Press release

Upland Software Reports First Quarter 2019 Financial Results

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Upland Software, Inc. (Nasdaq:UPLD), a leader in cloud-based enterprise
work management software, today announced financial and operating
results for the first quarter of 2019 and provided guidance for its
second quarter and full year of 2019.

First Quarter 2019 Financial Highlights

  • Total revenue was $48.5 million, an increase of 53% from $31.6 million
    in the first quarter of 2018.
  • Subscription and support revenue was $45.0 million, an increase of 62%
    from $27.7 million in the first quarter of 2018.
  • GAAP net loss was $7.8 million, or a loss of $0.38 cents per share,
    compared to a GAAP net loss of $3.2 million, or a loss of $0.16 cents
    per share, in the first quarter of 2018.
  • Adjusted EBITDA was $17.8 million, or 37% of total revenue, an
    increase of 65% from $10.8 million, or 34% of total revenue, in the
    first quarter of 2018.
  • Cash on hand as of the end of the first quarter was $14.0 million.

“We began 2019 with a strong Q1, delivering 50%+ growth in total revenue
and 60%+ growth in recurring revenue, record Adjusted EBITDA, and a host
of product innovations,” said Jack McDonald, chairman and CEO of Upland
Software. “We have now met or exceeded guidance in each of the 19
quarters we’ve reported since going public, and our strong guidance
shows the momentum continuing in Q2. In addition, after the quarter
close, we announced the strategic and accretive acquisition of PostUp,
which strengthens our CXM Solution Suite and takes us to an annualized
revenue run-rate of $205 million. Our acquisition pipeline is strong,
and we continue to actively pursue opportunities in the market.”

First Quarter Business Highlights

  • Expanded 231 existing customer relationships, including 24 major
    expansions, and added 161 new customer relationships, including 28
    major accounts.
  • Continued to invest in customer-driven innovation, delivering 4 major
    releases and 14 feature packs that improved user experience, enhanced
    performance, and streamlined interconnectivity across several of our
    solution suites.
  • Announced new enterprise cloud solution suites and go-to-market
    strategy to drive more customer value.
  • After Q1 closed, announced the acquisition of PostUp, which adds
    sophisticated email and audience development solutions targeting the
    media and publishing verticals to our Customer Experience Management
    Solution Suite.

Business Outlook

For the quarter ending June 30, 2019, Upland expects reported total
revenue to be between $49.9 and $51.9 million, including subscription
and support revenue between $46.7 and $48.3 million, for growth in
recurring revenue of 43% at the mid-point over the quarter ended
June 30, 2018. Second quarter 2019 Adjusted EBITDA is expected to be
between $17.7 and $18.7 million, for an Adjusted EBITDA margin of
roughly 36% at the mid-point, representing growth of 45% at the
mid-point over the quarter ended June 30, 2018.

For the full year ending December 31, 2019, Upland expects reported
total revenue to be between $202.4 and $206.4 million, including
subscription and support revenue between $189.2 and $192.4 million, for
growth in recurring revenue of 40% at the mid-point over the year ended
December 31, 2018. Full year 2019 Adjusted EBITDA is expected to be
between $73.7 and $76.1 million, for an Adjusted EBITDA margin of 37% at
the mid-point, representing growth of 41% at the mid-point over the year
ended December 31, 2018.

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 conference call may
be accessed within North America by dialing 1.888.684.7501 and outside
of North America by dialing 1.925.418.7884, referencing conference code
1378271. The conference call will be simultaneously webcast on Upland’s
investor relations website, which can be accessed at investor.uplandsoftware.com.
This webcast will contain forward-looking statements and other material
information regarding Upland’s financial and operating results.

Following completion of the live call, a recorded replay of the webcast
will be available on Upland’s website at investor.uplandsoftware.com
for twelve months.

