Upland Software Inc (UPLD) Q4 2020 Earnings Call Transcript

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Upland Software Inc (UPLD 5.09%)
Q4 2020 Earnings Call
Feb 24, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to the Upland Software Fourth Quarter 2020 Earnings Call. [Operator Instructions] Later, we will conduct a question-and-answer session. Instructions will be given at that time. The conference call will be recorded and simultaneously webcast at investor.uplandsoftware.com, and a replay will be available there for 12 months. By now, everyone should have access to the fourth quarter 2020 earnings release, which was distributed today at 4:00 PM Eastern Time. If you've not received the release, it's available on Upland's website.

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

Jack McDonald -- Chairman and Chief Executive Officer

Thank you, and welcome to our Q4 2020 earnings call. I'm joined today by Tim Mattox, our President and Chief Operating Officer; Rod Favaron, our President and Chief Commercial Officer; and Mike Hill, our CFO. Upfront, I'll summarize our results as well as recent sales, product and operations highlights. Following that, Mike will provide some insights on the Q4 numbers and on our guidance. And then, we'll open the call up for Q&A.

Before we get started, Mike is going to read the Safe Harbor statement. Mike?

Mike Hill -- Chief Financial Officer

Thank you, Jack. During today's call, we will include statements that are considered forward-looking within the meanings of the securities laws. These statements are subject to risks, assumptions and uncertainties that could cause our actual results to differ materially. A detailed discussion of these risks and uncertainties are contained in our annual report on Form 10-K as periodically updated in our quarterly reports on Form 10-Q 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. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements. On this call, Upland will refer to non-GAAP financial 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 measures to the most comparable GAAP measures in our press release announcing our fourth quarter and full year 2020 results, which is available on the Investor Relations section of our website. Please note that we are unable to reconcile any forward-looking statements non-GAAP financial measures to their directly comparable GAAP financial measures, because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

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

Jack McDonald -- Chairman and Chief Executive Officer

Thanks, Mike. The Q4 was a strong close to a year that demonstrated the strength and the resilience of Upland's business. We posted record organic growth in Q4 and also a record free cash flow. And after the end of the quarter, we announced the acquisition of Second Street, thus restarting our M&A engine. Our acquisition pipeline is robust. Our acquisition program, of course, now is self-sustaining, as our free cash flow and our financial resources mean that we're no longer dependent on the equity market.

So with that, let me review the Q4 and 2020 results. For the fourth quarter 18% total revenue growth, 7% adjusted EBITDA growth. Now our EBITDA growth rate was lower than our revenue growth rate, due to our ongoing sales and marketing investments, and also a temporary uptick in CXM messaging costs based on high election year volumes. For 2020, we're looking at 31% total revenue growth overall with 21% adjusted EBITDA growth.

Our Q4 cash flow was a record at $21.2 million in free cash flow in Q4. We had only $2.6 million of acquisition expense in the fourth quarter. And we had about a $6.6 million net positive change in working capital. For 2020 overall free cash flow was $34.5 million and that was even with $27.1 million of acquisition related expenses on the year. Of course, from this point forward, we're focused on generating material GAAP operating cash flow and free cash flow, even after acquisition expenses.

Net dollar retention rate came in at 94%. So despite the global pandemic, our retention rates have remained strong in the mid-90s percentage point range. Q4 organic growth and reported recurring revenues came in at a record at 21%, again driven by election year CXM usage and also some acquisition driven deferred revenue discounts. We don't view this as any kind of a new normal for organic growth, and we're going to maintain a conservative organic growth outlook for 2021.

On the sales and marketing front, in the fourth quarter, we expanded relationships with 242 existing customers, 55 of which were major expansions. We also welcomed 111 new customers to Upland in Q4, including 38 major customers. We continued investment in our go-to-market initiatives, including establishing Global Account sales team, focused on our top 175 customers aligned by key verticals including financial services, healthcare, CPG, high tech and others.

And we also built out a new, centralized lead generation Sales Development team. And after the close of the quarter, we launched a refreshed brand and streamlined website. So we're going to continue building out this Phase 1 combined team now. As of end of year, 24 Global Account salespeople and Sales Development reps in total, and we continue to add to that in the first quarter on the lead gen Sales Development rep side.

On product, we had five major releases and 11 feature packs across Upland's product portfolio. So in the Project and IT Management product suite, we expanded our Microsoft Teams integration to accelerate cross team collaboration and communication for users. In Document Workflow, we announced new capabilities and integrations focused on in-demand security features, such as single sign-on.

