Upland Software, Inc. (UPLD) Earnings Call Transcript & Summary

We encourage your participation. If you have any questions, feel free to submit it the Q&A panel. At the end of today's presentation, we'll do our best to address as many questions as we can. We don't get to your question, we'll be sure to answer you offline. The session is being recorded, and a link to the webinar will be sent to everyone who's registered. Today, we're thrilled to have with us Hyoun Park, CEO and principal analyst at Amalgam Insights. Hyoun, focuses on technology consumption management and bringing value to the enterprise in mobile, hybrid cloud and machine learning world. Associating the conversation with Hyoun is Will Nankivell, Director of Partnerships at Upland Software. Will has more than 20 years' experience in the telecom and technology expense management space, both on the enterprise and vendor side. There's a lot to cover in the next half hour. So without further delay, I'll turn over the presentation to Will. Will, it's all yours.

Thanks, Matt, and thank you all for joining us today. As Matt mentioned, we're thrilled to have Hyoun Park joining us from Amalgam Insights. We want to talk about everyone how everyone reacted to the pandemic in 2020 and now how it has really affected the next wave of innovation that IT shops have to now think about how will they adjust to that what we're calling the next normal as we all try to make our way through uncharted territories. So for today's call, we have a series of questions that we're going to post to you, Hyoun. And let's dive in with the first question. Wireline, mobile and cloud, all of -- became key parts of enabling remote workers in the pandemic. As it relates to these 3 technology categories, what were IT priorities in 2020? And how did they change through 2021? And more importantly, what's your outlook for 2022?

Yes. So really, we're talking about kind of four different areas here, wireline, mobile, software and cloud services. And they all change in see different ways, right? So starting with the wireline. If you just look at the AT&T, T-Mobile, Verizon public statements year-over-year, they tell you right up that they basically lost 5% in revenue between last year and this year. So as a starting point, if you're benchmarking your own organization you should probably expect to see some sort of decline in your landline spend compared to last year. If you didn't, you're actually not keeping up with the market. And this is for some obvious reasons. So we weren't in the office last year. So we were able to cut back on some of those [indiscernible] and some of those on-prem capabilities that we're normally having on in our organization. Second of all, wireline -- wireless, we saw increases in those wireless spend going into this year. And you've probably noticed 2 different types of spend increases that happened. On the service side, you probably saw some minor increases based on just getting a few more unlimited plans and getting some more people set up for remote work that we wouldn't have necessarily needed it on a purely office-based world. But the big push in the wireless last year was on the equipment side. If you look at, again, the big carriers, their revenue growth from equipment went up 30% to 40% last year. Everybody was getting these devices. Everybody needed that better tablet, that new phone, whatever it took to get stuff done. So at the business user level, you saw that massive increase in devices, which is going to lead to a massive increase in your ability to support devices as well, expect it needs call it, 10%, 15% more support just to keep up with the enterprise devices that you have had to put in place over the past year. At the same time, if you are at the large enterprise level, what is the flip side of what you noticed here is that you weren't investing in some of the strategic equipment that normally would have from year-over-year, such as IoT or edge computing capabilities, 5G, because honestly, the use cases haven't quite come in here. When it is for 5G, it's going to be for mobile backhaul for your office, but if you're not in the office then who cares, right? So all these things have been in the wireless side are quite interesting, different shifts. So you'll notice that a 5% increase in service, but that 30% increase in equipment over the past year that are leading to this new need for service in the next year. On the cloud side, now let's break this up into software versus cloud infrastructure, infrastructure as a service. I think these are really 2 different types of buckets. When you look at, say, the Salesforces and Adobes and ServiceNows of the world, so multibillion-dollar SaaS companies, all of them have been growing, call it, 25% a year overall from a revenue perspective at the market leader level. And of course, the -- you needed to do this because you needed more people with accounts for various software capabilities, especially for those client-facing applications. So knowing that your staff and software spend is overall, probably growing 20% a year. And when you're looking at your overall portfolio, that's a point where you're starting to see a lot more need for growth and a need -- a lot more need for subscriber management. The interesting thing about the software side is that a lot of this management is happening on the sales operation and marketing operations side, where they've controlled a lot of that software spend, but they don't understand how to manage IT [ amateur ] level. So they're making up all the stuff that those of us who have been doing a telecom or mobility spend for the past decade. I think of a stable state. Things like a cost center and user-specific management, being able to shut off things so when people aren't using them. This is like groundbreaking stuff in the software world because they're not just thinking about how to manage accounts at the very basic level. So this is an opportunity to be able to help the organization for those of us who are more experienced in technology expenses. And then on the cloud infrastructure side, this is much more like a carrier world or in the past, like 2010 call it, Amazon was the 800 pound gorilla, nobody else really cared about the other cloud platforms. But now at Microsoft Azure and Google's Hub matter as well. And frankly, all of these have been growing 40% a year over the past year. And this growth is going to continue because right now, cloud still only takes up about 10% of what the workloads that are out there overall. So there's still this massive opportunity for cloud to grow and it's frankly easier as a starting point. Flipside of that is that as workloads become more standardized and predictable, it's whether the system on-prem because they're cheaper. So you're going to see this hybrid cloud going on were a lot more new stuff is going to go into the cloud, but also some of the cloud stuff that is stabilized is going to go back on-prem. So a lot of things that are going back and forth and expect that both hybrid and multi-cloud capability to be more important in 2022 and beyond. You can't just put all your eggs in 1 cloud basket, just like on the telecom side, where you don't just put all your eggs into the AT&T or Vodafone basket and cloud is going to be the same way. It's no longer enough to just through Amazon because there are going to be reasons to use other clouds or other on-prem providers over time. So a lot going on in this 1 question. I'm sure we're going to dig in a little bit more. You know Will, I know you were just at the Amazon reinvent. I'm curious how you saw the cloud market and kind of the discussions that you're having there?

