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Upland Software Reports Fourth Quarter and Full Year 2018 Financial Results

AUSTIN, Texas--(BUSINESS WIRE)-- Upland Software, Inc. (Nasdaq: UPLD), a leader in cloud-based Enterprise Work Management software, today announced financial and operating results for the fourth quarter and full year of 2018 and provided guidance for its first quarter and full year of 2019.

Fourth Quarter 2018 Financial Highlights

  • Total revenue was $45.2 million, an increase of 62% from $27.8 million in the fourth quarter of 2017.
  • Subscription and support revenue was $41.8 million, an increase of 69% from $24.8 million in the fourth quarter of 2017.
  • GAAP net income was $2.7 million, or income of $0.13 cents per share, compared to a GAAP net loss of $3.8 million, or a loss of $0.19 cents per share, in the fourth quarter of 2017.
  • Adjusted EBITDA was $16.7 million, or 37% of total revenue, an increase of 72% from $9.7 million, or 35% of total revenue, in the fourth quarter of 2017.
  • Cash on hand as of the end of the fourth quarter was $16.7 million.

Full Year 2018 Financial Highlights

  • Total revenue was $149.9 million, an increase of 53% from $98.0 million in 2017.
  • Subscription and support revenue was $136.6 million, an increase of 60% from $85.5 million in 2017.
  • GAAP net loss was $9.9 million, or a loss of $0.50 cents per share, compared to a GAAP net loss of $18.7 million, or a loss of $1.02 cents per share, in 2017.
  • Adjusted EBITDA was $53.1 million, or 35% of total revenue, an increase of 75% from $30.3 million, or 31% of total revenue, in 2017.

“Q4 was a strong finish to a transformational year marked by accelerating revenue growth, expanding margins, market leading product innovation, increasing customer loyalty and retention, record acquisition activity, and profitable international expansion,” said Jack McDonald, chairman and CEO of Upland Software. “Our pro forma annualized run-rates are now north of $194 million in revenue and $72 million in Adjusted EBITDA and, as our strong guidance indicates, we are set up for a great 2019 with strong customer relationships, productive sales channels, a robust pipeline of acquisitions, and the operating and financial resources to execute on our plan," he added. “Additionally, just this week we announced a major new product and go-to-market strategy with the launch of our enterprise cloud solution suites, to maximize value for customers and increase Upland's organic growth.”

Full Year and Fourth Quarter Business Highlights

  • Achieved year-over-year improvement in NDRR from 93% to 98%. This near 500 bps improvement in NDRR is evidence that our UplandOne platform and focus on 100% customer success are driving increased customer satisfaction and loyalty, higher NPS scores, higher renewal rates, strong expansion sales, and increased pricing power.
  • Continued to make efficient, high impact investments in sales. Since Q1 2017, we have increased our field sales headcount from 3 to 28 and increased our total sales headcount from 27 to 65, more than doubling our organic growth in reported recurring revenues, all while expanding our Adjusted EBITDA margins by nearly 1,100 bps, from 26% to 37%.
  • In the fourth quarter, expanded 204 existing customer relationships, including 28 major expansions, and added 134 new customer relationships, including 27 major accounts. Across 2018 in total, expanded 822 existing customer relationships, including 87 major expansions, and added 482 new customer relationships, including 75 major accounts.
  • In the fourth quarter, continued to invest in customer-driven innovation, delivering 3 major releases and 16 feature packs that improved user experience, enhanced performance, and streamlined interconnectivity across several of our solution suites. For the full year, delivered 12 major releases and 51 feature packs that provided significant performance, reliability, usability, and functionality improvements, across all of our solution suites.
  • In the fourth quarter, made two strategic and accretive acquisitions for our Customer Experience Management (or CXM) Solution Suite, Adestra and Rant & Rave, which added capabilities including marketing automation and personalization, social media monitoring, and customer sentiment survey and analysis. For the full year, we made a total of 4 acquisitions that added $60 million in total pro-forma annualized revenues and $26 million in total pro-forma annualized Adjusted EBITDA.