And moving over to M&A, as I mentioned earlier, after the end of Q4, we closed the acquisition of Second Street, which is a leading cloud-based audience engagement software platform that will be added to our Customer Experience Management product suite. And again, we are now on a self-sustaining growth basis without dependency for equity capital markets for acquisition growth capital. Our M&A pipeline, as we look out into 2021 is strong and we are actively in the market looking at opportunities.

So with that, I'm going to turn the call back over to Mike.

Mike Hill -- Chief Financial Officer

Thank you, Jack. I'll cover the financial highlights for the fourth quarter and our outlook for the first quarter and full year 2021. So on the income statement, total revenue for the fourth quarter was $78.2 million representing growth of 18%. Recurring revenue from subscription and support grew 27% year-over-year to $74.9 million. Professional services revenue was $2.7 million for the quarter, a 21% year-over-year decline, which was expected due to the COVID-19 travel impacts. Overall gross margin was 66% during the fourth quarter. And our product gross margin remained strong at 67% or 70%, when adding back depreciation and amortization, which we refer to as cash gross margin.

Operating expenses, excluding acquisition-related expenses, depreciation, amortization, and stock-based compensation were $28.1 million for the fourth quarter or 36% of total revenue, all generally as expected. Also, acquisition-related expenses were approximately $2.6 million in the fourth quarter. And of course, we'll continue in Q1 as a result of our renewed acquisition activity. Acquisition-related expenses are generally 50% of acquired annual revenue run rate and are typically slightly more for foreign acquisitions.

For each acquisition, 40% to 50% of these transaction and transformation expenses are incurred within the first-three months and then taper down rapidly until complete by the acquisition's first anniversary. Our fourth quarter 2020 adjusted EBITDA was $26.6 million or 34% of total revenue, up 7% compared to $25 million or 38% of total revenue for the fourth quarter of 2019. Adjusted EBITDA margin was lower due to our continuing go-to-market investments and due to increased CXM messaging telecom costs due to the high election year volume that we experienced in Q4.

So now to cash flow. For the fourth quarter of 2020, GAAP operating cash flow was $21.5 million and free cash flow was $21.2 million. Even with $2.6 million of acquisition-related expenses in Q4, this was a record cash flow quarter for us, right after the record $18.7 million of GAAP operating cash flow that we produced in Q3. I will note that Q4 cash flows were benefited by a little over $6.6 million of net positive temporary timing differences in our working capital accounts. So adjusting for the timing differences, that's still over 50% cash flow conversion from adjusted EBITDA.

Looking at the full year 2020 GAAP operating cash flow was $35.6 million. And 2020 free cash flow was $34.5 million, even with $27.1 million of acquisition-related expenses on a year. From this point forward, we are focused on generating substantial GAAP operating cash flow and free cash flow, even after acquisition-related expenses. We're estimating that even with ongoing additional acquisitions forward 12-month free cash flow should be over $30 million and possibly over $40 million, depending upon the size and timing of future acquisitions.

Now on the balance sheet. This ongoing free cash flow generation, in addition to our existing liquidity of $310 million, comprised of the approximately $250 million of cash on our balance sheet as of December 31, 2020, and our $60 million of undrawn revolver. This ongoing cash flow generation existing available capital and expanding our credit facility, while maintaining net debt leverage up to a maximum of around 4.0 times should allow for self sustained growth without dependency on the equity markets. And I should note that our net debt leverage is currently at around 3 times.

With regard to income taxes, I will note that Upland currently has approximately $345 million of total tax NOL carryforwards, and of these, we estimate that approximately $211 million will be available for utilization prior to expiration.

As of December 31, 2020, we had outstanding net debt of approximately $283.3 million after factoring in $250 million of cash on our balance sheet. I will note that the principal payments on our term debt are 1% per year or about $5.4 million per year with the remaining balance maturing in August of 2026. The interest rate on our outstanding term debt is locked at 5.4%, making our annual cash interest payments, approximately $30 million at our current debt level. Additionally, I will point out that our term debt has no financial covenants on current borrowings.

Now to guidance. For the quarter ended March 31, 2021 Upland expects reported total revenue to be between $70.6 million and $74.6 million, including subscription and support revenue between $67.6 million and $70.6 million for growth in recurring revenue of 8% at the mid-point over the quarter ended March 31, 2020. First quarter 2021, adjusted EBITDA is expected to be between $21.6 million and $23.6 million, for an adjusted EBITDA margin of 31% at the mid-point, representing a reduction of 8% at the mid-point over the quarter ended March 31, 2020, reflecting our incremental investment in sales headcount and related lead generation activities.

