Upland Software, Inc. Q1 FY2021 earnings

Upland Software opened fiscal 2021 with total revenue of $74.0 million for the quarter ended March 31, 2021, up 8.7% from $68.0 million in the prior-year quarter. Gross profit rose 8.1%, to $49.5 million, from $45.8 million. Gross margin slipped to 67.0% from 67.4%. Profitability below the gross line stayed weak. Operating loss widened to $17.5 million from $15.3 million, and operating margin fell to -23.7% from -22.5%. Net loss widened to $20.7 million from $20.1 million. Diluted loss per share for the quarter was $0.69. Revenue grew faster than gross profit, and both the operating and net losses expanded.

Cash generation was the standout. GAAP operating cash flow was $12.5 million for the quarter, up from $5.3 million of operating cash outflow in the prior-year quarter. Free cash flow, a non-GAAP measure, was $12.2 million, up from $5.6 million of free cash outflow a year earlier. Deferred revenue, current portion, was $94.7 million, up 7.9% from $87.8 million. Capital expenditures were $0.3 million, down 4.7% from $0.3 million. Adjusted EBITDA, a non-GAAP measure, was $22.8 million, or 31% of total revenue, down 7% from $24.6 million, or 36% of total revenue. That drop tracks the company's stated increase in go-to-market spending, and it shows up in the margin.

Operationally, Upland expanded relationships with 283 existing customers in the quarter, 45 of them major expansions, and added 118 new customers, 32 of them major. The company shipped three major releases and five feature packs. It delivered integrations with Salesforce and Sage Intacct in its Project IT Management suite and released updates to its Document Workflow suite to support the HP Workpath offering. Management also restarted the acquisition engine after pausing in 2020, closing Second Street, an audience development platform, and BlueVenn, a customer data platform that anchors the CXM suite. Management said the pipeline remains robust and that the company is active in the market for more deals.

The MD&A explains the mix behind the top line. The prior-year quarter included CXM usage revenue from US election-year presidential campaigns that did not repeat and will not repeat for the remainder of 2021. COVID-19 still clouds new bookings and churn. General and administrative expense rose, driven primarily by a one-time increase in non-cash stock compensation tied to the departure of the Chief Operating Officer. Acquisition-related expenses were $9.6 million, down 37% from $15.2 million, and management warned that these costs will increase with the size, timing, and complexity of future deals. Upland has made twenty-eight acquisitions from February 2012 through March 31, 2021, so integration work remains a constant.

Guidance covers both the next quarter and the full fiscal year. For the second quarter ending June 30, 2021, the company guides to recurring revenue growth of 6% at the midpoint over the quarter ended June 30, 2020, with Adjusted EBITDA of $22.0 million to $24.0 million, a 31% margin at the midpoint and a reduction of 3% at the midpoint. For the full year ending December 31, 2021, it guides to recurring revenue growth of 5% at the midpoint over the year ended December 31, 2020, with Adjusted EBITDA of $94.4 million to $100.4 million, a 32% margin at the midpoint and a reduction of 3% at the midpoint. Both periods absorb heavier go-to-market investment. The main risks are soft bookings and churn from the pandemic, the loss of political campaign revenue, acquisition integration, and the cost of funding growth while GAAP losses persist.