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Upland Software, inc (NASDAQ:UPLD)
Q2 2021 Earnings Call
Aug 4, 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 Second Quarter 2021 Earnings Call. [Operator Instructions] 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 second quarter 2021 earnings release, which was distributed today at 4:00 p.m. 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.

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Thank you, and welcome to our Q2 2021 earnings call. I'm joined today by Rod Favaron, our President; and Mike Hill, our CFO. On today's call, I'll start with some opening comments on our Q2 results, then Rob is going to provide some color around customers and also around product developments, and following that, Mike will provide some insights on the Q2 numbers and on our guidance. After that, we'll open the call up for Q&A.

But before we get started, Mike, could you go ahead and read the safe harbor statement.

Mike Hill -- Chief Financial Officer

Thank you, Jack, and good afternoon, everyone. 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 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 second quarter 2021 results, which is available on our Investor Relations -- on the Investor Relations section of our website. Please note that we're unable to reconcile any forward-looking 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.

John T. McDonald -- Chairman of the Board, Chief Executive Officer

All right. Thanks, Mike. So in the second quarter, we continued executing on our acquisition playbook. We completed another strategic and accretive acquisition, Panviva, which is a cloud-based knowledge management solution. And that expands our product library within the knowledge management market giving our customers a new way to drive contact center productivity, particularly in regulated industries such as utilities, healthcare and financial services. And I'll note, we did that -- completed that acquisition while posting strong free cash flow of $10.6 million, and that's after acquisition expenses. And so that's over $22 million of free cash flow for the first half of 2021, again, after acquisition expenses. So this makes three acquisitions for us completed thus far in '21. And while there can't be any guarantees, I think we're well on our way to making 2021 a strong year for acquisitions. Our pipeline of acquisitions is robust, and we're active in the market for additional opportunities. In terms of Q2 results, we had total revenue growth as expected. Adjusted EBITDA came in at 31%, of course, reflecting our continuing go-to-market investments. Q2 free cash flow, as I just mentioned, $10.6 million, $22 million for the first half of the year. Minus 2% organic growth.

But again, if you exclude the political messaging revenue from last year, our organic growth was positive 4% in line with what we expected. Now we're clearly lapping some tough revenue growth compares right now given last year's spike in political messaging revenue as well as the impact of COVID, including the fact that we shut down acquisitions for most of 2020, so that impacts our total growth rate here in 2021. But that said, as we move through this and we look out over the next several years, I really like the way this business sets up. We've got a powerful cloud software library, a proven operating platform. We've got a strong base of over 1,700 enterprise customers, over 10,000 customers total, but 1,700 enterprise customers. And we've got an equity compounder financial model. So beginning in 2022 and over those next several years, this is a business that can reasonably target total revenue growth of 15% per year. That's organic plus acquisitions at 15% per year and importantly, achieve that growth on a sustainable and self-funded basis and generate positive free cash flow as we go. And that's financed out of internally generated cash flow, cash on hand and our debt facility with no further dependence on the equity capital markets. In addition to that, now that we've digested the structural go-to-market investment we've made with of the new leadership team, the new sales and marketing, service and product team members, we are set up nicely over the next several years for strong and expanding adjusted EBITDA margins as we take those margins from 32% toward our long-term goal of 40%.

So with that background, let me turn the call over to Rod for some insights on customers and product developments, Rod?

Rod Favaron -- President and Chief Commercial Officer

Thanks, Jack. Good afternoon, everyone. On the customer front, in the second quarter, we expanded relationships with 311 of our existing customers. It was a strong expansion quarter. 51 of those were major expansions. We also walked on with 133 new customers to Upland during the quarter, including 32 new major customers. I'd like to talk about a couple of those major expansion and cross-sell stories just to add some color to how things played out during the quarter. Let me start with Gannett. I think we all know Gannett, a major player in the media and publishing space and an Upland top 25 customer. They extended their existing relate to multiple products within our customer experience library, signed a multiyear expansion, really focused on helping them achieve their revenue and growth goals. So very exciting deal for us. Another Upland top 25 customer and the largest SaaS player in the world, significantly expanded their relationship with Upland products within our enterprise sales and marketing library. In this case, they doubled down with their current spend on our content marketing products specifically. I've been doing this for 25-plus years. And when I see a big customer like this, who is the undisputed leader in what they do, double down in our sales enablement products to 7-figure plus levels, it helps validate the competitiveness of our products, the scale of the cross-sell opportunity we have in front of us, and frankly, how we at Upland are beginning to position ourselves as a trusted partner to global enterprises, really bringing last mile solutions to big problems. And finally, last quarter, we mentioned our deal with HP to resell the Upland Document Workflow Cloud. I'm excited to announce this is now rolled out to the market with first wins closed and in the books and pipeline building. We have a lot of excitement about this relationship going into '22. Switching to the product front. We had a good quarter for new product releases. We also welcome Dan Doman as our new Chief Product Officer. Dan will own the overall product strategy for our library of products. He will focus on our R&D focus, staffing strategy, all while working closely with our M&A teams and our go-to-market teams.