For the full year ending December 31, 2021, Upland expects reported total revenue to be between $288.6 million and $300.6 million, including subscription and support revenue between $276.3 million and $286.3 million for growth in recurring revenue of 1% at the mid-point over the year ended December 31, 2020. Full year 2021 adjusted EBITDA is expected to be between $90.8 million and $96.8 million, for an adjusted EBITDA margin of 32% at the mid-point, representing a reduction of 6% at the mid-point over the year ended December 31, 2020, reflecting our incremental investment in sales headcount and related lead generation activities. And I'll add that with additional acquisitions during 2021, our target is to be back to the mid-30% adjusted EBITDA margin by Q4 2021, read that around 34%.

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

Jack McDonald -- Chairman and Chief Executive Officer

Thanks, Mike. And now, we're ready to open the call up for Q&A. Please feel free to direct questions to Mike, Tim, Rod or me.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bhavin Shah with Credit Suisse. Please go ahead.

Bhavin Shah -- Credit Suisse -- Analyst

Great, and congrats on the strong end to the year. Jack, impressive organic growth once again. Was there anything to call out besides the benefits from mobile messaging? Are you seeing better traction across other areas of your CXM suite or any early benefits from your go-to-market investments?

Jack McDonald -- Chairman and Chief Executive Officer

So the bump in organic, like, other quarters last year was driven by -- principally by the additional usage we saw around presidential election cycle. Also a little bit of a tailwind from deferred revenue discount as well. So I would say, those are the two tailwinds we had in Q4.

Bhavin Shah -- Credit Suisse -- Analyst

Got it. And then, I guess for Mike, just in terms of the investments next year, looking at your implied fiscal '21 guidance on EBITDA applying some contraction there. How are you thinking about the timeline on payback of these investments?

Mike Hill -- Chief Financial Officer

Yeah, Bob. And so we've talked about really starting to see the payback happened toward the end of 2021 and into 2022. We've talked about the adding of the infrastructure, the personnel, sales, lead generation, marketing collateral, Rod can talk about that. But it's going to -- we've been talking about sort of target of end of 2021 for a while now and nothing's changed there.

Bhavin Shah -- Credit Suisse -- Analyst

Got it. That's helpful. Congrats, again.

Operator

Our next question comes from Bhavan Suri with William Blair. Please go ahead.

Jake -- William Blair -- Analyst

Hey, everyone. Congrats on the quarter. This is actually Jake [Phonetic] on for Bhavan. Just waiting to follow-up on the organic growth comments you made, so obviously 14% last quarter, 21% this quarter, so really strong. I would just love to get a sense, if you could give us an idea of how much of that was related to messaging. And how much was related to those one-time benefits, just as an idea for the past two quarters.

Jack McDonald -- Chairman and Chief Executive Officer

Sure. I think -- and I think we mentioned this on our last earnings call as well. If you back out the bump from election year usage, we are back into our mid-single digits organic growth range. So no change in that regard.

Jake -- William Blair -- Analyst

Thanks. And then just -- I know it's relatively small for your entire customer base. So I was just curious, if there was anything to call out in terms of your customers in more impacted verticals, and how that's been trending over the first three months of the year.

Jack McDonald -- Chairman and Chief Executive Officer

Yeah. We posted strong net dollar retention rate in the mid-90s, but we're not -- we weren't unimpacted by COVID, most of that was in verticals that had a direct impact. Happily, that was just a small percentage of our revenues. So no real change on that from what we've discussed previously.

Jake -- William Blair -- Analyst

That's great. Thanks for taking my questions.

Jack McDonald -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Brent Thill with Jefferies. Please go ahead.

Luv Sodha -- Jefferies -- Analyst

Hi. This is Luv Sodha on for Brent Thill. Congrats on a great quarter. Maybe wanted to ask one on sort of the go-to-market motion, you guys are clearly investing in it in the upcoming year. Could you give us a sense of like, how many of these reps that you will -- you plan to hire will be devoted to expanding versus new logos and sort of any color into how the go-to-market motion is sort of forming under Rod's leadership?

Jack McDonald -- Chairman and Chief Executive Officer

Yes. Rod, can you take that one?

