looking statements contained in the press release and in this conference call. A detailed discussion of such risks and uncertainties are contained in our annual report on Form 10-K filed with the SEC.

The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today, May 11, 2017. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements, whether as a result of new information, future events or otherwise.

On this call, Upland will refer to non-GAAP measures that, when used in combination with GAAP results, provide Upland management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-GAAP to the most comparable GAAP measures in our press release announcing our first quarter 2017 results. To learn more about our outreach plans, please feel free to contact us at investor-relations@uplandsoftware.com.

And with that, I'll turn the call back over to Jack.

Thanks, Mike. So great quarter. We feel really great about our outlook for Q2 and for 2017 as a whole. It really feels like the business is starting to fire on all cylinders. So I'd say 4 major headlines today: a record first quarter; record Q2 and full year 2017 guidance, again, with the stage set for a very strong year; continued execution on acquisitions with 2 strategic and accretive acquisitions already this year, and we feel very good about our M&A pipeline and our ability to execute additional smart accretive acquisitions; and then finally, expanding margins. We recently raised our long-term adjusted margin target from 35% to 40%, and that's driven by the efficiencies we're seeing from the UplandOne operating platform and also from scale benefits as the company grows to and ultimately through $100 million in revenues.

So as we've said, Upland is hitting its stride as an acquisitive growth platform company with a proven ability to acquire great software products, to do it thematically in our focused product families and to quickly restructure them for improved profitability and sustainable growth and do it while delivering a world-class customer experience, increasing customer loyalty, consistent strong growth in revenues and best-in-class expanding EBITDA margins.

So let me drill down on each of those 4 headlines. On Q1, 19% growth in recurring revenues. 26% adjusted EBITDA, which more than doubled from the 11% of adjusted EBITDA we did in the first quarter of 2016. We had strong new and expansion sales bookings, and of course, this was the 11th consecutive quarter of meeting or beating guidance. So we've done that now in every quarter since going public.

Second headline, on Q2 and 2017 guidance. For Q2, we're looking at 18% growth in recurring revenues at the midpoint married to 30% EBITDA margins, so 18% growth in revenues, 30% EBITDA margins. It's the first time we've cracked 30% EBITDA margins as a company, and again, this is on our way to our long-term target of 40%.

For the full year, record guidance at $89 million of revenues at the midpoint. Again, 18% growth in recurring revenues and $27.5 million of EBITDA at the midpoint. And of course, that's before any additional acquisitions. I think that represents 31% EBITDA for the year but obviously implies a much higher than 31% EBITDA margin exit rate. So we feel great about the trajectory that the business is on.

As I mentioned, we announced 2 great acquisitions already this year, Omtool and RightAnswers, both of which are beautiful product fits in our Workflow Automation group and our Digital Engagement product family. And integration is proceeding well on both acquisitions.

Raising that long-term margin target, as I said, to 40%. We're committing -- committed to hitting that goal sooner rather than later, UplandOne and scale efficiencies driving that.

And finally, the M&A pipeline. As the company has grown, as our position in the market has become stronger, as we've demonstrated the capacity to execute against the number of acquisitions we've been doing, we're attracting more attention on the M&A pipeline side and the pipeline is strong as I have ever seen it. So we feel good about the pipeline. Obviously, there are no guarantees with M&A. But again, the pipeline is very strong, and we feel confident in our ability to continue executing against strategic and accretive acquisitions.

So in sum, as we said, this model is working. Our engine is tuned. And the opportunity is in front of us. We see it as a massive opportunity and we're really just getting started.

So with that, I'm going to turn the call over to Mike, who will give you a more detailed look at the numbers and our guidance. Mike?

Thanks, Jack. Today I'll cover the financial results for the first quarter and our outlook for the second quarter and full year 2017.

Total revenue for the first quarter was $20.8 million, representing growth of 18%. Recurring revenues from subscription and support grew 19% year-over-year to $18.1 million. Professional services revenue was $1.9 million for the quarter, a 5% year-over-year decline. Perpetual license revenue was $0.7 million for the first quarter for an increase of 118% year-over-year. As planned, professional services have become a smaller portion of our overall revenue mix with recurring revenue now representing 87% of total revenue in Q1.