Yes. I think 1 of the things that surprised me was the thought process of moving your infrastructure to the cloud really begins the IT financial management perspective for an organization because they're buying their services in technology buckets. They're buying their compute service. They're buying their containerization services. So they're already separating some of those. So they can apply a technology business model through their IT in general. And with the use of a account tagging, they can easily apply to the applications that they're using. So they can get better vision and visibility into what's out there today. So I think some of the mature practices in expense management can now be applied easier when somebody moves to the cloud. So I thought that was very telling and quite -- it almost bridges the gap between the language barrier. IT speaks 1 language, and finance speaks another language. And with cloud services, you might be able to bridge that language gap sooner than later. Before we jump to question #2, I did have another one. Yesterday, the wonderful news with AWS going down, having their outage. Is that going to spur any of that multiple cloud movement?

I think -- so part of what happened yesterday is that U.S. East region that went down, that is the heaviest traffic region of AWS. It is something that every service is dependent on. Frankly, we are counting on the fact that, that region will never go down for an extended amount of time. Nobody really has their disaster recovery and business continuity strategy set up to assume that, that thing goes out. So at the same time, you should assume that no cloud is immune to outages. You always need some sort of backup if you want your services to stay up or just accept that things will go down. So there are no call it Five9 clouds that are out there. There will be -- every plant out there will have hours of outage at some times during the year. Partially, the kind of these are such massive server farms and partially because there's still a bit of this break fast, fail fast and recover mentality rather than having rocksolid architecture all the way around, you have to make trade-offs at some point at the scale that these cloud vendors are at. So that's just kind of a reality, but it's also a reason to say, at the [ brain lease ] if you are using a specific vendor, you want to have multi-region support for your services going forward. You have to have some sort of disaster recovery, don't just count on 1 region, 1 service being able to do it off.

Great. Great point. Let's jump to the next question.

Yes.

