Upland Software, Inc. — FY2023 Form 10-K
Business context and reporting period. Upland provides cloud-based enterprise software across functions including marketing, sales, contact center, project management, IT, business operations, HR and legal. This annual report covers the fiscal year ended December 31, 2023; it is not a standalone Q4 filing. Upland reported more than 10,000 customers, with no customer accounting for more than 10% of revenue. It completed no acquisitions in 2023.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $297.9 million | $317.3 million | Down 6% |
| Subscription and support revenue | $281.6 million | $297.9 million | Down 5% |
| Perpetual license revenue | $6.1 million | $6.9 million | Down 13% |
| Professional services revenue | $10.2 million | $12.5 million | Down 18% |
| Gross profit / margin | $201.5 million / 68% | $213.6 million / 67% | Margin up about 1 point |
| Operating loss | $(163.9) million | $(40.2) million | Loss widened |
| Net loss | $(179.9) million | $(68.4) million | Loss widened |
| Net loss attributable to common shareholders | $(185.2) million; $(5.77) per share | $(70.3) million; $(2.23) per share | Loss widened |
| Adjusted EBITDA (non-GAAP) | $64.4 million | $97.1 million | Down 34% |
| Cash from operating activities | $49.9 million | $30.0 million | Up $20.0 million |
Liquidity, debt and other metrics
- Cash and cash equivalents were $236.6 million at year-end, versus $248.7 million a year earlier; reported total liquidity, including the fully available $60.0 million revolver, was $296.6 million.
- Outstanding Credit Facility principal was $482.1 million; the revolver was undrawn. About $258.5 million of term debt was fixed at 5.4%; the remaining $223.5 million carried a floating rate of 9.2% at year-end. The term loans mature in 2026; the revolver availability runs through August 2024.
- Working capital surplus was $169.6 million, compared with $170.1 million. Upland said available cash, operating cash flow and Credit Facility availability should fund operations for at least the next 12 months.
- Year-end annualized recurring revenue (ARR), a company-defined non-GAAP operating metric, was $242.1 million versus $266.3 million. Annual net dollar retention was 95%, unchanged from 2022.
- Upland repurchased 3.25 million shares for $14.2 million during 2023. Its $25 million authorization had approximately $10.8 million remaining at year-end.
Material changes and management commentary
- Revenue declined amid $13.9 million of lower subscription and support revenue from Sunset Assets, $4.6 million of lower customer renewals, reduced overage charges and fewer professional-services implementations. Prior-year acquisitions contributed $3.7 million of subscription and support revenue in 2023.
- Upland classified additional products and customer contracts as Sunset Assets during 2023, while removing some previously classified offerings. It reduced sales and marketing focus and established end-of-life targets for discontinued offerings. Management estimated that the Sunset Assets represented about $42.8 million of 2023 annual revenue in aggregate, based on the disclosed additions and removals.
- Gross margin improved to 68%, while sales and marketing and R&D expenses increased as Upland invested in go-to-market operations and its India R&D Center of Excellence. Adjusted EBITDA fell to $64.4 million.
- GAAP results included a $128.8 million goodwill impairment charge in Q1 2023, following a decline in the share price and market capitalization; the company recorded a further $12.5 million impairment in Q4 2022. The annual impairment was a major contributor to the wider 2023 GAAP loss. The auditor identified goodwill impairment valuation as a critical audit matter.
- Cash from operations included a one-time $20.5 million cash receipt from selling part of the interest-rate swaps. Upland also prepaid $35 million of term debt and paid $14.1 million in cash for common-share repurchases.
- For Q4, total revenue was $72.2 million versus $78.8 million in Q4 2022; the company-reported core organic growth rate was negative 0.9%. The filing text does not provide a clear standalone Q4 profit or cash-flow value in the supplied data.
Outlook, risks and contingencies
- No specific revenue, earnings or cash-flow guidance is provided in the supplied filing text. Management intends to continue investing in products, customer expansion and sales, and to pursue complementary acquisitions; it also expects seasonality to continue or possibly increase.
- Key risks include customer retention and renewal trends, competition and pricing pressure, the execution of sales investments, acquisition integration, cybersecurity and third-party hosting disruptions, privacy regulation, and evolving AI-related risks.
- Debt creates significant interest-rate and refinancing exposure. Credit Facility covenants restrict certain actions, including additional debt, acquisitions, dividends and share repurchases; the company reported compliance with its covenants at year-end. A 100-basis-point change in variable rates was estimated to change annual interest expense by about $1.0 million.
- Upland reported approximately $304.2 million of federal and foreign NOL carryforwards and $4.0 million of R&D credit carryforwards. Ownership-change limitations are expected to cause about $155 million of federal NOLs and all $4.0 million of credits to expire before use. The company has a full valuation allowance against domestic net deferred tax assets; its Tax Benefit Preservation Plan was due to expire May 1, 2024.
- Series A preferred stock carries a 4.5% cumulative annual dividend until the seventh anniversary of issuance, then 7%; dividends may increase the liquidation preference rather than be paid in cash. It ranks ahead of common stock in specified distributions and has conversion and governance rights.
- Upland reported no pending legal proceedings it believed would have a material adverse effect. Management and the auditor concluded internal control over financial reporting was effective as of year-end; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether renewals, ARR and core organic revenue stabilize, particularly after excluding Sunset Assets and overage charges.
- The cash-generation trend excluding the one-time $20.5 million swap-sale proceeds, and the effect of debt service and required refinancing on liquidity.
- The assumptions underlying the $128.8 million goodwill impairment and the possibility of further impairments or shortened useful lives of acquired intangibles.
- The remaining share-repurchase authorization and the preferred stock’s accruing dividends, conversion dilution, senior claims and change-of-control provisions.
- The timing and usability of NOLs and tax credits, and the status of the Tax Benefit Preservation Plan following its stated expiration date.