Business Wire | Aug 6, 2020 04:02PM EDT

Upland Software Reports Second Quarter 2020 Financial Results

Aug. 06, 2020

AUSTIN, Texas--(BUSINESS WIRE)--Aug. 06, 2020--Upland Software, Inc. (Nasdaq: UPLD), a leader in cloud-based tools for digital transformation, today announced financial and operating results for the second quarter of 2020 and raised guidance for its third quarter and full year of 2020.

Second Quarter 2020 Financial Highlights

* Total revenue was $71.3 million, an increase of 35% from $53.0 million in the second quarter of 2019. * Subscription and support revenue was $67.7 million, an increase of 39% from $48.7 million in the second quarter of 2019. * GAAP net loss was $14.2 million, or a loss of $0.57 cents per share, compared to a GAAP net loss of $5.4 million, or a loss of $0.24 cents per share, in the second quarter of 2019. * Adjusted EBITDA was $23.7 million, or 33% of total revenue, an increase of 24% from $19.1 million, or 36% of total revenue, in the second quarter of 2019. * Cash on hand as of the end of the second quarter was $87.9 million.

"Q2 was an outstanding quarter, with significant growth and outperformance on revenue and Adjusted EBITDA," said Jack McDonald, Upland's chairman and chief executive officer. "We saw a meaningful bump in usage of the Upland Cloud in the second quarter, with particular strength in CXM across verticals ranging from election-year political campaigns and public advocacy to media and retail," he added. "As our raised guidance reflects, we see signs of this strength continuing in the second half of the year, while maintaining a conservative stance in our outlook."

Second Quarter Business Highlights

* Expanded 241 existing customer relationships, including 50 major expansions, and added 118 new customer relationships, including 34 major accounts. * Continued to invest in customer-driven innovation across Upland's cloud solutions with five major releases and 29 feature packs. For example, in our Document Workflow Cloud solution, we introduced the ability for customers to scan documents utilizing the camera on their iOS and Android mobile devices and added additional eSignature options; and in our CXM Cloud solution, we added Twilio support for cloud telephony deployment within Salesforce and Microsoft Dynamics 365. * Completed the integrations of our Alitfy, InGenius, and Localytics products onto the UplandOne platform. * Continued to invest in our go-to-market initiatives across sales, marketing, and customer success.

Business Outlook

Digital transformation is a strategic imperative for organizations, and Upland is well-positioned with high-impact, mission-critical tools for digital transformation. We are seeing an increase in usage of the Upland Cloud as organizations prioritize proven, rapid time to value solutions that help them succeed in this environment amidst COVID-19.

Our raised guidance reflects the strength we are seeing in our business while factoring in assumptions regarding the potential impacts of COVID-19. This assumes that there will be uncertainty around new business, renewal timing, customer expansion, and customer renewals particularly with customers in industries highly affected by COVID-19. These assumptions are based on information available to us today. Significant variation from these assumptions could cause us to modify our guidance higher or lower.

For the quarter ending September 30, 2020, Upland expects reported total revenue to be between $68.0 and $72.0 million, including subscription and support revenue between $64.9 and $67.9 million, for growth in recurring revenue of 30% at the mid-point over the quarter-ended September 30, 2019. Third quarter 2020 Adjusted EBITDA is expected to be between $22.3 and $24.3 million, for an Adjusted EBITDA margin of 33% at the mid-point, representing growth of 13% at the mid-point over the quarter-ended September 30, 2019.

For the full year ending December 31, 2020, Upland expects reported total revenue to be between $273.3 and $281.3 million, including subscription and support revenue between $259.5 and $265.5 million, for growth in recurring revenue of 29% at the mid-point over the year ended December 31, 2019. Full year 2020 Adjusted EBITDA is expected to be between $92.2 and $96.2 million, for an Adjusted EBITDA margin of 34% at the mid-point, representing growth of 14% at the mid-point over the year ended December 31, 2019.

