Upland Software, Inc. Q1 FY2025 earnings call

• Q1 was very solid with revenue and adjusted EBITDA beating guidance midpoints. Core organic growth rate was flat in Q1 but expected to be 2% in Q2 and increase further in the second half of 2025. • Product wins including AI-enabled products, with 107 new customers and 245 expanded existing customers in the first quarter. • Upland products earned 76 badges in G2’s Spring 2025 report; Panviva launched Sidekick and Adestra launched audiences. • Divested mobile messaging product lines to focus on markets with strongest competitive advantage, higher margins, and growth. • Paid down $34.2 million of debt in Q1 2025, with net leverage expected to decline to approximately 3.7x by the end of 2025.

In Q1 2025, revenues were better than expected due to customer go-lives allowing earlier revenue recognition and the InterFAX product line delivering more usage volume than originally expected. The mobile messaging product lines were divested, which lowered the 2025 revenue guidance midpoint by $25 million but had no impact on the 2025 adjusted EBITDA guidance. Q1 adjusted EBITDA was $13.1 million, resulting in an adjusted EBITDA margin of 21%. Q1 free cash flow came in at $7.9 million.

• For Q2 2025, reported total revenue is expected to be between $50.3 million and $56.3 million, with adjusted EBITDA between $12.1 million and $15.1 million and an adjusted EBITDA margin of 26% at the midpoint. • For the full year 2025, reported total revenue is expected to be between $209.5 million and $227.5 million, with full year adjusted EBITDA between $55.0 million and $64.0 million and an adjusted EBITDA margin of 27% at the midpoint. • Core organic growth rate is expected to be 2% in Q2 and increase in the second half of 2025. • Net leverage is expected to decline to approximately 3.7x by the end of 2025.

• During the call, forward-looking statements are made, and a detailed discussion of risks and uncertainties associated with such statements is in periodic reports filed with the SEC. • Unable to reconcile forward-looking non-GAAP financial measures to directly comparable GAAP financial measures without unreasonable effort.

Q: You terminated your Chief Sales Officer in April. How should we view go-to-market strategy going forward?

A: We focused the business on markets where we have the strongest competitive advantage, higher growth rates, and higher margins. We realigned sales with our general managers of our product groups and do not need a centralized management for the sales function.

Q: Should we expect additional divestitures as you guys streamline towards growth?

A: Nothing material. We have substantially repositioned the business, with core revenue of about $194 million, a core organic growth rate of between 2% and 3% this year, strong gross margins, and a substantially delevered business.

Q: As an outsider, it's hard to tell what's driving the faster organic growth, the improving margins, just qualitatively like how much of that is just narrowing in on your better products and kind of divesting underperforming assets versus those better products actually getting better. Is there any way to kind of frame that conversation for us?

A: Narrowing in, focusing on where we have the strongest competitive advantage, the highest growth, the highest margin is driving the bulk of that improvement. Also, we have built a centralized digital marketing capability, made investments in product development, AI-enabled our products, and seen benefits in bookings. For example, a major sale to a tech company using Upland RightAnswers.

Q: When was the full build out of your India offshore development center completed?

A: Completed at the end of last year.

Q: Just reconcile the changes in the free cash flow outlook?

A: We have $20 million of free cash flow this year with $5 million one-time divestiture related expenses.

Q: Any commentary about the visibility into that top-line acceleration? And specifically speaking to maybe, it sounds like the digital marketing lead gen side has really picked up for you. I think you spent a lot of time to try to get better quantification and measurability in pipelines. Just any color from a pipeline standpoint in those businesses, whether it's coverage ratios or others that just give you a conviction beyond the 2% for the quarter getting up to 5% and beyond and just how visible that is and what the metrics are telling you.

A: Strong visibility with 93% of our revenue being recurring, NDRR pro forma for divestitures up to 99%, average contract turn up to two years, average customer lifetime over eight years, pipeline build has continued to strengthen, coverage ratios are decent, and we have confidence in beating the 2% in the second half and getting closer to 3%.