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Upland Software Reports First Quarter 2020 Financial Results

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Upland Software, Inc. (NASDAQ:UPLD), a leader in cloud-based enterprise work management software, today announced financial and operating results for the first quarter of 2020 and provided guidance for its second quarter and full year of 2020.

First Quarter 2020 Financial Highlights

  • Total revenue was $68.0 million, an increase of 40% from $48.5 million in the first quarter of 2019.
  • Subscription and support revenue was $63.9 million, an increase of 42% from $45.0 million in the first quarter of 2019.
  • GAAP net loss was $20.1 million, or a loss of $0.81 cents per share, compared to a GAAP net loss of $7.8 million, or a loss of $0.38 cents per share, in the first quarter of 2019.
  • Adjusted EBITDA was $24.6 million, or 36% of total revenue, an increase of 38% from $17.8 million, or 37% of total revenue, in the first quarter of 2019.
  • Cash on hand as of the end of the first quarter was $98.7 million.

"Our Q1 performance and strong, revised guidance demonstrate Upland's resilience as we navigate the COVID-19 pandemic," said Jack McDonald, Chairman and CEO of Upland Software. "Our products have helped our customers succeed in this new remote working environment," he added. "Upland's enterprise customer base, high recurring revenue, retention and margins, limited exposure to highly impacted verticals, strong balance sheet, and flexible cost structure position us well to emerge from this pandemic ready to capitalize on new growth opportunities." He continued, "We will pause acquisitions in the short term while nurturing our pipeline and continuing our go-to-market investments."

"Our balance sheet remains strong with cash on-hand and available liquidity under our Revolver of over $150 million, and comfortably positive cash flows expected for the remainder of the year," said Mike Hill, CFO of Upland Software. "We are in a strong position today because of the actions we took in 2019 to fortify our capital base, raising equity and putting in place a new credit facility which extended the maturity of our term debt out to August 2026, reduced our annual principal payments to only one percent, and removed all financial covenants on current borrowings," he added.

First Quarter Business Highlights

  • Expanded 277 existing customer relationships, including 40 major expansions, and added 122 new customer relationships, including 49 major accounts.
  • Continued to invest in customer-driven innovation across our four clouds with seven major releases and 15 feature packs. For example, we successfully integrated our Project and IT Management Cloud with Microsoft Teams, allowing customers improved collaboration and cooperation within their remote workforce.
  • Closed the strategic acquisition of Localytics, a company that combines push, in-app, inbox, and remarketing with rich audience segmentation.
  • Continued to scale our go-to-market capabilities by expanding sales team capacity and in February, appointing software industry veteran Rod Favaron as President and Chief Commercial Officer, along with a proven team of new executives to lead marketing, customer success, and global account sales.

Business Outlook

The second quarter 2020 guidance and updated full-year 2020 guidance we are providing today factor in the expected impacts of COVID-19 based on information available to us today. Our guidance is also based on the assumption that the most significant headwinds will occur in the second and third quarters of 2020 and that economic conditions will begin to open up more broadly by the end of the year. Significant variation from these assumptions could cause us to modify our guidance higher or lower. While we have taken this opportunity to identify additional cost efficiencies in our already high margin operating model, our guidance assumes a continuation of our go-to-market investment initiative.

For the quarter ending June 30, 2020, Upland expects reported total revenue to be between $62.5 and $66.5 million, including subscription and support revenue between $59.9 and $62.9 million, for growth in recurring revenue of 26% at the mid-point over the quarter-ended June 30, 2019. Second quarter 2020 Adjusted EBITDA is expected to be between $20.5 and $22.5 million, for an Adjusted EBITDA margin of 33% at the mid-point, representing growth of 13% at the mid-point over the quarter-ended June 30, 2019.

For the full year ending December 31, 2020, Upland expects reported total revenue to be between $257.4 and $269.4 million, including subscription and support revenue between $244.8 and $253.8 million, for growth in recurring revenue of 22% at the mid-point over the year ended December 31, 2019. Full year 2020 Adjusted EBITDA is expected to be between $87.2 and $93.2 million, for an Adjusted EBITDA margin of 34% at the mid-point, representing growth of 9% at the mid-point over the year ended December 31, 2019.