About Upland Software

Upland Software (Nasdaq:UPLD) is a leader in cloud-based enterprise work
management software. Upland provides seven enterprise cloud solution
suites that enable more than one million users at over 9,000 accounts to
win and engage customers, automate business operations, manage projects
and IT costs, and share knowledge throughout the enterprise. All of
Upland’s solutions are backed by a 100 percent 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 annual net dollar retention rate (NDRR) as of December 31
as the aggregate annualized recurring revenue value at December 31 from
those customers that were also customers as of December 31 of the prior
fiscal year, divided by the aggregate annualized recurring revenue value
from all customers as of December 31 of the prior fiscal year. This
measure excludes the revenue value of uncontracted overage fees and
on-demand service fees.

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

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 March 31,
2019 2018
(unaudited) (unaudited)
Revenue:
Subscription and support $ 44,983 $ 27,729
Perpetual license   657     1,626  
Total product revenue   45,640     29,355  
Professional services   2,853     2,260  
Total revenue   48,493     31,615  
Cost of revenue:
Subscription and support 13,274 9,249
Professional services   1,514     1,396  
Total cost of revenue   14,788     10,645  
Gross profit 33,705 20,970
Operating expenses:
Sales and marketing 6,982 4,408
Research and development 6,398 4,891
Refundable Canadian tax credits (86 ) (102 )
General and administrative 9,994 7,000
Depreciation and amortization 5,259 2,130
Acquisition-related expenses   7,723     3,102  
Total operating expenses   36,270     21,429  
Loss from operations (2,565 ) (459 )
Other expense:
Interest expense, net (5,116 ) (2,494 )
Other income (expense), net   (761 )   303  
Total other expense   (5,877 )   (2,191 )
Loss before provision for income taxes (8,442 ) (2,650 )
Benefit from (provision for) income taxes   612     (511 )
Net loss $ (7,830 ) $ (3,161 )
Net income (loss) per common share:
Basic $ (0.38 ) $ (0.16 )
Weighted average common shares outstanding:
Basic 20,442,626 19,759,203
 
   
Upland Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
March 31, December 31,
2019 2018
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 14,022 $ 16,738
Accounts receivable, net of allowance 34,989 40,841
Deferred commissions, current 2,961 2,633
Unbilled receivables 3,373 3,694
Prepaid and other   4,094     3,382  
Total current assets 59,439 67,288
Canadian tax credits receivable 1,714 1,573
Property and equipment, net 2,495 2,827
Operating lease right-of-use asset 4,644
Intangible assets, net 170,880 179,572
Goodwill 229,319 225,322
Deferred commissions, noncurrent 7,148 6,292
Other assets   291     324  
Total assets $ 475,930   $ 483,198  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 3,278 $ 3,494
Accrued compensation 3,152 6,581
Accrued expenses and other current liabilities 16,279 16,666
Deferred revenue 57,018 57,626
Due to sellers 16,793 17,267
Operating lease liabilities, current 2,505
Current maturities of notes payable   6,012     6,015  
Total current liabilities 105,037 107,649
Notes payable, less current maturities 272,098 273,713
Deferred revenue, noncurrent 329 578
Operating lease liabilities, noncurrent 2,592
Noncurrent deferred tax liability, net 10,157 13,311
Other long-term liabilities   652     640  
Total liabilities 390,865 395,891
Stockholders’ equity:
Common stock 2 2
Additional paid-in capital 183,700 180,481
Accumulated other comprehensive loss (5,132 ) (7,501 )
Accumulated deficit   (93,505 )   (85,675 )
Total stockholders’ equity   85,065     87,307  
Total liabilities and stockholders’ equity $ 475,930   $ 483,198  
 
   
Upland Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
Three Months Ended March 31,
  2019     2018  
(unaudited) (unaudited)
Operating activities
Net loss $ (7,830 ) $ (3,161 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 7,387 4,172
Deferred income taxes

(2,811

)

