UPLD Upland Software Inc

Company Beats Q1 Guidance and Reaffirms Full Year 2023 Guidance

Upland Software, Inc. (Nasdaq: UPLD), a leader in cloud-based tools for digital transformation, today announced financial and operating results for the first quarter 2023 and issued guidance for its second quarter and full year of 2023.

First Quarter 2023 Financial Highlights

• Total revenue was $77.1 million, a decrease of 2% from $78.7 million in the first quarter of 2022. Total revenue growth includes a negative impact of 2% from changes in foreign currency exchange rates ("FX"). Without FX, total revenue growth would have been flat.
• Subscription and support revenue was $72.9 million, a decrease of 1% from $73.6 million in the first quarter of 2022. Subscription and support revenue growth includes a negative impact of 2% from FX. Without FX, subscription and support revenue growth would have been 1%.
• GAAP net loss was $140.0 million compared to a GAAP net loss of $22.8 million in the first quarter of 2022. GAAP net loss attributable to common stockholders was $141.4 million compared to GAAP net loss attributable to common stockholders of $22.8 million in the first quarter of 2022. GAAP net loss per share attributable to common stockholders was $4.38 per share, compared to a GAAP net loss per share attributable to common stockholders of $0.73 per share in the first quarter of 2022. This quarter-over-quarter increase in quarterly GAAP net loss is primarily attributable to a $128.8 million non-cash Goodwill impairment charge.
• Adjusted EBITDA was $17.6 million, or 23% of total revenue, compared to $23.4 million, or 30% of total revenue, in the first quarter of 2022.
• GAAP operating cash flow was $15.8 million, compared to GAAP operating cash flow of $8.2 million in the first quarter of 2022. Free cash flow was $15.6 million, compared to free cash flow of $8.0 million in the first quarter of 2022.
• Cash on hand as of the end of the first quarter of 2023 was $257.7 million.

"In Q1, we beat our revenue and Adjusted EBITDA guidance midpoints, even after FX headwinds and free cash flow came in stronger than expected," said Jack McDonald, Upland's chairman and chief executive officer. "We also added 20 new major customers and announced a host of new product innovations," he added. "It's still early, but we are making progress on our new growth plan and remain focused on building shareholder value over time.”

First Quarter Business Highlights

• We expanded relationships with 333 existing customers, 38 of which were major expansions. We also welcomed 207 new customers to Upland in the first quarter, including 20 new major customers.
• We hosted a webinar featuring Forrester to discuss the future of knowledge management and the beta release of Upland’s AI Knowledge Assistant, currently available to RightAnswers customers. With Upland’s new AI Knowledge Assistant, which utilizes OpenAI's ChatGPT API, knowledge workers can streamline the creation of knowledge by simply requesting content related to their topic at hand and receiving a real-time response with full article content, summarization, and identification of key words.
• FileBound was one once again recognized as a gold medalist and leader in the Enterprise Content Management Data Quadrant Report from SoftwareReviews for document management and workflow automation capabilities.
• AccuRoute’s latest release extends MFP integrations with Lexmark, increases DMS visibility, and expands fax API support to ensure the security of Personally Identifiable Information in highly-regulated industries, such as healthcare.
• BA Insight was recognized by KMWorld's 2023 list of 100 companies that matter in knowledge management.

Business Outlook

The guidance below reflects the significant incremental sales, marketing and product investments that Upland is making as part of its comprehensive growth plan.

For the quarter ending June 30, 2023, Upland expects reported total revenue to be between $69.8 and $75.8 million, including subscription and support revenue between $65.7 and $70.7 million, for a decline in total revenue of 9% at the mid-point over the quarter-ended June 30, 2022. Second quarter 2023 Adjusted EBITDA is expected to be between $15.0 and $18.0 million, for an Adjusted EBITDA margin of 23% at the mid-point. This Adjusted EBITDA guide at the mid-point is a decrease of 33% from the quarter-ended June 30, 2022.

For the full year ending December 31, 2023, Upland expects reported total revenue to be between $288.0 and $312.0 million, including subscription and support revenue between $269.0 and $289.0 million, for a decline in total revenue of 5% at the mid-point over the year ended December 31, 2022. Full year 2023 Adjusted EBITDA is expected to be between $63.0 and $75.0 million, for an Adjusted EBITDA margin of 23% at the mid-point. This Adjusted EBITDA guide at the midpoint is a decrease of 29% over the year ended December 31, 2022.