So I think one of reasons is 1 thing you mentioned there, if we have time at the end, and that's the disaster recovery business continuity discussion because those books were thrown out last year. Everyone had to reinvent how they address that. So I'd be interested if we have time again to revisit that. So what this the most successful like the organizations do differently? What made them better? I heard a lot of use cases last week at every invent about so many companies moving faster to the cloud. But what are the successful ones doing, first and foremost, to set them apart in 2021 and what will they look to in '22?

Yes. And the thing is 2021 versus 2022 aren't going to be very different. Successful organizations in 2021 definitely cut their wireline spend because there's no reason to maintain same level of bandwidth, especially to their central locations. Those are going to have to be pushed back on. Now that things are almost back to normal. Like you've got this [ Amazon ] thing going on. But frankly, this is where we're at with COVID. Is it going to get better or worse? Like the vaccination level and everything else is where it is, and we've got to figure out how to start getting back to normal at this point. That's just -- it is what it is. So offices are going to go back to some level of normality, which means getting back to that 2019, 2020 level of networking as the offices open up again. So that's 1 piece of the puzzle. On the mobility side and cloud side, frankly, the companies that succeeded over the past year, although that said, mobile and cloud first. They did not hesitate to empower employee with those technologies and they opened up a lot of remote work and hybrid work capability. Now the challenge is going to be supporting that new volume of technology that takes it. We made it through the emergency challenged panics of the past 18 months plus. And now we're going to have to figure out how this is actually gets reported in 2022, 2023, 2024. It's the boring stuff that IT is always good at after everybody buys this stuff and figure it about, okay, here is what we needed to get started. IT is now stuck with a massive support issue. I'm going along with the 20%, 30%, 40% growth I just talked about a couple of minutes ago. Now it's time for the 20%, 30%, 40% increase in uptake and support across all of these services.

Excellent. I think if cost of report is going to be a problem. And really with Shadow IT, I want to mention Shadow IT here because the successful organizations seem to adopt and bring out of the shadows what the business asked for because the business goes elsewhere because they're not getting what they need from the corporate IT side. How is -- how is Shadow IT going to continue to affect IT jobs?

Yes. So shadow IT is easier [ fit use ] ever before. Matt, no offense to sales, but you know how salespeople like to act fast. And technology is easier to buy than ever before. You can just withdraw that credit card it's got a few thousand dollars on that credit limit. You can start basically any Amazon services, start within that bill can massively go out of control if you're not really paying attention. That's along the sales side, that goes on the developer side where software developer might just want to get other is something without realizing the easily top up a $10,000, $50,000 charge, but despite duplicating, what they're doing over and over again and putting a massive amount of data and then ignoring it afterwards. These things are very easy to -- it's very easy for that stuff to get out of control. I think that on a more taxable side, the great talent on mobility is going to be an immense challenge as well, especially as devices continue to change, where still -- the mobile phone is pretty much perfected from a form factor perspective, but now we're starting to see all of the watches, the wearables, just talk about of the Metaverse, which means augmented reality headsets and more hollow lenses, things like that. Yes, all that gets done is going to start popping up as new enterprise mobility capabilities that needs to be spot and supported. If [indiscernible] is putting $10 billion in just selling the Metaverse, there probably going to be a couple of use cases that end up coming into it in some major enterprise purchases that come out of that.

Great point. I think the -- I don't know we have about 10 minutes left, so we'll try to get to any questions as well. You want to jump to the next -- So many companies talk about migrating to the cloud. How is migrating to the cloud impacting company's success?

Yes. And this, again, this is a valid question. Successful companies, sure, they are cloud first because that's how you move fast. But in the long run, you have to figure out which workloads are appropriate for the cloud, which ones are not, and we have to make sure that you are staying up to date on your cloud services for them to work for you. It's not just the math because it's easy for a company to say, "Oh, we're using a Software-as-a-Service product." But then they don't necessarily do all of their upgrades, so they quickly get a year or 2 years behind because -- the maintaining a certain version that they want to work with that happens at least with the larger services or if you get pulled along and you get upgraded without keeping track of the new functionalities that you're gaining that ends up being -- you end up having the same problems as you did when you were on-prem in that you're functionally not taking advantage of being up to date. So migrating into the cloud is -- services on AWS. And it's easy to just ignore a lot of what is out there. But you do that -- if you do that, you're not keeping track of what they're doing from a machine learning perspective or perhaps their contact center solution or their business intelligence capability, all these things that might potentially be useful to you and be cost effective based on your existing contracts. So it's not enough to simply go to the cloud first and say that makes you successful. You've got to take that next step and really invest in your cloud capabilities as well as figure out when something is or isn't appropriate for the cloud afterwards.

