Upland Software (NASDAQ:UPLD) Surprises With Q3 Sales But Guidance Underwhelms

Radek Strnad /
2022/11/03 4:13 pm EDT

Business automation software provider Upland Software (NASDAQ: UPLD) reported Q3 FY2022 results topping analyst expectations, with revenue up 4.59% year on year to $79.5 million. However, guidance for the next quarter was less impressive, coming in at $77.1 million at the midpoint, being 2.17% below analyst estimates. Upland Software made a GAAP loss of $6.51 million, improving on its loss of $11 million, in the same quarter last year.

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Upland Software (UPLD) Q3 FY2022 Highlights:

  • Revenue: $79.5 million vs analyst estimates of $78.3 million (1.49% beat)
  • EPS (non-GAAP): $0.50 vs analyst estimates of $0.41 (21.5% beat)
  • Revenue guidance for Q4 2022 is $77.1 million at the midpoint, below analyst estimates of $78.8 million
  • Free cash flow of $1.45 million, down 89.5% from previous quarter
  • Gross Margin (GAAP): 67.6%, in line with same quarter last year

"In Q3, we beat our guidance midpoints on revenue and Adjusted EBITDA, 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 $74.1 million in Q3 FY2020, to $79.5 million.

Upland Software Total Revenue

Upland Software's quarterly revenue was only up 4.59% year on year, which might disappoint some shareholders. But the revenue actually decreased by $678 thousand in Q3, compared to $1.51 million increase in Q2 2022. If we take a closer look, we'll observe a similar revenue decline in the same quarter last year, which could suggest the decline is seasonal. However, the management is guiding for a further drop in revenue in the next quarter, so it is definitely worth keeping an eye on the situation.

Guidance for the next quarter indicates Upland Software is expecting revenue to grow 1.8% year on year to $77.1 million, improving on the 3.21% year-over-year decline in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 1.97% over the next twelve months.

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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 67.6% in Q3.

Upland Software Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from Upland Software's Q3 Results

With a market capitalization of $238.9 million Upland Software is among smaller companies, but its more than $241.7 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.

Upland Software topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Upland Software. The company is flat on the results and currently trades at $7.43 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.