Upland Software, Inc.

The conference call will be recorded and simultaneously webcast at .uplandsoftware.com and a replay will be available for 12 months. By now, everyone should have access to the first quarter 2025 earnings release, which was distributed today at 9.05 a.m. Eastern time. If you've not received the release, it's available on the Uplands website. I'd now like to turn the call over to Jack McDonald, Chairman and CEO of Uplands Software. Please go ahead, sir.

All right, thank you and welcome to our Q1 2025 earnings call. I'm joined by Mike Hill, our CFO. On today's call, I will start with a Q1 review. Mike will provide some detail on the Q1 numbers and guidance and then we'll open the call up for Q&A. Before we get started, Mike, could you please read the Safe Harbor Statement?

Yes, thank you, Jack. During today's call, we will include statements that are considered forward-looking within the meanings of the securities laws. A detailed discussion of the risks and uncertainties associated with such statements is contained in our periodic reports filed with the SEC. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements. On this call, Upland will refer to non-GAAP financial measures that when used in combination with GAAP results provide Upland management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-GAAP measures to the most comparable GAAP measures in our press release announcing our financial results, which are available on the investor relations section of our website. Please note that we're unable to reconcile any forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. And with that, I'll turn the call back over to Jack.

All right, thanks, Mike. So here are the headlines. Very solid Q1, we beat our revenue and adjusted EBITDA guidance midpoints. Our core organic growth rate in Q1 was flat, but we are seeing positive growth momentum with our core organic growth rate moving to 2% here in Q2 and we see further increases in that as we move through the rest of 2025. Q1 adjusted EBITDA was 13.1 million. That resulted in adjusted EBITDA margin of 21%. Now that's up a little bit from the 20% that we reported in 2024, but here's the bigger point. We are seeing momentum with adjusted EBITDA margins moving to 26% here in Q2 and then further expanding as we move through the second half of 2025. Q1 free cashflow came in at 7.9 million, which was higher than expected. On the -to-market side, we continue to see some nice sizable product wins, including with our AI enabled products. We welcomed 107 new customers to Upland in the first quarter, including 19 new major customers. We also expanded relationships with 245 existing customers, 26 of which were major expansions. These new and expanded relationships occurred across our AI powered product portfolio. So it was a good start to 2025. We are excited about the progress we're seeing on our growth plans, more to come on that in a moment with increase in core organic growth and adjusted EBITDA margin expansion through 2025. On the product front in Q1, I'll note that we earned 76 badges in G2's spring 2025 report. And those were across our solutions. Upland BAI Insight, our AI enablement product, received valuable recognitions along with Upland Interfax, our AI enabled cloud fact service. AI knowledge management solutions, Upland RideAnswers and Upland Panviva also continue to garner numerous badges. Again, G2 is the world largest and most trusted software marketplace and their rankings are based on data provided by real software buyers. Upland Panviva in the first quarter launched Sidekick, which is a modern way to deliver compliant and contextualized knowledge to contact center agents. As a trusted leader in highly regulated industries, Panviva delivers next generation AI powered guidance for complex and compliance driven organization. The product offers flexible solutions that meet customers' omni-channel needs such as integrations with chat bots, AI agents and CRMs. With the power of the gen AI curation that is approved by business experts, really providing that best of both worlds, organizations can deliver real time recommendations when agents and customers need it most, from a knowledge base that is trusted and secure and auditable. Upland Adestra announced a big move forward in its data driven analytics in the first quarter with the launch of Audiences. The new capabilities bring the power of train of thought analytics to email marketers and data analysts, enabling them to build greater intelligence and maximize campaign performance. Building on Adestra's strong legacy of marketing and deliverability expertise, these new cutting edge capabilities give marketing and data professionals the ability to answer critical questions around who their best customers are, exploring new audience segments, motivating prospects, increasing subscribers and driving lead engagement. Now, subsequent to the end of the first quarter, subsequent to March 31, 2025, we sold our mobile messaging product lines. With this divestiture, we sharpened the focus of Upland to markets where we have the strongest competitive advantage, higher margins and higher growth. I'll note that excluding these divestitures, our net dollar retention rate for the core business as of December 31, 2024 would have been 99% as compared to our reported 96%. So really focusing the business on those products that are stickiest, that have the highest growth opportunity and that are also the highest margin. Now, those mobile messaging divestitures lowered our 2025 revenue guidance midpoint by $25 million. But they had no impact on 2025 adjusted EBITDA guidance. Again, we now anticipate higher core organic growth rate, again, starting with 2% in Q2 moving higher as we get into the back half of the year. But again, drilling in on that margin point, higher EBITDA margins. So moving to 26% here in Q2 and then further expanding during the second half of 2025. And I would note that we published today a new investor deck. It's linked in our earnings release and available on the investor page of our website. And I would welcome folks to take a look at it. It really lays out clearly the new positioning of the company and the fact that we have now turned the corner and anticipate beginning here in Q2, positive core organic growth for the business together with higher margins, together with higher net dollar retention rates, together with a more focused product story on markets where we've got the strongest competitive advantage. Now with the proceeds from our divestitures and free cash flow and cash on hand, in the first quarter, we paid down debt. And if you look at total pay down to date here in 2025, we paid it down by 34.2 million. And now this is in addition to roughly 189 million debt pay downs that we made in 2024. And with that, net leverage has been coming down and we see net leverage declining to roughly 3.7X by the end of this year. So with that, I'm gonna turn the call over to Mike.

