Upland Software, Inc.

Thank you for standing by and welcome to the Upland Software first quarter 2003 earnings call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. 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 2003 earnings release. which was distributed today at 4 o'clock 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 a 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

Do not intend or undertake any duty to release. All Upland will refer to non-GAAP financial. Upland has provided reconciliations. Press release announcing our first quarter results. 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 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 welcomed 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 WriteAnswers AI Knowledge Assistant. And that is a new beta release which utilizes OpenAI's chat GPT-AI. So 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. 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 FILE BOUND SIDE, WE ONCE AGAIN WERE RECOGNIZED AS A GOLD MEDALIST AND LEADER IN ENTERPRISE CONTENT MANAGEMENT IN THE DATA QUADRANT AND THE REPORT FROM SOFTWARE REVIEWS FOR DOCUMENT MANAGEMENT AND WORKFLOW AUTOMATION CAPABILITIES. I had another release in the quarter, and this quarter release extends MFP integrations with Lexmark. It increases DMS visibility and expands FACTS API support to ensure the security of personally identifiable information in highly regulated industries such as healthcare. EA Insight, a product that we're Very excited about, was recognized by KM World's 2023 list of 100 companies that matter in knowledge management. 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. Statement, total revenue for the first quarter was $77.1 million, representing a decrease 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. Special license revenue decreased to $1.2 million.

Professional services revenue was $2.6 million for the quarter, a 22%

overall gross margin was sixty seven percent during the first quarter and our product gross margin remains strong at sixty eight percent seventy three percent when adding back depreciation operating expenses excluding acquisition related expenses depreciation thirty seven point eight million for the quarter all generally as expected but I should... We did incur $128.8 million... ...triggered by the dip in our stock price. Had our stock price not decreased, we would not have had... Also, acquisition-related expenses were... ...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 in... After Q2, until our acquisition activity picks up, first quarter 2023 adjusted EBITDA was $17.6 million, or 23% of total revenue for the first quarter of 2022. For the first quarter of 2023, GAAP operating cash flow was $15.6 million. working capital accounts of approximately 4.5 million, which temporarily improved our free cash flow generation in Q1. We did not expect these positive temporary timing differences.

...of approximately $318 million...

$258 million of cash on our balance sheet, plus our $60 million undrawn revolver. March 31st, 2023, we had $263 million after factoring in cash on our balance sheet. Guidance. We are issuing guidance for Q2 and... Quarter ending June 30, 2023, up and expected total revenue to be between $69.8 and $75.8 million, including subscription and support revenue between $65.7 and $65.7 million. A decline in total revenue of 9% at the midpoint. Quarter ended June 30, 2020. Second quarter, 2023, adjusted EBITDA is expected to be Just to give you that margin of 23% at the midpoint. Just to give you that guide at the midpoint is a decrease.

The quarter ended June 30th, 2022.

The whole year ending December 31st, 2023.

12 million, including subscription support revenue between 269 and 289. Full year 2023 adjusted hepatitis. That I'll turn the call back to Jack. Alright, thanks Mike. We are ready to open the call up for Q&A.

At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that is star, then the number one on your telephone keypad.

Your first question comes from the line of Jeff Vanhee.

Great. Thanks, guys. A couple for me. Jack, the new growth plan, I think the outline last quarter was that you were thinking about $15 million a year of 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?

You know, it's still early, but we're moving with urgency. We've added... number of folks in digital marketing and SDRs and DSRs so really great energy and and obviously we're driving you know see results as soon as we can yeah I guess that what I was saying is just more so you know if we're talking three and a half give or take I'm not going to break out the dollar amount that we spent on the growth plan in the first

Could you comment on GNA being up from $14 million to $17 million sequentially?

Well, yeah, Jeff, this is Mike. Yeah, we did have some accruals in the quarter on GNA 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 – Okay.

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

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, you know, things came in where we were hoping they would come in. But, again, what happens to the rest of the year here?

Okay. That's it for me. Thanks.

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

Hey, thanks for taking my questions. 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, are there any product suites that have been more or less prioritized just given the changing demand environment?

I would say that, as I mentioned a moment ago, the demand environment in Q1 came in pretty much as we expected it. 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 demand. investment behind some of 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, thanks. 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, you know, move when it makes sense. But as of, you know, right now, I haven't seen enough of a price adjustment. I'm super excited, but I'm sure it's coming.

Great. Thanks for taking my questions.

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.