Yes. Good point. One of the things that was talked about at reinvent was modernization and optimization. How is cost impacting moves to the cloud? What are enterprises -- Is it an either/or question? Is it a both question? And how can they optimize their spend the best way?

Yes. CapEx, OpEx question because with Amazon or Azure or Google Cloud, you toss a couple of hundred dollars and you can get started with anything. That's not how much it costs create your own server farm. So definitely a huge difference there, $200 to $200,000 to start. But the real challenges, when is it -- when does it make sense to put down that $200,000 and then have control over your stable server farm versus paying that 30% margin at every cloud provider puts on their services because, frankly, that 30% margin is usually cheaper than that upfront OpEx cost. But at the enterprise level, and that's a balancing question. So that's a nonanswer of yes and maybe.

Right. Perfect. So one last one on this topic specifically. Optimizing the spend because you talked about the barrier to entry to Infrastructure-as-a-Service is $200 versus $200,000. But that $200 next month became $2,000, became $20,000 became $200,000 by the end of the year, then you're in the same spot. What are enterprises thinking about when it comes to the dollars and wrangling in the cloud expense?

Yes. And so it's interesting that on the cloud cost management, call it cloud skin off, some people call it that infrastructure side. A lot of the focus is really just around counting individual usage bits and pieces. Figuring out exactly how many bits and bites are we using and then trying to minimize that. And then also looking at the number of instances that are out there and seeing whether they're duplicates for like those tend to be the 2 key cost triggers around cloud cost optimization. But what isn't getting checked right now is whether contracts and bill are actually being enforced correctly. Everyone just assumes that the Amazon bill is correct when you get it in the cloud case. And this is often -- this can often not be the case. So for instance, there have been errors where Amazon will charge you a 1,000 hours a month for service. Well, there's only 720 hours in a month. So they're basically charging you for 40 days a month for services. And if you don't check it in, then you're not going to know and you're not going to be able to dispute it. So from a cloud perspective, that's kind of the next stage of optimization, actually being able to check your bills and check you services and make sure that once you order matches what you're actually paid for because errors that try to come in at things more complicated.

Absolutely. So we always discuss priorities for [indiscernible] And you talked a little bit about the cloud side. Can you talk a little bit about what IT leadership is prioritizing for expense management around wireline and mobile?

Yes. On the wireline side, past couple of years have been about [indiscernible] cutting to the bone. And that's going to be a mindset that needs to shift to turn things back on companies that are still seeing wireline at that area that you can cut are going to struggle in the next couple of years as that wireline connectivity becomes more important. On the mobile side, again, it was about purchasing devices. That was really the big driver, just a massive driver, all unprecedented mobile purchasing first-time decade that device purchasing has happened that quickly in the business environment. And now it's going to be about getting that support and then realizing that, that level of equipment but can't be the new normal from a purchasing perspective are all things that are getting out of control here.

Right, right. Yes. The expense piece is always -- or at least last year was looked at as a cost of doing business. We have to get people mobile. We have to get them the right devices. And now this seems to be tough. Did we do it the right way with our reaction in March last year the right thing, and so that we're rethinking a lot of those things. What are some of the things that you see coming in 2022, besides the devices should be repurchased after being only a year old. What will the what are the low-hanging fruits for them to try to find some expense savings?