Conference Call Details

Upland's executive team will host a live conference call and webcast at 4:00 p.m. Central Time, 5:00 p.m. Eastern Time today to review Upland’s financial results and outlook for the business. The call can be accessed via a webcast on investor.uplandsoftware.com, or by dialing 1-888-800-8770 in North America or +1-646-307-1953 if outside North America, international rates apply. Attendees will need to use access code 6485253 to join the call. This webcast will contain forward-looking statements and other material information regarding Upland’s financial and operating results.

Following the completion of the conference call, a recording of the webcast will be made available at investor.uplandsoftware.com for twelve months.

About Upland Software

Upland helps global businesses accelerate digital transformation with a powerful cloud software library that provides choice, flexibility, and value. Our growing library of products delivers the "last mile" plug-in processes, reporting, and job specific workflows that major cloud platforms and homegrown systems don’t provide. We focus on specific business challenges and support every corner of the organization, operating at scale and delivering quick time to value for our ~1,800 enterprise customers. To learn more, visit www.uplandsoftware.com.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Adjusted EBITDA, non-GAAP net income (loss), non-GAAP net income (loss) per share and free cash flow.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results, such as our revenues excluding the impact for foreign currency fluctuations or our operating performance excluding not only non-cash charges, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and they are used by our institutional investors and the analyst community to help them analyze the health of our business. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the tables provided below in this release.

We are 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. Additionally, we are unable to quantify the impact of foreign currency exchange fluctuations on components of our income statement beyond revenues because the information which is needed to do so is unavailable at this time without unreasonable effort.

Upland defines Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus net income (loss) from discontinued operations, depreciation and amortization expense, interest expense, net, other expense (income), net, provision for income taxes, stock-based compensation expense, acquisition-related expenses, non-recurring litigation costs, purchase accounting adjustments for deferred revenue and impairment of goodwill.

Upland defines non-GAAP net income (loss) as net income (loss), calculated in accordance with GAAP, plus, amortization of purchased intangible assets, amortization of debt discount, loss on debt extinguishment, stock-based compensation expenses, acquisition-related expenses, non-recurring litigation expenses, purchase accounting adjustments for deferred revenue, non-recurring provision for income tax, impairment of goodwill and the related tax effect of the adjustments above.

Upland defines free cash flow as GAAP operating cash flow less purchases of property and equipment.

Upland defines major accounts as accounts with greater than or equal to $25,000 in annual recurring revenue.

Upland defines major expansions as existing customers who expanded the amount of annual recurring revenue under their contract by at least $25,000.

Upland defines cash gross margin as product revenue less subscription and support cost of sales, excluding depreciation & amortization.

Forward-looking Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance, including our guidance related to future performance, and are subject to substantial risks, uncertainties and assumptions. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. Accordingly, you should not place undue reliance on these forward-looking statements. Forward-looking statements include any statement that does not directly relate to any historical or current fact and often include words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including, but are not limited to our financial performance and our ability to achieve or sustain profitability or predict future results; our plans regarding future acquisitions and our ability to consummate and integrate acquisitions; our ability to expand our go to market operations, including our marketing and sales organization, and successfully increase sales of our products; our ability to obtain financing in the future on acceptable terms or at all; our expectations with respect to revenue, cost of revenue and operating expenses in future periods; our expectations with regard to revenue from perpetual licenses and professional services; our ability to adapt to macroeconomic factors impacting the global economy, including foreign currency exchange risk, inflation and supply chain constraints; our ability to attract and retain customers; our ability to successfully enter new markets and manage our international expansion; our ability to comply with privacy laws and regulations; our ability to deliver high-quality customer service; our plans regarding, and our ability to effectively manage, our growth; maintaining our senior management team and key personnel; the performance of our resellers; our ability to adapt to changing market conditions and competition; our ability to adapt to technological change and continue to innovate; global economic and financial market conditions and uncertainties; the growth of demand for cloud-based, digital transformation applications; our ability to integrate our applications with other software applications; maintaining and expanding our relationships with third parties; costs associated with defending intellectual property infringement and other claims; our ability to maintain, protect and enhance our brand and intellectual property; our expectations with regard to trends, such as seasonality, which affect our business; impairments to goodwill and other intangible assets; our beliefs regarding how our applications benefit customers and what our competitive strengths are; the operation, reliability and security of our third-party data centers; the risk that we did not consider another contingency included in this list; our expectations as to the payment of dividends; and factors that could affect our business and financial results identified in Upland's filings with the Securities and Exchange Commission (the "SEC"), including Upland's most recent 10-K filed with the SEC. Additional information will also be set forth in Upland's future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that Upland makes with the SEC. The forward-looking statements herein represent Upland's views as of the date of this press release, and these views could change. However, while Upland may elect to update these forward-looking statements at some point in the future, Upland specifically disclaims any obligation to do so, except as required by law. These forward-looking statements should not be relied upon as representing the views of Upland as of any date subsequent to the date of this press release.