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 1-833-520-0067 in the United States or +1-236-714-2220 if outside the United States, using the passcode / conference call identification number: 2957997. This webcast will contain forward-looking statements and other material information regarding Upland's financial and operating results.

Following the completion of the live call, a recorded replay of the webcast will be available on Upland's website at investor.uplandsoftware.com for twelve months.

About Upland Software

Upland Software (NASDAQ:UPLD) is a leader in enterprise work management software. Upland's four enterprise clouds enable thousands of organizations to engage with customers on key digital channels, optimize sales team performance, manage projects and IT costs, and automate critical document workflows. All of Upland's clouds are backed by a 100% customer success commitment and the UplandOne platform, which puts customers at the center of everything we do. 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) and non-GAAP net income (loss) per share.

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.

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, and purchase accounting adjustments for deferred revenue.

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, and the related tax effect of the adjustments above.

Upland defines annual net dollar retention rate (NDRR) as of December 31 as the aggregate annualized recurring revenue value at December 31 from those customers that were also customers as of December 31 of the prior fiscal year, divided by the aggregate annualized recurring revenue value from all customers as of December 31 of the prior fiscal year. This measure excludes the revenue value of uncontracted overage fees and on-demand service fees.

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.

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 "believe," "expect," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "hope," "predict," "could," "should," "would," "project," 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, sustain or increase profitability or predict future results; our ability to attract and retain customers; our ability to deliver high-quality customer service; the growth of demand for enterprise work management applications; our plans regarding, and our ability to effectively manage, our growth; our plans regarding future acquisitions and our ability to consummate and integrate acquisitions; maintaining our senior management and key personnel; our ability to maintain and expand our direct sales organization; our ability to obtain financing in the future on acceptable terms or at all; the performance of our resellers; our ability to adapt to changing market conditions and competition; our ability to successfully enter new markets and manage our international expansion; the operation and reliability of our third-party data centers and other service providers; our ability to adapt to technological change and continue to innovate; our ability to integrate our applications with other software applications; our ability to comply with privacy laws and regulations; 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 and our recent Quarterly Report on Form 10-Q 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,

 

 

2020

 

2019

 

 

(unaudited)

Revenue:

 

 

 

 

Subscription and support

 

$

63,891

 

 

$

44,983

 

Perpetual license

 

 

361

 

 

 

657

 

Total product revenue

 

 

64,252

 

 

 

45,640

 

Professional services

 

 

3,780

 

 

 

2,853

 

Total revenue

 

 

68,032

 

 

 

48,493

 

Cost of revenue:

 

 

 

 

Subscription and support

 

 

19,939

 

 

 

13,274

 

Professional services

 

 

2,262

 

 

 

1,514

 

Total cost of revenue

 

 

22,201

 

 

 

14,788

 

Gross profit

 

 

45,831

 

 

 

33,705

 

Operating expenses:

 

 

 

 

Sales and marketing

 

 

10,931

 

 

 

6,982

 

Research and development

 

 

9,420

 

 

 

6,398

 

Refundable Canadian tax credits

 

 

(302

)

 

 

(86

)

General and administrative

 

 

16,676

 

 

 

9,994

 

Depreciation and amortization

 

 

9,271

 

 

 

5,259

 

Acquisition-related expenses

 

 

15,158

 

 

 

7,723

 

Total operating expenses

 

 

61,154

 

 

 

36,270

 

Loss from operations

 

 

(15,323

)

 

 

(2,565

)

Other expense:

 

 

 

 

Interest expense, net

 

 

(7,643

)

 

 

(5,116

)

Other expense, net

 

 

(1,402

)

 

 

(761

)

Total other expense

 

 

(9,045

)

 

 

(5,877

)

Loss before provision for income taxes

 

 

(24,368

)

 

 

(8,442

)

Benefit from income taxes

 

 

4,287

 

 

 

612

 

Net loss

 

$

(20,081

)

 

$

(7,830

)

Net income (loss) per common share:

 

 

 

 

Basic

 

$

(0.81

)

 

$

(0.38

)

Weighted average common shares outstanding:

 

 

 

 

Basic

 

 

24,906,932

 

 

 

20,442,626

 

Upland Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

     

 

 

March 31,

 

December 31,

 

 

2020

 

2019

 