Moving down the P&L to gross margins. Overall gross margin was 66% during the first quarter, and our product gross margin remained strong at 69% or 75% when adding back depreciation of equipment and amortization of acquired intangible assets. Professional services gross margin was 41% for the first quarter.

Turning to our operating expenses. Research and development expense, net of refundable Canadian tax credits, was $3.4 million for the first quarter, representing 16% of total revenue. Sales and marketing expense was $3.2 million, representing 16% of total revenue for the first quarter.

General and administrative expense was $5.9 million in the first quarter, representing 28% of revenue. However, excluding noncash stock compensation for the first quarter, G&A expense was $3.7 million or 17.8% of total revenue.

Acquisition-related expenses were $3.7 million in the first quarter, which we're driven by our recent significant acquisition activity. And I'll note that $1.1 million of these expenses were for a onetime noncash charge to write off the remaining contractual commitments for the unneeded portion of the Omtool office lease that we have inherited in the acquisition during the quarter.

Operating loss was $3.6 million in the first quarter compared to a loss of $4.2 million in the same period in 2016. GAAP net loss was $5.6 million or a loss of $0.33 per diluted share compared to a GAAP net loss of $5.6 million or a loss of $0.36 per diluted share in the first quarter of 2016.

Non-GAAP net income was $2.9 million or non-GAAP net income of $0.16 per diluted share in the first quarter of 2016 -- 2017 compared to the breakeven in the first quarter of 2016.

Our first quarter 2017 adjusted EBITDA was $5.5 million, up 172% compared to $2 million for the same period last year.

Now on our balance sheet and statement of cash flows. We ended the first quarter with $19.4 million in cash. Cash flows provided by operating activities were $8.9 million for the trailing 12 months ended March 31, 2017.

On the financing front, in conjunction with the acquisition of Omtool in January, we drew down $10 million on our credit facility. And in conjunction with the acquisition of RightAnswers in April, we drew down $15 million from the accordion feature of the same facility. Total net debt after both acquisitions is now approximately $60 million.

In addition, based on being good stewards of our capital, we are having very productive discussions with a number of lenders about significantly increasing our acquisition credit facility to support our robust acquisition pipeline. Also as a matter of good corporate hygiene, we'll be filing a $75 million universal shelf registration statement. The shelf is for primary issuances only, not for secondary. The shelf enhances Upland's financial flexibility as we become a larger company, and we have no current intention to execute any financing under the shelf.

Now I want to cover Q2 and full year 2017 guidance. For the quarter ending June 30, 2017, we expect reported total revenue to be in the range of $21.3 million to $22.3 million, including subscription and support revenue in the range of $18.7 million to $19.5 million. I would like to note that this would represent growth in recurring revenue of 18% at the midpoint over the quarter ended June 30, 2016. Adjusted EBITDA is expected to be in the range of $6.2 million to $6.8 million for an adjusted EBITDA margin of 30% at the midpoint, representing growth of 134% at the midpoint over the quarter ended June 30, 2016.

For the full year ending December 31, 2017, we are we are reaffirming that we expect reported total revenue to be in the range of $87 million to $91 million, including subscription and support revenue in the range of $76 million to $79 million. For growth in recurring revenue, 18% at the midpoint over the year ended December 31, 2016. Adjusted EBITDA is expected to be in the range of $26 million to $29 million for an adjusted EBITDA margin of 31% at the midpoint, representing growth of 118% at the midpoint over the year ended December 31, 2016.

And with that, I'll turn the call over to Tim Mattox, our President and COO.

Thanks, Mike, and good afternoon, everyone. I'm going to cover our sales, product and operating areas. The results in these areas continue to show that our enterprise customers are achieving greater success and improved outcomes by relying on the Upland's family of products. Upland continues to demonstrate to both new and existing customers why our products are choice for those who require exceptional technology and service. As Jack referenced earlier, we have continued to focus our efforts on those areas that our customers value the most and build upon our UplandOne operating platform.

