Upland Software, Inc. (NASDAQ:UPLD) reported its first quarter 2024 earnings, surpassing its revenue and adjusted EBITDA guidance despite a year-over-year decline in total revenue. The company welcomed new customers and expanded existing relationships, benefiting from improved digital marketing and successful sales initiatives. Upland also highlighted product developments and strategic partnerships. However, the planned runoff of Sunset Assets revenue led to an 8% decrease in total revenue for the quarter. Looking ahead, Upland anticipates a continued decline in total revenue and adjusted EBITDA for Q2 and the full year of 2024.
Key Takeaways
- Upland Software exceeded its Q1 2024 revenue and adjusted EBITDA guidance.
- The company reported a year-over-year decrease of 8% in total revenue due to Sunset Assets runoff.
- Adjusted EBITDA for Q1 2024 was $13.1 million, down from $17.6 million in the previous year.
- Upland welcomed 134 new customers and grew its relationships with existing ones.
- Strategic partnerships with IBM (NYSE:IBM) and Salesforce (NYSE:CRM) and a focus on AI technology were emphasized.
- Guidance for Q2 and full-year 2024 reflects expected declines in revenue and adjusted EBITDA.
- Upland is actively seeking potential acquisitions and has seen a positive impact from a price increase program.
Company Outlook
- Upland forecasts a 10% decline in total revenue at the midpoint for Q2 2024, with expected revenue between $64.4 million and $70.4 million.
- Full-year 2024 revenue is projected to decrease by 8% at the midpoint, with totals ranging from $264.7 million to $282.7 million.
- The company anticipates a 20% adjusted EBITDA margin at the midpoint for both Q2 and the full year, indicating a decrease from the previous year.
Bearish Highlights
- The runoff of Sunset Assets revenue is contributing to the decline in total revenue.
- Adjusted EBITDA has decreased compared to the same period last year and is expected to continue to decline through 2024.
Bullish Highlights
- Upland has successfully closed deals with its inside sales teams and improved digital marketing efforts.
- New customer acquisitions and expansions with existing customers are positive developments.
- The company is experiencing a positive impact on ARR generation from its price increase program.
Misses
- Despite beating guidance, the company reported a decrease in both total revenue and adjusted EBITDA year-over-year.
Q&A Highlights
- Upland is actively searching for acquisition opportunities but has no definitive plans to announce at this time.
- The sunsetting of assets is expected to take two to three years to complete.
In summary, Upland Software has managed to beat its own expectations for the first quarter of 2024 but faces challenges ahead with declining revenue streams. The company's efforts in customer acquisition, sales performance, and strategic partnerships are notable, but the impact of Sunset Assets continues to weigh on financial results. As Upland navigates through these transitions, it remains proactive in seeking growth opportunities through potential acquisitions and pricing strategies.
InvestingPro Insights
Upland Software, Inc. (UPLD) has navigated a challenging quarter with resilience, as evidenced by its recent earnings report. To provide a deeper understanding of the company's financial health and stock performance, we turn to the latest metrics and insights from InvestingPro.
InvestingPro Data:
- Market Capitalization stands at a modest $72.15 million, reflecting the scale of the business in its sector.
- The Price to Earnings (P/E) Ratio is currently negative at -0.57, indicating that the company is not profitable as of the last twelve months ending Q1 2024.
- Revenue for the same period was reported at $291.53 million, with a Gross Profit Margin of 68.49%, showing the company's effectiveness in maintaining profitability on its sales.
InvestingPro Tips:
- Analysts have revised their earnings upwards for the upcoming period, suggesting a potential shift in the company's financial trajectory.
- Upland Software has experienced a significant return over the last week, with a 17.73% price total return, which could indicate investor optimism or a positive market reaction to recent developments.
For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/UPLD. These insights could further inform investment decisions, especially considering the company's high price volatility and the anticipated sales decline in the current year.
Investors interested in a deeper dive into Upland Software's prospects can take advantage of a special offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With these resources, including a total of 11 InvestingPro Tips, investors can gain a more nuanced understanding of Upland's position and future outlook.
Full transcript - Upland Software Inc (UPLD) Q1 2024:
Operator: Thank you for standing by, and welcome to the Upland Software First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions for that will be given at that time. The conference call will be recorded and simultaneously webcast at investor.uplandsoftware.com, and a replay will be available there for 12 months. By now, everyone should have access to the first quarter 2024 earnings release, which was distributed today at 4:00 p.m. Eastern Time. If you have not received the release, it’s available on Upland’s website. I’d now like to turn the call over to Jack McDonald, Chairman and CEO of Upland Software. Please go ahead, sir.
Jack McDonald: All right. Thank you, and welcome to our Q1 2024 earnings call. I’m joined today by Mike Hill, our CFO. We’re going to start today’s call with a Q1 review. Following that, Mike will provide some detail on the Q1 numbers and our guidance, and then we’ll open it up for Q&A. But before we get started, Mike, can you read the safe harbor statement?
