Altus Power Q1 2023 Earnings Call Transcript

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May 4, 2023

There are 5 speakers on the call.

Operator

Thank you for standing by and welcome to the Upland Software First Quarter 20,003 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@investor.uplandsoftware.com and a replay will be available there for 12 months.

Operator

By now, everyone should have access to the Q1 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.

Operator

Sir, go ahead.

Speaker 1

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 and A. But before we get started, Mike will read the Safe Harbor statement. Mike?

Speaker 2

Thank you, Jack. During today's call, we will include statements that are considered forward looking within the Upland has provided reconciliations With that, I'll turn the call back

Speaker 1

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.

Speaker 1

Our cash on hand as of March 31 was $258,000,000 and that's after generating $15,600,000 of free cash flow in Q1. And again, we anticipate Generating $30,000,000 to $40,000,000 of free cash flow in 2023 as we have previously indicated. In the Q1, we expanded relationships with 333 existing customers, 38 of which were major expansions. We also welcome 207 new customers to Upland in the 1st quarter, Including 20 new major customers. New customer deals were distributed across our products and industry verticals.

Speaker 1

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 Chat GPT 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. 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 FileDown 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. Accurout had another release in the quarter, and this quarter Release extends MFP integrations with Lexmark. It increases DMS visibility Expand's fax API support to ensure the security of personally identifiable information In highly regulated industries such as healthcare.

Speaker 1

PA Insight, a product that we're very excited about was recognized By Kilometers World's 2023 list of 100 Companies That Matter in Knowledge Management. 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.

Speaker 2

Thank you, Jack. I'll cover the financial results for the Q1, our outlook for the Q2 and I'll reaffirm our guidance for the full year of 2023. Total revenue for the Q1 was $77,100,000 representing a decrease Without FX impact, growth would have been roughly flat. Recurring revenue from subscription and support decreased 1% year over year to $72,900,000 Without FX impact, recurring growth would have been 1% positive. Overall, gross margin was 67% during the Q1 and our product gross margin remained strong at 68%, 73% when adding back depreciation and amortization and Operating expenses, excluding acquisition related expenses, depreciation and $37,800,000 for the quarter or 4% to 4% of the total revenue.

Speaker 2

All generally as expected, but I We did incur $128,800,000 triggered by the dip in our stock price. Had our stock price not decreased, we would not have had a decline in the quarter, which were in line with plan. Quarter, which were in line with plan. We expect acquisition related expenses to further decline to relatively small amount here in Q2 It should remain in the context of the call after Q2 until our acquisition activity picks up. 1st quarter 2023 adjusted EBITDA was $17,600,000 or 23% 30% of total revenue for the Q1 of 2022.

Speaker 2

For the Q1 of 2023, GAAP operating cash flow was 15 point Free cash flow was $15,600,000 working capital accounts of approximately $4,500,000 This temporarily improved our free cash flow generation in Q1. We do not expect these positive temporary timing differences $258,000,000 of cash on our balance sheet, plus our $60,000,000 undrawn revolver. March 31, 2023, we had $263,000,000 after factoring in cash on our balance sheet. We are issuing guidance for Q2 and Quarter ending June 30, 2023, Upland expects total revenue to be between $69,800,000 $75,800,000 Including subscription and support revenue between 65.7% and 24% for a decline in total revenue of 9% at the mid Quarter ended June 30, 2020. Q2 2023 adjusted EBITDA is expected to be Adjusted EBITDA margin of 23% at the midpoint.

Speaker 2

Adjusted EBITDA guide at the midpoint is a Full year ending December 31, 2023 $12,000,000 including subscription and support revenue between $269,000,000 280,000 That I'll turn the call back to Jack.

Speaker 1

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

Operator

Your first question comes from the line of Jeff Vanhee.

Speaker 3

Great. Thanks, guys. A couple for me. Jack, the new growth plan, I think the Outlined last quarter was that you're thinking about $15,000,000 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?

Speaker 1

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

Speaker 3

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

Speaker 1

Yes. I don't I'm not going to break out the dollar amount that we spent on the growth plan in the first half of the year.

Speaker 3

Could you comment on G and A being up from 14,000,000 $17,000,000 sequentially.

Speaker 2

Well, yes, Jeff, this is Mike. Yes, we did have Some accruals in the quarter on G and A, related to bonus accruals, 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

Speaker 3

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?

Speaker 1

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 We were hoping they would come in, but again, what happens to the rest of the year here.

Speaker 3

Okay. That's it for me. Thanks.

Operator

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

Speaker 4

Hey, thanks for taking my questions. I know there are some moving pieces with 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?

Speaker 1

So 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 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 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.

Speaker 1

But again, we see significant opportunities across a variety of our product groups.

Speaker 4

Great. Thanks. And then is there any update on your plans for M and A just given the macro uncertainty and just compressions that we're seeing 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?

Speaker 1

No. We're definitely still looking at deals who are 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.

Speaker 1

But as of right now, I haven't seen enough of a price adjustment yet super excited, but I'm sure it's coming.

Speaker 4

Great. Thanks for taking my questions.

Operator

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

Speaker 1

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

Operator

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

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Earnings Conference Call
Altus Power Q1 2023
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