With that, I'm going to turn the call back to Mike.

Mike Hill -- Chief Financial Officer

Well, thank you, Rod. I'll cover the financial highlights for the second quarter and our outlook for the third quarter and full year 2021. On the income statement. Total revenue for the second quarter was $76.3 million, representing growth of 7%. Recurring revenue from subscription and support grew 7% year-over-year to $72.4 million. Professional services revenue was $3.4 million for the quarter, a 10% year-over-year increase. Overall gross margin was 67% during the second quarter, and our product gross margin remained strong at 68% or 72% when adding back depreciation and amortization, which we refer to as cash gross margin. Operating expenses, excluding acquisition-related expenses, depreciation, amortization and stock comp, were $31.6 million for the second quarter or 41% of total revenue, all generally as expected. Also, acquisition-related expenses were approximately $5.5 million in the second quarter, which were about as expected after some puts and takes. Without additional acquisitions this year, we currently estimate acquisition-related expenses to be around $4 million for Q3 and around $3 million for Q4. For each acquisition, total acquisition-related expenses are generally 50% to 60% of the acquired annual revenue run rate, and it varies from acquisition to acquisition, depending upon uncontrollable factors such as size and locations. Generally, for each acquisition, 45% to 50% of these transaction and transformation expenses are included within the -- are incurred within the first three months and then tapered down rapidly until the transformation is complete by each acquisition's first anniversary. Our second quarter 2021 adjusted EBITDA was $23.7 million or 31% of total revenue, consistent with $23.7 million or 33% of total revenue for the second quarter of 2020. As expected, adjusted EBITDA margin was lower due to our increased go-to-market investments compared to last year.

We still expect adjusted EBITDA margin for 2021 as a whole to be around 32%, as implied by the midpoint of our guidance, and we expect to exit 2021 with Q4 at around 33% to 34%. On cash flow. For the second quarter of 2021 year, GAAP operating cash flow was $10.8 million and free cash flow was $10.6 million, even with $5.5 million of acquisition-related expenses in the quarter. We also had some positive changes in some of the working capital accounts like collections on accounts receivable. With over $22 million of free cash flow year-to-date through Q2, we continue to anticipate full year 2021 free cash flow of over $30 million and possibly over $40 million depending upon the size and timing of future acquisitions, and the corresponding acquisition-related expenses associated with those. So we are generating substantial GAAP operating cash flow and free cash flow even after acquisition-related expenses. This ongoing free cash flow generation, in addition to our existing liquidity of $236.5 million, comprised of approximately $176.5 million of cash in our balance sheet as of June 30, 2021, and our $60 million undrawn revolver. This ongoing cash flow generation, existing available liquidity and expanding our credit facility while maintaining our net debt leverage of up to a maximum of around 4 times should allow for self-sustained growth without dependency on the equity capital markets. I should note that our net debt leverage is currently around 3.6 times based on the midpoint of our 2021 adjusted EBITDA guide. As of June 30, 2021, we had outstanding net debt of approximately $354 million after factoring in the 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 and 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. With regard to income taxes, Upland currently has approximately $356 million of total tax net operating loss carryforwards. And of these, we estimate approximately $216 million will be available for utilization prior to expiration. I will note that we still expect around $5 million per year of cash taxes. For guidance. For the quarter ending September 30, 2021, Upland expects reported total revenue to be between $75.4 million and $79.4 million including subscription and support revenue between $72.2 million and $75.8 million for growth in recurring revenue of 4% at the midpoint over the quarter ended September 30, 2020. Third quarter 2021 adjusted EBITDA is expected to be between $23.9 million and $25.9 million for an adjusted EBITDA margin of 32% at the midpoint. This adjusted EBITDA guide at the midpoint is in line with the quarter ended September 30, 2020. For the full year ending December 31, 2021, Upland expects reported total revenue to be between $300.8 million and $12.8 million, including subscription and support revenue between $287.1 million and $297.1 million for growth in recurring revenue of 5% at the midpoint over the year ended December 31, 2020. Full year 2021 adjusted EBITDA is expected to be between $94.8 million and $100.8 million for an adjusted EBITDA margin of 32% at the midpoint. This adjusted EBITDA guide at the midpoint is a reduction of 2% over the year ended December 31, 2020, reflecting our incremental investments in our go-to-market activities.