Business Outlook

For the quarter ending March 31, 2019, Upland expects reported total revenue to be between $47.9 and $48.9 million, including subscription and support revenue between $44.4 and $45.2 million, for growth in recurring revenue of 62% at the mid-point over the quarter-ended March 31, 2018. First quarter 2019 Adjusted EBITDA is expected to be between $17.2 and $17.8 million, for an Adjusted EBITDA margin of roughly 36% at the mid-point, representing growth of 62% at the mid-point over the quarter-ended March 31, 2018.

For the full year ending December 31, 2019, Upland expects reported total revenue to be between $194.8 and $198.8 million, including subscription and support revenue between $181.8 and $185.0 million, for growth in recurring revenue of 34% at the mid-point over the year ended December 31, 2018. Full year 2019 Adjusted EBITDA is expected to be between $70.8 and $73.2 million, for an Adjusted EBITDA margin of 37% at the mid-point, representing growth of 36% at the mid-point over the year ended December 31, 2018.

Conference Call Details

Upland's executive team will host a live conference call and webcast at 4:00 p.m. Central Time, 5:00 p.m. Eastern Time today to review Upland’s financial results and outlook for the business. The conference call may be accessed within North America by dialing 1.888.684.7501 and outside of North America by dialing 1.925.418.7884, referencing conference code 1378271. The conference call will be simultaneously webcast on Upland’s investor relations website, which can be accessed at investor.uplandsoftware.com. This webcast will contain forward-looking statements and other material information regarding Upland’s financial and operating results.

Following completion of the live call, a recorded replay of the webcast will be available on Upland's website at investor.uplandsoftware.com for twelve months.

About Upland Software

Upland Software (Nasdaq: UPLD) is a leader in cloud-based enterprise work management software. Upland provides seven enterprise cloud solution suites that enable more than one million users at over 9,000 accounts to win and engage customers, automate business operations, manage projects and IT costs, and share knowledge throughout the enterprise. All of Upland’s solutions are backed by a 100 percent customer success commitment and the UplandOne platform, which puts customers at the center of everything we do. To learn more, visit www.uplandsoftware.com.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income (loss) per share.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results, such as our revenues excluding the impact for foreign currency fluctuations or our operating performance excluding not only non-cash charges, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and they are used by our institutional investors and the analyst community to help them analyze the health of our business. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the tables provided below in this release.

We are 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.

Upland defines Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus net income (loss) from discontinued operations, depreciation and amortization expense, interest expense, net, other expense (income), net, provision for income taxes, stock-based compensation expense, acquisition-related expenses, non-recurring litigation costs, and purchase accounting adjustments for deferred revenue.

Upland defines non-GAAP net income (loss) as net income (loss), calculated in accordance with GAAP, plus, amortization of purchased intangible assets, amortization of debt discount, loss on debt extinguishment, stock-based compensation expenses, acquisition-related expenses, non-recurring litigation expenses, purchase accounting adjustments for deferred revenue, non-recurring provision for income tax, and the related tax effect of the adjustments above.

Upland defines annual net dollar retention rate (NDRR) as of December 31 as the aggregate annualized recurring revenue value at December 31 from those customers that were also customers as of December 31 of the prior fiscal year, divided by the aggregate annualized recurring revenue value from all customers as of December 31 of the prior fiscal year. This measure excludes the revenue value of uncontracted overage fees and on-demand service fees.

Upland defines major accounts as accounts with greater than or equal to $25,000 in annual recurring revenue.