Conference Call Details

Upland's executive team will host a live conference call and webcast at 4:00 p.m. Central Time, 5:00 p.m. Eastern Time today to review Upland's financial results and outlook for the business. The call can be accessed via a webcast on investor.uplandsoftware.com, or by dialing 1-833-520-0067 in the United States or +1-236-714-2220 if outside the United States, using the passcode | conference call identification number: 8462847. This webcast will contain forward-looking statements and other material information regarding Upland's financial and operating results.

Following the completion of the conference call, a recording of the webcast will be made available at investor.uplandsoftware.com for twelve months.

About Upland Software

Upland Software (Nasdaq: UPLD) is a leader in cloud-based tools for digital transformation. The Upland Cloud enables thousands of organizations to engage with customers on key digital channels, optimize sales team performance, manage projects and IT costs, and automate critical document workflows. The Upland Cloud is backed by a 100% customer success commitment and the UplandOne platform, which puts customers at the center of everything we do. To learn more, visit www.uplandsoftware.com.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income (loss) per share.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results, such as our revenues excluding the impact for foreign currency fluctuations or our operating performance excluding not only non-cash charges, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and they are used by our institutional investors and the analyst community to help them analyze the health of our business. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the tables provided below in this release.

We are unable to reconcile any forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

Upland defines Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus net income (loss) from discontinued operations, depreciation and amortization expense, interest expense, net, other expense (income), net, provision for income taxes, stock-based compensation expense, acquisition-related expenses, non-recurring litigation costs, and purchase accounting adjustments for deferred revenue.

Upland defines non-GAAP net income (loss) as net income (loss), calculated in accordance with GAAP, plus, amortization of purchased intangible assets, amortization of debt discount, loss on debt extinguishment, stock-based compensation expenses, acquisition-related expenses, non-recurring litigation expenses, purchase accounting adjustments for deferred revenue, non-recurring provision for income tax, and the related tax effect of the adjustments above.

Upland defines major accounts as accounts with greater than or equal to $25,000 in annual recurring revenue.

Upland defines major expansions as existing customers who expanded the amount of annual recurring revenue under their contract by at least $25,000.

Forward-looking Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance, including our guidance related to future performance, and are subject to substantial risks, uncertainties and assumptions. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. Accordingly, you should not place undue reliance on these forward-looking statements. Forward-looking statements include any statement that does not directly relate to any historical or current fact and often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "hope," "predict," "could," "should," "would," "project," or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including, but are not limited to: our financial performance and our ability to achieve, sustain or increase profitability or predict future results; our ability to attract and retain customers; our ability to deliver high-quality customer service; the growth of demand for enterprise work management applications; our plans regarding, and our ability to effectively manage, our growth; our plans regarding future acquisitions and our ability to consummate and integrate acquisitions; maintaining our senior management and key personnel; our ability to maintain and expand our direct sales organization; our ability to obtain financing in the future on acceptable terms or at all; the performance of our resellers; our ability to adapt to changing market conditions and competition; our ability to successfully enter new markets and manage our international expansion; the operation and reliability of our third-party data centers and other service providers; our ability to adapt to technological change and continue to innovate; our ability to integrate our applications with other software applications; our ability to comply with privacy laws and regulations; and factors that could affect our business and financial results identified in Upland's filings with the Securities and Exchange Commission (the "SEC"), including Upland's most recent 10-K and our recent Quarterly Report on Form 10-Q filed with the SEC. Additional information will also be set forth in Upland's future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that Upland makes with the SEC. The forward-looking statements herein represent Upland's views as of the date of this press release, and these views could change. However, while Upland may elect to update these forward-looking statements at some point in the future, Upland specifically disclaims any obligation to do so, except as required by law. These forward-looking statements should not be relied upon as representing the views of Upland as of any date subsequent to the date of this press release.