Yes. I think you nailed it, Will, and that it was really just about getting work done. But now CIO can look at the bottom line again and realize we to the ARPU or the average revenue per user for on the cell phone side is all [ $24, $26 ] per month for phone and we're at $50 or $60. What's going on there? Why does that go up? And is there a way to start being more economical about this. You don't necessarily have to pay for 1 million gigabytes for every single user to have phones work. So I think a lot of the rationalization is going to take place over the next year. And I always emphasize, it's not about crippling users. It's not about keeping them getting work done. It's not even about not having them stream video or do advance things with their phone, it's just about making sure you get the right amount of usage associated with each device. And I think that a reconciliation is going to be a big deal over the next year on the mobile side simply making sure things work great.

Yes. It's a great point. I think as we're coming up on the half hour. I think 1 of the things is that we have to look at is just overall governance in IT. And what trends are going to hit in IT as it relates to technology expense management in 2022?

Yes. I think there's going to be a lot more focus on access and security. Like an interesting news that came up yesterday around our United States Vice President, Kamala Harris. Apparently, she does not use Bluetooth headset because there have been security issues about that. But it has become like some sort of joke, like is she allergic to Bluetooth. But actually, it's kind of something that anybody with [indiscernible] should probably be thinking about. And I think that level of access to can we, highjack it? Can we eavesdrop on it? Is it going to be a much bigger issue because 1 of the things we saw during COVID was that companies were getting hijacked in, held for ransomware much more often because you're just getting into that 1 area that you're able to either socially or technically highjack and then be able to get millions of dollars out of it. Now with the increase in technology out there, it's going to be much easier to get that get in without that increased look at governance across the board.

Yes. I know some IT shops say, I think I'm spending enough on security, but they don't know for sure. And when they make the sum The Wall Street Journal, they realized they didn't. So it's always a balancing act or for a lot. So Matt, I want to bring you back in here as we try to wrap up. Do we have any -- I know we had -- I think I saw a question or three coming in.

Yes. Yes, We've got 1 here. Will enterprises being more focused in 2022 on cloud, wireline or mobile expenses, which of the 3 do think will be kind of the preeminent focus in the coming year.

Yes. Honestly, the majority of the inquiries I've gotten over the past year are around cloud. It's interesting because, frankly, constant overall is still less than mobile and landline telecom spend overall. But because the cloud spend is growing so rapidly, and it's becoming the top of mind and there [indiscernible] is a strategy for it. I think that gets more of the executive mindset and because the management practices are so immature at this point for [ class ].

Okay. We just -- we're a couple of minutes over. Let's have 1 more question and then wrap things up. Which industries do you think will be aggressively migrating to cloud in the coming year after potentially being laggards?

Yes. So the way that cloud typically works is that fast movers are ones with, call it, high gross margins. And as you are more asset intensive, call it the manufacturing of the world, consumer CPG, packaged goods companies like that, that are typically more asset-intensive are going to have to move over, over time. So I think this is a year when you see even the most asset-intensive organizations realize that return on assets isn't the sole way to measure the value of IT and starting to realize that the ability to move fast and stay digital and not be as dependent on potential challenges like COVID or other operational challenges is more important. So I think this is -- that's really how to measure work. But frankly, at this point, I think that every company could be platform from an new services perspective.

Great. Thanks for your insights there. I think we're going to cover wrap from a question standpoint. Hyoun, if people want to track your own social media or want to check into more about Amalgam Insights, do you want to give a quick overview on how to connect?

Yes. Please follow me on Twitter, just Hyoun Park, like it said, right there or you can go to our company's website at amalgaminsights.com, A-M-A-L-G-A-M-I-N-S-I-G-H-T-S.

Awesome. Thank you so much. We really appreciate your time, your insight and wisdom. Will. Thanks for engaging in the conversation and thanks for the attendees for sticking with us here for this 30 minutes. This will be available on replay to share with colleagues. And if you want to check in to watch it back and see if you missed anything along the way. But look forward to another future conversation. And thanks to everyone. Have a great rest of your day.

Thanks everyone.

Take care.