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

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Great. Thanks, Mike. Operator, we are now ready to open the call up for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Bhavan Suri with William Blair. Please go ahead.

Bhavan Suri -- William Blair -- Analyst

Hey, gents. Thanks for taking my question. Actually political messaging was pretty solid organic growth, so congrats on that. Jack for you initially. Just want to a little more about how sales restructuring has been progressing, given we're halfway through the year. And kind of what sort of milestones should we look for by the end of 2021, so to think about how that's playing out?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Well, look, I've talked about this before, and there are a series of milestones we look at, right? The first was getting the team in place, which was done on a really lightning-fast-basis when you consider that Rod joined early last year and was able to have the full team in place by the end of last year. And then we started to see a different level of hygiene around the process and really building a true go-to-market culture within Upland, and adding capacities like centralized lead generation, adding the global account managers. And we're seeing the impacts of that already in terms of opportunities within accounts. So I'll let Rod kind of comment some more on this, but just one point before that. When I look at this business over the next several years, I think about Upland as an equity compounder. And this is a business that can grow 15% total growth a year, right? And that's going to be a mix of acquisition growth and M&A, and again, can do it on a sustainable basis on a self-funded basis while generating positive free cash flow material, positive free cash flow and while putting up expanding adjusted EBITDA margins here, as we move from the low 30s where we are today, up toward our long-term goal of 40%. So Rod is bringing that strength around go-to-market. It's beyond just the sales and marketing piece, right, because he's making changes in customer success, making changes on the whole product side of the business and building a stronger platform that will continue to bolt acquisitions on top of. And I think the combination of that and that total 15% growth to me is the number to look at as we move out over the next several years.

Rod Favaron -- President and Chief Commercial Officer

Yes. Just to add to that, I think what -- to Jack's point, the progress we measure internally is a combination of capability and outcomes, right? So we spent the last five quarters swapping out a bunch of leadership, putting in new systems, putting a new process, changing how we sell. The early indications of that are in the area of conversion. In other words, the pipeline we had a year ago, how well are we converting that and how clean with that. And we've learned that -- we've learned how to convert it better. We have better stronger salespeople, better methodology. So you start with converting what you have and then you start shifting to making sure you're bringing in the kind of pipeline you can win. And so that's what the SCR team and the marketing teams have been doing. And all the early indicators that the SCR team, which is our lead qualification team has steadily created really good pipeline in the first six months of the year for not a very big team. And so I'm encouraged by that. We're seeing that pipeline convert already in some cases, which is encouraging. The challenge is to try and describe to you guys at an operating level, we are so much better, I think, than we were five quarters ago, just in talent and process discipline, the quality of our data, how we're presenting our products, our pricing business, those type of things.

But as we said earlier in the call, we're coming off of that compare, which will be very difficult to see the outcome of this work From a growth perspective until we kind of -- until we lap this. And so really, my answer is just rest assured that what we are doing right now, I think it's just making this company so much better and frankly, setting us up for the next five to 10 years of compounding growth. And turning back on the M&A gain, too, is we really didn't do any of that last year. We did a deal early, early, early 2020 and turning that back on and executing that and having a team that is going to market and integrating acquisitions at the same time, much more capable, much cleaner. Our deals are getting tuck in quicker, less hang on the acquisitions. So I mean, I'll just leave you there. Inside a lot of really good operating improvements, which you will see over time, they will just be very hard to visualize given the compare. I think that's the trick.

Bhavan Suri -- William Blair -- Analyst

I appreciate the color. I think if you start off with those operating improvements and you say, OK, go play out I think you said 2, 3, four quarters, given the compare, we'll see how they're going. So I appreciate the color in I guess to add to that, One of the things I've always asked and the team over the years has been the ability to cross-sell. And you've come in and sort of say, OK, we're going to start focusing on some of the cross-sell, you made some really interesting acquisitions, it actually fit really well with cross-sell. And so we lost to get an update on how that motion is going. And to put a fine point on maybe a little bit. So obviously, that ultimately plays into net dollar retention rates and your existing base starts doing more. Maybe help us think through sort of, a, how the cross-sell is going and maybe you or Mike or Jack, talk about how that plays into the net dollar retention rate over time.