On the sales front, we continue to focus our efforts on expanding our relationships with existing customers, building on our improvements in our Net Promoter Score. We expanded relationships with 94 existing customers, including 7 major expansions over $25,000 in annual recurring revenue. Furthermore, 21 of our expanding customers increased their annual recurring revenue by 25% or more. Examples of major renewals and expansions were a global technology consulting firm recommitting to our project and portfolio management platform for over $175,000 per year. A global agricultural products company recommitted to our project and portfolio management platform for over $70,000 per year. And a global leader in water and energy technologies recommitted to our IT and financial management platform for over $60,000 per year.

Also on that, a large national media company expanded use of our application-to-person text messaging platform by $50,000 per year. And a global legal administration firm expanded use of our project and portfolio management platform for over $40,000 per year. 45 other major customers expanded to the tune of over $500,000 in aggregate as well.

We also acquired 156 new customers, of which 7 were major accounts by leveraging references from our customer base. Some examples of major new customers include a multiproduct sale to a large North American security exchange who committed to over $120,000 per year to our Professional Services Automation and our portfolio management offerings; a cross-sell to a global window and door manufacturer who committed to over $65,000 per year to our project and portfolio management platform; and also a global insurance company who committed to over $45,000 per year to our project and portfolio management platform. And finally, a scientific research and technology firm committed to over $45,000 in recurring revenue to our application-to-person text messaging platform.

In Q1, we partnered with Twilio to provide customers of our Mobile Commons enterprise messaging application the ability to drive messaging campaigns through both SMS and Facebook Messenger. Mobile Commons continues to be the platform of choice to drive the most effective interactive messaging campaigns.

We also enhanced our Workflow Automation product family by acquiring Omtool, as Jack referenced, now called Upland AccuRoute, one of the industry's most powerful automation and document management offerings. AccuRoute delivers secure document capture and process automation to financial institutions, legal firms and health care providers through direct relationships and an extensive network of channel partners. We've already successfully completed the initial phase of integration of AccuRoute to the UplandOne operating platform.

As Jack alluded to, we have continued to implement and improve on this UplandOne operating platform, Upland's unified platform that sets the foundation for 100% customer success. We made numerous platform improvements in Q1, including we enhanced our Customer Success Program with the launch of Executive Outreach program where our top executives discuss one-on-one with key customers twice a year to help them drive even more value from our products and explore new areas of expansion. This highly personal approach further hones our focus on initiatives delivering the most value to our customers.

We also launched a new corporate website and 10 associated product sites to deliver key messaging more effectively and demonstrate the 3 reasons why customers choose and stay with Upland: award-winning cloud products, not bloated suites or costly on-premise implementations; our commitment to 100% customer success; and finally, the scale and resources to deliver on those commitments.

Our final enhancements continue to be our focus on customer-driven innovation with 3 major feature releases, including enhanced analytics, reporting, search and usability within our project and portfolio management application; improved performance and delivered new analytics, modeling, financial management and processing features within our IT Financial Management application; and we delivered new integration and campaign management capabilities within our application-to-person text messaging platform.

In addition to our improvements to the UplandOne operating platform, we have several other initiatives designed to accelerate the improvement in efficiency, effectiveness and scalability of our general business operations. To support our growth, we are improving back office processes, including the financial close process, invoicing and collections. We also continue to optimize other internal business systems to better support our integration initiatives to deliver better results more quickly.

After the close of our first quarter, as Jack and Mike alluded to, we enhanced our Digital Engagement product family by acquiring RightAnswers, an award-winning cloud-based knowledge management system. Upland's culture of 100% customer success will further enhance the current RightAnswers' customer experience and sustain a high level of loyalty that RightAnswers enjoy. RightAnswers has a strong affinity with several of Upland products, and we are already seeing our cross-sell pipeline increase based on initial inquiries. We have the capability to add RightAnswers' installed base of large enterprise customers and market our products to them.

Furthermore, we're excited about RightAnswers' innovative product road map, and we look to deliver that on Upland's robust development platform and cloud infrastructure.

In summary, we have a lot of high-impact initiatives underway that are yielding results and over time, we believe will enable us to scale the business even more effectively.

With that, I'll turn the call back over to Jack.

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

(Operator Instructions) Your first question is from Bhavanmit Suri from William Blair.

