Upland Software, Inc. (NASDAQ:UPLD) Q1 2023 Earnings Call Transcript May 5, 2023

Operator: Thank you for standing by and welcome to the Upland Software First Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. The conference call will be recorded 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 2023 earnings release, which was distributed today at 4 p.m. Eastern Standard Time. If you’ve 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. Sir, go ahead.

Jack McDonald: All right. Thank you and welcome to our Q1 2023 earnings call. I’m joined by Mike Hill, our CFO. On today’s call, I am going to start with Q1 review, and following that Mike will provide some detail on the numbers and our guidance. After that we’ll open it up for Q&A. But before we could start it, Mike will read the safe harbor statement. Mike?

Mike Hill: Thank you, Jack. So during today’s call, we will include statements that are considered forward-looking within We do not intend or undertake any duty to release Upland will refer to non-GAAP financial Upland has provided reconciliations of press release announcing our first quarter results And with that, I’ll turn the call back over to Jack.

Jack McDonald: All right. Thanks, Mike. So the headlines for Q1 in the quarter we beat our Q1 revenue and adjusted EBITDA guidance midpoints. Our cash on hand as of March 31 was $258 million and that’s after generating $15.6 million of free cash flow in Q1. And again we anticipate generating $30 million to $40 million of free cash flow in 2023 as we have previously indicated. In the first quarter we expanded relationships with 333 existing customers, 38 of which were major expansions. We also welcomed 207 new customers to Upland in the first quarter, including 20 new major customers. New customer deals were distributed across our products and industry verticals. On the product front in Q1 I’ll note that we hosted a webinar featuring Forrester to discuss the future of knowledge management and the beta release of Upland’s right answers AI knowledge assistant and that is a new beta release which utilizes open API’s ChatGPT AI to knowledge workers can streamline the creation of knowledge bases by simply requesting content related to their topic at hand, and receiving the real time response with full article content, summarization and identification of key words.

All of that is then fed into an enterprise system and knowledge base with integrations to key systems of record and an enterprise workflows. On the FileBound side we once again were recognized as a gold medalist and leader in enterprise content management in data quadrant and the report from software reviews for document management and workflow automation capabilities. AccuRoute, I have another release in the quarter and this quarter release extends MFP integrations with Lexmark. It increases DMS visibility, expands fax API support to ensure the security of personally identifiable information in highly regulated industries, such as healthcare. BA Insight, a product that we’re very excited about was recognized by KMWorld’s 2023 list of 100 companies that matter in knowledge management.

I think overall on our growth plan, it’s still early in the process. But we are making progress on the growth plan. And we remain excited on the prospects and about building shareholder value through time. And we look forward to sharing appropriate updates on our progress as we go. So with that, I’m going to turn the call over to Mike.

Mike Hill: Well, thank you, Jack. I’ll cover the financial results for the first quarter. Our outlook for the second quarter, and I’ll reaffirm our guidance for the full year 2023. Statement, total revenue for the first quarter was $77.1 million representing decrease without FX impact, growth would have been roughly flat. Recurring revenue from subscription and support decreased 1% year-over-year to $72.9 million without FX impact recurring growth would have been 1% positive. Professional license revenue decreased to professional services revenue was $2.6 million for the quarter overall gross margin was 67% during the first quarter, and our product gross margin remained strong at 68% 73% when adding back depreciation and operating expenses, excluding acquisition related expenses, depreciation $37.8 million for the quarter generally as expected, but should get into her $128.8 million triggered by the dip in our stock price had our stock price not decreased we would not have had also acquisition related expenses were across the border, which were in line with plan.

acquisition related expenses to further declines are relatively small amount here in Q2 and should remain in after Q2 until our acquisition activity picks first quarter 2023 adjusted EBITDA was $17.6 million or 23% 30% of total revenue for the first quarter of 2023. for the first quarter of 2023 GAAP operating cash flow was free cash flow was $15.6 million. working capital accounts of approximately $4.5 million which temporarily improved our free cash flow generation in Q1. We do not expect these positive temporary timing difference approximately $318 million, $258 million of cash on our balance plus our $60 million undrawn revolver. March 31, 2023, we had out $263 million after factoring in cash on our balance sheet. guidance we are issuing guidance for Q2 and quarter ending June 30, 2023 upon expense, total revenue to be between $69.8 million and $75.8 million including subscriptions support revenue between $65.7 and decline in total revenue of 9% at the midpoint quarter ended June 30, 2022 second quarter 2023 adjusted EBITDA is expected adjusted EBITDA margin of 23% at the midpoint adjusted EBITDA guide at the midpoint is a decrease quarter ended June 30, 2022.