Rod Favaron -- President and Chief Commercial Officer

Jack, do you want me to start?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Yes. No, please do.

Rod Favaron -- President and Chief Commercial Officer

Yes. So that's a great question. The color on cross-sell is that we really started -- we created a cross-sell as a unique pipeline in the third quarter of last year. We got all the integrations tucked in, got the systems tidied up, and we really started tracking cross-sell as a unique pipeline. And from Q3 to Q2 of this year, four quarters in a row, our cost of bookings grew every quarter. They're still not -- they're not a high percentage of our overall sales. But every quarter, they get better, the pipeline grows, the deals grow. A couple of the deals I mentioned earlier in the update, were both cross-sell deals. One was an expansion and some cross-sell and the other was a cross-sell, and so the most healthy cross-sell quarter we've had in Q2. Now that's not to say where we need to be. But if I drew the line, I like the slope. So we'll just -- I think I'll leave that there. So from a cross-sell perspective, a lot of progress. And with your point, it's perfect, right? I will say we've got the organization focused on what I'll call net ARR. Net dollar retention, obviously, with the year-over-year measurement, is kind of harder for the individual sales guy or a customer success manager to see. But what they can see is we're selling this much and we're churning this much in a given quarter. And so we've reordered the entire business around, frankly, the net ARR output of a given quarter, which is exactly what drives organic growth the following year. And so that's another sort of behavior change, operating change that we've put in.

And so -- look, you've got it. We are spending -- I'm probably spending more time on the churn part of that net ARR conversation, frankly, than I am on the new dollar part just because the new dollar parts up and running the teams there, and now we're focusing on, "Hey, what do we need to be doing different with our products to improve our retention rates, whether we need to be doing differently in pricing and organizational structure, optimizing who's got commercial skills, who doesn't." So we're really looking at to taking up how we're doing retention, which is a huge capability that we -- if you go -- I mean we go back 24 months, this company wasn't anywhere near the stick. We didn't have anywhere near these many products to renew and getting the oriented and ready to deal with the next 20 acquisitions, and being capable of managing those customer basis is a big part of another thing we're working on right now. We've accomplished a lot, and we have a lot to do. So we live and die every day inside the business on a net ARR metric for a given quarter, and that's essentially what everybody's compensation is aligned on.

Bhavan Suri -- William Blair -- Analyst

Thank you for taking my question. Appreciate it.

Operator

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

Luv Sodha -- Jeffries -- Analyst

Hello, everyone. This is Luv Sodha on for Brent Thill. I wanted to follow up on the question that Bhavan asked about along the lines of the sales investment that you've been making for the better part of the year, I guess how should we think of organic growth as a component of that 15% revenue growth target that you laid out, Jack? Should we expect it to be a step function higher than in the mid-single-digit growth that you've been delivering thus far?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

I think, Luv, in the near go in here, I wouldn't change the outlook that we've had historically. We've always talked about targeting mid single digits and guiding more conservatively than that to low single digits. And so I'm not ready to change that. So the total 15% growth we can get that done on a self-funded basis -- on a sustainable basis at those organic growth levels. Now there's some optionality in there that organic growth could go higher as we move, and that will be upside. But that's where I come out on that.

Luv Sodha -- Jeffries -- Analyst

Got it. And I guess, as we head into the back half of the year, obviously, you have the tougher compares given the election-related spend. Maybe for Mike, could you share a lot it is how you think about guidance, but more specifically, like how we should be positioning in our models? And any insights that you could share on additional.

Mike Hill -- Chief Financial Officer

Yes, Luv. Mike here. So that last year, the political revenue, of course, ramped up during the course of the calendar year quarter-to-quarter as we got closer and closer to the election in Q4. We talked about $2 million of election revenue in Q1 last year that was not in this year's Q1. Now we've got about $3.5 million. In Q2, that was not in -- that was in Q2 last year, that's not in this Q2 and then, of course, ramps to higher levels in Q3 and Q4 last year. So again, that's what we're talking about, that we're going to have to lap those. We will continue, just like we did in today's 10-Q filing and the next Qs and in the 10-K, we will format those out to show the breakout of the political revenue. And so I think that's it. I think it's just the trend. You can see it coming. We know the trend from last year. And of course, we'll continue to back that out to try to give us disclosure and visibility into the impact of this year. But we've got our guidance numbers out there for this year, as you can see, and that should, as Jack said, just sort of carries through.