Congratulations on the RightAnswers acquisition and obviously on the numbers and the EBITDA margin expansion. Just a couple for me quickly. You've sort of seen really nice new customer growth. So you had the 156 obviously through the acquisition. You had 106 last quarter. So part of it is acquisition and part of it is sort of organic. Any sort of breakout of how that splits up between the 2? I mean sort of what's driving some of the acceleration? Obviously, acquisition helps, but are you seeing more customer adds because of the UplandOne platform? Or is it too early to sort of see that benefit yet?

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

Got it. Got it. That's helpful. And I guess when you look at sort of the sort of net dollar retention rate ticking up, and again, you talked about the expansion of existing customers driven by UplandOne, it's happened now for a little while. I mean, Upland is relatively new, but you've seen the net dollar expansion rate tick up for a few quarters now. Sort of what's behind that? And I guess it will continue partially because of UplandOne, but is there some other dynamic that's playing out?

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

And I'll just squeeze one last one in maybe for you and/or Tim. You touched on cross-sell, Jack, obviously a few you seconds ago. Tim, last quarter, I think last earnings call, you gave us a little more color about cross-sell, sort of potentially suggested that may become more of a recurring theme. Expansion has been the -- expansion with existing product within the customer has been the theme for growth, organic growth, for a while. But you sort of alluded last quarter you're sort of maybe starting to see more cross-sell. Jack obviously did. Just a little more color guys on sort of how that's progressing and which products seem to be fitting well in terms of the cross-sell, the next products the customer might buy.

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

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

A couple for me. First, just curious kind of out of a process standpoint. If you look at Omtool and RightAnswers, how -- from a communication standpoint, to the prior question about sort of cross-sell, upsell, just use those 2 as examples, how do you convey what you've now got as part of the broader suite to the existing installed base in those 2 instances?

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

Got it. Got it. That's helpful. And then on the Premier Success plan front, is there any quantification you can provide? Obviously, Gold, Platinum, other ways to upsell, sort of wrapping that around the improving overall customer experience goal. But specifically related to those success plans and their ability to attach and ultimately drive the higher-end plans, any quantification you can give us, either where you are or some sense of trend of increasing attach?

Yes. We introduced that program a couple of quarters ago, and there are really 2 components to it. One is, as you mentioned, upselling to enhance services offering. And we look closely at the attach rates of those. We don't disclose those publicly, but we've seen good receptivity to that. The other part of the program that contributes to our improved net DRR that was talked about earlier is, for lack of a better term, a legacy lock-in option, which gives an existing customer the ability to extend their agreement that they currently have with us for a longer period of time, thereby reducing the defect risk, if you will. And so we're seeing success on both fronts in terms of both extension of the term of agreement, which we think bodes well longer term for our churn, as well as attach rates to those enhanced offerings. Now the offerings themselves, we're iterating on. So in some businesses, we have been pretty well honed and we're seeing improved attach rates there and others. We have more work to do. So we think there's still opportunity for us to continue to improve in that area but are pleased with the initial results.

Yes, great. And I guess last for me then. Back to the pipeline of potential acquisition targets. Can you just expand maybe a bit more there? What's different versus maybe 6 months ago, quantity, size, scope, which segments? Just a little better sense. It sounds like there's been a general build. I think you said it's the best you've ever seen. But maybe just a layer deeper, a little better sense or color what's there and what brings that higher-level conclusion?

