Upland Software(UPLD) - 2019 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Upland Software, Inc.'s unaudited condensed consolidated financial statements for the period ended June 30, 2019, reflect significant asset and revenue growth, primarily from acquisitions, alongside increased operating losses and debt Condensed Consolidated Balance Sheets As of June 30, 2019, total assets increased to $657.6 million, driven by cash from a stock offering and acquisition-related goodwill and intangibles, while total liabilities rose to $424.6 million due to higher notes payable Condensed Consolidated Balance Sheets (in thousands of USD) | | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $157,014 | $67,288 | | Goodwill | $273,363 | $225,322 | | Intangible assets, net | $207,232 | $179,572 | | Total assets | $657,580 | $483,198 | | Total current liabilities | $107,472 | $107,649 | | Notes payable, less current maturities | $305,335 | $273,713 | | Total liabilities | $424,608 | $395,891 | | Total stockholders' equity | $232,972 | $87,307 | Condensed Consolidated Statements of Operations Q2 2019 total revenue increased 47% to $53.0 million, but a significant rise in operating expenses, including $9.3 million in acquisition-related costs, led to a net loss of $5.4 million Condensed Consolidated Statements of Operations (in thousands of USD, except per share data) | | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | | :--- | :--- | :--- | | Total revenue | $53,013 | $35,946 | | Gross profit | $36,430 | $25,097 | | Loss from operations | $(5,532) | $(691) | | Net loss | $(5,369) | $(5,230) | | Net loss per common share, basic and diluted | $(0.24) | $(0.26) | Condensed Consolidated Statements of Comprehensive Loss The company reported a comprehensive loss of $7.1 million for Q2 2019, including a $5.4 million net loss and a $1.8 million foreign currency translation adjustment loss Condensed Consolidated Statements of Comprehensive Loss (in thousands of USD) | | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net loss | $(5,369) | $(5,230) | | Foreign currency translation adjustment | $(1,757) | $(2,227) | | Comprehensive loss | $(7,126) | $(7,457) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity significantly increased to $233.0 million by June 30, 2019, primarily due to a $151.2 million increase in additional paid-in capital from a common stock issuance - A public offering of 3,795,000 shares of common stock resulted in a $151.2 million increase in additional paid-in capital during the six months ended June 30, 2019[23] Condensed Consolidated Statements of Cash Flows For the first six months of 2019, operating activities provided $5.4 million in cash, investing activities used $83.2 million for acquisitions, and financing activities provided $168.6 million, leading to a $91.6 million increase in cash and equivalents Condensed Consolidated Statements of Cash Flows (in thousands of USD) | | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,396 | $3,740 | | Net cash used in investing activities | $(83,188) | $(45,877) | | Net cash provided by financing activities | $168,617 | $39,220 | | Change in cash and cash equivalents | $91,623 | $(3,289) | | Cash and cash equivalents, end of period | $108,361 | $19,037 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies and financial items, including two 2019 acquisitions contributing $3.8 million in revenue, the adoption of ASU 2016-02 recognizing $6.3 million in right-of-use assets, subsequent debt refinancing, and $161.1 million in remaining performance obligations - Completed the acquisitions of Postup Holdings and Kapost in Q2 2019, contributing approximately $2.4 million and $1.4 million in revenue, respectively, since their acquisition dates[45] - Adopted the new lease standard ASU 2016-02 on January 1, 2019, recognizing $6.3 million in right-of-use assets and corresponding lease liabilities[41][42] - As of June 30, 2019, the company had approximately $161.1 million of revenue expected from remaining performance obligations, with 71% anticipated in the next 12 months[116] - Subsequent to the quarter end, on August 6, 2019, the company entered into a new $350 million senior secured term loan B facility and a new $60 million revolving credit facility, replacing its existing credit facility[121] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2019's 47% revenue growth primarily to acquisitions, with Adjusted EBITDA rising to $19.1 million, while acquisition-related expenses increased 195%, and liquidity improved significantly with cash reaching $108.4 million after a $151.1 million stock offering Overview Upland provides cloud-based enterprise work management software, driving growth primarily through twenty-two acquisitions from 2012 to 2019, increasing revenue from $22.8 million to $149.9 million and expanding international revenue share - The company's growth strategy involves acquiring complementary technologies and businesses to expand product families, customer base, and market access[133] - Revenue grew from $22.8 million in 2012 to $149.9 million in 2018, representing an approximate 558% growth rate[132] Key Metrics Adjusted EBITDA, a key non-GAAP metric, increased to $19.1 million for Q2 2019 and $36.9 million for the six months ended June 30, 2019, reflecting improved operational performance Reconciliation of Net Loss to Adjusted EBITDA (in thousands of USD) | | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net loss | $(5,369) | $(5,230) | | Adjustments | $24,452 | $17,775 | | Adjusted EBITDA | $19,083 | $12,545 | Results of Operations Q2 2019 total revenue increased 47% to $53.0 million, driven by acquisitions, while operating expenses, particularly acquisition-related costs, rose 195% to $9.3 million, reflecting the company's growth strategy - Q2 2019 total revenue increased by $17.1 million (47%) year-over-year, with $15.2 million attributed to acquisitions not fully in the comparative period[146] - Acquisition-related expenses for Q2 2019 were $9.3 million, a 195% increase from $3.1 million in Q2 2018, reflecting recent transaction costs[178][179] - A tax benefit of $6.1 million was recorded in Q2 2019, compared to a $0.9 million provision in Q2 2018, primarily due to the release of a valuation allowance from domestic entity acquisitions with deferred tax liabilities[187] Liquidity and Capital Resources The company's liquidity significantly improved in H1 2019, with cash and cash equivalents rising to $108.4 million due to $151.1 million net proceeds from a May 2019 stock offering, and subsequent debt refinancing with a new $350 million term loan - Cash and cash equivalents increased to $108.4 million as of June 30, 2019, largely due to a public stock offering[191] - In May 2019, the company completed a public offering of 3,795,000 shares, raising net proceeds of $151.1 million[197] - On August 6, 2019, the company replaced its existing credit facility with a new $350 million term loan and a $60 million revolving credit facility[195] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company identifies interest rate risk on variable-rate debt, foreign currency exchange risk from international operations, and inflation as primary market risks, noting a $0.3 million impact from a 100 basis point interest rate change and a $3.0 million revenue impact from a 10% foreign exchange rate change - A hypothetical 100 basis point change in interest rates would result in a maximum potential change to annual interest expense of $0.3 million based on debt levels at June 30, 2019[213] - A hypothetical 10% change in foreign currency exchange rates would have resulted in a change in revenue of $3.0 million for the six months ended June 30, 2019[214] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2019 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[219] Part II. OTHER INFORMATION Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's 2018 Annual Report on Form 10-K, referring stakeholders to that document for a comprehensive overview - There have been no material changes during 2019 to the risk factors included in the company's 2018 Annual Report on Form 10-K[222] Item 6. Exhibits This section indexes all exhibits filed with the Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley Act and XBRL data files - The Exhibit Index lists certifications from the CEO and CFO pursuant to Sarbanes-Oxley Act Sections 302 and 906, along with XBRL instance and taxonomy documents[226]