Upland Software, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(unaudited) (unaudited)

Revenue:

Subscription and $ 67,699 $ 48,715 $ 131,590 $ 93,698 support

Perpetual license 491 575 852 1,232

Total product revenue 68,190 49,290 132,442 94,930

Professional services 3,125 3,723 6,905 6,576

Total revenue 71,315 53,013 139,347 101,506

Cost of revenue:

Subscription and 21,200 14,622 41,139 27,896 support

Professional services 2,472 1,961 4,734 3,475

Total cost of revenue 23,672 16,583 45,873 31,371

Gross profit 47,643 36,430 93,474 70,135

Operating expenses:

Sales and marketing 11,820 7,989 22,751 14,971

Research and 10,488 7,008 19,908 13,406 development

Refundable Canadian (194) (85) (496) (171) tax credits

General and 17,655 12,042 34,331 22,036 administrative

Depreciation and 9,037 5,744 18,308 11,003 amortization

Acquisition-related 5,781 9,264 20,939 16,987 expenses

Total operating 54,587 41,962 115,741 78,232 expenses

Loss from operations (6,944) (5,532) (22,267) (8,097)

Other expense:

Interest expense, net (7,873) (5,246) (15,516) (10,362)

Other expense, net (15) (692) (1,417) (1,453)

Total other expense (7,888) (5,938) (16,933) (11,815)

Loss before provision (14,832) (11,470) (39,200) (19,912) for income taxes

Benefit from income 673 6,101 4,960 6,713 taxes

Net loss $ (14,159) $ (5,369) $ (34,240) $ (13,199)

Net income (loss) per common share:

Basic $ (0.57) $ (0.24) $ (1.37) $ (0.61)

Weighted averagecommon shares outstanding:

Basic 25,032,996 22,619,805 25,057,715 21,531,216

Upland Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

June 30, December 31,

2020 2019

(unaudited)

Assets

Current assets:

Cash and cash equivalents $ 87,910 $ 175,024

Accounts receivable, net of allowance 48,656 50,938

Deferred commissions, current 4,150 3,059

Unbilled receivables 5,508 5,111

Prepaid and other 6,604 4,748

Total current assets 152,828 238,880

Tax credits receivable 4,378 4,186

Property and equipment, net 3,951 3,917

Operating lease right-of-use asset 13,598 8,056

Intangible assets, net 292,316 282,727

Goodwill 379,486 346,134

Deferred commissions, noncurrent 10,160 8,763

Other assets 2,666 4,165

Total assets $ 859,383 $ 896,828

Liabilities and stockholders' equity

Current liabilities:

Accounts payable $ 1,976 $ 5,904

Accrued compensation 5,933 11,559

Accrued expenses and other current liabilities 14,118 15,344

Deferred revenue 81,032 76,558

Due to sellers 5,712 14,276

Operating lease liabilities, current 3,756 2,533

Current maturities of notes payable 3,184 3,193

Total current liabilities 115,711 129,367

Notes payable, less current maturities 520,155 521,881

Deferred revenue, noncurrent 2,244 496

Operating lease liabilities, noncurrent 11,217 5,862

Noncurrent deferred tax liability, net 24,577 25,685

Other long-term liabilities 33,242 676

Total liabilities 707,146 683,967

Stockholders' equity:

Common stock 3 3

Additional paid-in capital 363,328 345,127

Accumulated other comprehensive loss (45,700) (1,223)

Accumulated deficit (165,394) (131,046)

Total stockholders' equity 152,237 212,861

Total liabilities and stockholders' equity $ 859,383 $ 896,828

Upland Software, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)



Six Months Ended June 30,

2020 2019

(unaudited)

Operating activities

Net loss $ (34,240) $ (13,199)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 23,395 15,152

Deferred income taxes (4,985) (12,024)

Amortization of deferred costs 1,920 1,735

Foreign currency re-measurement loss 497 (212)

Non-cash interest and other expense 1,108 565

Non-cash stock compensation expense 20,300 11,529

Changes in operating assets and liabilities, net of purchase business combinations:

Accounts receivable 5,188 8,410

Prepaids and other (6,743) 2,415

Accounts payable (6,258) (483)

Accrued expenses and other liabilities (7,101) (5,756)

Deferred revenue 2,415 (2,736)

Net cash provided by (used in) operating activities (4,504) 5,396

Investing activities

Purchase of property and equipment (696) (364)

Purchase of customer relationships (201) -

Purchase business combinations, net of cash (67,651) (82,824) acquired

Net cash used in investing activities (68,548) (83,188)

Financing activities

Payments on finance leases (83) (357)

Proceeds from notes payable, net of issuance costs (142) 39,339

Payments on notes payable (2,700) (13,749)