Upland Software, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

 

 

(unaudited)

 

(unaudited)

Revenue:

 

 

 

 

Subscription and support

 

$

72,914

 

 

$

73,627

 

Perpetual license

 

 

1,571

 

 

 

1,778

 

Total product revenue

 

 

74,485

 

 

 

75,405

 

Professional services

 

 

2,571

 

 

 

3,311

 

Total revenue

 

 

77,056

 

 

 

78,716

 

Cost of revenue:

 

 

 

 

Subscription and support

 

 

23,485

 

 

 

22,069

 

Professional services and other

 

 

2,051

 

 

 

2,686

 

Total cost of revenue

 

 

25,536

 

 

 

24,755

 

Gross profit

 

 

51,520

 

 

 

53,961

 

Operating expenses:

 

 

 

 

Sales and marketing

 

 

14,289

 

 

 

15,593

 

Research and development

 

 

12,530

 

 

 

12,067

 

General and administrative

 

 

17,189

 

 

 

19,614

 

Depreciation and amortization

 

 

15,094

 

 

 

11,051

 

Acquisition-related expenses

 

 

1,094

 

 

 

10,413

 

Impairment of goodwill

 

 

128,755

 

 

 

—

 

Total operating expenses

 

 

188,951

 

 

 

68,738

 

Loss from operations

 

 

(137,431

)

 

 

(14,777

)

Other expense:

 

 

 

 

Interest expense, net

 

 

(5,461

)

 

 

(7,762

)

Other income (expense), net

 

 

1,425

 

 

 

(418

)

Total other expense

 

 

(4,036

)

 

 

(8,180

)

Loss before benefit from income taxes

 

 

(141,467

)

 

 

(22,957

)

Benefit from income taxes

 

 

1,422

 

 

 

126

 

Net loss

 

$

(140,045

)

 

$

(22,831

)

Preferred stock dividends

 

 

(1,315

)

 

 

—

 

Net loss attributable to common stockholders

 

$

(141,360

)

 

$

(22,831

)

Net income (loss) per common share:

 

 

 

 

Net loss per common share, basic and diluted

 

$

(4.38

)

 

$

(0.73

)

Weighted-average common shares outstanding, basic and diluted

 

 

32,259,110

 

 

 

31,163,273

 

Upland Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

 

 

 

March 31,

 

December 31,

 

 

 

2023

 

 

 

2022

 

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

257,720

 

 

$

248,653

 

Accounts receivable, net of allowance

 

 

40,475

 

 

 

47,594

 

Deferred commissions, current

 

 

10,901

 

 

 

10,961

 

Unbilled receivables

 

 

6,225

 

 

 

5,313

 

Prepaid expenses and other current assets

 

 

10,193

 

 

 

8,774

 

Total current assets

 

 

325,514

 

 

 

321,295

 

Tax credits receivable

 

 

1,719

 

 

 

2,411

 

Property and equipment, net

 

 

1,719

 

 

 

1,830

 

Operating lease right-of-use asset

 

 

5,088

 

 

 

5,719

 

Intangible assets, net

 

 

232,368

 

 

 

248,851

 

Goodwill

 

 

349,990

 

 

 

477,043

 

Deferred commissions, noncurrent

 

 

13,552

 

 

 

13,794

 

Interest rate swap assets

 

