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Upland Software Reports Fourth Quarter and Full Year 2018 Financial Results

March 7, 2019 4:01 PM

AUSTIN, Texas--(BUSINESS WIRE)-- Upland Software, Inc. (Nasdaq: UPLD), a leader in cloud-based Enterprise Work Management software, today announced financial and operating results for the fourth quarter and full year of 2018 and provided guidance for its first quarter and full year of 2019.

Fourth Quarter 2018 Financial Highlights

Full Year 2018 Financial Highlights

“Q4 was a strong finish to a transformational year marked by accelerating revenue growth, expanding margins, market leading product innovation, increasing customer loyalty and retention, record acquisition activity, and profitable international expansion,” said Jack McDonald, chairman and CEO of Upland Software. “Our pro forma annualized run-rates are now north of $194 million in revenue and $72 million in Adjusted EBITDA and, as our strong guidance indicates, we are set up for a great 2019 with strong customer relationships, productive sales channels, a robust pipeline of acquisitions, and the operating and financial resources to execute on our plan," he added. “Additionally, just this week we announced a major new product and go-to-market strategy with the launch of our enterprise cloud solution suites, to maximize value for customers and increase Upland's organic growth.”

Full Year and Fourth Quarter Business Highlights

Business Outlook

For the quarter ending March�31, 2019, Upland expects reported total revenue to be between $47.9 and $48.9 million, including subscription and support revenue between $44.4 and $45.2 million, for growth in recurring revenue of 62% at the mid-point over the quarter-ended March�31, 2018. First quarter 2019 Adjusted EBITDA is expected to be between $17.2 and $17.8 million, for an Adjusted EBITDA margin of roughly 36% at the mid-point, representing growth of 62% at the mid-point over the quarter-ended March�31, 2018.

