Upland Software, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement figures are unaudited. Upland provides cloud-based enterprise work management software, with revenue predominantly from subscriptions and support.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $76.3 million | $71.3 million | $150.2 million | $139.3 million |
| Gross profit / margin | $51.3 million / 67% | $47.6 million / 67% | $100.8 million / 67% | $93.5 million / 67% |
| Operating loss | $9.2 million | $6.9 million | $26.7 million | $22.3 million |
| Net loss | $19.0 million | $14.2 million | $39.7 million | $34.2 million |
| Adjusted EBITDA, non-GAAP | $23.7 million | $23.7 million | $46.6 million | $48.3 million |
Subscription and support represented 95% of Q2 revenue and 95% for the first half. Q2 diluted loss per share was $0.63, compared with $0.57; first-half diluted loss per share was $1.32, compared with $1.37. Gross margin held at 67% in both comparison periods.
For the first half, operating cash flow was $23.3 million, versus cash used of $4.5 million a year earlier. Investing used $92.9 million, primarily reflecting acquisitions; financing used $3.4 million. Cash declined $73.5 million from year-end to $176.5 million, including $97.7 million of net cash paid for three 2021 acquisitions.
At June 30, cash was $176.5 million, working capital was $85.3 million, and the company had $60 million available under its revolver. Debt borrowings were $530.6 million before unamortized discounts; no revolver borrowings were outstanding. The term loans’ interest rate was fixed at 5.4% through swaps; the revolver rate remains floating.
Material changes versus the prior comparable period
- Q2 revenue rose 7% and first-half revenue rose 8%, but acquisitions not fully present in the comparison period contributed $7.2 million and $12.7 million, respectively, after purchase-accounting deferred-revenue discounts.
- Management reported that organic revenue decreased $1.8 million in Q2 and $0.9 million in the first half. Prior-year U.S. election campaign usage revenue of $3.6 million in Q2 and $5.7 million in the first half did not recur and was not expected to recur in the remainder of 2021.
- Operating losses increased in both periods. First-half general and administrative expense rose 27%, including higher non-cash stock compensation and a one-time expense associated with the former co-President and COO’s departure. Acquisition-related expenses declined 28% year over year for the first half.
- First-half cash from operations improved by $27.8 million year over year, while cash declined mainly because of acquisition spending. Cash and cash equivalents were $250.0 million at December 31, 2020.
Outlook, risks, contingencies and unusual items
- No specific full-year revenue, earnings, or cash-flow guidance is provided in the filing. Management said cash, operating cash flows, available credit, and access to its effective registration statement were expected to fund operations for at least the next 12 months; it also intends to pursue acquisitions.
- COVID-19 effects remained uncertain. Management cited impacts on new bookings and churn, and COVID-related travel constraints affecting professional services. The 2020 election-related revenue boost was not expected to repeat in 2021.
- Three acquisitions closed in the first half: Panviva, BlueVenn, and Second Street. Their purchase-price allocations remained preliminary, and integration, valuation, and earnout assumptions are relevant. The filing reports $10.9 million of acquisition holdbacks and $4.2 million of earnouts due in future periods, subject to stated conditions.
- The credit facility is secured by substantially all company assets. It has no financial covenant while less than 35% of the revolver is drawn at quarter-end; if that threshold is reached, a maximum 6.0-to-1.0 leverage ratio applies. Upland reported covenant compliance at June 30, 2021.
- Interest-rate swaps had a $17.8 million liability at quarter-end; the company estimated $3.6 million would be reclassified from accumulated other comprehensive income and increase interest expense over the next 12 months. A hypothetical 10% foreign-exchange-rate change could have changed first-half revenue by $3.3 million; Upland reported no currency hedging strategy.
- Q2 included a $2.7 million gain from remeasurement of acquisition earnout liabilities, partly offset by a $1.9 million sublease loss. First-half stock compensation included $6.3 million of incremental expense associated with the former COO’s award modification. The Q2 tax line was a $1.5 million provision despite the pretax loss; the filing attributes tax effects to factors including enacted UK rate changes and foreign operations.
- Management reported no current or pending litigation expected to materially affect the financial statements. It also identified related-party service arrangements with DevFactory and Crossover, affiliates of a non-management investor; the DevFactory 2021 purchase commitment was $9.6 million.
Important facts for investors to verify
- How much future growth is organic versus acquisition-driven, particularly given the reported Q2 organic revenue decline and nonrecurring election-related revenue.
- Whether operating cash generation and liquidity remain adequate after acquisition spending, future holdbacks and earnouts, and scheduled debt service.
- Acquisition integration performance and final purchase accounting, including acquired intangible values, goodwill, and contingent consideration.
- The impact of stock-based compensation, amortization, acquisition costs, and other adjustments on GAAP losses versus non-GAAP Adjusted EBITDA.
- Credit-facility covenant headroom, the fixed-rate hedge’s remaining economics, and exposure to floating revolver rates and foreign exchange movements.
- Potential costs and governance implications of the DevFactory and Crossover related-party arrangements.