Luv Sodha -- Jeffries -- Analyst

Got it. One last one, if I may, for Rod. Just great to see the momentum on the existing accounts and the expense within the existing accounts. Could you maybe give us some more light as to which I guess, which parts of the portfolio saw most traction with and where is the most opportunity in terms of the cross-sell motion?

Rod Favaron -- President and Chief Commercial Officer

Yes, that's a great question. I'll mention -- I didn't mention this customer, I can't say their name, but it's another major tech company. This was a -- this is illustrative of a strong product group for us, obviously, in our sales enablement group. This organization purchased our Ultifi sales enablement suite, and they're rolling it out to 1,200 salespeople, their entire sales organization. So when a company like that bets its sales methodology on you, it's a pretty strategic deal. That part I mean we have strength in every business unit. And frankly, in each of our -- each of sort of the library areas of the business where we saw good cross-sell and good expansion. Obviously, expansion for us is a lifeblood. I mean, I mentioned earlier, we track across our cross-sell pipeline. We also track expansion separately, and we track, obviously, new logo. We track all [Indecipherable] to be convert at different rates, and we run different campaigns and programs. And all three -- I would say, expansion is reasonably healthy, and we're making a lot more progress there of kind of same-store sales of getting existing customers of existing products to expand. And that's obviously the lifeblood of any software business. And I mentioned earlier the growth in the cross-sell success. And that leaves us with new logo, which frankly, is the longest sales cycle pipe,right? You don't have an existing relationship or an existing contract. It's a net new conversation that you're winning from scratch and you're putting in contracts and those things take longer. And so we run that as sort of another parallel pipeline. In all 3, we've optimized investment for all three. We weren't doing this, I would say, two years ago. And we've sort of optimized the marketing investment across those three pipelines to drive the most sales. And I think it's working pretty well. Again, the global account team has been in place for an average of about nine months.

They now know their cohort group. So those folks manage our top 170, 175 customers vertically oriented those global account managers. And their statistics from Q2 was very encouraging. They were -- if I look at the whole company relative to net ARR, do we -- how much more do we sell that we lost, so to speak. If we look at that cohort group substantially, better than the overall companies as a whole. So we know that applying these type resources into our biggest customers is going to have a great outcome. And we've just got early evidence a couple of quarters into those folks being in their seat that they're already impacting it. So we just got to keep doing what we're doing. And sometimes we're going to have a year like 2020, where we had an overall growth rate based on our 2019 acquisitions and some tailwind with the elections. And sometimes we're going to have a year like 2021, which we're talking about today, where we didn't acquire a lot last year and we're dealing with some lap numbers from the election. So as Jack at the very beginning, I think the most important data point here is, this is a 15% grower forever. And it's -- that's honestly why I'm here. I'm obviously doing a [Indecipherable] organic growth, but we're here to equity -- to sort of compound this business, over the next five to 10 years and create that value.

Luv Sodha -- Jeffries -- Analyst

Yeah Appreciate the color. Thank you.

Operator

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

Michael Rackers -- Needham -- Analyst

This is Michael Rackers. I'm on for Scott Berg. Just have one quick one for you. But now that you've had Panviva for a little over a month now, is the trajectory of that acquisition compel to other acquisitions that you've done? Or have you found anything unique that would require a different time frame? And can you just kind of give us some color around that?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Sure. So Panviva was a great add to our software library. And we've seen a lot of opportunity in the knowledge management space. And of course, we've got a strong offering, pre-Panviva with right answers, which is more about enterprise search, right, where you've got a search bar and you're tapping a federated group of databases and a contact center agent is doing that and getting the right answer at the right time. Here, with Panviva, you've got a structure where it's one database. And really the lens -- the core lens of the product is around workflow. And so you're walking contact agents through a specified workflow in order to provide consistency in service and support delivery. And today, especially, right, promotes faster onboarding of contact center agents, which is a critical item for our customers given the labor environment that we're in. But also, has a particular area of strength in regulated industries, healthcare, utilities, financial services. So we really like the way Panviva fits into our existing software library. The early indications on the integration process, which obviously is a pretty well baked process for Upland 28-plus acquisitions in, has been going very well. And I would also say -- and again, these are early kind of signs, but some of the early signs on the sales side there are also positive. And just to kind of reinforce or comment on something Rod said a moment ago and which I think is so on target and so important, a lot of the positive changes that Rod and the team are bringing to the table make us a better buyer of businesses. So our ability -- and I think it was pretty well developed even before, but it's better now. Our ability to tear these businesses apart in diligence to understand how we're going to integrate them and sort of hit the ground running on the go-to-market side is a level up from where it was before. And again, these changes to me are what support that total growth rate of 15% over the next several years and over the long term as we scale the business.

