Upland Software, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Upland provides cloud-based business software, primarily through subscriptions. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $80.2 | $76.3 | $158.9 | $150.2 |
| Gross profit / margin | $53.7 / 67% | $51.3 / 67% | $107.6 / 68% | $100.8 / 67% |
| Operating loss | $(10.9) | $(9.2) | $(25.7) | $(26.7) |
| Net loss | $(16.4) | $(19.0) | $(39.2) | $(39.7) |
| Adjusted EBITDA, non-GAAP | $24.5 | $23.7 | $48.0 | $46.6 |
| Operating cash flow | Not separately presented | Not separately presented | $22.3 | $23.3 |
- Subscription and support revenue was $75.0 million in Q2 and $148.6 million for the half year, up 4% year over year in each period. It represented 94% of revenue.
- Cash and cash equivalents were $138.3 million at June 30, down $50.9 million from year-end. Current assets were $205.8 million and current liabilities $170.5 million; reported working capital surplus was $35.3 million.
- Debt outstanding was approximately $525.2 million before unamortized discounts; the balance-sheet carrying amount was $516.7 million. The $60 million revolver was undrawn and fully available. The term-loan rate was effectively fixed at 5.4% through swaps; revolver borrowing rates float. The company reported covenant compliance.
- Six-month investing cash use was $62.7 million, including $62.4 million for acquisitions. Cash flow from operations was slightly lower than the prior-year period.
Changes versus prior comparable periods
- Reported revenue increased 5% in Q2 and 6% for the first half. Management attributed $10.0 million of Q2 and $18.4 million of first-half revenue growth to acquisitions not fully included in the prior-year comparison.
- Upland’s non-GAAP Core Organic Revenue decreased $3.0 million in Q2 and $3.9 million for the first half; excluding foreign-exchange effects, the decreases were $1.7 million and $2.6 million, respectively. Management cited lower overage charges, sunset-asset revenue and prior-year political campaign revenue.
- Gross margin was steady at 67% in Q2 and improved to 68% for the first half. GAAP net losses narrowed modestly year over year, while Q2 operating loss widened. Adjusted EBITDA increased in both reported periods.
- Foreign-exchange movements reduced reported revenue growth by approximately 3 percentage points in Q2 and 1.5 points for the first half. Foreign-currency translation contributed to comprehensive loss of $31.1 million in Q2, despite net loss of $16.4 million.
Outlook, commentary and notable items
- The filing provides no numerical full-year revenue or earnings guidance. Management said available cash, operating cash flows, revolver availability and access to securities issuance were expected to fund operations for at least the next 12 months.
- Remaining performance obligations were approximately $298.6 million at June 30; about 70% was expected to be recognized over the following 12 months. This is not a guarantee of future revenue.
- On July 14, 2022, the company agreed to sell $115 million of Series A preferred stock to an affiliate of HGGC, subject to customary closing conditions. The preferred stock carries dividends of 4.5% annually through the seventh anniversary and 7% thereafter; dividends may be paid in cash or in kind. It ranks senior to common stock in distributions and liquidation, has governance rights, and is junior to debt. The company said proceeds were intended for general corporate purposes and transaction costs; closing was not assured as of the filing.
- Management cited acquisition integration and continued acquisition activity as part of its growth strategy. BA Insight and Objectif Lune were acquired in early 2022; purchase accounting remained preliminary.
- Risk factors include organic revenue contraction, acquisition execution and integration, foreign-exchange exposure, inflation and higher costs, ongoing losses, substantial debt, and the preferred-stock financing’s dividend, dilution, governance and change-of-control effects. The company reported no current or pending litigation expected to have a material adverse effect and no goodwill or intangible-asset impairment in the periods presented.
- Management stated disclosure controls were effective at June 30, 2022 and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether and when the $115 million preferred-stock transaction closed, and its final terms, cash cost and dilution implications.
- Whether organic revenue trends stabilize, particularly subscription growth excluding acquisitions, overages and other non-core items.
- Cash conversion and liquidity needs, given declining cash, acquisition spending, seller holdbacks and the company’s debt burden.
- Ability to integrate recent acquisitions and realize expected revenue and operating benefits while managing acquisition-related expenses.
- Exposure to foreign exchange, inflation and floating interest rates, as well as continued compliance with credit-facility terms.