Mike Hill: Yes. Thank you, Jack. During today’s call, we will include statements that are considered forward-looking within the meanings of the securities laws. A detailed discussion of the risks and uncertainties associated with such statements is contained in our periodic reports filed with the SEC. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements. On this call, Upland will refer to non-GAAP financial measures that, when used in combination with GAAP results, provide Upland management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-GAAP measures to the most comparable GAAP measures in our press release announcing our financial results, which are available on the Investor Relations section of our website. Please note that we’re unable to reconcile any forward-looking non-GAAP financial measures to directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. With that, I’ll turn the call back over to Jack.
Jack McDonald: All right. Thanks, Mike. So the headlines, we beat our Q1 revenue and adjusted EBITDA guidance midpoints. And our free cash flow came in as expected. Now we continue to execute on our growth plan, and we are seeing some green shoots emerging. Our core bookings exceeded core churn in the first quarter, which is step one in driving our core organic growth rate positive this year as part of our growth plan. Other green shoots that we are seeing include digital marketing, effectiveness and efficiency improving. We’re seeing that in SEO page ranks and cost per lead. We’re seeing sales and marketing qualified leads increasing. We’re seeing overall sales pipeline generation increasing, and we’re seeing successful closed bookings from our new inside sales teams. You’ll recall that we’ve got a multipronged sales organization with field sales, channel, inside sales, which is a newer motion for us as well as, of course, our customer success sales motions. That inside sales motion that – those DSRs, direct sales rep teams are starting to close deals. We saw six major customer deals closed by those inside sellers in the first quarter, including a couple of deals that averaged 200,000 in ARR. So some early green shoots there that we’re happy to see. Our goal remains to exit 2024 at a core organic growth rate of plus or minus 3%. As I’ve noted before, our guidance is more conservative than that. And of course, there are no guarantees that we’re going to hit those goals. In the first quarter, we welcomed 134 new customers that included 21 new major customers, and we also expanded relationships with over 250 existing customers, including 29 major expansions. On the product front, a number of items to highlight. We earned 44 badges in G2’s Spring 2024 Market Reports. That’s across our product portfolio, a couple to highlight. Upland Altify, which is our sales optimization software and Upland InterFAX, our cloud-based fax service are new to receiving badges, but in that badge count in Q1, which is great to see. The company’s knowledge management solutions, including Upland RightAnswers and Upland Panviva, continue to garner various recognitions while Upland Qvidian, our proposal management and response software, increased its number of Leader badges quarter-over-quarter. So happy to see that. Upland Software was included as a Notable Vendor in Forrester’s Customer Solutions Landscape Report for our knowledge management solutions, Panviva and RightAnswers. And with the continuing advances of AI technology, Upland remains committed to enhancing those solutions and guiding organizations through the transformative AI revolution, helping them embrace the future of knowledge management. So a lot of initiatives underway as AI is concerned, more on that in a moment. Our product development teams, of course, have worked diligently in the first quarter to innovate across our portfolio. We have 10 active AI initiatives underway, including Upland Qvidian’s guided proposal automation, which is giving customers AI-powered choice. We integrate with OpenAI and with IBM watsonx. We’ve got an exciting partnership with IBM around watsonx and Qvidian, which we’re very happy about. Upland also drove an integration of Altify with Salesforce AI for a variety of data extraction, summarization, and auto-generated form response capabilities. So also partnering with Salesforce on the AI front. We’re excited about both the IBM and Salesforce partnerships. Our core focus at Upland is on the enterprise space, and our customers care deeply about security, about governance, about compliance and about risk management. And when it comes to introducing generative AI into their businesses, they want it and know it can greatly benefit their business, but only if it complies with their standards around data privacy, governance and risk. And so our customers need to be able to trust us to utilize this new technology responsibly. And that is what these partnerships like the partnerships with IBM and Salesforce give us. And so we like the way that positions us to deliver value for our customers. So with that said, I’m going to turn the call back over to Mike.
