Upland Software, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter earnings report. Upland provides cloud-based enterprise work management software and pursues acquisitions as a central growth strategy.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $291.8 million | $222.6 million |
| Subscription and support revenue | $277.5 million | $203.9 million |
| Gross profit / margin | $193.3 million / 66% | $153.5 million / 69% |
| Operating loss | $23.8 million | $24.3 million |
| Net loss | $51.2 million | $45.4 million |
| Adjusted EBITDA (non-GAAP) | $99.9 million | $82.5 million |
| Cash from operating activities | $35.6 million | $12.1 million |
- Revenue increased 31%; subscription and support revenue increased 36% and represented 95% of revenue, versus 92% in 2019.
- Net loss per share was $1.92, compared with $1.96. Adjusted EBITDA is a company-defined non-GAAP measure and should be considered alongside GAAP results and cash flows.
- Gross margin fell three percentage points to 66%, with subscription delivery costs rising faster than subscription revenue. Higher messaging costs tied to U.S. election campaigns contributed to the increase.
- Year-end annualized recurring revenue value was $220.5 million, up from $209.7 million. Annual net dollar retention declined to 94% from 97%.
- Cash and cash equivalents were $250.0 million; working capital surplus was $196.1 million. Operating cash flow improved by $23.5 million year over year.
- Debt principal outstanding was $533.3 million, with $60 million available under the revolver; reported notes payable, net of discounts, totaled $521.6 million. The term loans are effectively fixed at 5.4% through interest-rate swaps. Approximate net debt using principal less cash was $283.2 million.
Changes, drivers and unusual items
- Acquisitions not fully reflected in the prior-year comparison contributed $58.9 million to revenue growth, after a $7.8 million purchase-accounting deferred-revenue discount. Organic-business revenue rose $14.3 million; increased mobile messaging use during U.S. presidential campaigns was the primary driver.
- Upland acquired Localytics in February 2020 for $63.8 million of total consideration; it contributed approximately $16.3 million of revenue after acquisition. Acquisition-related expense declined to $27.1 million from $39.7 million as acquisition activity paused during much of 2020.
- Net loss widened despite improved operating loss, primarily reflecting higher interest expense ($31.5 million versus $22.3 million) and increased stock-based compensation ($41.7 million versus $25.8 million).
- Cash increased by $75.0 million, including $130.1 million of net proceeds from a 2020 stock offering, partly offset by the $67.7 million Localytics cash acquisition payment. The offering increased shares outstanding.
Outlook, risks and contingencies
- The filing provides no formal numerical revenue or earnings guidance. Management said cash, operating cash flow and available credit were expected to meet working-capital needs for at least 12 months and intends to continue pursuing acquisitions.
- Management said COVID-19 had not materially adversely affected FY2020 results, but it had affected bookings and churn; the future impact was uncertain. Remote-work and digital-engagement demand and election-related messaging strength more than offset those effects during 2020. Management expected U.S. political-campaign strength to decrease in 2021.
- Key risks include customer retention and expansion, acquisition execution and integration, competition, cybersecurity and service availability, privacy regulation, COVID-19-related spending changes, foreign exchange, and the substantial debt burden and credit-facility restrictions.
- Purchase commitments totaled approximately $58.5 million through 2025, including a $9.6 million 2021 commitment to related-party provider DevFactory. No material pending legal proceedings were reported. The company reported compliance with credit-facility covenants.
- A prior material weakness in the income-tax review process was reported as remediated; management and the auditor concluded internal control over financial reporting was effective at year-end. The financial statements received an unqualified audit opinion.
- After year-end, Upland acquired Second Street for $25.4 million cash plus a $5.0 million holdback, with potential earn-out payments up to $3.0 million.
Investor verification priorities
- Assess how much of revenue growth and future performance depends on acquisitions versus sustainable organic growth, and whether election-related messaging demand recurs.
- Track retention, bookings, churn and recurring-revenue growth, given the decline in net dollar retention to 94%.
- Reconcile GAAP losses with Adjusted EBITDA, including the effects of stock compensation, amortization, acquisition costs and interest expense.
- Review debt repayment capacity, cash availability, interest-rate swap terms, covenant headroom and the scale of contractual purchase commitments.
- Monitor acquisition integration, goodwill and intangible-asset recoverability, and the performance of the Second Street acquisition.
- Evaluate the impact of privacy and cybersecurity obligations, COVID-19 uncertainty, foreign-exchange movements, and the limits on U.S. tax-loss carryforwards.