Upland Software (NASDAQ:UPLD) Exceeds Q4 Expectations But Stock Drops

Jabin Bastian /
2023/02/23 4:12 pm EST
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Business automation software provider Upland Software (NASDAQ: UPLD) beat analyst expectations in Q4 FY2022 quarter, with revenue up 4.07% year on year to $78.8 million. However, guidance for the next quarter was less impressive, coming in at $75 million at the midpoint, being 2.44% below analyst estimates. Upland Software made a GAAP loss of $22.7 million, down on its loss of $7.47 million, in the same quarter last year.

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Upland Software (UPLD) Q4 FY2022 Highlights:

  • Revenue: $78.8 million vs analyst estimates of $76.8 million (2.65% beat)
  • EPS (non-GAAP): $0.37 vs analyst expectations of $0.39 (4.52% miss)
  • Revenue guidance for Q1 2023 is $75 million at the midpoint, below analyst estimates of $76.9 million
  • Management's revenue guidance for upcoming financial year 2023 is $300 million at the midpoint, missing analyst estimates by 3.78% and predicting 5.45% decline (vs 5.07% growth in FY2022)
  • Free cash flow of $5.69 million, up from $1.46 million in previous quarter
  • Gross Margin (GAAP): 66.1%, in line with same quarter last year

"In Q4, we beat our revenue guidance midpoint, even after FX headwinds," said Jack McDonald, Upland's chairman and chief executive officer.

Founder Jack McDonald’s second software rollup, Upland Software (NASDAQ:UPLD) is a one stop shop for sales and marketing software, project management, HR, and contact center services for small and medium sized businesses.

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Sales Growth

As you can see below, Upland Software's revenue growth has been unimpressive over the last two years, growing from quarterly revenue of $78.2 million in Q4 FY2020, to $78.8 million.

Upland Software Total Revenue

Upland Software's quarterly revenue was only up 4.07% year on year, which might disappoint some shareholders. But the revenue actually decreased again in Q4 by $738 thousand, compared to $678 thousand decrease in Q3 2022. While one-off fluctuations don't always have to be concerning, we have no doubt that shareholders would like to see the revenue rebound soon.

Upland Software is guiding for revenue to decline next quarter 4.72% year on year to $75 million, a further deceleration on the 6.42% year-over-year decrease in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $300 million at the midpoint, declining 5.45% compared to 5.06% growth in FY2022.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Upland Software's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 66.1% in Q4.

Upland Software Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.66 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.

Key Takeaways from Upland Software's Q4 Results

With a market capitalization of $278.4 million Upland Software is among smaller companies, but its more than $248.7 million in cash and positive free cash flow over the last twelve months give us confidence that Upland Software has the resources it needs to pursue a high growth business strategy.

It was good to see Upland Software outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that Upland Software's revenue guidance for the full year missed analysts' expectations and it indicates quite a significant slowdown in growth. Overall, it seems to us that this was a complicated quarter for Upland Software. The company is flat on the results and currently trades at $8.73 per share.

Upland Software may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.