All right, thank you, Jack. I think Jack covered most of the points on the financials for the quarter. So I'll just make a few additional comments here. On the income statement for Q1, revenues came in better than expected due to some customer goal lives, which allowed us to begin revenue recognition a quarter earlier than expected. And our Interfax product line delivered more usage volume in Q1 than we originally expected. Q1 gross margins trended up from Q4 as expected and gross margin should continue to trend up in future quarters by a few interbasis points as a result of our recent divestitures. As a result of this increased revenue, adjusted EBITDA for Q1 came in above our guidance midpoint and adjusted EBITDA margin was 21%. That's up from 90% for the first quarter of 2024. As you can see from our forward guidance midpoints, we see adjusted EBITDA margin expanding to 26% here in Q2 and expanding further in Q3 and Q4 per full year adjusted EBITDA margin of 27%. On to cashflow for the first quarter 2025, as Jack mentioned, gap operating cashflow was 8.3 million, pre-cashflow was 7.9 million, which was benefited by about 1.2 million from the sale of some of our interest rate swaps in the quarter. On the balance sheet, after paydowns of 34.2 million of our debt during the quarter, at the end of Q1, we had outstanding net debt of approximately 226 million, factoring in approximately 34 million of cash on our balance sheet. At the end of Q1, our gross debt was approximately 259 million. Our variable to fixed interest rate swaps effectively fixed the interest rate at .4% on approximately 217 million of our outstanding debt as of March 31st, 2025. The remaining 43 million of our outstanding debt floats at an interest rate of SOFR plus 385 basis points, which was .2% at March 31st, 2025. We plan to continue paying down debt with our excess cashflow generation. On to guidance, our core organic growth outlook is projected to improve, as Jack mentioned, to approximately 2% growth right now here in Q2 and expanding in the second half of 2025. The growth rate assumes that we do not see any macro disruption from the tariffs. As mentioned, subsequent to quarter end, we divested our mobile messaging product lines. This divester lowered our 2025 revenue guidance midpoint by about $25 million and had no impact on 2025 adjusted EBITDA guidance midpoint. For the quarter ending June 30th, 2025, we expect reported total revenue to be between 50.3 and 56.3 million, including subscription and support revenue between 47.5 and 52.5 million, for a decline in total revenue of 23% of the midpoint from the quarter ended June 30th of 2024. Second quarter 2025 adjusted EBITDA is expected to be between 12.1 and 15.1 million, which at the midpoint is flat compared to the quarter ended June 30, 2024. Second quarter 2025 adjusted EBITDA margin is expected to be 26% at the midpoint, which is a significant increase from the 20% that we had back at the quarter ended June 30th, 2024 a year ago. For the full year ending December 31st, 2025, we expect reported total revenue to be between 209.5 and 227.5 million, including subscription and support revenue between 197.5 and 212.5 million, for a decline in total revenue of 20% at the midpoint from the year ended December 31st, 2024. Full year 2025 adjusted EBITDA is expected to be between 55.0 and 64.0 million, which at the midpoint is an increase of 7% from the year ended December 31st, 2024. Full year adjusted EBITDA margin is expected to be 27% at the midpoint, which is a significant increase from the 20% that we had last year for the full year 2024. With that, I'll pass the call back to Jack.

All right, we are ready to open the call up for Q&A.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from Scott Berg with Needham Company, please go ahead.

Hi, this is Ian Black on for Scott Berg. Are you guys terminated your chief sales officer in April? How should

review -to-market strategy going forward?

Ladies and gentlemen, please hold one moment.