Forward-looking Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance, including our guidance related to future performance, and are subject to substantial risks, uncertainties and assumptions. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. Accordingly, you should not place undue reliance on these forward-looking statements. Forward-looking statements include any statement that does not directly relate to any historical or current fact and often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "hope," "predict," "could," "should," "would," "project," or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including, but are not limited to: our financial performance and our ability to achieve, sustain or increase profitability or predict future results; our ability to attract and retain customers; our ability to deliver high-quality customer service; the growth of demand for enterprise work management applications; our plans regarding, and our ability to effectively manage, our growth; our plans regarding future acquisitions and our ability to consummate and integrate acquisitions; maintaining our senior management and key personnel; our ability to maintain and expand our direct sales organization; our ability to obtain financing in the future on acceptable terms or at all; the performance of our resellers; our ability to adapt to changing market conditions and competition; our ability to successfully enter new markets and manage our international expansion; the operation and reliability of our third-party data centers and other service providers; our ability to adapt to technological change and continue to innovate; our ability to integrate our applications with other software applications; our ability to comply with privacy laws and regulations; and factors that could affect our business and financial results identified in Upland's filings with the Securities and Exchange Commission (the "SEC"), including Upland's most recent 10-K and our recent Quarterly Report on Form 10-Q filed with the SEC. Additional information will also be set forth in Upland's future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that Upland makes with the SEC. The forward-looking statements herein represent Upland's views as of the date of this press release, and these views could change. However, while Upland may elect to update these forward-looking statements at some point in the future, Upland specifically disclaims any obligation to do so, except as required by law. These forward-looking statements should not be relied upon as representing the views of Upland as of any date subsequent to the date of this press release.

Upland Software, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
         
    Three Months Ended December 31,   Twelve Months Ended December 31,
      2018       2017       2018       2017  
    (unaudited)   (unaudited)    
Revenue:                
Subscription and support   $ 41,776     $ 24,756     $ 136,578     $ 85,467  
Perpetual license     678       1,050       3,902       4,346  
Total product revenue     42,454       25,806       140,480       89,813  
Professional services     2,726       2,041       9,405       8,139  
Total revenue     45,180       27,847       149,885       97,952  
Cost of revenue:                
Subscription and support     13,486       8,148       42,881       28,454  
Professional services     1,526       1,355       5,708       5,193  
Total cost of revenue     15,012       9,503       48,589       33,647  
Gross profit     30,168       18,344       101,296       64,305  
Operating expenses:                
Sales and marketing     5,980       3,791       20,935       15,307  
Research and development     5,743       4,223       21,320       15,795  
Refundable Canadian tax credits     (2 )     (118 )     (406 )     (542 )
General and administrative     8,566       5,727       32,041       23,291  
Depreciation and amortization     4,683       2,387       14,272       6,498  
Acquisition-related expenses     9,099       4,724       17,838       15,092  
Total operating expenses     34,069       20,734       106,000       75,441  
Loss from operations     (3,901 )     (2,390 )     (4,704 )     (11,136 )
Other expense:                
Interest expense, net     (4,518 )     (2,210 )     (13,273 )     (6,582 )
Other income (expense), net     (816 )     549       (1,781 )     289  
Total other expense     (5,334 )     (1,661 )     (15,054 )     (6,293 )
Loss before provision for income taxes     (9,235 )     (4,051 )     (19,758 )     (17,429 )
Provision for income taxes     11,927       257       9,809       (1,296 )
Net income (loss)   $ 2,692     $ (3,794 )   $ (9,949 )   $ (18,725 )
Net income (loss) per common share:                
Basic   $ 0.13     $ (0.19 )   $ (0.50 )   $ (1.02 )
Diluted (1)   $ 0.13     $ (0.19 )   $ (0.50 )   $ (1.02 )
Weighted average common shares outstanding:                
Basic     20,191,390       19,514,893       19,985,528       18,411,247  
Diluted (1)     21,099,723       19,514,893       19,985,528       18,411,247  
 
(1) For the twelve month period ended December 31, 2018 and the three and twelve month periods ended December 31, 2017 basic and diluted net loss per share and weighted average common shares outstanding were the same as any additional common stock equivalents would have been anti-dilutive due to the net losses incurred during these periods.
     
