Upland Software Reports First Quarter 2023 Financial Results

Company Beats Q1 Guidance and Reaffirms Full Year 2023 Guidance

AUSTIN, Texas--(BUSINESS WIRE)--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 [phone] 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