Michael Rackers -- Needham -- Analyst

Great, thank you so much. That's all for me.

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Thank you.

Operator

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

Joe Meares -- Truist -- Analyst

This is Joe Meares on for Terry. I think I missed these numbers you mentioned a few minutes ago. But I think the last time we spoke, you said you had nine across verticals. Is that still the same number, I guess, is the question? And then are you thinking about increasing investments in I know it's a more recent move for you guys. But just wondering if you're planning on loading up since it sounds like me break so far?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Great. Rod, do you want to talk a little bit about that?

Rod Favaron -- President and Chief Commercial Officer

Sure. Yes, those numbers are the same. What we're -- I would probably not use the term gam only because the people -- the spec we used to hire that team, very senior. These are the kind of people who could work it's Salesforce and run their biggest accounts kind of that's the spec. The next set of hires we'll be focused on sort of those next level down customers. So the customers are generally a little bit smaller. So I think what's more important to think -- I would think of it this way, rather than thinking about us adding gams, think about us adding more salespeople who own an entire account. So we're kind of a tricky business in that we have 30 products and a salesperson, it's very hard to sell 30 products, how to sell 30 products. So we've been working on our product expertise and product specialists, we call them solutions consultants and that capacity so that more of our sellers can represent all of Upland to a given customer. And that is another big key to unlocking cross-sell long term because you have a more strategic account plan for that customer. I'll give you an example. We've got a -- we're a Salesforce customer, and we have a sales guy at Salesforce who represents all of the products that Salesforce has to Upland. He doesn't know them all in detail. but he learns what we're up to. He'll bring to Bayer the product expert. So if we want to learn about data Ronak, we want to learn about Tableau or MuleSoft, right, he has access to the special. So -- this is actually a long answer to a short question, but where we'll head there is more salespeople that own entire accounts and more product specialists who sort of sit behind them and are available when the conversation goes to the third or fourth level. And that's sort of an important evolution. That's going to take us time because every 90 days, we buy another company that has another team that only knows one product. So that is going to be a way of life as we move forward.

Joe Meares -- Truist -- Analyst

Got it. That was really, really helpful answer. I appreciate it. And then just as a follow-up, around acquisitions. We've been doing a lot of work on the CDP space. And I know you even is like a smaller acquisition, but are you seeing anything out of that asset so far?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Yes. I mean it's been -- the integration has gone well, and we are very excited about BlueVenn because of what it represents in terms of bringing together the existing CXM assets that we had in SMS messaging and in-app and push notification and an email and in customer sentiment. And so thus far, the integration there has been proceeding just as planned. And again, on Rod's point, as he builds out that account-focused selling ability, that means in every acquisition we do, Upland acquires a business, we can now take that product and put it into the sales bag, if you will, of our account-based sales people. You start to really see leverage on that with acquisitions. It helps us create even more efficient businesses post acquisition, right? It's one more chapter in that integration playbook that enables us to reduce unnecessary costs and get more operating leverage. So again, to me, it supports that 15% total growth target, and it supports that expanding EBITDA and free cash flow margin as we go.

Joe Meares -- Truist -- Analyst

Awesome. Thank you.

Operator

The next question comes from Jeffrey Van Rhee with Craig-Hallum. Please go ahead.

Aaron -- Craig-Hallum -- Analyst

This is Aaron [Phonetic] on for Jeff. Just one quick one for me. Rod, you mentioned churn and the efforts you guys are taking there as far as retention goes, curious a little more color around what you're seeing right now as far as churn is concerned, what's working as far as retention is going? And kind of how does that compare over the last couple of quarters to a year?

