Upland Software, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; the filing also reports fourth-quarter results. Upland provides cloud-based enterprise work management software. Growth was driven substantially by acquisitions; the company completed its IPO in November 2014.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $64.6 million | $41.2 million |
| Subscription and support revenue | $48.6 million | $30.9 million |
| Professional services revenue | $13.2 million | $8.3 million |
| Gross profit / margin | $41.5 million / 64% | $27.7 million / 67% |
| Operating loss | $18.3 million | $4.6 million |
| Net loss | $20.1 million | $9.2 million |
| Adjusted EBITDA (non-GAAP) | $3.9 million | $2.7 million |
| Net cash from operating activities | $1.2 million | $(0.2) million |
| Cash and cash equivalents at year-end | $31.0 million | $4.7 million |
- Revenue grew 57%; management attributed $21.7 million of the increase to 2013 and 2014 acquisitions. Organic revenue growth was 7% on a constant-currency basis.
- Gross margin fell about 3 percentage points as cost of revenue grew faster than revenue. Operating expenses rose to $59.8 million from $32.3 million, including a $11.2 million non-cash related-party stock charge in R&D.
- Fourth-quarter 2014 revenue was $16.5 million and net loss was $2.7 million; operating loss was $3.6 million.
- Year-end current assets were $47.6 million and current liabilities $45.4 million. Total debt was approximately $23.4 million, including seller notes; borrowings under Comerica facilities were approximately $19.9 million. Debt is secured by substantially all assets, including intellectual property.
- Annualized recurring revenue value was $56.8 million, up from $49.1 million; annual net dollar retention was 96%, versus 90% in 2013.
Material changes, outlook and risks
- Upland acquired Solution Q and Mobile Commons in late 2014. IPO proceeds were approximately $42.9 million net of underwriting discounts and commissions; the company reported using proceeds for debt repayment and those acquisitions, with remaining funds intended for working capital and growth.
- Management expects continued investment in R&D, sales, infrastructure and international expansion, and intends to pursue further acquisitions. It expects perpetual-license revenue to decline as a share of revenue and the revenue mix to shift toward product revenue and away from professional services. The filing provides no quantified forward guidance.
- At December 31, 2014, the company would have violated certain financial covenants under its U.S. and Canadian loan agreements; Comerica waived compliance through March 31, 2015. On March 23, 2015, the facilities were amended and extended, with revised financial covenants. The filings describe covenant and refinancing risk, secured debt, scheduled repayments and potential excess-cash-flow prepayments.
- Key risks include ongoing GAAP losses and uncertain path to profitability; dependence on customer renewals and expansion; acquisition integration and financing; competition and slower cloud adoption; service availability, data security and privacy; foreign exchange exposure; and restrictions on the use of tax-loss carryforwards.
- Unusual items include the $11.2 million non-cash charge related to a technology-services agreement with an investor-affiliated vendor and $0.3 million of non-recurring litigation costs. Management reported no legal proceedings expected to have a material adverse effect and no goodwill impairment in 2014.
Important facts for investors to verify
- Whether recurring revenue, retention and customer expansion can sustain growth, given that most 2014 revenue growth came from acquisitions.
- The circumstances and economics of the $11.2 million related-party charge, including the continuing software-development commitment of $2.1 million for 2015.
- Compliance with amended loan covenants, debt maturities and liquidity needs; the filing reports $2.1 million of 2015 software-development purchase commitments in addition to lease obligations.
- Progress integrating acquisitions and the effect of acquisition-related costs on margins and cash generation.
- How the company converts positive operating cash flow and non-GAAP Adjusted EBITDA into sustainable GAAP profitability.