Mike Hill: All right. Thank you, Jack. I’ll cover the financial results for the first quarter of 2024 and our outlook for the second quarter and full year 2024. These results and our outlook for 2024 reflect another year of significant incremental sales, marketing and product investments pursuant to our growth plan as well as the planned runoff of our Sunset Assets revenue, as we’ve talked about in the past. Total revenue for the first quarter was $70.7 million, representing a decrease of 8% year-over-year. Recurring revenue from subscription and support declined 8% year-over-year at $67.1 million. Perpetual license revenue declined to $1.5 million in the first quarter, down from $1.6 million in the first quarter of 2023. Professional services revenue was $2.2 million for the quarter, a 15% year-over-year decline. These revenue declines are consistent with the planned runoff of Sunset Asset revenue. Overall, gross margin was 70% during the first quarter, and our product gross margin was 71% or 75% when adding back depreciation and amortization, which we refer to as cash gross margin. Operating expenses for the first quarter of 2024, excluding acquisition-related expenses, depreciation, amortization, stock-based comp, impairment of goodwill were $39.4 million for the quarter or 56% of total revenue. This is in line with our expectations and reflects the sales, marketing and product investments we have been making as part of our growth plan. I should note that we did incur a non-cash goodwill impairment charge of $87.2 million in the first quarter of 2024, which was triggered by a decline in our stock price at the end of the quarter. Had our stock price not decreased, we would likely not have had an impairment. Our first quarter 2024 adjusted EBITDA was $13.1 million or 19% of total revenue, down from $17.6 million or 23% of total revenue for the first quarter of 2023. This adjusted EBITDA decline is generally as expected, considering our growth investments and our decision regarding Sunset Assets. For the first quarter of 2024, our GAAP operating cash flow was $5.1 million and free cash flow was $4.9 million, which was in line with our expectations. Our ongoing free cash flow generation is in addition to the approximate $232 million of cash on our balance sheet as of March 31, 2024. As of March 31, 2024, we had outstanding net debt of approximately $249 million after factoring in the cash on our balance sheet. As of March 31, 2024, our gross debt was approximately $481 million, of which approximately $258 million is still fully hedged, effectively locking our interest rate at 5.4% on that portion of our debt through the full maturity of our term debt in August of 2026. The remaining approximately $223 million of term debt now flows at an interest rate of SOFR plus 385 basis points, which was about 9.2% at March 31, 2024. I will also note that we used $7.9 million of cash to buy back approximately 2.2 million shares of our common stock during the quarter ended March 31, 2024, under our limited stock repurchase program that began in early September of 2023. This brings the cumulative total cost of our stock buybacks through March 31, 2024, to $22.2 million for approximately 5.5 million shares. As a reminder, our stock buyback plan is for a potential $25 million total should it fully execute. As described on past calls, the following guidance reflects the significant incremental sales, marketing and product investments that we are making as part of our comprehensive growth plan as well as the effects of decreasing revenue and expenses related to Sunset Assets. I will note that we are raising our guidance midpoint for the full year ending December 31, 2024, as a result of our Q1 guidance midpoint beats. So for the quarter ending June 30, 2024, Upland expects reported total revenue to be between $64.4 million and $70.4 million, including subscription and support revenue between $61.5 million and $66.5 million for a decline in total revenue of 10% at the midpoint from the quarter ended June 30, 2023. Second quarter 2024 adjusted EBITDA is expected to be between $11.8 million and $14.8 million for an adjusted EBITDA margin of 20% at the midpoint. This adjusted EBITDA guidance at the midpoint is a decrease of 20% from the quarter ended June 30, 2023. For the full year ending December 31, 2024, Upland expects reported total revenue to be between $264.7 million and $282.7 million, including subscription and support revenue between $251.6 million and $266.6 million for a decline in total revenue of 8% at the midpoint from the year ended December 31, 2023. Full year 2024 adjusted EBITDA is expected to be between $50.8 million and $59.8 million for an adjusted EBITDA margin of 20% at the midpoint. This adjusted EBITDA guidance at the midpoint is a decrease of 14% from the year ended December 31, 2023. And with that, I'll pass the call back over to Jack.
Jack McDonald: All right. Thanks Mike. We are now ready to open the call up for Q&A.
Operator: Thank you. [Operator Instructions] And your first question comes from the line of Jake Roberge of William Blair. Please go ahead.
Jake Roberge: Thank you for taking my question. The first one is on the sequential and year-over-year weakness in customer expansion and new customer additions. Is there any color on what's driving that weakness? Are there some macro impacts you should be aware of? And then I have a follow-up.
Jack McDonald: The – we actually, in terms of renewals, expansions and bookings for the quarter, we had a good quarter. You're looking at just counts. It doesn't necessarily have deal size there. So that's the piece you're not factoring in.
Jake Roberge: Got it. That makes a lot of sense. Thank you. And then just one more quick one, I know that last quarter you mentioned like a new focus on potential acquisitions in 2024. Is there anything to call out on that? Any progress there? Thank you.
Jack McDonald: Yes. We continue to be super active in the market looking at opportunities and a couple of things out there that are interesting, and I would like to get something done this year. Nothing to announce at this point, but we're actively looking.
Jake Roberge: Got it. Thank you very much.
Operator: Your next question comes from Alex Sklar of Raymond James. Please go ahead.
Johnathan McCary: Hey, this is Johnathan McCary on for Alex. Thanks for taking the question here. So can you update us on where you stand in terms of the pricing and packaging initiatives you've mentioned? I know you've been focused on the product groupings and bundles. Just curious kind of where you are in that process and if you found the right balance there yet?
Jack McDonald: Yes. I think we implemented last year price increase program to reflect the market realities of where pricing is amongst our competitors and the value we're delivering for customers. And so that has been fully rolled out, and we are seeing a positive impact from that in terms of ARR generation. So fully implemented and working.
Johnathan McCary: Okay. Perfect. And then, Mike, can you give us an update on the sun setting of assets timing? Is there the time line there changed at all, as you kind of more earnestly be on that process or still that same time line there?
Mike Hill: Yes. Same time line two, three years for that to wind down, so it will be a slow burn.
Johnathan McCary: Okay. Thank you, guys.
Operator: [Operator Instructions] There are no more questions. I will now turn the conference back over to Jack McDonald for closing remarks.
Jack McDonald: Okay. Thank you very much, and we will see you on our next quarterly earnings call. Thank you.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.