Rod Favaron -- President and Chief Commercial Officer

Sure, I can. Thanks for the question. As Jack mentioned earlier, the global accounts team is now fully hired. There's about 10 of them that covering our top 175 customers. They're very focused on, not new logo, obviously. So they're focused on cross-sell and expansion. We talked about the verticals. I will say that team is already generally ramped and unlocking pipeline and actually contributed to Q4 already.

So we've seen some early results there. It's still new and young and it takes a while to kind of ramp their pipelines, but that team is onboarding. As we've also mention, the Sales Development team, so we've centralized that lead gen function and that is much more focused on new logo. We will also view expansion and cross-sell lead gen with that team, but it's probably 80-20 new logo focus. We grew that team to 16 during the quarter.

So -- and that is -- they're already generating successful pipeline. And it's a very scalable model and we're sort of encouraged by the early results. So the sales investment is specifically -- the salesperson investment is really in the cross sell bucket, but the pipeline development investment is more in the new logo plus cross sell bucket.

Luv Sodha -- Jefferies -- Analyst

Got it. And maybe a quick follow-up on guidance, I guess. What -- I know in the back half, you would sort of get up against some tougher compares given the magnitude of the beats these past two quarters. So I guess, what level of organic growth are you embedding in that 1% in a recurring revenue growth number.

Jack McDonald -- Chairman and Chief Executive Officer

Right. So as you point out, we've got some headwinds on organic growth in 2021, because of the outperformance in CXM usage in 2020. And so that's why the guide that plus our natural predisposition to be conservative on outlook have led us to guide sort of flattish on organic. But the way I look at it, is what is that organic growth rate ex-political. And so if you -- and in fact, as we move through the year on the subsequent earnings calls, I probably wind up calling that out in the organic that's reported and then the organic ex-political to get a sense of the sort of core business organic growth. And I expect that that core business, organic growth will be mid-single digits. So consistent with what we've done historically.

Again, we're making the investments that Rod described a moment ago and as Mike said earlier, those investments were not anticipating returns on those until the end of the year or into 2022. So again, all of that very consistent with what we've described, ex-political will see in all likelihood mid-single digits, that's our target. And then hopefully begin to see some of the return on that organic growth investment toward the end of '21 and into '22.

Luv Sodha -- Jefferies -- Analyst

Got it. Perfect. And one last one on Second Street Media, could you maybe talk a little bit about that acquisition. How it fits into your overall CSM portfolio and is there more room to make deals within this space? Thank you.

Jack McDonald -- Chairman and Chief Executive Officer

Well, yes. And so Second Street is an audience development platform cloud-based and it is a natural add on to what we're doing for customers today. So whether we're helping with marketing campaigns around email or delivered via a text or delivered via in app and push messaging across all of those channels, there's a need for audience development. And so Second Street brings a suite of capabilities to grow those user bases. And so we're already on the hunt in terms of cross-selling Second Street into our existing customer base. And Rod, do you want to take a moment. And because this is a new motion for us. One that's really been enabled by some of the capabilities that Rod and his team have brought Upland over the past year. So do you want to take a minute or two Rod and talk about your kind of philosophy and approach to cross-sell in connection with Second Street and other deals?

Rod Favaron -- President and Chief Commercial Officer

Sure, will do. So I think one of the first things we did around cross-sell last year, which we talked about a little bit, I think, in one of the calls, was just all the sort of systems and compensation and alignment around making sure we were organized to cross-sell, cross-training our reps, making sure the comp plans made sense to sell that stuff. And then what we've done with Second Street, really right out of the chute, right after we closed the deal, was sort of put a different, what I'll call a bundled product offering together, which we hadn't done before historically.

And being able to bundle their interactive content in their contest with our other engagement products like our email products and our SMS, text products and our in-app mobile products, we think we'll -- it's going to deliver much quicker results from a cross-sell perspective, adding those as our customers renew or as they come buy more. And so those motions are now in place.

We've got the systems to deal with it. Everybody is trained on how to do it. The pricing models are known. And as we close this deal, I think, much more quickly than historically, we've been able to ramp that motion up. So we'll -- obviously, as we said from the beginning, this sales and marketing transformation is -- we're still -- this is still an active project through 2021, but we really like the early results.

Luv Sodha -- Jefferies -- Analyst

Great. I'll pass it on. Thank you.

Operator

Our next question comes from Scott Berg with Needham. Please go ahead.

