Upland Software, Inc. Price & Performance (UPLD)

All right. Thank you, Jack. During today's call, we will include statements that based on our views and assumptions as of today, that are considered forward looking within the meanings of the securities laws.

A detailed discussion of risks and uncertainties associated with such statements is contained in our periodic reports filed with the SEC. We do not intend or undertake any duty to release public any updates or revisions to any forward looking statements. On this call, Upland will refer to non GAAP financial measures, Please see our earnings release for information on the non GAAP financial measures that we will discuss on this call. Our earnings release also contains reconciliations of these non GAAP measures to their most comparable GAAP financial measures except for any forward looking non GAAP financial measures because the information needed to complete a reconciliation is unavailable at this time without unreasonable effort. With that, I'll turn the call back over to Jack.

All right. Thanks, Mike. So the headlines, we had a good Q4. We beat on recurring revenue Upland we met our adjusted EBITDA guidance midpoint. Our core organic growth in Q4 was flat but we are seeing some positive growth momentum. And we are guiding to 2.5% core organic growth here in 2025. In addition to that, adjusted EBITDA margins are increasing in 2025 by 400 basis points. So we're seeing some progress, both in terms of growth and in terms of margins. Our net dollar retention rate was 96% at the end of twenty twenty four, an improvement from 95% in the prior year and we're targeting continued improvement for 2025. Q4 adjusted EBITDA was $14,900,000 which was up sequentially from Q3 and continued our growth in each [indiscernible] In 2024. Q4 free cash flow came in stronger than expected at $9,000,000 which brought our full year 2024 free cash flow to $23,400,000 We welcomed 110 new customers to which includes 21 new major customers. And we expanded relationships with two ninety one existing customers, including 42 major expansions. On the product front in Q4, I'd note that we earned 76 badges in the G2 Winter twenty twenty five market reports, which was up from the prior year Right Answers and Pandiva continued to earn many badges BA Insight and Qvidian also received notable recognitions along with other Upland AI powered solutions.

Upland Interfax has expanded its partnership with Konica Minolta Business Solutions, which is a global leader in workplace technology Upland the strength and partnership positions Interfax as a go to cloud fax solution for Konica Minolta's extensive multichannel customer base across North America. Upland was also recognized in the IDC market scape Worldwide Digital Fax 2024 vendor assessment. And also was named in the IDC Market Glance Knowledge Management report in the fourth quarter. Upland is dedicated to delivering AI enabled solutions, Jim improve knowledge sharing, and improve business outcomes.

Subsequent to year end, we divested two non strategic underperforming product lines Those divestitures lowered our 2025 revenue guide by about $18,000,000 but had no adjusted EBITDA impact So these were not products that were generating margin for us. These divestitures further simplify and focus our business on our best growth products. They reduce our execution risk and improve our core organic growth rate With the proceeds from those sales as well as free cash flow and cash on hand, we paid down debt by $33,000,000 to date here in 2025. Now that's in addition to $189,000,000 in debt paydowns that we made in 2024. Mike will talk about this in more detail with the guidance, but our 2025 outlook at the midpoint equates to approximately 2.5% core organic growth and we are targeting higher looking to exit 2025 closer to mid single digits core organic growth. It's a good turnaround four average quarterly growth rate of negative 1%. So three fifty basis point improvement. And as I mentioned earlier, our adjusted EBITDA margins are also moving up in 2025. So they'll be going from 20% adjusted EBITDA margins in 2024 to 24% adjusted 2025. So we've made an important turn in the business core organic growth rate turning positive, retention rates improving, adjusted EBITDA and adjusted EBITDA margins are growing.

So with that, let me turn the call back over to Mike.

Thank you, Jack.

I think Jack covered most of the points on the financials in the quarter. So I'll just make a few points additional comments here. For the Q4 income statement, revenues were generally as expected Upland gross margin stayed constant for the quarter. Adjusted EBITDA margin improved to 22% in Q4, up from 19% in Q4 of twenty twenty three. [indiscernible] As you can see, adjusted EBITDA grew sequentially across 2024 starting with $13,100,000 in Q1, $13,600,000 in $14,000,000 in Q3 and as Jack said, $14,900,000 in Q4. For the fourth quarter of twenty twenty four, GAAP operating cash flow was $9,300,000 and free cash flow was $9,000,000 bringing our full year 2024 free cash flow to $23,400,000 Now as a reminder, our GAAP operating cash flow and free cash flow in the prior year 2023 was benefited by the $20,500,000 one time cash gain from the sale of half of our interest rate swaps. Now I'll also note that we are targeting full year 2025 free cash flow in the range of $20,000,000 to $25,000,000 On the balance sheet, after about $33,000,000 of additional paydowns, year to date in 2025, our gross debt currently sits at about $261,000,000 almost all of which is hedged to effectively lock the interest rate at 5.4%. [indiscernible] Cash flow permitting, we plan to continue paying down debt by up to $2,000,000 per month.