 

33,014

 

 

 

41,168

 

Other assets

 

 

2,502

 

 

 

1,348

 

Total assets

 

$

965,466

 

 

$

1,113,459

 

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Current liabilities:

 

 

 

 

Accounts payable

 

$

14,793

 

 

$

14,939

 

Accrued compensation

 

 

9,427

 

 

 

7,393

 

Accrued expenses and other current liabilities

 

 

7,758

 

 

 

10,644

 

Deferred revenue

 

 

106,974

 

 

 

106,465

 

Liabilities due to sellers of businesses

 

 

447

 

 

 

5,429

 

Operating lease liabilities, current

 

 

2,822

 

 

 

3,205

 

Current maturities of notes payable

 

 

3,109

 

 

 

3,136

 

Total current liabilities

 

 

145,330

 

 

 

151,211

 

Notes payable, less current maturities

 

 

510,967

 

 

 

511,847

 

Deferred revenue, noncurrent

 

 

4,411

 

 

 

4,707

 

Operating lease liabilities, noncurrent

 

 

4,391

 

 

 

4,947

 

Noncurrent deferred tax liability, net

 

 

18,691

 

 

 

18,416

 

Other long-term liabilities

 

 

1,237

 

 

 

1,170

 

Total liabilities

 

 

685,027

 

 

 

692,298

 

Series A Convertible Preferred Stock

 

 

113,606

 

 

 

112,291

 

Stockholders’ equity:

 

 

 

 

Common stock

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

611,667

 

 

 

606,755

 

Accumulated other comprehensive loss

 

 

4,206

 

 

 

11,110

 

Accumulated deficit

 

 

(449,043

)

 

 

(308,998

)

Total stockholders’ equity

 

 

166,833

 

 

 

308,870

 

Total liabilities, convertible preferred stock and stockholders’ equity

 

$

965,466

 

 

$

1,113,459

 

Upland Software, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

 

 

(unaudited)

 

(unaudited)

Operating activities

 

 

 

 

Net loss

 

$

(140,045

)

 

$

(22,831

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

18,500

 

 

 

14,262

 

Change in fair value of liabilities due to sellers of businesses

 

 

—

 

 

 

(75

)

Deferred income taxes

 

 

(1,975

)

 

 

(1,341

)

Amortization of deferred costs

 

 

3,352

 

 

 

2,896

 

Foreign currency re-measurement loss

 

 

(859

)

 

 

—

 

Non-cash interest and other expense

 

 

573

 

 

 

555

 

Non-cash stock compensation expense

 

 

6,462

 

 

 

11,619

 

Non-cash loss on impairment of goodwill

 

 

128,755

 

 

 

—

 

Changes in operating assets and liabilities, net of purchase business combinations:

 

 

 

 

Accounts receivable

 

 

6,991

 

 

 

9,182

 

Prepaid expenses and other current assets

 

 

(4,845

)

 

 

1,787

 

Accounts payable

 

 

(184

)

 

 

(4,145

)

Accrued expenses and other liabilities

 

 

(859

)

 

 

(4,790

)

Deferred revenue

 

 

(41

)

 

 

1,103

 

Net cash provided by operating activities

 

 

15,825

 

 

 

8,222

 

Investing activities

 

 

 

 

Purchase of property and equipment

 

 

(215

)

 

 

(176

)

Purchase business combinations, net of cash acquired

 

 

—

 

 

 

(62,333

)

Net cash used in investing activities

 

 

(215

)

 

 

(62,509

)

Financing activities

 

 

 

 

Proceeds from notes payable, net of issuance costs

 

 

(130

)

 

 

(3

)

Payments on notes payable

 

 

(1,350

)

 

 

(1,350

)

Taxes paid related to net share settlement of equity awards

 

 

(235

)

 

 

(547

)

Issuance of common stock, net of issuance costs

 

 

—

 

 

 

182

 

Additional consideration paid to sellers of businesses

 

 

(5,066

)

 

 

(2,493

)

Net cash used in financing activities

 

 

(6,781

)

 

 

(4,211

)

Effect of exchange rate fluctuations on cash

 

 

238

 

 

 

(217

)

Change in cash and cash equivalents

 

 

9,067

 

 

 

(58,715

)

Cash and cash equivalents, beginning of period

 

 

248,653

 

 

 

189,158

 

Cash and cash equivalents, end of period

 

$

257,720

 

 

$

130,443

 

Upland Software, Inc.