 

(unaudited)

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

98,688

 

 

$

175,024

 

Accounts receivable, net of allowance

 

 

55,398

 

 

 

50,938

 

Deferred commissions, current

 

 

3,645

 

 

 

3,059

 

Unbilled receivables

 

 

5,689

 

 

 

5,111

 

Prepaid and other

 

 

7,452

 

 

 

4,748

 

Total current assets

 

 

170,872

 

 

 

238,880

 

Tax credits receivable

 

 

4,219

 

 

 

4,186

 

Property and equipment, net

 

 

4,035

 

 

 

3,917

 

Operating lease right-of-use asset

 

 

12,353

 

 

 

8,056

 

Intangible assets, net

 

 

302,948

 

 

 

282,727

 

Goodwill

 

 

377,745

 

 

 

346,134

 

Deferred commissions, noncurrent

 

 

9,427

 

 

 

8,763

 

Other assets

 

 

1,934

 

 

 

4,165

 

Total assets

 

$

883,533

 

 

$

896,828

 

Liabilities and stockholders' equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

4,794

 

 

$

5,904

 

Accrued compensation

 

 

5,202

 

 

 

11,559

 

Accrued expenses and other current liabilities

 

 

15,756

 

 

 

15,344

 

Deferred revenue

 

 

87,785

 

 

 

76,558

 

Due to sellers

 

 

14,731

 

 

 

14,276

 

Operating lease liabilities, current

 

 

3,828

 

 

 

2,533

 

Current maturities of notes payable

 

 

3,191

 

 

 

3,193

 

Total current liabilities

 

 

135,287

 

 

 

129,367

 

Notes payable, less current maturities

 

 

521,013

 

 

 

521,881

 

Deferred revenue, noncurrent

 

 

2,567

 

 

 

496

 

Operating lease liabilities, noncurrent

 

 

11,515

 

 

 

5,862

 

Noncurrent deferred tax liability, net

 

 

24,472

 

 

 

25,685

 

Other long-term liabilities

 

 

29,587

 

 

 

676

 

Total liabilities

 

 

724,441

 

 

 

683,967

 

Stockholders' equity:

 

 

 

 

Common stock

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

353,720

 

 

 

345,127

 

Accumulated other comprehensive loss

 

 

(43,396

)

 

 

(1,223

)

Accumulated deficit

 

 

(151,235

)

 

 

(131,046

)

Total stockholders' equity

 

 

159,092

 

 

 

212,861

 

Total liabilities and stockholders' equity

 

$

883,533

 

 

$

896,828

 

Upland Software, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

 

 

(unaudited)

Operating activities

 

 

 

 

Net loss

 

$

(20,081

)

 

$

(7,830

)

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

 

 

 

 

Depreciation and amortization

 

 

11,737

 

 

 

7,387

 

Deferred income taxes

 

 

(4,348

)

 

 

(2,811

)

Amortization of deferred costs

 

 

894

 

 

 

801

 

Foreign currency re-measurement loss

 

 

587

 

 

 

(171

)

Non-cash interest and other expense

 

 

552

 

 

 

283

 

Non-cash stock compensation expense

 

 

9,320

 

 

 

4,628

 

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

 

 

 

 

Accounts receivable

 

 

(1,664

)

 

 

5,980

 

Prepaids and other

 

 

(2,778

)

 

 

(1,268

)

Accounts payable

 

 

(3,439

)

 

 

(269

)

Accrued expenses and other liabilities

 

 

(5,942

)

 

 

(766

)

Deferred revenue

 

 

9,853

 

 

 

(1,087

)

Net cash provided by (used in) operating activities

 

 

(5,309

)

 

 

4,877

 

Investing activities

 

 

 

 

Purchase of property and equipment

 

 

(296

)

 

 

(173

)

Purchase of customer relationships

 

 

(201

)

 

 

Purchase business combinations, net of cash acquired

 

 

(67,651

)

 

 

(2,999

)

Net cash used in investing activities

 

 

(68,148

)

 

 

(3,172

)

Financing activities

 

 

 

 

Payments on finance leases

 

 

(55

)

 

 

(233

)

Proceeds from notes payable, net of issuance costs

 

 

(72

)

 

 

(120

)