Rod Favaron -- President and Chief Commercial Officer

Yes. I think -- I mean, obviously, we reported at the end of last year that we did have a little more churn than we had historically had and it was primarily COVID-related customers decided to pause projects or pause activities. I will say as we got into the new year, we've seen improvement across the board, more improvement in our big global accounts, but improvement across the board in better churn -- less churn, to be clear.

Operator

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

Luke -- Canaccord -- Analyst

This is Luke [Phonetic] on for DJ. So I think you hinted at this earlier, but maybe you can put just a finer point on it for me. I'm curious with the heightened focus on cross-sell. Are you looking at M&A through a lens that incorporates more thought around product and go-to-market synergy?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Thanks, Luke. So yes, look, I think it's -- Upland's reset point of scale where -- I like it because in a way, it becomes a simpler business. We're building this cloud software library. We've got this platform in place that is supporting 1,700 enterprise customers globally. 10,000 total customers is delivering high customer satisfaction and also a high and expanding margins, and we've married that to an equity compounder model. And so the piece to me that we needed to build on was distribution. And as we put that account-based selling in place, exactly the points that Rod is making on this call, it's just going to help us to bring more of those products in. And it's cross-sell. And obviously, we've done some nice clustering, I think, of our acquisitions. If you look at what we've done over the past four years, I mean I think the story kind of tells itself around that focus on cross-sell, whether it's the suites we've built in CXM, in document and workflow automation, in enterprise sales enablement as well as in project and IT management, but you see it particularly in those first three that we've really built some cohesive offerings there, and we were mentioning earlier in the call, some of these major SaaS leaders with expertise in the sales domain, moving toward multiple product implementations. And 7-figure kind of annual recurring revenue numbers are growing. I think that says something about the work we've done in bringing these products together. So we'll keep that focus, and we'll continue to build out that account-based sales capacity with an eye toward increasing velocity around both expansion enterprise license agreements in cross-sell as we go.

Luke -- Canaccord -- Analyst

Got it. That's really helpful. Maybe just as a follow-up, how are you guys thinking about deal sizes as your business continues to scale, which is to say, should investors expect larger deals for the volume of deals to increase over time?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

What we're really focused on right now to be plain about it, right, it's 15% total growth. That means -- and doing it on a self-funded sustainable basis while continuing to generate positive -- materially positive operating cash flow and free cash flow. And that means we'll be doing $40 million, $45 million, $50 million a year of acquired revenue. And that could grow a little bit as we scale. And so that's going to set up as, call it, three or four acquisitions a year within our size category, which is this $5 million to $25 million. To me, that's the part of the market that we can really be dominant in where we can have full position on acquisitions. We haven't really talked in this call yet about our pipeline, but very strong. Again, if you look at where we were a few years ago, we were having a fight our way into sales processes that we're now invited into. And again, in our size category, where we really have pole position because we've got a unique value proposition for these buyers is -- for these sellers, I should say, is being a buyer that's got fair transparent pricing that brings speed and certainty to the process, and then also is the best home for the product and the customers and a subset of their high-performing people. So I think we just keep executing. That's the good part here in order to create the kind of growth we're talking about in the kind of shareholder value we're talking about over the next several years. We don't have to do anything new. Rod's got to continue with what he's doing on the product and go-to-market side. And on the M&A side, we just got to continue one foot in front of the other, bringing in these great cloud digital transformation tools that big corporate customers love. And we have a big pipeline of deals to execute against.

Operator

The next question comes from Alex Sklar with Raymond James. Please go ahead.

Alex Sklar -- Raymond James -- Analyst

Jack or Rod, I know most of the business is U.S.-based today, but a number of your acquisitions like Panviva do have the international exposure. I'm just curious if you could talk about the international enterprise opportunity kind of broadly how does the coverage of international accounts look today? And how does the product suite kind of positioned outside of the U.S.?

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Yes. So Mike, rough split on U.S. rest of world revenue today.

Mike Hill -- Chief Financial Officer

70% U.S., 30% rest of the world.

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Right. And that rest of world, right, the bulk of that EMEA?

Mike Hill -- Chief Financial Officer

It is U.K., Europe is about 17%, 18%; 5% in Canada; and then the rest is rest of world.

John T. McDonald -- Chairman of the Board, Chief Executive Officer

All right. So just with that background, we see attractive opportunities for obviously, growth in the U.S. and some of these acquisitions that we've made, like Panviva based outside the U.S., but almost half their sales in the U.S. and the fastest growing part of their business in the U.S. And those are acquisitions where we can help to accelerate that process by again, tapping into this account-based sales organization that Rod and the team are building. I know there's also some interesting stuff underway on the marketing side and on the lead gen side, internationally. And so I'm going to turn it to Rod to give his views and thoughts around that.

