Upland Software, Inc. Q1 FY2024 earnings

Upland Software posted first quarter 2024 revenue of $70.7 million, an 8% decline from the prior-year quarter. Gross profit was $49.7 million, down 3.6%, and gross margin was 70.2%, up 3.4 percentage points from a year earlier. The company reported an operating loss of $91.6 million and a net loss of $96.1 million. Diluted loss per share was $3.37, and operating margin was negative 129.6%, up 48.8 percentage points from the prior-year quarter. The revenue drop traced mostly to the Sunset Assets the company has decided to wind down, along with lower overage charges, fewer professional services projects, and softer subscription and support revenue in a subset of products. Upland counts more than 10,000 customers across financial services, technology, manufacturing, media, telecommunications, government, insurance, healthcare, life sciences, retail and hospitality. Foreign revenue was 30% of the total in the first quarter versus 29% a year earlier.

Cash generation weakened. Operating cash flow was $5.1 million, down 67.6%, and capital expenditures were $0.18 million, down 14.9%. Free cash flow, a non-GAAP measure, was $4.9 million against $15.6 million in the prior-year quarter. Adjusted EBITDA came to $13.1 million, a 19% margin, compared with $17.6 million and a 23% margin a year earlier. The current portion of deferred revenue was $99.55 million, down 6.9%, and remaining performance obligations stood at $258.4 million. Upland has completed 31 acquisitions from February 2012 through March 31, 2024. Management pointed to collections on accounts receivable, increases in prepaid and other current assets, and lower deferred revenue in the quarter's working capital swings. It said cash on hand plus the undrawn revolver should fund operations for at least the next twelve months.

On the operating side, the company expanded relationships with 256 existing customers, 29 of them major expansions, and added 134 new customers, including 21 major accounts. Product teams pushed 10 AI initiatives, spanning AI-guided proposal automation in Upland Qvidian, an integration with IBM watsonx, and Salesforce integrations for Upland Altify. Upland collected 44 badges in G2's Spring 2024 market reports, with Upland Altify and Upland InterFAX earning badges for the first time. It was also named a Notable Vendor in Forrester's Customer Solutions Landscape Report. Core Organic Growth Rate was negative 1.9% for the three months ended March 31, 2024, and core organic revenue was $56.4 million versus $57.5 million a year earlier.

Guidance points to more pressure ahead. For the second quarter of 2024, Upland guided to a 10% decline at the midpoint against the quarter ended June 30, 2023. Second quarter Adjusted EBITDA is expected between $11.8 and $14.8 million, a 20% margin at the midpoint and a 20% decrease from the year-earlier quarter. For the full year 2024, the outlook calls for an 8% decline at the midpoint from the year ended December 31, 2023. Full year Adjusted EBITDA is guided to $50.8 to $59.8 million, a 20% margin at the midpoint and a 14% decline from the year ended December 31, 2023.

Two risks stand out. Goodwill impairment could recur, since the first quarter charge followed declines in the stock price and management said further write-downs are possible if the stock keeps falling. The company also carries significant debt, with $480.7 million of term loan borrowings and exposure to variable interest rates, and its undrawn revolver matures on August 6, 2024. Upland lists macroeconomic conditions, competition, and the ability to attract and retain customers among the factors that could affect results, and management said it will keep evaluating goodwill through 2024.