Payments on notes payable

 

 

(1,350

)

 

 

(1,781

)

Taxes paid related to net share settlement of equity awards

 

 

(768

)

 

 

(1,504

)

Issuance of common stock, net of issuance costs

 

 

41

 

 

 

96

 

Additional consideration paid to sellers of businesses

 

 

(1,000

)

 

 

(1,258

)

Net cash used in financing activities

 

 

(3,204

)

 

 

(4,800

)

Effect of exchange rate fluctuations on cash

 

 

325

 

 

 

379

 

Change in cash and cash equivalents

 

 

(76,336

)

 

 

(2,716

)

Cash and cash equivalents, beginning of period

 

 

175,024

 

 

 

16,738

 

Cash and cash equivalents, end of period

 

$

98,688

 

 

$

14,022

 

Supplemental disclosures of cash flow information:

 

 

 

 

Cash paid for interest, net of interest rate swaps

 

$

7,435

 

 

$

4,854

 

Cash paid for taxes

 

$

508

 

 

$

758

 

Sales commissions paid, net of amortization of deferred commissions

 

$

1,250

 

 

$

1,184

 

Non-cash investing and financing activities:

 

 

 

 

Business combination consideration including holdbacks and earnouts

 

$

345

 

 

$

 

Equipment acquired pursuant to financing lease obligations

 

$

 

 

$

44

 

Upland Software, Inc.

Reconciliation of Adjusted EBITDA

(in thousands, unaudited)

   

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Reconciliation of net loss to Adjusted EBITDA:

 

 

 

 

Net loss

 

$

(20,081

)

 

$

(7,830

)

Add:

 

 

 

 

Depreciation and amortization expense

 

 

11,737

 

 

 

7,387

 

Interest expense, net

 

 

7,643

 

 

 

5,116

 

Other expense (income), net

 

 

1,402

 

 

 

761

 

Benefit from income taxes

 

 

(4,287

)

 

 

(612

)

Stock-based compensation expense

 

 

9,320

 

 

 

4,628

 

Acquisition-related expense

 

 

15,158

 

 

 

7,723

 

Purchase accounting deferred revenue discount

 

 

3,701

 

 

 

597

 

Adjusted EBITDA

 

$

24,593

 

 

$

17,770

 

Upland Software, Inc.

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

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

   

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Reconciliation of net loss to non-GAAP net income:

 

 

 

 

Net income (loss)

 

$

(20,081

)

 

$

(7,830

)

Add:

 

 

 

 

Stock-based compensation expense

 

 

9,320

 

 

 

4,628

 

Amortization of purchased intangibles

 

 

11,205

 

 

 

6,837

 

Amortization of debt discount

 

 

552

 

 

 

283

 

Acquisition-related expense

 

 

15,158

 

 

 

7,723

 

Purchase accounting deferred revenue discount

 

 

3,701

 

 

 

597

 

Tax effect of adjustments above

 

 

(1,723

)

 

 

(1,136

)

Non-GAAP net income

 

$

18,132

 

 

$

11,102

 

 

 

 

 

 

Weighted average ordinary shares outstanding, basic

 

 

24,906,932

 

 

 

20,442,626

 

Weighted average ordinary shares outstanding, diluted

 

 

25,352,702

 

 

 

21,146,073

 

Non-GAAP earnings per share, basic

 

$

0.73

 

 

$

0.54

 

Non-GAAP earnings per share, diluted

 

$

0.72

 

 

$

0.53

 

Upland Software, Inc.

Supplemental Financial Information

(in thousands, unaudited)

   

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Stock-based compensation:

 

 

 

 

Cost of revenue

 

$

318

 

$

160

Research and development

 

 

615

 

 

322

Sales and marketing

 

 

549

 

 

139

General and administrative

 

 

7,838

 

 

4,007

Total

 

$

9,320

 

$

4,628

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Depreciation:

 

 

 

 

Cost of revenue

 

$

71

 

$

281

Operating expense

 

 

461

 

 

269

Total

 

$

532

 

$

550

 

 

 

 

 

Amortization:

 

 

 

 

Cost of revenue

 

$

2,395

 

$

1,847

Operating expense

 

 

8,810

 

 

4,990

Total

 

$

11,205

 

$

6,837

 

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