Upland Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
     
    December 31,
      2018       2017  
    (unaudited)    
Assets        
Current assets:        
Cash and cash equivalents   $ 16,738     $ 22,326  
Accounts receivable, net of allowance     40,841       26,504  
Deferred commissions, current     2,633        
Prepaid and other     5,884       2,856  
Total current assets     66,096       51,686  
Canadian tax credits receivable     1,573       1,196  
Property and equipment, net     2,827       2,927  
Intangible assets, net     179,572       70,043  
Goodwill     226,214       154,607  
Deferred commissions, noncurrent     6,292        
Other assets     1,516       800  
Total assets   $ 484,090     $ 281,259  
Liabilities and stockholders’ equity        
Current liabilities:        
Accounts payable   $ 3,494     $ 3,887  
Accrued compensation     6,581       5,157  
Accrued expenses and other current liabilities     16,667       12,148  
Deferred revenue     57,626       43,807  
Due to sellers     17,267       7,839  
Current maturities of notes payable     6,015       2,301  
Total current liabilities     107,650       75,139  
Notes payable, less current maturities     273,713       108,843  
Deferred revenue, noncurrent     578       1,570  
Noncurrent deferred tax liability, net     13,311       3,262  
Other long-term liabilities     640       1,030  
Total liabilities     395,892       189,844  
Stockholders’ equity:        
Common stock     2       2  
Additional paid-in capital     180,481       174,944  
Accumulated other comprehensive loss     (7,500 )     (2,403 )
Accumulated deficit     (84,785 )     (81,128 )
Total stockholders’ equity     88,198       91,415  
Total liabilities and stockholders’ equity   $ 484,090     $ 281,259  
         
Upland Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
         
    Twelve Months Ended December 31,
      2018       2017  
    (unaudited)    
Operating activities        
Net loss   $ (9,949 )   $ (18,725 )
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization     21,347       11,914  
Deferred income taxes     268       (262 )
Amortization of deferred commissions     2,367        
Foreign currency re-measurement (gain) loss     305       (382 )
Non-cash interest and other expense     874       592  
Non-cash stock compensation expense     14,130       9,977  
Non-cash loss on retirement of fixed assets           (19 )
Changes in operating assets and liabilities, net of purchase business combinations:        
Accounts receivable     (5,212 )     (4,710 )
Prepaids and other     (2,798 )     1,555  
Accounts payable     (3,399 )     1,254  
Accrued expenses and other liabilities     (15,050 )     3,715  
Deferred revenue     4,464       2,807  
Net cash provided by operating activities     7,347       7,716  
Investing activities        
Purchase of property and equipment     (935 )     (396 )
Purchase of customer relationships           (55 )
Purchase business combinations, net of cash acquired     (160,751 )     (110,324 )
Net cash used in investing activities     (161,686 )     (110,775 )
Financing activities        
Payments on capital leases     (1,136 )     (1,497 )
Proceeds from notes payable, net of issuance costs     172,397       74,538  
Payments on notes payable     (4,689 )     (11,912 )
Taxes paid related to net share settlement of equity awards     (9,400 )     (3,387 )
Issuance of common stock, net of issuance costs     807       43,797  
Additional consideration paid to sellers of businesses     (8,056 )     (5,361 )
Net cash provided by financing activities     149,923       96,178  
Effect of exchange rate fluctuations on cash     (1,172 )     449  
Change in cash and cash equivalents     (5,588 )     (6,432 )
Cash and cash equivalents, beginning of period     22,326       28,758  
Cash and cash equivalents, end of period   $ 16,738     $ 22,326  
Supplemental disclosures of cash flow information:        
Cash paid for interest   $ 12,429     $ 6,012  
Cash paid for taxes   $ 3,348     $ 1,782  
Noncash investing and financing activities:        
Equipment acquired pursuant to capital lease obligations   $     $ 50  
         