Reconciliation of Adjusted EBITDA

(in thousands, unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

Reconciliation of net loss to Adjusted EBITDA:

 

 

 

 

Net loss

 

$

(140,045

)

 

$

(22,831

)

Add:

 

 

 

 

Depreciation and amortization expense

 

 

18,500

 

 

 

14,262

 

Interest expense, net

 

 

5,461

 

 

 

7,762

 

Other expense (income), net

 

 

(1,425

)

 

 

418

 

Benefit from income taxes

 

 

(1,422

)

 

 

(126

)

Stock-based compensation expense

 

 

6,462

 

 

 

11,619

 

Acquisition-related expense

 

 

1,086

 

 

 

10,413

 

Non-recurring litigation costs

 

 

—

 

 

 

—

 

Purchase accounting deferred revenue discount

 

 

228

 

 

 

1,929

 

Impairment of goodwill

 

 

128,755

 

 

 

—

 

Adjusted EBITDA

 

$

17,600

 

 

$

23,446

 

Upland Software, Inc.

Reconciliation of Non-GAAP Net Loss and Non-GAAP EPS

(in thousands, except share and per share data, unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

Reconciliation of net loss to non-GAAP net income:

 

 

 

 

Net loss

 

$

(140,045

)

 

$

(22,831

)

Add:

 

 

 

 

Stock-based compensation expense

 

 

6,462

 

 

 

11,619

 

Amortization of purchased intangibles

 

 

18,170

 

 

 

13,825

 

Amortization of debt discount

 

 

573

 

 

 

555

 

Acquisition-related expense

 

 

1,086

 

 

 

10,413

 

Nonrecurring litigation expense

 

 

—

 

 

 

—

 

Purchase accounting deferred revenue discount

 

 

228

 

 

 

1,929

 

Impairment of goodwill

 

 

128,755

 

 

 

—

 

Tax effect of adjustments above

 

 

(4,253

)

 

 

(2,603

)

Non-GAAP net income

 

$

10,976

 

 

$

12,907

 

 

 

 

 

 

Weighted average ordinary shares outstanding, basic

 

 

32,259,110

 

 

 

31,163,273

 

Weighted average ordinary shares outstanding, diluted

 

 

38,979,587

 

 

 

31,324,492

 

Non-GAAP earnings per share, basic

 

$

0.34

 

 

$

0.41

 

Non-GAAP earnings per share, diluted

 

$

0.28

 

 

$

0.41

 

Upland Software, Inc.

Reconciliation of Operating Cash Flow to Free Cash Flow

(in thousands, unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

Reconciliation of Operating Cash Flow to Free Cash Flow:

 

 

 

 

Net cash provided by operating activities

 

$

15,825

 

 

$

8,222

 

Less: Purchase of Property and Equipment

 

 

(215

)

 

 

(176

)

Free Cash Flow

 

$

15,610

 

 

$

8,046

 

Upland Software, Inc.

Supplemental Financial Information

(in thousands, unaudited)

 

 

 

Three Months Ended March 31,

 

 

2023

 

2022

Stock-based compensation:

 

 

 

 

Cost of revenue

 

$

302

 

$

402

Research and development

 

 

655

 

 

748

Sales and marketing

 

 

576

 

 

1,474

General and administrative

 

 

4,929

 

 

8,995

Total

 

$

6,462

 

$

11,619

 

 

Three Months Ended March 31,

 

 

2023

 

2022

Depreciation:

 

 

 

 

Cost of revenue

 

$

2

 

$

2

Operating expense

 

 

328

 

 

435

Total

 

$

330

 

$

437

 

 

 

 

 

Amortization:

 

 

 

 

Cost of revenue

 

$

3,404

 

$

3,209

Operating expense

 

 

14,766

 

 

10,616

Total

 

$

18,170

 

$

13,825

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230503006029/en/

Investor Relations Contact: Mike Hill investor-relations@uplandsoftware.com 512-960-1031

Media Contact: Kendell Kelton media@uplandsoftware.com 678-575-7428