For the full year ending December 31, 2019, Upland expects reported total revenue to be between $194.8 and $198.8 million, including subscription and support revenue between $181.8 and $185.0 million, for growth in recurring revenue of 34% at the mid-point over the year ended December�31, 2018. Full year 2019 Adjusted EBITDA is expected to be between $70.8 and $73.2 million, for an Adjusted EBITDA margin of 37% at the mid-point, representing growth of 36% 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 December 31, Twelve Months Ended December 31,
� 2018 � � � 2017 � � 2018 � � � 2017 �
(unaudited) (unaudited)
Revenue: �
Subscription and support $ 41,776 $ 24,756 $ 136,578 $ 85,467
Perpetual license � 678 � � 1,050 � � 3,902 � � 4,346 �
Total product revenue � 42,454 � � 25,806 � � 140,480 � � 89,813 �
Professional services � 2,726 � � 2,041 � � 9,405 � � 8,139 �
Total revenue � 45,180 � � 27,847 � � 149,885 � � 97,952 �
Cost of revenue:
Subscription and support 13,486 8,148 42,881 28,454
Professional services � 1,526 � � 1,355 � � 5,708 � � 5,193 �
Total cost of revenue � 15,012 � � 9,503 � � 48,589 � � 33,647 �
Gross profit 30,168 18,344 101,296 64,305
Operating expenses:
Sales and marketing 5,980 3,791 20,935 15,307
Research and development 5,743 4,223 21,320 15,795
Refundable Canadian tax credits (2 ) (118 ) (406 ) (542 )
General and administrative 8,566 5,727 32,041 23,291
Depreciation and amortization 4,683 2,387 14,272 6,498
Acquisition-related expenses � 9,099 � � 4,724 � � 17,838 � � 15,092 �
Total operating expenses � 34,069 � � 20,734 � � 106,000 � � 75,441 �
Loss from operations (3,901 ) (2,390 ) (4,704 ) (11,136 )
Other expense:
Interest expense, net (4,518 ) (2,210 ) (13,273 ) (6,582 )
Other income (expense), net � (816 ) � 549 � � (1,781 ) � 289 �
Total other expense � (5,334 ) � (1,661 ) � (15,054 ) � (6,293 )
Loss before provision for income taxes (9,235 ) (4,051 ) (19,758 ) (17,429 )
Provision for income taxes � 11,927 � � 257 � � 9,809 � � (1,296 )
Net income (loss) $ 2,692 � $ (3,794 ) $ (9,949 ) $ (18,725 )
Net income (loss) per common share:
Basic $ 0.13 $ (0.19 ) $ (0.50 ) $ (1.02 )
Diluted (1) $ 0.13 $ (0.19 ) $ (0.50 ) $ (1.02 )
Weighted average common shares outstanding:
Basic 20,191,390 19,514,893 19,985,528 18,411,247
Diluted (1) 21,099,723 19,514,893 19,985,528 18,411,247
�
(1) For the twelve month period ended December 31, 2018 and the three and twelve month periods ended December 31, 2017 basic and diluted net loss per share and weighted average common shares outstanding were the same as any additional common stock equivalents would have been anti-dilutive due to the net losses incurred during these periods.
�
Upland Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
�
December 31,
� 2018 � � � 2017 �
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 16,738 $ 22,326
Accounts receivable, net of allowance 40,841 26,504
Deferred commissions, current 2,633 —
Prepaid and other � 5,884 � � 2,856 �
Total current assets 66,096 51,686
Canadian tax credits receivable 1,573 1,196
Property and equipment, net 2,827 2,927
Intangible assets, net 179,572 70,043
Goodwill 226,214 154,607
Deferred commissions, noncurrent 6,292 —
Other assets � 1,516 � � 800 �
Total assets $ 484,090 � $ 281,259 �
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 3,494 $ 3,887
Accrued compensation 6,581 5,157
Accrued expenses and other current liabilities 16,667 12,148
Deferred revenue 57,626 43,807
Due to sellers 17,267 7,839
Current maturities of notes payable � 6,015 � � 2,301 �
Total current liabilities 107,650 75,139
Notes payable, less current maturities 273,713 108,843
Deferred revenue, noncurrent 578 1,570
Noncurrent deferred tax liability, net 13,311 3,262
Other long-term liabilities � 640 � � 1,030 �
Total liabilities 395,892 189,844
Stockholders’ equity:
Common stock 2 2
Additional paid-in capital 180,481 174,944
Accumulated other comprehensive loss (7,500 ) (2,403 )
Accumulated deficit � (84,785 ) � (81,128 )
Total stockholders’ equity � 88,198 � � 91,415 �
Total liabilities and stockholders’ equity $ 484,090 � $ 281,259 �
� �
Upland Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
�
Twelve Months Ended December 31,
� 2018 � � 2017 �
(unaudited)
Operating activities
Net loss $ (9,949 ) $ (18,725 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 21,347 11,914
Deferred income taxes 268 (262 )
Amortization of deferred commissions 2,367 —
Foreign currency re-measurement (gain) loss 305 (382 )
Non-cash interest and other expense 874 592
Non-cash stock compensation expense 14,130 9,977
Non-cash loss on retirement of fixed assets — (19 )
Changes in operating assets and liabilities, net of purchase business combinations:
Accounts receivable (5,212 ) (4,710 )
Prepaids and other (2,798 ) 1,555
Accounts payable (3,399 ) 1,254
Accrued expenses and other liabilities (15,050 ) 3,715
Deferred revenue � 4,464 � � 2,807 �
Net cash provided by operating activities 7,347 7,716
Investing activities
Purchase of property and equipment (935 ) (396 )
Purchase of customer relationships — (55 )
Purchase business combinations, net of cash acquired � (160,751 ) � (110,324 )
Net cash used in investing activities (161,686 ) (110,775 )
Financing activities
Payments on capital leases (1,136 ) (1,497 )
Proceeds from notes payable, net of issuance costs 172,397 74,538
Payments on notes payable (4,689 ) (11,912 )
Taxes paid related to net share settlement of equity awards (9,400 ) (3,387 )
Issuance of common stock, net of issuance costs 807 43,797
Additional consideration paid to sellers of businesses � (8,056 ) � (5,361 )
Net cash provided by financing activities 149,923 96,178
Effect of exchange rate fluctuations on cash � (1,172 ) � 449 �
Change in cash and cash equivalents (5,588 ) (6,432 )
Cash and cash equivalents, beginning of period � 22,326 � � 28,758 �
Cash and cash equivalents, end of period $ 16,738 � $ 22,326 �
Supplemental disclosures of cash flow information:
Cash paid for interest $ 12,429 $ 6,012
Cash paid for taxes $ 3,348 $ 1,782
Noncash investing and financing activities:
Equipment acquired pursuant to capital lease obligations $ — $ 50
� �
Upland Software, Inc.
Reconciliation of Adjusted EBITDA
(in thousands, unaudited)
�
Three Months Ended December 31, Twelve Months Ended December 31,
� 2018 � � � 2017 � � 2018 � � � 2017 �

