Upland Software, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are to Q1 2023. Upland provides more than 25 cloud software products to over 10,000 customers. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $70.7 | $77.1 |
| Gross profit / gross margin | $49.7 / 70% | $51.5 / 67% |
| Operating loss | $(91.6) | $(137.4) |
| Net loss | $(96.1) | $(140.0) |
| Net loss attributable to common stockholders | $(97.5) | $(141.4) |
| Basic and diluted loss per share | $(3.37) | $(4.38) |
| Adjusted EBITDA | $13.1 | $17.6 |
| Cash provided by operating activities | $5.1 | $15.8 |
Subscription and support generated $67.1 million, or 95% of revenue; perpetual licenses contributed $1.5 million and professional services $2.2 million. Core Organic Growth Rate, a company-defined non-GAAP measure, was negative 1.9%.
Liquidity, debt, and capital
- Cash and cash equivalents were $231.6 million at quarter-end, down from $236.6 million at December 31, 2023. Working capital was $165.8 million.
- Debt outstanding was $480.7 million before debt discounts, including $3.3 million of current maturities. The $60 million revolver was undrawn, with its stated maturity on August 6, 2024; term loans mature August 6, 2026.
- After swaps, $257.9 million of term loans carried a 5.4% effective fixed rate; the remaining principal carried a floating rate of 9.2%. Cash interest costs averaged 7.2% in Q1 2024 versus 5.4% in Q1 2023.
- Financing cash outflow included $7.9 million of share repurchases and $1.4 million of debt repayments. The company repurchased and retired 2.24 million shares at an average $3.50 per share; approximately $2.8 million remained under the authorization.
- Series A convertible preferred stock had a $123.6 million liquidation preference and accrued dividends of $8.6 million at quarter-end. Its 4.5% annual dividend compounds quarterly and may be paid in cash or in kind.
Material changes and unusual items
- Revenue fell 8% year over year. Management attributed the decline mainly to a $4.4 million decrease from Sunset Assets, lower overage charges, fewer professional-services projects, and lower subscription revenue in certain products. Core organic subscription and support revenue declined 1.9% on the company’s defined basis.
- Gross margin improved to 70% from 67%, as cost of revenue declined 18%, faster than revenue. Sales and marketing expense increased 19% to $17.0 million, reflecting personnel and growth-plan marketing investments. General and administrative expense decreased 23% to $13.2 million, partly due to lower stock compensation.
- Goodwill impairment was $87.2 million, compared with $128.8 million in Q1 2023. The company cited declines in its stock price and market capitalization; the impairment was noncash and was the principal driver of the reported GAAP operating loss. Goodwill was $264.0 million at quarter-end, down from $353.8 million at year-end.
- Operating cash flow decreased by $10.7 million to $5.1 million. Management cited working-capital effects, including higher prepaid and other current assets, payments of current liabilities, and lower deferred revenue.
- Remaining performance obligations were approximately $258.4 million, with about 69% expected to be recognized over the next 12 months. These amounts are not equivalent to guaranteed future revenue.
Outlook, risks, and contingencies
Management stated that cash, operating cash flows, and available credit are expected to fund operations for at least the next 12 months. The filing provides no specific quarterly or full-year revenue or earnings guidance. The company intends to pursue complementary acquisitions, but states its forward-looking statements do not assume future acquisitions.
Key risks include continued revenue declines or difficulty executing growth investments; further goodwill impairment if the share price declines; substantial debt and exposure to floating rates (management estimated a 100-basis-point rate change could increase quarterly interest expense by $0.6 million); and the approaching maturity of the undrawn revolver. Foreign currency movements are another exposure. Management said pending legal proceedings are not expected to have a material adverse effect. The company reported it was in compliance with credit-facility covenants and that disclosure controls were effective; it reported no material changes to its risk factors during 2024.
Important facts for investors to verify
- Whether subscription revenue and core organic growth stabilize, and how much of reported declines relates to Sunset Assets and overage charges.
- Operating cash flow, deferred-revenue trends, and the sustainability of liquidity given the debt burden and revolver maturity.
- Debt terms, floating-rate exposure, refinancing plans for the revolver, and the August 2026 term-loan maturity.
- Assumptions behind goodwill valuations and the possibility of further impairment.
- Preferred-stock dividend accruals, conversion and liquidation rights, and potential dilution; the filing lists 7.1 million common-share equivalents for the preferred stock as anti-dilutive.
- Share-repurchase activity and remaining authorization; confirm the status of the Tax Benefit Preservation Plan, which the filing says was scheduled to expire May 1, 2024 unless earlier terminated or otherwise ended.