Full year ending December 31, 2023 12 million including subscriptions support revenue between 269 and 280 full year 2023 adjusted EBITDA is expected I’ll turn the call back to Jack.

Jack McDonald: All right, thanks, Mike, we are ready to open the call up for Q&A.

Q&A Session

Operator: Your first question comes from the line of Jeff Van Rhee.

Jeff Van Rhee: Great, thanks, guys. A couple for me. Jack the new growth plan. I think the outline last quarter was that you’re thinking about €15 million spend, for a variety of reasons, just where are you in terms of putting that annualized amount to work namely, what did you get done in Q1 in terms of that spent?

Jack McDonald: It’s still early, but we’re moving with urgency. We’ve added a number of folks in digital marketing and STRS and DSRs. So really great energy. And obviously we’re driving see results as soon as we can.

Jeff Van Rhee: Yes, I guess what I was saying is just more so if we’re talking three and a half give or take –

Jack McDonald: I’m not going to break out the dollar amount that we spent on the growth plan .

Jeff Van Rhee: Could you comment on G&A being up from 14 million to 17 million sequentially?

Mike Hill: Well, yes, Jeff, this is Mike. Yes, we did have some, some accruals in the quarter on G&A added to bonus accruals. But that was it, those things tend to fluctuate from quarter-to-quarter. So there’s a little bit of noise in Q1 but that’s wouldn’t .

Jeff Van Rhee: Okay, macro conditions, we’re hearing a lot of changes in buyer behavior. What did you observe the end of quarter and since then?

Jack McDonald: We were pretty pleased with how the quarter turned out from bookings perspective. So obviously, we’re cautious on outlook because we don’t know what’s coming. But in terms of our Q1 bookings things came in where we were hoping they would come in. But again, what happened to the rest of the year here.

Jeff Van Rhee: Okay, that’s it for me. Thanks.

Operator: And your last question comes from line of Jake Roberge.

Jake Roberge: Hey, thanks for taking my questions. I know there are some moving pieces with the products that need to be sunsetted. But curious how to manage tracking for some of your faster growing products that you talked about looking to prioritize during this transition and just on the macro as well as any product suites that have been more or less prioritized, just given the changing demand environment?

Jack McDonald: So I would say that, as I mentioned a moment ago, the demand environment in Q1 came in pretty much as we expected it and we had a relatively good quarter. In that regard we’ll see what the rest of the year brings. We have put in place a plan here to prioritize investment behind those products that we think have the highest growth potential and still too early to report anything there. I will say that we’re seeing some nice activity in our knowledge management products. But again, we see significant opportunities across a variety of our product groups.

Jake Roberge: Great. Thanks. And then, is there any update on your plans for M&A? Just given the macro uncertainty and just compressions that we’re seeing in valuations? Are you still actively looking at deals or is that something that’s kind of put on pause until you sunset these products and make that the go to market investments that you’re looking to do over the next year or so?

Jack McDonald: We’re definitely still looking at deals. We’re actively in the market. I haven’t seen the price adjustment and private market values that I’d want to see. And of course, we’ve got capital, and we control the timing. So we’re going to be patient and move when it makes sense. But as of right now, I haven’t seen enough of a price adjust super excited, but I’m sure it’s coming.

Jake Roberge: Great. Thanks for taking my questions.

Operator: There are no further questions at this time. Mr. McDonald, you’d like to close.

Jack McDonald : Great. All right. Well, thank you so much, and we will see you on the next earnings call.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.