What Happened:

Shares of business automation software provider Upland Software (NASDAQ: UPLD) jumped 39% in the morning session after the company reported first quarter results with strong gross margin improvement. Its revenue and EPS also outperformed Wall Street's estimates. On the other hand, its revenue guidance for the next quarter missed analysts' expectations. Zooming out, we think this was a strong showing that the company is staying on track.

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What is the market telling us:

Upland's shares are very volatile and over the last year have had 55 moves greater than 5%. But moves this big are very rare even for Upland and that is indicating to us that this news had a significant impact on the market's perception of the business.

The biggest move we wrote about over the last year was 2 months ago, when the company dropped 37.9% on the news that the company reported fourth-quarter results and provided revenue guidance for the next quarter and full year, which fell below Wall Street's expectations, suggesting a slowdown in demand. Non-GAAP EPS also missed during the quarter, while revenue beat by a narrow margin.

As a reminder, Upland's growth is expected to continue to be impacted by the ongoing plan to sunset some of its legacy products. The company gave some insights on how the plan is expected to unfold during its Q4'2022 earnings: "The sunset assets represent an estimated 10% of our 2023 revenue and will represent a smaller percentage of our revenue each year thereafter. Upon execution of this plan, what we're going to end up with is a company that can grow both organically and through acquisitions with that growth supporting margin expansion and increased shareholder value." Excluding the impact of these legacy products, the company is expected to achieve core organic growth rate of roughly 3% in 2024. However, the market is likely still struggling to digest the impacts of the ongoing development as the full year growth guidance also implied continued growth deceleration, and the stock is down as a result.

Upland is down 32.2% since the beginning of the year, and at $2.87 per share it is trading 42.5% below its 52-week high of $4.98 from December 2023. Investors who bought $1,000 worth of Upland's shares 5 years ago would now be looking at an investment worth $61.61.

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