Scott Berg -- Needham -- Analyst

Hi, everyone. Congrats on a nice quarter and thanks for taking the questions here. I guess, I have two. We'll start with Rod. Obviously, lots of people are asking about the sales changes. But I guess within that, I know you brought in a new CMO, I haven't had the chance yet to meet Jim. Do you want to maybe tell us about some of the packaging and pricing changes that you've made over the last eight months to 10 months or so and now that the sales teams are positioned and how that might help some of your new sales efforts going forward?

Rod Favaron -- President and Chief Commercial Officer

Yeah. I appreciate the question. I do want to touch on a couple of marketing things around your question, but I'd be remiss if I didn't mention again that if you haven't gone up on software.com, you should because it's a brand-new bottoms-up rewrite of both the brand, the messaging and the architecture of the website.

And one of the infrastructure investments that Mike talked about earlier that we're making is having a digital buyers' journey that we can drive buyers to that really enable cross-sell and enable us to suggest other products if you own certain products, allow us to convert you from a lead perspective. This new web site is architected to optimize SEO. So it's just a much more modern, fresh, both brand message and technology. It also allows us to onboard acquisitions really quickly onto this website.

So in addition to that, we've centralized a lot of our marketing functions so that we can get leverage. So we centralized our email motion, our database motion. We've centralized our SEO and our PPC motions. We centralized all of our creative, a lot of our campaign creation in order to just get leverage from the marketing dollars we're spending. And then we've obviously been working on, as you mentioned, sort of SKUs and bundling.

And so now that we have the Global Account managers on board, we're having conversations with customers that are more ELA like, meaning, hey, I own two of your products, kind of the unlock others. And we're having more not individual product conversations but more cloud-based licensing models or enterprise unlocks to our cloud technology suite. And this is early days on that, but we weren't organized to do that because we didn't have the Global Account function, and now we do. And they're offering that with that value prop.

And then as we acquire things, we're bundling things together in SKUs just to create really economic motivation for customers to buy more from us. And I've had a lot of customer conversations in the last quarter that are, help me consolidate vendors, Rod. And they see our suite of products. We're doing a better job of communicating them, and sort of strategically, I think our buyers are seeing us as a supplier of lots of different technology solutions as opposed to the one or two they might own from us. So those are all the pieces that the CMO has really been focused on in the back half of the year.

Scott Berg -- Needham -- Analyst

Great. Helpful. And then a follow-up question, Mike. Your one-time expenses in the quarter, I think we're expecting something closer to $1 million. What was the difference between the two figures?

Mike Hill -- Chief Financial Officer

Well, we ended up, as you saw, with the Second Street acquisition in early 2021 here. We started incurring some expenses related to that deal. And in addition, we had an office lease closure that showed up that we took a charge for as well. So that was the difference.

Scott Berg -- Needham -- Analyst

Great. Helpful. That's all I have. Thanks for taking my questions and congrats on the nice quarter.

Operator

Our next question comes from Terry Tillman with Truist. Please go ahead.

Terry Tillman -- Truist -- Analyst

Yeah. Good afternoon, everyone. And I'll say the same thing in terms of congrats on the quarter and some of these KPIs and metrics. I guess, Rod, maybe my first question is for you. And not to put you on the spot, but if you look at your top 175 top accounts that you're targeting and with the global sales motion, global sales rep motion, is there any way to think about if they started going wall-to-wall or they started doing kind of what -- to the prior question, you answered a little bit about like an ELA.

Is an average customer in that cohort? Are they $1 million customer? Are they a couple of million? And I'd be curious, what are some of the real products that just seem glaring in terms of, yeah, they -- it's a no-brainer, they're going to buy that near term, of your product families? And then I have a follow-up.

Rod Favaron -- President and Chief Commercial Officer

Yeah. So a couple of ways to think about that. I think, Terry, we've got -- those 175 accounts are 30% of our ARR, probably. So they're substantial in average size. And they're sort of parent account organized in that we might have sub deals with different entities within those parent companies, which just gives us more leverage to sell more products. Look, we've got a portfolio of products. I'll just talk about Q4 for a minute and some of the products that we closed some larger deals with.

I mean our -- and this isn't exclusive, but our right answer is now our financial product had a very good quarter, a seven-figure transaction. We -- those kind of product -- we have a lot of products that are very competitive that we think this global customer group will buy. It depends a little bit on vertical. So if I mentioned that there are seven verticals, I'm not going to rattle them off, but each of the seven verticals, we've mapped which products make the most sense in those verticals and which ones to start cross-selling first, second, third.

