Upland Software Inc (UPLD) 2023 Q1 法說會逐字稿

Thank you for standing by, and welcome to the Upland Software First Quarter 2023 Earnings Call. (Operator Instructions) The conference call will be recorded webcast at investor.uplandsoftware.com, and a replay will be available there for 12 months. By now, everyone should have access to the first quarter 2023 earnings release, which was distributed today at 4:00 p.m. Eastern Standard Time. If you have not received this release, it's available on Upland's website.

I would now like to turn the call over to Jack McDonald, Chairman and CEO of Upland Software. Sir, go ahead.

All right. Thank you, and welcome to our Q1 2023 earnings call. I'm joined by Mike Hill, our CFO. On today's call, I'm going to start with the Q1 review. And following that, Mike will provide some detail on the numbers and our guidance. After that, we'll open it up for Q&A.

But before we get started, Mike will read the safe harbor statement. Mike?

Well, thank you, Jack. During today's call, we will include statements that are considered forward-looking within the meanings of the securities laws. A detailed discussion of these risks and uncertainties associated with such statements is contained in our periodic reports filed with the SEC. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements.

On this call, Upland will refer to non-GAAP financial measures that, when used in combination with GAAP results, provide Upland management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-GAAP measures to the most comparable GAAP measures in our press release announcing our first quarter results, which are available on the Investor Relations section of our website. Please note that we're unable to reconcile any forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

And with that, I'll turn the call back over to Jack.

All right. Thanks, Mike.

So the headlines for Q1. In the quarter, we beat our Q1 revenue and adjusted EBITDA guidance midpoints. Our cash on hand as of March 31 was $258 million, and that's after generating $15.6 million of free cash flow in Q1. And again, we anticipate generating $30 million to $40 million of free cash flow in 2023, as we have previously indicated.

In the first quarter, we expanded relationships with 333 existing customers, 38 of which were major expansions. We also welcome 207 new customers to Upland in the first quarter, including 20 new major customers. New customer deals were distributed across our products and industry verticals.

On the product front, in Q1, I'll note that we hosted a webinar featuring Forrester to discuss the future of knowledge management and the beta release of Upland's RightAnswers' AI Knowledge Assistant. And that is a new beta release which utilizes OpenAI's ChatGPT AI. The knowledge workers can streamline the creation of knowledge bases by simply requesting content related to their topic at hand and receiving a real-time response with full article content, summarization and identification of keywords. And of course, all of that is then fed into an enterprise system and knowledge base with integrations to key systems of record and enterprise workflows.

On the FileBound side, we once again were recognized as a gold medalist and leader in Enterprise Content Management Data Quadrant Report from SoftwareReviews for document management and workflow automation capabilities.

AccuRoute had another release in the quarter, and this quarter release extends MFP integrations with Lexmark. It increases DMS visibility, expands fax API support to ensure the security of personally identifiable information in highly regulated industries such as health care.

And then BA Insight, a product that we're very excited about, was recognized by KMWorld's 2023 list of 100 companies that matter in knowledge management.

I'd say overall on our growth plan, it's still early in the process, but we are making progress on the growth plan. And we remain excited on the prospects and about building shareholder value through time. And we look forward to sharing appropriate updates on our progress as we go.

So with that, I'm going to turn the call over to Mike.

Well, thank you, Jack. I'll cover the financial results for the first quarter, our outlook for the second quarter, and I'll reaffirm our guidance for the full year of 2023.

In the income statement, total revenue for the first quarter was $77.1 million, representing a decrease of 2% year-over-year. Without FX impact, growth would have been roughly flat. Recurring revenue from subscription and support decreased 1% year-over-year to $72.9 million. Without FX impact, recurring growth would have been 1% positive. Perpetual license revenue decreased to $1.6 million for the first quarter, down from $1.8 million in the first quarter of 2022. Professional services revenue was $2.6 million for the quarter, a 22% quarter-over-quarter decline.

Overall gross margin was 67% during the first quarter. And our product gross margin remained strong at 68% or 73% when adding back depreciation and amortization, which we refer to as cash gross margin.

Operating expenses, excluding acquisition-related expenses, depreciation, amortization, stock-based comp and impairment of goodwill, were $37.8 million for the quarter or 49% of total revenue, all generally as expected. But I should note that we did incur a $128.8 million noncash goodwill impairment charge triggered by the dip in our stock price. Had our stock price not decreased, we would not have had an impairment.

Also, acquisition-related expenses were approximately $1.1 million for the first quarter, which were in line with plan. We expect acquisition-related expenses to further decline to a relatively small amount here in Q2 and should remain insignificant for -- after Q2 until our acquisition activity picks back up in the future.

Our first quarter 2023 adjusted EBITDA was $17.6 million or 23% of total revenue, down from $23.4 million or 30% of total revenue for the first quarter of 2022.