Yes. So I think what's driving the improved pipeline, first and foremost, is Upland's presence in the market, the success we've had as a business, how that's been reflected in the public market and the equity markets and also our level of activity with 2 reasonably sized acquisitions this year. And clearly, we work to market that, if you will, within the banking community so that we're top of mind as a buyer that can deliver speed and certainty for acquisitions that fit thematically with what we're doing and meet our goals around financial performance and accretion. What we're seeing, Jeff, is, I think, a continued uptick in the size of opportunities in the pipeline. We had a period there, a year or so ago, where we were looking at smaller acquisitions. And we said at the time that we believe that a little bit of the normalization, if you will, of the market was going to contribute to our ability to buy somewhat larger assets. So again, between $10 million and $15 million of revenue, nothing crazy from a size perspective, but it makes a difference when you can buy $10 million or $12 million or $14 million of revenue run rate as opposed to $5 million or $6 million. And so I'd say that we're seeing an uptick in size. From a quantity standpoint, I think there's a -- if you look at gross pipeline, I think those numbers are similar to what we've seen historically. It's that sort of bottom of the funnel pipeline where we're seeing an uptick and say, wow, there's a good number of actionable deals here that are thematic within the product families, that are within the kind of size range that we're comfortable with and that makes sense from a financial standpoint for us. And I would say that in terms of sector, it's pretty well distributed. As I kind of tick down the kind of bottom of the funnel pipeline right now, there are good entries there in all 3 product families. So the project in IT management, Workflow Automation and Digital Engagement. I wouldn't say there's any kind of trend in terms of sector. We're seeing strength across all 3.

The next question is from Richard Baldry from Roth Capital.

As you're taking your target for sort of adjusted EBITDA up significantly from 30% to 40%, if we think about the value -- sort of lifetime value of a customer, the sort of an inverse relationship theoretically between how efficient you get on an operating expense side versus potentially customer satisfaction, can you maybe talk about your Net Promoter Score or churn and how you're feeling about those as you've been able to increase your efficiencies?

Boy, it's such a great question. And I would say one of most pleasant outcomes from the implementation of the UplandOne platform has been the fact that we have increased margins at the same time that we've increased customer satisfaction. And the reason -- and at first, I can understand why that may seem kind of counterintuitive, but it's not when you kind of peel it back a little bit and look at what we're doing. So it starts with something as simple as orders and renewals where in the old model, we had much higher-cost CSMs performing that function. In the new model, we have low-cost team members who are doing that function in a more dedicated way, in a more templatized and programmatic way. The ability to engage customers regularly and in a substantive way rather than having the expensive, on-site user conference at Disney or another great resort location. We're able to do these quarterly virtual user conferences that Tim referred to earlier where we have substantive information for customers about the products that they're currently using. We may bring in success cases, customer case studies and also have an opportunity to inform customers about other products that Upland offers. It's a customer sat opportunity. It's very efficient to deliver, and it also presents a marketing opportunity. From an R&D standpoint, the investments we've made in knowledge management, in analytics, in automation, the partnership with DevFactory that we have, those things have enabled us to have dramatic throughput on the actual -- code being developed and addressing those foundational elements that I referred to earlier, at the same time, doing it in a very efficient way. And of course, that whole process is fed by a customer-driven road map where we are out listening to customers, talking to customers, understanding the things that they want in the product. And what we've heard again and again is that it is those foundational elements that is speed and security and scalability and performance and then those investments in usability and integration. And we're able to deliver those now in a very cost-effective way. And then the final -- I guess 2 final pieces I would add. One is not overspending on marketing and sales, right? We have an emphasis on installed base marketing and low-cost referral-based leads for new logos. We're proud of that model. We think that model works, and it's also a very efficient model. And that does -- those savings that do not impact the customer experience in any way, although they do help obviously from an operating margin standpoint. And then finally, you've just got scale benefits as the business has grown now, approaching $100 million. So long-winded answer, but it's something we're very passionate about and marrying that -- let me say it this way. It's not about cutting costs. It's about bringing new products in model. We believe in the model. We think the model is scalable well beyond where we are now. And with each new high-quality product we bring on, we bring it in model. We're able to extend those products out to a larger customer base, increase customer support and do it while increasing profitability of those businesses and really making their models more sustainable.

And do you think from a broader perspective, as you gain scale and your EBITDA margins will gain scale, higher rate but also larger dollars? What are you seeing as supportable in the lender community for multiple EBITDA they're willing to lend against as -- I would assume the greater critical mass that offer more stability. And do you think that that's getting to be an easier thing as you scale?

