Upland (UPLD)

Business automation software provider Upland Software (NASDAQ: UPLD) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 5.8% year on year to $68.03 million. On the other hand, next quarter’s revenue guidance of $62 million was less impressive, coming in 7.7% below analysts’ estimates. Its non-GAAP profit of $0.41 per share was significantly above analysts’ consensus estimates.

Company Overview

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.

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.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Upland’s demand was weak and its revenue declined by 3.1% per year. This wasn’t a great result and suggests it’s a lower quality business.

This quarter, Upland reported a rather uninspiring 5.8% year-on-year revenue decline to $68.03 million of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 12.4% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 3.2% over the next 12 months, similar to its three-year rate. This projection is underwhelming and indicates its newer products and services will not lead to better top-line performance yet.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Upland’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Upland’s products and its peers.

For software companies like Upland, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Upland’s gross margin is better than the broader software industry and signals it has solid unit economics and competitive products. As you can see below, it averaged a decent 70.5% gross margin over the last year. Said differently, Upland paid its providers $29.51 for every $100 in revenue.

Upland’s gross profit margin came in at 70.8% this quarter, up 3.6 percentage points year on year. Upland’s full-year margin has also been trending up over the past 12 months, increasing by 2.8 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Upland’s expensive cost structure has contributed to an average operating margin of negative 37.2% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if Upland reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

On the plus side, Upland’s operating margin rose by 17.8 percentage points over the last year. Still, it will take much more for the company to reach long-term profitability.

This quarter, Upland generated a negative 2.9% operating margin. The company's consistent lack of profits raise a flag.

If you’ve followed StockStory for a while, you know 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 has shown mediocre cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.5%, subpar for a software business.

Upland’s free cash flow clocked in at $9.02 million in Q4, equivalent to a 13.3% margin. This result was good as its margin was 1.3 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Upland’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 8.5% for the last 12 months will increase to 10.2%, giving it more flexibility for investments, share buybacks, and dividends.

Upland reported $56.43 million of cash and $292 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $55.64 million of EBITDA over the last 12 months, we view Upland’s 4.2× net-debt-to-EBITDA ratio as safe. We also see its $0 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see Upland’s full-year EBITDA guidance top analysts’ expectations. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next year suggests a significant slowdown in demand and its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 8.9% to $2.60 immediately following the results.

Updated: May 10, 2025 at 10:22 PM EDT

Before making an investment decision, investors should account for Upland’s business fundamentals and valuation in addition to what happened in the latest quarter.

We cheer for all companies solving complex business issues, but in the case of Upland, we’ll be cheering from the sidelines. To begin with, its revenue has declined over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its expanding operating margin shows it took many unnecessary costs out of the business, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its operating margins reveal poor profitability compared to other software companies.

Upland’s price-to-sales ratio based on the next 12 months is 0.3x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $4.25 on the company (compared to the current share price of $2.44).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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