Upland (UPLD)

Business automation software provider Upland Software (NASDAQ: UPLD) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 10% year on year to $63.66 million. On the other hand, next quarter’s revenue guidance of $53.3 million was less impressive, coming in 11.7% below analysts’ estimates. Its non-GAAP profit of $0.23 per share was 32.7% 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 many enduring ones grow for years. Upland’s demand was weak over the last three years as its sales fell at a 4.4% annual rate. This wasn’t a great result and is a sign of poor business quality.

This quarter, Upland’s revenue fell by 10% year on year to $63.66 million but beat Wall Street’s estimates by 3.1%. Company management is currently guiding for a 23.1% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 10.9% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and implies its products and services will see some demand headwinds.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

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 70.8% gross margin over the last year. Said differently, Upland paid its providers $29.17 for every $100 in revenue.

This quarter, Upland’s gross profit margin was 71.6%, marking a 1.4 percentage point increase from 70.2% in the same quarter last year. Upland’s full-year margin has also been trending up over the past 12 months, increasing by 2.3 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.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Upland’s expensive cost structure has contributed to an average operating margin of negative 4.4% 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 36.1 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 1.7% operating margin. The company's consistent lack of profits raise a flag.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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 9.8%, subpar for a software business.

Upland’s free cash flow clocked in at $7.88 million in Q1, equivalent to a 12.4% margin. This result was good as its margin was 5.4 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Upland reported $33.71 million of cash and $258.5 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 $55.62 million of EBITDA over the last 12 months, we view Upland’s 4.0× 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.

We enjoyed seeing Upland beat analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates, but it lowered its full-year revenue guidance. Although, this was a weaker quarter due to the revenue outlook, the stock traded up 5.9% to $2.52 immediately following the results, likely because of the trade deal struck between the U.S. and China over the weekend.

Updated: June 14, 2025 at 10:23 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 are low compared to other software companies.

Upland’s price-to-sales ratio based on the next 12 months is 0.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $4.25 on the company (compared to the current share price of $1.79).

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.