And there's -- of our 27 products, probably 10, 11, 12 have a really good fit in each vertical. They don't -- some of our products are more B2B. Some are more B2C. Not every product fits every customer, right, so -- or every industry. So what we spend our time doing is mapping that out and then doing -- using our own technology to do a lot of account planning and white space planning. So I think there is a lot of white space for adjacent products that fit that industry for these top 175 accounts. And so we're obviously very focused on unlocking that, hence the Global Account investment. So I hope that helps answer the question.

Terry Tillman -- Truist -- Analyst

Yeah. No, it does. And I guess maybe, Jack, we're talking a lot about CXM and these large messaging volumes, whether it's political or advocacy. It kind of speaks to the strength of the platform, that you could get that done. So what I'm curious about is as we look into '21 and '22, kind of maybe glass half full, how could you maybe change or take advantage of the -- what you've provided your customers? And maybe it's other use cases because it does seem like messaging is kind of a secular growth area. So maybe there's opportunities in e-commerce or just other types of CXM use cases. But taking the tough comp you have and maybe actually kind of redeploying the mind share into some other use cases that could be kind of ongoing strong activity. Thank you.

Jack McDonald -- Chairman and Chief Executive Officer

Yeah. Thanks, Terry. It's a great point. And of course, our CXM customer base extends well beyond just the political sector. And we've built -- as you note, we've built this capability across multiple channels. And there's an opportunity to drive additional penetration. Look, we do a lot in non-profit today. We do a lot in publishing. We do a lot in retail. We've got capabilities that include customer sentiment analysis. So we've really built a kind of closed-loop system for omnichannel delivery and feedback. We're looking at opportunities to take that to the next level.

So I think you'll see additional activity from us in terms of capabilities that will enable omnichannel campaign development and execution. You'll see, on the sales and marketing side, efforts to further penetrate the verticals I mentioned and some new ones. So we're very bullish on CXM. And on messaging, I agree, I think it's a secular growth area for us over the next few years, and it goes well beyond politics.

Terry Tillman -- Truist -- Analyst

Thanks so much.

Operator

Our next question comes from David Hynes with Canaccord. Please go ahead.

David Hynes -- Canaccord -- Analyst

Hey. Thanks, guys. Congrats on the results. Almost $40 million of free cash flow here in the back half, that's great to see. Jack, so look, you've assembled a critical mass portfolio in CX [Phonetic] or customer engagement, whatever you want to call it, right? And it seems like the cross-sell in that segment has certainly been helping to drive the organic growth. If we think about the M&A strategy going forward, is there a priority now around tighter product synergy, be that in CX or maybe a new category or is it really about being financially opportunistic given where valuations are these days?

Jack McDonald -- Chairman and Chief Executive Officer

It's about product synergy first. We want strong thematic fits. And happily, as I look at our pipeline right now, we've got them. And you started to see that happen over the past few years, really going back three or four years where we put a stronger thematic lens on acquisitions. And so we can talk to that around enterprise sales and marketing, right, where we have -- we brought in the Altify platform for customer revenue optimization and then added on to that capabilities on customer reference management, on RFP automation, on content production and B2B selling tools. So we've built that capability out there, and we've got additional modules that we can plug in through M&A. And of course, that's mostly in the B2B motion.

And then on B2C, you've got an opportunity with all of these CXM products. And we've got a number of opportunities in the M&A pipeline to continue to build that out. Some other areas, contact center has been a great area for us. And so we've already got a couple of strong offerings there, and there are -- that's an area that we'll look at for additional acquisitions over this year. So I'm really excited about where we are in call center specifically and across the board. And now bringing on board this sales and marketing team is going to give us the ability to cross-sell these products after we acquire them, right?

So we've laid the predicate in terms of systems, in terms of the complementary nature of the products. And now we are creating that sales distribution arm. And I look at it as an entrepreneur and think about the amount of value we've created in the past eight or 10 years, frankly, without sales distribution, and -- which is usually where you see so much operating leverage, in an acquisitive software business. So now that we're beginning to add that in, I think it gets very exciting. So the pipeline of strategic deals is there, the sales distribution is being built, and it's going to be fun to execute against that over the next few years.