Upland Software, Inc.
Reconciliation of Adjusted EBITDA
(in thousands, unaudited)
         
    Three Months Ended December 31,   Twelve Months Ended December 31,
      2018       2017       2018       2017  

Reconciliation of net income (loss) to Adjusted EBITDA:

               
Net income (loss)   $ 2,692     $ (3,794 )   $ (9,949 )   $ (18,725 )
Add:                
Depreciation and amortization expense     6,743       3,802       21,347       11,914  
Interest expense, net     4,518       2,210       13,273       6,582  
Other expense (income), net     816       (549 )     1,781       (289 )
Provision for income taxes     (11,927 )     (257 )     (9,809 )     1,296  
Stock-based compensation expense     3,750       2,173       14,130       9,977  
Acquisition-related expense     9,099       4,724       17,838       15,092  
Purchase accounting deferred revenue discount     1,024       1,437       4,494       4,469  
Adjusted EBITDA   $ 16,715     $ 9,746     $ 53,105     $ 30,316  
         
Upland Software, Inc.
Reconciliation of Non-GAAP Net Income and Non-GAAP EPS
(in thousands, except share and per share data, unaudited)
         
    Three Months Ended December 31,   Twelve Months Ended December 31,
      2018       2017       2018       2017  

Reconciliation of net income (loss) to non-GAAP net income:

               
Net income (loss)   $ 2,692     $ (3,794 )   $ (9,949 )   $ (18,725 )
Add:                
Stock-based compensation expense     3,750       2,173       14,130       9,977  
Amortization of purchased intangibles     6,151       3,013       19,096       9,298  
Amortization of debt discount     258       176       874       592  
Acquisition-related expense     9,099       4,724       17,838       15,092  
Purchase accounting deferred revenue discount     1,024       1,437       4,494       4,469  
Provision for Income Tax - nonrecurring     (10,100 )           (10,100 )      
Tax effect of adjustments above     (545 )     (82 )     (723 )     (324 )
Non-GAAP net income   $ 12,329     $ 7,647     $ 35,660     $ 20,379  
                 
Weighted average ordinary shares outstanding, basic     20,191,390       19,514,893       19,985,528       18,411,247  
Weighted average ordinary shares outstanding, diluted     21,099,723       20,668,840       20,975,713       19,548,371  
Non-GAAP earnings per share, basic   $ 0.61     $ 0.39     $ 1.78     $ 1.11  
Non-GAAP earnings per share, diluted   $ 0.58     $ 0.37     $ 1.70     $ 1.04  
         
Upland Software, Inc.
Supplemental Financial Information
(in thousands, unaudited)
         
    Three Months Ended December 31,   Twelve Months Ended December 31,
      2018   2017     2018     2017
Stock-based compensation:                
Cost of revenue   $ 190   $ 159     $ 654   $ 436
Research and development     380     236       1,250     796
Sales and marketing     165     83       533     232
General and administrative     3,015     1,695       11,693     8,513
Total   $ 3,750   $ 2,173     $ 14,130   $ 9,977
                   
    Three Months Ended December 31,   Twelve Months Ended December 31,
      2018   2017     2018     2017
Depreciation:                
Cost of revenue   $ 376   $ 442     $ 1,644   $ 1,904
Operating expense     216     347       607     712
Total   $ 592   $ 789     $ 2,251   $ 2,616
                 
Amortization:                
Cost of revenue   $ 1,684   $ 973     $ 5,431   $ 3,512
Operating expense     4,467     2,040       13,665     5,786

Total

  $ 6,151   $ 3,013     $ 19,096   $ 9,298

Investor Relations Contact:
Mike Hill
Upland Software
512-960-1031
investor-relations@uplandsoftware.com

Media Contact:
Christina Turner
Media@uplandsoftware.com
855-944-7526