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Upland (NASDAQ:UPLD) Posts Q4 Sales In Line With Estimates But Full-Year Guidance Underwhelms


Full Report / February 22, 2024

Business automation software provider Upland Software (NASDAQ: UPLD) reported results in line with analysts' expectations in Q4 FY2023, with revenue down 8.4% year on year to $72.18 million. On the other hand, next quarter's revenue guidance of $68 million was less impressive, coming in 5.9% below analysts' estimates. It made a non-GAAP profit of $0.14 per share, down from its profit of $0.37 per share in the same quarter last year.

Upland (UPLD) Q4 FY2023 Highlights:

  • Revenue: $72.18 million vs analyst estimates of $71.85 million (small beat)
  • EPS (non-GAAP): $0.14 vs analyst expectations of $0.18 (22.2% miss)
  • Revenue Guidance for Q1 2024 is $68 million at the midpoint, below analyst estimates of $72.23 million
  • Management's revenue guidance for the upcoming financial year 2024 is $271 million at the midpoint, missing analyst estimates by 6.6% and implying 9% decline (vs 6.1% decline in FY2023)
  • Free Cash Flow of $8.60 million, down 51.6% from the previous quarter
  • Gross Margin (GAAP): 67.2%, up from 66.1% in the same quarter last year
  • Market Capitalization: $141.9 million

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.

Businesses of all sizes are driving digital transformations as a means of increasing revenue, reducing costs, and improving productivity. Increasingly this means adopting cloud based applications across different business functions: accounting and finance, sales and marketing, legal and HR, and so on. When possible, small and medium businesses prefer to get as much functionality as possible from one provider.

Upland Software has a unique business approach. The company has grown its portfolio through dozens of acquisitions to create a broad product catalog of complementary software across seven functions: marketing, sales, contact center, project management, IT, business operations, and HR and legal. Historically, the focus has been on acquiring small software companies from venture investors who are seeking exits. Upland will then integrate the acquisitions on its UplandOne platform, which both greatly increases their profitability to Upland by removing legacy infrastructure, while also making the software easily accessible to Upland’s customer base.

Marketing Software

Whether or not companies market their products through social media, all businesses need to meet customers where they are; and increasingly, that is social media. As more and more people use a greater number of social media platforms, social media management software become more valuable to their customers.

Upland Software has a wide range of competitors given its wide breadth of offering. Common rivals are Qualtrics (NASDAQ:XM), Oracle’s Netsuite (NYSE:ORCL), OpenText (NASDAQ:OTEX), Docusign (NASDAQ:DOCU), and Adobe (NASDAQ:ADBE).

Sales Growth

As you can see below, Upland's revenue has been declining over the last two years, shrinking from $75.73 million in Q4 FY2021 to $72.18 million this quarter.

Upland Total Revenue

Upland's revenue was down again this quarter, falling 8.4% year on year.

Next quarter, Upland is guiding for a 11.8% year-on-year revenue decline to $68 million, a further deceleration from the 2.1% year-on-year decrease it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $271 million at the midpoint, declining 9% year on year compared to 6.1% drop in FY2023.

Profitability

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's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 67.2% in Q4.

Upland Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, sales and marketing, and general administrative overhead. Upland's gross margin is poor for a SaaS business and it's dropped significantly since the previous quarter. This is probably the exact opposite of what shareholders would like to see.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Upland's free cash flow came in at $8.60 million in Q4, up 51.1% year on year.

Upland Free Cash Flow

Upland has generated $48.72 million in free cash flow over the last 12 months, a solid 16.4% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from Upland's Q4 Results

We struggled to find many strong positives in these results. Its full-year revenue guidance was below expectations and it suggests a slowdown in demand. The company is down 2% on the results and currently trades at $4.33 per share.

Is Now The Time?

When considering an investment in Upland, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of Upland, we'll be cheering from the sidelines. Its , and analysts expect growth to deteriorate from here. And while its strong free cash flow generation gives it re-investment options, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its gross margins aren't as good as other tech businesses we look at.

Wall Street analysts covering the company had a one-year price target of $4.83 per share right before these results (compared to the current share price of $4.33).

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