David Hynes -- Canaccord -- Analyst

Yeah. That makes sense. I mean huge categories and the distribution will help. And that's probably a good segue into my follow-up. So I want to hit on the dollar-based net retention rate. Obviously, a blip this year with the pandemic, but it was 97% last year, right? So we're within striking distance of triple digits. Rod and team are obviously pushing really hard on the cross-sell/up-sell motion. Do you think net retention can get to 100% plus or how are you thinking about that evolving over the next couple of years?

Jack McDonald -- Chairman and Chief Executive Officer

Yeah. I mean that's the goal. And I think one of the things that impressed me when Rod came in, the first focus was on renewals, right, on gross renewals because there's an understanding there that that's going to ultimately be the basis for organic growth. And the customer success-oriented culture that we've operated under for the past -- really since inception, I think, puts us in a good place there.

And we've got some products that are popular with customers and that are need-to-haves in many of the categories where we operate. So as we continue to get scale and sophistication around our customer success efforts, it's our goal to move toward 100%. As you say, we're getting pretty close to it, right, climbing up a few points a year, 97% in '19, 300 basis point hit from the pandemic. And now let's build it back up again.

David Hynes -- Canaccord -- Analyst

Yeah. It makes sense. Awesome. Thanks for the color guys.

Operator

Our next question comes from Jeff Van Rhee with Craig-Hallum. Please go ahead.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Great. Thanks. A couple for me. Jack, maybe just to start with you. The political, I know you -- typical conservatism, not willing to bake it into the forward. At what point does that change your -- your perspective changed there and that you see persistence. And obviously, we're coming out of the main election season. To me, there seems to be some pretty good arguments what you might continue to see sort of persistent strength there.

Just talk about the kind of the over/under on whether or not that actually that business rolls back over now that we're out of sort of the prime election season. And then secondly, on the M&A front, I'm just curious if you kind of contrast the pipeline of opportunities, what -- kind of pre, during and post COVID, how has that pipeline of opportunities morphed, if at all, if you see any differences there?

Jack McDonald -- Chairman and Chief Executive Officer

Yeah. So I think, look, there was a ton of spending around the presidential election last year that we were the beneficiary of. And I don't think you can look for that to repeat. I mean I think you can get a piece of it, maybe. And you could debate whether it's 10% or 20% or whether it's 30% or 40%, but it's not going to be 100% to repeat. So that's my sort of over/under, bluntly, on that. And obviously, we are assuming no repeat of it in terms of outlook here because I think we just need to be conservative about it and we will see how that develops.

In terms of pipeline, it's as strong or stronger than it's ever been. It's just -- it's so helpful when you've executed more than 25 acquisitions with integrity and done the right thing by product and customers post acquisition, right? And so it just makes our job easier. We've also invested more in M&A pipeline development, have a bigger team, a higher functioning team than we've ever had before. And of course, our capabilities around integration today are so much stronger than they were just a couple of years ago.

So I would say pipeline looks great. Pricing feels good. The deals are more strategic than they've ever been. And Jeff, it's sort of -- it's worth mentioning, right? Because we've got, on a numerical basis, as big a pipeline as we've ever had, but our filters are a lot tighter now, right? And so even saying, look, we want deals that are complementary to our existing product portfolio and the six or seven kind of key buying centers in the enterprise, even putting that filter on it, we're still ahead of where we were historically because we've just got that degree of presence in the market and pipeline development capabilities.

So I feel great about it. We're going to be measured about it. We're going to drive a self-sustaining acquisition model, and we're going to print material free cash flow even after acquisition expenses. So I really think we're well set up here as we look out over the next couple, three years.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Yeah. I love the cash flow. One last if I can sneak it in. Rod, with respect to the sales just back, I think you've talked a lot about the structural changes you've made. I'm wondering if you can kind of just look through that and give us a little better sense of the buyer behavior/sort of buyers' willingness and appetite to actually buy products as we've we progressed through COVID and hopefully are coming out the back end here. It looks like the deal counts, the big deals, most of those numbers are steady. So there's not really a story in those numbers. But any color you could give on sort of buyer willingness to execute the way those cycles progress in terms of the timeliness? Just maybe one step deeper there would be helpful.

Rod Favaron -- President and Chief Commercial Officer

Sure, yeah. I would say that Q4 was -- I would say Q3 felt like the bottom, if you will, of sort of buyer awareness and slowness of deal cycles and how long it took to get things through. Q4 improved a little bit. We're -- Q1 feels like it's similar to Q4. We kind of thought coming into '21 it might improve a little bit more, but we obviously didn't forecast that. But it's -- we're seeing some improvement from the middle of last summer. But there's still wariness. There's still -- we're still -- COVID is still real, and there are a lot of issues around the world that are driving conservative behavior. It hasn't really changed that much for us.