Rod Favaron -- President and Chief Commercial Officer

Yes. And I think you mentioned most of Panviva's revenue, I think a little bit more than half were right at half in the U.S. So we -- from a -- what's interesting is we have serviced the rest of the world out of, frankly, the U.K. and the U.S. and Canada for the life of the company. And I think five years ago, people probably would have thought that was weird. But today, I think that's a strength because being able to do a deal -- I was on the call earlier with a big Swiss company. We're doing that deal from the sellers and the Eastern U.S. for us, and the customer is cool. So what we're going to focus on, frankly, staffing in the U.S. and the U.K. from a go-to-market perspective, and Jack alluded to the fact that our next step with our lead gen SCR team is to put a team on the ground in the U.K. for time zone coverage and language coverage on the continent. So yes, so we'll -- I think more and more it's completely acceptable, and it would not be someone at all, frankly, they are building sales offices everywhere around the world. So we're not going to do that. We're going to take advantage of just how work has become remote, and that's how we're going to market.

Alex Sklar -- Raymond James -- Analyst

Okay. Great color. Mike, one for you on the free cash flow conversion is another really, really impressive quarter. I think you're tracking well above that kind of 55% normalized EBITDA to free cash flow. If you look back over the 12 months and despite doing those three deals year-to-date, so I'm just curious if there's any color on what's driving that success in the working capital side? And if it's sustainable at all or if there's just some timing benefits that are occurring?

Mike Hill -- Chief Financial Officer

Yes. For the most, it is sustainable. Like we've talked about, so year-to-date, almost $23 million so far free cash flow, operating cash flow this year at quarters. So very comfortable, confident that we're going to get at least $30 million on the year here in 2021 and potentially get to $40 million again, depending on future acquisitions and the restructuring costs that come with those. So we expect to be sort of sustainable in this call it, around $30 million to $40 million, around $40 million as we grow, we're going to add more cash flow. And so for me, as I look at it, I'm kind of looking at a $40 million a year and then growing with scale. We're at almost $100 million of EBITDA now. So that's the way to think about it. So that's with full load of acquisition-related expenses coming through as we're active doing acquisitions right now. The 50% to 60% conversion is going to be pre-acquisition cost, right? And all that's still consistent. And in fact, we're doing a little bit better. So timing-wise, timing differences, it was -- I think the working capital changes in Q2 were about $1 million net positive. So that didn't help us that much here in Q2 as we printed the $10.8 million of operating cash flow. So anyway, it's strong and expected to continue.

Alex Sklar -- Raymond James -- Analyst

Got it. Got it. Yes. I was picking up on like kind of the 60-plus percent conversion over the last 12 months and that was kind of the delta I was asking for, but that's helpful color.

Operator

And our last question is a follow-up from Truist.

Joe Meares -- Truist -- Analyst

My question was actually around FCF as well. When you initially gave the 30 -- at least $30 million, possibly $40 million in free cash flow for the year, is there a number baked into the first half? Like -- it seems like you're tracking ahead of $40 million probably expect it to date. I'm just trying to see if there's any guidepost internally?

Mike Hill -- Chief Financial Officer

Yes. There is timing differences from quarter-to-quarter. So it's always hard to have specific milestones. We have wanted to do $10 million a quarter. But again, there's you can't get too specific. You kind of have to look at the year in total or trailing 12 to kind of get a clear picture as the timing differences work their way out of the mix. So yes, I do feel like we're a little bit ahead of the conservative sort of $30 million that we started with the year, which makes me feel good that we're going to at least get to the $30 million and hopefully $40 million as we complete the year.

Operator

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

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Great. Well, thank you all for joining us today, and we look forward to seeing you on the next earnings call.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

John T. McDonald -- Chairman of the Board, Chief Executive Officer

Mike Hill -- Chief Financial Officer

Rod Favaron -- President and Chief Commercial Officer

Bhavan Suri -- William Blair -- Analyst

Luv Sodha -- Jeffries -- Analyst

Michael Rackers -- Needham -- Analyst

Joe Meares -- Truist -- Analyst

Aaron -- Craig-Hallum -- Analyst

Luke -- Canaccord -- Analyst

Alex Sklar -- Raymond James -- Analyst

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