Upland (NASDAQ:UPLD) Posts Better-Than-Expected Sales In Q3 But Quarterly Guidance Underwhelms
Business automation software provider Upland Software (NASDAQ: UPLD) reported results ahead of analysts' expectations in Q3 FY2023, with revenue down 6.82% year on year to $74.1 million. The company also expects next quarter's revenue to be around $72 million, slightly below analysts' estimates. Turning to EPS, Upland made a GAAP loss of $0.31 per share, down from its loss of $0.22 per share in the same quarter last year.
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Upland (UPLD) Q3 FY2023 Highlights:
Revenue: $74.1 million vs analyst estimates of $73.1 million (1.45% beat)
EPS (non-GAAP): $0.33 vs analyst estimates of $0.21 ($0.12 beat)
Revenue Guidance for Q4 2023 is $72 million at the midpoint, below analyst estimates of $72.6 million
Free Cash Flow of $17.8 million, up 164% from the previous quarter
Gross Margin (GAAP): 69.1%, up from 67.7% in the same quarter last year
"We beat our Q3 revenue and Adjusted EBITDA guidance midpoints," said Jack McDonald, Upland's chairman and chief executive officer.
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.
Marketing Software
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.
Sales Growth
As you can see below, Upland's revenue has been declining over the last two years, shrinking from $76.1 million in Q3 FY2021 to $74.1 million this quarter.
Upland's revenue was down again this quarter, falling 6.82% year on year.
Next quarter, Upland is guiding for a 8.64% year-on-year revenue decline to $72 million, a further deceleration from the 4.07% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street was expecting revenue to decline 3.33% over the next 12 months before the earnings results announcement.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Upland's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 69.1% in Q3.
That means that for every $1 in revenue the company had $0.69 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Upland's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.
Key Takeaways from Upland's Q3 Results
Sporting a market capitalization of $109.7 million, Upland is among smaller companies, but its more than $239.6 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
It was great to see Upland improve its gross margin this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter underwhelmed. Overall, this was a mediocre quarter for Upland. The stock is flat after reporting and currently trades at $3.72 per share.
Upland may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
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The author has no position in any of the stocks mentioned in this report.
