Upland Software, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Upland provides cloud-based enterprise work management software. Results are not necessarily indicative of full-year performance.
Financial performance
- Revenue: $17.5 million, up 12% from $15.6 million. Subscription and support revenue was $14.3 million (+22%), perpetual-license revenue $0.8 million (+84%), and professional-services revenue $2.4 million (-30%). Subscription and support represented 82% of revenue, versus 75% a year earlier.
- Growth quality: Management attributed $2.7 million of revenue growth to 2014 acquisitions, partly offset by $0.6 million of adverse currency effects in Canadian operations. On a constant-currency basis, organic revenue declined 2%; organic subscription and support grew 5%, while professional services declined 33%.
- Profit and margins: Gross profit was $10.9 million, with a 62% gross margin versus 64%. Operating loss was $3.1 million, compared with $11.9 million. Net loss was $3.7 million ($0.25 per share), versus $12.6 million ($4.48 per share). The prior-year loss included an $11.2 million noncash charge related to stock issued to a related-party vendor.
- Adjusted EBITDA: $0.3 million, versus $1.6 million; margin was 2%, compared with 10%. This is a non-GAAP measure and should be considered alongside GAAP results and cash flows.
- Cash flow: Operating cash use was $0.4 million, versus $4.2 million provided. Investing used $3.0 million, including $2.8 million for acquisitions; financing used $1.2 million. Cash declined $4.4 million to $26.6 million.
- Liquidity: Working capital was $3.1 million, including $22.0 million of current deferred revenue. At quarter-end, the company reported $5.0 million of available borrowing capacity and $18.9 million of borrowings under its loan arrangements.
- Debt and balance sheet: Notes payable totaled $22.4 million, including $8.2 million of current maturities. Total liabilities were $61.1 million; total assets were $128.7 million.
Changes, outlook and notable items
- Revenue growth included contributions from acquisitions, while management cited deferred project milestones and a greater focus on product revenue as factors in the professional-services decline.
- Management expects subscription and support to remain central to the business, anticipates perpetual licenses will decline as a share of revenue, and intends to continue investing in product development, sales and acquisitions. The filing provides no quantified revenue or earnings guidance.
- On May 14, 2015, after quarter-end, Upland entered a five-year credit facility with stated commitments totaling $60 million. A $25 million term loan repaid approximately $19 million of existing Comerica debt and added approximately $6 million of cash before fees. The facility also includes a $10 million revolver, a $10 million delayed-draw acquisition loan, an uncommitted $15 million accordion, and customary covenants tied principally to recurring revenue and EBITDA.
- Other items to monitor include $0.5 million of acquisition-related expenses, $0.4 million of nonrecurring litigation expense, currency-related expense, and the $2.1 million 2015 commitment for software development services from a company controlled by a non-management investor. Management did not expect ongoing litigation to materially harm financial position or results.
- Principal risks identified include sustaining profitability, customer acquisition and retention, managing growth and acquisitions, competition and technology change, reliance on third-party data centers, international operations, financing availability, and privacy and intellectual-property matters. Management reported disclosure controls were effective as of March 31, 2015, with no material quarterly change in internal control over financial reporting.
Investor verification points
- How much of subsequent revenue growth is organic, and whether subscription growth can offset weakness in professional services.
- Whether operating cash flow and Adjusted EBITDA improve, and how acquisition spending affects liquidity.
- The terms, borrowing capacity, covenant compliance and costs of the May 2015 credit facility.
- Acquisition integration and purchase-price allocation outcomes, including contingent consideration and goodwill/intangible-asset recoverability.
- The effect of the related-party services commitment, litigation matters, and foreign-exchange movements on future results.