Taxes paid related to net share settlement of (2,140) (4,811) equity awards

Issuance of common stock, net of issuance costs 41 151,535

Additional consideration paid to sellers of (9,580) (3,340) businesses

Net cash provided by (used in) financing activities (14,604) 168,617

Effect of exchange rate fluctuations on cash 542 798

Change in cash and cash equivalents (87,114) 91,623

Cash and cash equivalents, beginning of period 175,024 16,738

Cash and cash equivalents, end of period $ 87,910 $ 108,361

Supplemental disclosures of cash flow information:

Cash paid for interest, net of interest rate swaps $ 14,861 $ 10,298

Cash paid for taxes $ 1,260 $ 1,691

Sales commissions paid, net of amortization of $ 2,488 $ 1,184 deferred commissions

Non-cash investing and financing activities:

Business combination consideration including $ 345 $ 5,175 holdbacks and earnouts

Equipment acquired pursuant to financing lease $ - $ 44 obligations

Upland Software, Inc.

Reconciliation of Adjusted EBITDA

(in thousands, unaudited)

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019

Reconciliation of netloss to Adjusted EBITDA:

Net loss $ (14,159) $ (5,369) $ (34,240) $ (13,199)

Add:

Depreciation and 11,658 7,765 23,395 15,152 amortization expense

Interest expense, net 7,873 5,246 15,516 10,362

Other expense 15 692 1,417 1,453 (income), net

Benefit from income (673) (6,101) (4,960) (6,713) taxes

Stock-based 10,980 6,901 20,300 11,529 compensation expense

Acquisition-related 5,781 9,264 20,939 16,987 expense

Purchase accountingdeferred revenue 2,272 685 5,973 1,282 discount

Adjusted EBITDA $ 23,747 $ 19,083 $ 48,340 $ 36,853

Upland Software, Inc.

Reconciliation of Non-GAAP Net Income and Non-GAAP EPS

(in thousands, except share and per share data, unaudited)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Reconciliation of netloss to non-GAAP net income:

Net income (loss) $ (14,159) $ (5,369) $ (34,240) $ (13,199)

Add:

Stock-based 10,980 6,901 20,300 11,529 compensation expense

Amortization of 11,160 7,204 22,365 14,041 purchased intangibles

Amortization of debt 556 282 1,108 565 discount

Acquisition-related 5,781 9,264 20,939 16,987 expense

Purchase accountingdeferred revenue 2,272 685 5,973 1,282 discount

Tax effect of (1,440) (1,037) (3,308) (2,728) adjustments above

Non-GAAP net income $ 15,150 $ 17,930 $ 33,137 $ 28,477



Weighted averageordinary shares 25,032,996 22,619,805 25,057,715 21,531,216 outstanding, basic

Weighted averageordinary shares 25,419,592 23,622,830 25,470,778 22,360,713 outstanding, diluted

Non-GAAP earnings per $ 0.61 $ 0.79 $ 1.32 $ 1.32 share, basic

Non-GAAP earnings per $ 0.60 $ 0.76 $ 1.30 $ 1.27 share, diluted

Upland Software, Inc.

Supplemental Financial Information

(in thousands, unaudited)

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019

Stock-based compensation:

Cost of revenue $ 570 $ 353 $ 888 $ 513

Research and development 1,019 632 1,634 953

Sales and marketing 898 365 1,447 504

General and 8,493 5,551 16,331 9,559 administrative

Total $ 10,980 $ 6,901 $ 20,300 $ 11,529

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019

Depreciation:

Cost of revenue $ 45 $ 238 $ 116 $ 519

Operating expense 453 323 914 592

Total $ 498 $ 561 $ 1,030 $ 1,111



Amortization:

Cost of revenue $ 2,576 $ 1,783 $ 4,971 $ 3,630

Operating expense 8,584 5,421 17,394 10,411

Total $ 11,160 $ 7,204 $ 22,365 $ 14,041

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CONTACT: Investor Relations Contact: Mike Hill investor-relations@uplandsoftware.com 512-960-1031

CONTACT: Media Contact: Kendell Kelton media@uplandsoftware.com 833-875-2631