For cash flow, for the first quarter of 2023, GAAP operating cash flow was $15.8 million, and free cash flow was $15.6 million. We did have positive temporary timing differences in the working capital accounts of approximately $4.5 million, which temporarily improved our free cash flow generation in Q1. And we do not expect these positive temporary timing differences to repeat in Q2. We continue to anticipate $30 million to $40 million of free cash flow generation for full year 2023.

Our ongoing free cash flow generation is in addition to our existing liquidity of approximately $318 million, comprised of the approximate $258 million of cash on our balance sheet as of March 31, 2023, plus our $60 million undrawn revolver. As of March 31, 2023, we had outstanding net debt of approximately $263 million after factoring in cash on our balance sheet.

For guidance, we are issuing guidance for Q2 and reaffirming guidance for full year 2023. For the quarter ending June 30, 2023, Upland expects reported total revenue to be between $69.8 million and $75.8 million, including subscription and support revenue between $65.7 million and $70.7 million for a decline in total revenue of 9% at the midpoint over the quarter ended June 30, 2022.

The second quarter 2023 adjusted EBITDA is expected to be between $15 million and $18 million for an adjusted EBITDA margin of 23% at the midpoint. This adjusted EBITDA guide at the midpoint is a decrease of 33% for the quarter ended December -- from the quarter ended June 30, 2022.

For full year ending December 31, 2023, Upland expects reported total revenue to be between $288 million and $312 million, including subscription and support revenue between $269 million and $289 million for a decline in total revenue of 5% at the midpoint over the year ended December 31, 2022.

For full year 2023 adjusted EBITDA, it's expected to be between $63 million and $75 million for an adjusted EBITDA margin of 23% at the midpoint. This adjusted EBITDA guide at the midpoint is a decrease of 29% over the year ended December 31, 2022.

With that, I'll turn the call back to Jack.

All right. Thanks, Mike. We are ready to open the call up for Q&A.

(Operator Instructions) Your first question comes from the line of Jeff Van Rhee.

A couple from me. Jack, the new growth plan, I think the outline last quarter was that you were thinking about $15 million a year spend for a variety of reasons. Just where are you in terms of putting that annualized amount to work, namely what did you get done in Q1 in terms of that spend?

It's still early, but we're moving with urgency. We've added a number of folks in digital marketing and SDRs and DSRs, so really great energy. And obviously, we're driving to see results as soon as we can.

Yes. I guess what I was saying is just more so if we're talking $3.5 million, give or take.

Yes, I don't -- I'm not going to break out the dollar amount that we spent on the growth plan in the first quarter. But...

Could you comment on G&A being up from $14 million to $17 million sequentially?

Well, yes, Jeff, this is Mike. Yes, we did have some accruals in the quarter on G&A related to bonus accruals. But that was it. Those things tend to fluctuate from quarter-to-quarter. So there's a little bit of noise in Q1, but that's -- I wouldn't expect that to be the norm.

Okay. Macro conditions, we're hearing a lot of changes in buyer behavior. What did you observe at the end of quarter and since then?

Yes, we were pretty pleased with how the quarter turned out from a bookings perspective. So obviously, we're cautious on outlook because we don't know what's coming. But in terms of our Q1 bookings, things came in where we were hoping they would come in. But again, we'll see what happens through the rest of the year here.

And your last question comes from the line of Jake Roberge.

I know there are some moving pieces with the products that need to be sunsetted, but curious how demand is tracking for some of your faster-growing products that you talked about looking to prioritize during this transition. And just on the macro as well, is there any product suites that have been more or less prioritized just given the changing demand environment?

So I would say that, as I mentioned a moment ago, the demand environment in Q1 came in pretty much as we expected it. And we had a relatively good quarter in that regard. We'll see what the rest of the year brings. We have put in place a plan here to prioritize investment behind some -- those products that we think have the highest growth potential. And still too early to report anything there. I will say that we're seeing some nice activity in our knowledge management products, but again, we see significant opportunities across a variety of our product groups.

Great. And then is there any update on your plans for M&A just given the macro uncertainty and just compressions that we're seeing in valuations? Are you still actively looking at deals or is that something that's kind of put on pause until you sunset these products and make the go-to-market investments that you're looking to do over the next year or so?

No, we're definitely still looking at deals. We're actively in the market. I haven't seen the price adjustment in private market values that I'd want to see. So -- and of course, we've got capital, and we control the timing, so we're going to be patient and move when it makes sense. But as of right now, I haven't seen enough of a price adjustment to get super excited, but I'm sure it's coming.

There are no further questions at this time. Mr. McDonald, if you'd like to close.

Great. All right. Well, thank you so much, and we will see you on the next earnings call.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.