132
Amortization of deferred commissions 801 539
Foreign currency re-measurement (gain) loss (171 ) 142
Non-cash interest and other expense 283 190
Non-cash stock compensation expense 4,628 2,577
Changes in operating assets and liabilities, net of purchase
business combinations:
Accounts receivable 5,980 555
Prepaids and other (1,268 ) (1,811 )
Accounts payable (269 ) (1,124 )
Accrued expenses and other liabilities

(766

) (3,569 )
Deferred revenue   (1,087 )   883  
Net cash provided by (used in) operating activities 4,877 (475 )
Investing activities
Purchase of property and equipment (173 ) (426 )
Purchase business combinations, net of cash acquired   (2,999 )   (34,320 )
Net cash used in investing activities (3,172 ) (34,746 )
Financing activities
Payments on capital leases (233 ) (298 )
Proceeds from notes payable, net of issuance costs (120 ) 49,375
Payments on notes payable (1,781 ) (844 )
Taxes paid related to net share settlement of equity awards (1,504 ) (668 )
Issuance of common stock, net of issuance costs 96 87
Additional consideration paid to sellers of businesses   (1,258 )   (1,978 )
Net cash provided by (used in) financing activities (4,800 ) 45,674
Effect of exchange rate fluctuations on cash   379     (274 )
Change in cash and cash equivalents (2,716 ) 10,179
Cash and cash equivalents, beginning of period   16,738     22,326  
Cash and cash equivalents, end of period $ 14,022   $ 32,505  
Supplemental disclosures of cash flow information:
Cash paid for interest $ 4,854 $ 2,316
Cash paid for taxes $ 758 $ 1,044
Noncash investing and financing activities:
Business combination consideration including holdbacks and earnouts $ $ 5,300
Equipment acquired pursuant to capital lease obligations $ 44 $
   
Upland Software, Inc.
Reconciliation of Adjusted EBITDA
(in thousands, unaudited)
 
Three Months Ended March 31,
2019 2018
Reconciliation of net income (loss) to Adjusted EBITDA:
Net loss $ (7,830 ) $ (3,161 )
Add:
Depreciation and amortization expense 7,387 4,172
Interest expense, net 5,116 2,494
Other expense (income), net 761 (303 )
Provision for income taxes (612 ) 511
Stock-based compensation expense 4,628 2,577
Acquisition-related expense 7,723 3,102
Purchase accounting deferred revenue discount   597     1,389  
Adjusted EBITDA $ 17,770   $ 10,781  
 
   
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 March 31,
2019 2018
Reconciliation of net income (loss) to non-GAAP net income:
Net income (loss) $ (7,830 ) $ (3,161 )
Add:
Stock-based compensation expense 4,628 2,577
Amortization of purchased intangibles 6,837 3,616
Amortization of debt discount 283 190
Acquisition-related expense 7,723 3,102
Purchase accounting deferred revenue discount 597 1,389
Provision for Income Tax – nonrecurring
Tax effect of adjustments above   (1,136 )   (17 )
Non-GAAP net income $ 11,102   $ 7,696  
 
Weighted average ordinary shares outstanding, basic 20,442,626 19,759,203
Weighted average ordinary shares outstanding, diluted 21,146,073 20,952,589
Non-GAAP earnings per share, basic $ 0.54 $ 0.39
Non-GAAP earnings per share, diluted $ 0.53 $ 0.37
 
   
Upland Software, Inc.
Supplemental Financial Information
(in thousands, unaudited)
 
Three Months Ended March 31,
2019 2018
Stock-based compensation:
Cost of revenue $ 160 $ 77
Research and development 322 113
Sales and marketing 139 46
General and administrative   4,007   2,341
Total $ 4,628 $ 2,577
 
 
Three Months Ended March 31,
2019 2018
Depreciation:
Cost of revenue $ 281 $ 436
Operating expense   269   120
Total $ 550 $ 556
 
Amortization:
Cost of revenue $ 1,847 $ 1,606
Operating expense   4,990   2,010
Total $ 6,837 $ 3,616