I think we're just getting smarter about qualifying out any prospect who feels like they're just too nervous to make transactions happen or they've got some macro issue that's slowing them down. So I would say our pipeline just doesn't have a lot of that stuff in it, frankly, at this point. So that's the good news. But it's definitely still a little bit slower. We're not through this global pandemic, I don't think. And hopefully, by the end of this year, we'll be all the way out of it. But we're not smart enough to forecast that just yet.

Jeff Van Rhee -- Craig-Hallum -- Analyst

Yeah, I'm with you there. Thanks, guys. Great quarter, great cash flow.

Operator

Our next question comes from Brian Peterson with Raymond James. Please go ahead.

Brian Peterson -- Raymond James -- Analyst

Hi, gentlemen. Thanks for taking the question. I'll echo the comments on the really strong close to the year. So just one question for me. Jack, you mentioned strategic and product synergies. And obviously, the M&A pipeline is pretty large. I'm curious, the deal sizes that you look at, do they expand or -- the multiples that you're willing to pay r do you look at a different buying center? I guess as you guys have scaled, does the math or the process change at all just because your revenue base has scaled? Any way to think about that? Thanks, Jack.

Jack McDonald -- Chairman and Chief Executive Officer

Yeah. No, thanks, Brian. It's a great question. And so look, we're still in this $5 million to $25 million revenue category. We think we can really be the de facto consolidator of that part of the market in the categories that we're playing in. And as we talked about before, I do see deal size -- average deal size kind of ticking up $1 million or $2 million a year, kind of within that band. And so you've seen over the last three or four years ago, from 8% to 10% to 12% to 14%. And could it get a little bit higher here as we go?

Yes, but you're not going to see a sea change outside of that category. Again, the emphasis for us right now is on a strong thematic fit and, again, having the kind of sticky applications, the kind of enterprise customer base that we seek and the setup that enables us with our model to quickly transform these businesses to 40% to 50% contribution margin. The pipeline looks really strong. And as I say, we are in a great position to execute against that.

Brian Peterson -- Raymond James -- Analyst

Good to hear. Keep up the good work.

Operator

Our next question comes from Richard Baldry with ROTH Capital. Please go ahead.

Richard Baldry -- ROTH Capital -- Analyst

Thanks. For a building on recent questions, is there a way to think about your M&A capacity, either total revenue you could pull on in a year, the number you could concurrently do at your current scale? And in the past, it's been pretty rapid at times. Does that change at all under -- sort of near term, under virtual integration or work-from-home environment? Does that cause any sort of headache to getting back to a rapid pace like we've seen at times? Thanks.

Jack McDonald -- Chairman and Chief Executive Officer

Thanks, Richard. To answer your second question first, no, we were 60% remote pre-COVID. We'll probably go back to 80%, post-COVID. So those motions around acquisition and integration have not been negatively impacted. That won't affect our pace. In terms of what pace we're targeting, it's that $50 million -- $40 million, $50 million a year of acquired revenue. And at that case, we are self-sustaining. We can finance the acquisition costs out of internally generated cash flow and cash on hand and our debt facilities while maintaining reasonable amounts of leverage in the sort of 3 times to 4 times EBITDA net leverage. So that's the pace we like, and it enables us to be selective and still put up some nice total growth numbers. So that's what the plan is.

Richard Baldry -- ROTH Capital -- Analyst

All right. Thanks. Congrats on a good quarter.

Jack McDonald -- Chairman and Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Jack McDonald for any closing remarks.

Jack McDonald -- Chairman and Chief Executive Officer

Great. Well, thank you, everyone, for your time this afternoon, and we look forward to seeing you on the next earnings call.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Jack McDonald -- Chairman and Chief Executive Officer

Mike Hill -- Chief Financial Officer

Rod Favaron -- President and Chief Commercial Officer

Bhavin Shah -- Credit Suisse -- Analyst

Jake -- William Blair -- Analyst

Luv Sodha -- Jefferies -- Analyst

Scott Berg -- Needham -- Analyst

Terry Tillman -- Truist -- Analyst

David Hynes -- Canaccord -- Analyst

Jeff Van Rhee -- Craig-Hallum -- Analyst

Brian Peterson -- Raymond James -- Analyst

Richard Baldry -- ROTH Capital -- Analyst

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