Reconciliation of net income (loss) to Adjusted EBITDA:

�
Net income (loss) $ 2,692 $ (3,794 ) $ (9,949 ) $ (18,725 )
Add:
Depreciation and amortization expense 6,743 3,802 21,347 11,914
Interest expense, net 4,518 2,210 13,273 6,582
Other expense (income), net 816 (549 ) 1,781 (289 )
Provision for income taxes (11,927 ) (257 ) (9,809 ) 1,296
Stock-based compensation expense 3,750 2,173 14,130 9,977
Acquisition-related expense 9,099 4,724 17,838 15,092
Purchase accounting deferred revenue discount � 1,024 � � 1,437 � � 4,494 � � 4,469 �
Adjusted EBITDA $ 16,715 � $ 9,746 � $ 53,105 � $ 30,316 �
� �
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 December 31, Twelve Months Ended December 31,
� 2018 � � � 2017 � � 2018 � � � 2017 �

Reconciliation of net income (loss) to non-GAAP net income:

�
Net income (loss) $ 2,692 $ (3,794 ) $ (9,949 ) $ (18,725 )
Add:
Stock-based compensation expense 3,750 2,173 14,130 9,977
Amortization of purchased intangibles 6,151 3,013 19,096 9,298
Amortization of debt discount 258 176 874 592
Acquisition-related expense 9,099 4,724 17,838 15,092
Purchase accounting deferred revenue discount 1,024 1,437 4,494 4,469
Provision for Income Tax - nonrecurring (10,100 ) — (10,100 ) —
Tax effect of adjustments above � (545 ) � (82 ) � (723 ) � (324 )
Non-GAAP net income $ 12,329 � $ 7,647 � $ 35,660 � $ 20,379 �
�
Weighted average ordinary shares outstanding, basic 20,191,390 19,514,893 19,985,528 18,411,247
Weighted average ordinary shares outstanding, diluted 21,099,723 20,668,840 20,975,713 19,548,371
Non-GAAP earnings per share, basic $ 0.61 $ 0.39 $ 1.78 $ 1.11
Non-GAAP earnings per share, diluted $ 0.58 $ 0.37 $ 1.70 $ 1.04
� �
Upland Software, Inc.
Supplemental Financial Information
(in thousands, unaudited)
�
Three Months Ended December 31, Twelve Months Ended December 31,
� 2018 � 2017 � 2018 � � 2017
Stock-based compensation: �
Cost of revenue $ 190 $ 159 $ 654 $ 436
Research and development 380 236 1,250 796
Sales and marketing 165 83 533 232
General and administrative � 3,015 � 1,695 � � 11,693 � 8,513
Total $ 3,750 $ 2,173 � $ 14,130 $ 9,977
�
Three Months Ended December 31, Twelve Months Ended December 31,
� 2018 � 2017 � 2018 � 2017
Depreciation:
Cost of revenue $ 376 $ 442 $ 1,644 $ 1,904
Operating expense � 216 � 347 � � 607 � 712
Total $ 592 $ 789 � $ 2,251 $ 2,616
�
Amortization:
Cost of revenue $ 1,684 $ 973 $ 5,431 $ 3,512
Operating expense � 4,467 � 2,040 � � 13,665 � 5,786

Total

$ 6,151 $ 3,013 � $ 19,096 $ 9,298

Investor Relations Contact:

Mike Hill

Upland Software

512-960-1031

[email protected]

Media Contact:

Christina Turner

[email protected]

855-944-7526

Source: Upland Software, Inc.

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