Upland Software, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Upland provides cloud-based business software, with subscription and support representing 94% of quarterly revenue. The company continued its acquisition-led growth strategy and completed acquisitions of BA Insight and Objectif Lune.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $78.7 million | $74.0 million |
| Gross profit / margin | $54.0 million / 69% | $49.5 million / 67% |
| Operating loss | $(14.8) million | $(17.5) million |
| Net loss | $(22.8) million | $(20.7) million |
| Adjusted EBITDA (non-GAAP) | $23.4 million | $22.8 million |
| Cash from operations | $8.2 million | $12.5 million |
| Cash and cash equivalents at period end | $130.4 million | $186.7 million |
Subscription and support revenue was $73.6 million, up 4%; perpetual license revenue was $1.8 million, up from $0.4 million; and professional services revenue was $3.3 million, up 12%. Total operating expenses were $68.7 million, including $10.4 million of acquisition-related expenses and $11.1 million of depreciation and amortization. Interest expense, net, was $7.8 million. The Q1 2022 tax benefit was $0.1 million, versus $4.4 million in Q1 2021, when a valuation-allowance release contributed to the benefit. Diluted loss per share was $0.73, compared with $0.69.
Cash used in investing was $62.5 million, primarily for acquisitions ($62.3 million); cash used in financing was $4.2 million. Cash fell $58.7 million during the quarter, including acquisition spending. Current assets were $209.7 million and current liabilities $179.8 million, a $29.9 million working-capital surplus. The filing reports $526.5 million of borrowings outstanding before debt discount; the balance-sheet debt carrying amount was $517.5 million, including current maturities. The $60 million revolver was undrawn and fully available. The company reported covenant compliance.
Changes versus prior period
- Reported revenue grew 6%, but management said Core Organic Business revenue declined $2.1 million. Acquisitions not fully represented in the prior-year comparison contributed $10.1 million to the reported increase, after a $1.9 million purchase-accounting deferred-revenue discount.
- Core Organic subscription and support revenue fell to $59.5 million from $61.5 million. Management cited lower overage charges ($2.1 million), the non-recurrence of $0.8 million of election-related revenue, and reduced revenue from sunset assets.
- Gross margin improved to 69% from 67%, and operating loss narrowed. Net loss nevertheless widened, chiefly as the prior-year period included a substantially larger income-tax benefit.
- Operating cash flow decreased $4.3 million to $8.2 million. Cash declined from $189.2 million at year-end, primarily reflecting cash paid for the two 2022 acquisitions.
Outlook, commentary, and risks
- No specific quarterly or full-year revenue or earnings guidance is provided in the supplied filing text. Management stated that cash, operating cash flows, available credit, and potential securities offerings should fund operations for at least the next 12 months; it also intends to pursue further acquisitions.
- Remaining performance obligations were approximately $306.1 million at March 31, 2022; about 70% was expected to be recognized over the next 12 months. This is contracted future revenue, not a guarantee of results.
- Senior secured term debt is subject to scheduled payments and matures in 2026. Swaps fixed the rate on the term loans at 5.4%; the revolver rate remains floating. A leverage covenant applies if at least 35% of the revolver is drawn at quarter-end; the company reported no revolver borrowings.
- Acquisitions added goodwill and intangible assets; goodwill was $505.2 million and net intangible assets $300.4 million. Purchase accounting for BA Insight and Objectif Lune remained preliminary. Management reported no goodwill or intangible-asset impairment in the quarter.
- Management cited risks including integration and execution of acquisitions, customer demand and usage variability, competition, COVID-19 uncertainty, foreign-exchange exposure, and inflation. A hypothetical 10% currency-rate change could have changed quarterly revenue by $2.0 million; the company had no currency hedges. Inflation was identified as a potentially adverse risk, including possible higher labor, shipping, and capital costs.
- Unusual/comparability items include $10.4 million of acquisition-related expenses ($4.5 million transaction and $5.9 million transformation costs). Q1 2021 G&A included $6.3 million of accelerated stock compensation related to a former COO; Q1 2022 stock-based compensation was $11.6 million versus $17.8 million a year earlier. The $26.2 million Q1 2022 unrealized swap gain was recorded in other comprehensive income, not operating profit.
Important facts for investors to verify
- Whether organic revenue trends stabilize, particularly subscription revenue excluding acquisitions, overage charges, sunset assets, and election-related sales.
- Whether the acquired businesses meet expectations and whether purchase accounting, integration costs, and acquisition spending affect future margins and cash generation.
- How cash balances, working capital, debt service, and future acquisition commitments evolve; distinguish reported debt carrying value from borrowings before discount.
- How much of remaining performance obligations converts to revenue and cash, and whether the $306.1 million amount changes materially.
- Whether inflation, foreign exchange, or customer usage variability materially affects costs, revenue, or liquidity.