Yes. It's another great question. Yes. The answer is yes. There are sort of some very significant lines that you start to cross and we're at that point, that very positive inflection point. So for example, as Mike referred to earlier, we're in conversations right now with a number of lenders about significantly increasing the size of our acquisition facilities. Obviously, the business is generating cash, so we don't need cash for operating purposes. We would use it only to do strategic acquisitions that are accretive on a per share basis, adjusted EBITDA basis. And yes, as we get to this $100 million scale and you start looking at the business, it's moving up to 40% EBITDA margins. A lot of interest from the lending community, a lot of great partners to work with there. And so we feel very good about that. We'll have plenty of firepower to execute against our acquisition plan.

The next question is from Richard Davis from Canaccord.

It's Mark on for Richard. Just one more for me, more on the cross-sell and expansion theme again. So I just wanted to know how you look at the difference in opportunity between further expanding your major accounts versus increasing the size of your smaller accounts. Just how do you differentiate them? And where is your focus?

I think that obviously, we look to drive customer satisfaction levels higher across the entire customer base. But the opportunity from a dollar amount basis is greatest within those major accounts that we define as $25,000 a year or more in ARR. And so there is an increased level of support and account planning. And honestly, I really feel like today, we're just scratching the surface as we have when it kind of relates a bit to the last question around critical mass. This product family that we built today is getting pretty powerful in each of these 3 categories: project and IT management, workflow automation, digital engagement. When we were at this 2 or 3 years ago, our ability to bring to the table additional products for our customers to add was limited. Now it's a lot greater. And this latest acquisition, as I mentioned, RightAnswers, is one more example. But so many great products in our portfolio, ComSci for IT Financial Management, PowerSteering, PPM, Tenrox, PSA, and these products are related to each other. And then add to that the fact that they've now got the uniform user interfaces and the continuing investments we're making on the user experience side and the integration side. So it's those larger accounts and an increasing opportunity because of where we are with the products.

(Operator Instructions) The next question is from Brian Peterson from Raymond James.

So I wanted to hit on M&A bit. And given the success that you've had with a lot of the recent deals and with UplandOne, just want to get your comfort level with the ability to digest a larger amount or larger deal sizes. And how has that changed maybe from 12 to 18 months ago?

Yes. Great question. I think that from a deal -- it's a much greater capacity now than it was 12 or 18 months ago because the operating model is up and running and tuned. And so again, whether you're talking about orders and renewals or invoicing or account management or customer support or development or marketing and sales, you've got these established processes that you can now port the acquired products over to. And then we've got additional scale. And of course, we've made investments in on the people side in terms of seasoned executives, with experience around integration to further build out our team and execute the model. So vastly increased capacity to get it done. In terms of how that plays out, my gut is you see that playing out in a greater number of deals that are slightly larger. So again, we want to be in this $10 million to $15 million range on revenue. Maybe you see the occasional $15 million to $20 million. You do 3 or 4 deals like that a year. That's a tremendous growth impact on a business of our size. We're not committing or guaranteeing we get that number done, obviously, but we have the capacity to get that done. And that's dramatic. The other way to go at it is to look at the big deal, the $50 million revenue, north of $100 million purchase price kind of bet the company deal. And that's really just not the way we operate. It's not the way we operated as proficient. And it's not the way we're planning on operating here. We're really one foot in front of the other kind of guys. We like to manage risk appropriately. We think we've got a differentiated offering as a buyer, I should say. And it's sort of sub-$25 million range. So we've got so much headroom to grow the size of acquired companies through to the ceiling that we talked about at the time of the IPO, which was up to $25 million. My gosh. You do 3 or 4 deals of $25 million a year and the growth rate is explosive. So we have a ton of opportunity in the segment we're playing in. We've got the capacity to execute against and integrate 3 or 4 of these a year. And it's part of the reason we're so excited and bullish on the opportunity as we look out over the next few quarters, the next few years.

Got it. And maybe just one more. I know it's been hit on the new customer adds this quarter, but it's pretty strong at 156. I know it's mostly a referral sales model, but is there anything that you can give us on productivity levels of your reps? Has that improved or been significantly better than your expectations over the last few quarters?

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

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

Okay, great. Thank you so much, and we do have -- just as an IR note, Mike and I will be presenting at the Needham Conference next week in New York. I think it's Tuesday.

Yes.

That we will be there, and look forward to speaking to everyone again on the second quarter call. So thank you very much.

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