As we discussed on past calls, our of Sunset asset revenue causing our top line to continue to decline. [indiscernible] That said, our core organic revenue growth outlook is projected to improve to approximately 2.5% growth in 2025, As mentioned, subsequent to year end, we divested two small non strategic product lines These divestitures lowered our 2024 guide by approximately $18,000,000 but are projected to have no material impact on our twenty five twenty twenty five adjusted EBITDA. For the quarter ending 03/31/2025, we expect reported total revenue to be between $59,000,000 and $65,000,000 including subscription and support revenue between $6,400,000 and $61,400,000 for a decline in total revenue of 12% at the midpoint from quarter ended 03/31/2024. First quarter twenty twenty five adjusted for an adjusted EBITDA margin of 20% at the midpoint. [indiscernible] This adjusted EBITDA guidance at the midpoint is a decrease of 3% from the quarter ended 03/31/2024. I will note that the first calendar quarter of the year is always more heavily burdened by U. S. Payroll tax compared to quarters later in the calendar year.

As well as this first quarter of twenty twenty five was burdened additionally by continued costs related to those divested assets where those costs would have been removed earlier had we not divested them. For the full year ending 12/31/2025, we expect reported total revenue to be between $231,500,000 and $255,500,000 including subscription Upland support revenue between $218,000,000 and $238,000,000 for a decline in total revenue of 11% at the midpoint for the year ended 12/31/2024. This guidance at the midpoint reflects core organic revenue growth of 2.5% for 2025. Full year 2025 adjusted EBITDA is expected to be between $53.5 and $65,500,000 for an adjusted EBITDA margin of 24% at the midpoint. The adjusted EBITDA guide at the midpoint is an increase of 7% from the year ended 12/31/2024, with that, I'll turn the call back over to Jack.

All right. Thanks, Mike. We are now ready to open the call up for Q and A. A. Your first question Please go ahead.

Hey, guys. Nice to see the improving organic growth outlook Good work there. Jack, it looks like the two products where you're getting the most accolades are right answers Upland BA Insights. Obviously, knowledge management enterprise search are pretty foundational to any AI strategy, which makes me think there may be an underappreciated AI story at Upland. Can you just talk a little bit about that and maybe highlight some of the key use cases you're seeing? Yes, absolutely. So over the past couple of years, we invested in building a center of excellence in India And we have used that development capacity as well as the rest of our both domestic and international teams to make a significant investment in products. And we have AI enabled 80% of our core content and knowledge management product portfolio. So So if you look at products like BA Insight, we see a very attractive there's always been a strong enterprise search use case [indiscernible] Which is now AI enabled. But BA Insight itself is an AI enablement platform enterprise LLMs to proprietary enterprise data sources because that platform, BAI, has over 90 enterprise connectors that solve the last mile problem for enterprises that are looking to implement enterprise AI strategy.

So a lot of excitement there. Around AI. Panviva, we recently announced Panviva Sidekick, which is an AI driven agent assistant which helps contact center agents deliver real time context knowledge to customer service reps. Qmedian we have rolled out AI Assist [indiscernible] which is an AI powered tool for automating RFP and proposal response And that integrates with both OpenAI and with IBM Watson. And we're starting to see, as you look at it, some pretty substantial sales opportunities around those products.

So in Q4, for example, for Cubidian, that AI assist product, we had a $500,000 ARR sale to a major technology company, rolling that out as their of record knowledge management Upland RFP proposal automation platform. So really starting to see some traction there. And course, right answers as well with our integration with OpenAI's ChatGPT, to enhance search and automate content creation and streamline customer content. So seeing it across the board, we believe it's going to be the foundation for our growth. Obviously, the 2.5% is a beginning. We're looking to go a lot higher than that through time. But I think you're spot on Our AI strategy is going to be central to getting our growth rate up over the next couple of three years. Yes, perfect. That's helpful color. Mike, maybe a follow-up for you. Just where are we in the asset unwind strategy? Like how much recurring revenue you think there still is left to come out of the model? And then maybe a follow-up to that, like the $18,000,000 that was divested this year, like what were the net proceeds to Upland for those businesses? [indiscernible] The sale prices were about $10,000,000 And as far as the decline in the Sunset asset revenues, we went from about $32,000,000 last year in 2024, it will be about $14,000,000 this year.

In 2025. And then looking at 2026, it's probably down to around $6,000,000 or so.

Okay.

All right. Perfect. Awesome. All right. I'll hop back in the queue. Thank you, guys. Thank you.

Your next question comes from the line of Jeff Van Rhee with Craig Hallum. Please go ahead.

Great, thanks. Hey, guys. Couple for me. Mike, just to follow-up on that last one, just to be clear, you said $10,000,000 for the business businesses, that's $10,000,000 in total, not 10 per Correct.

Okay, got it. So high level just maybe Jack on the HDGC $15,050,000,000 dollars convert that preferred that they did in July of twenty twenty two. '2. A lot of the skill sets that they were bringing were around sales. I know you focused a lot on that. Obviously, your guide is suggesting you're getting some traction. Just love maybe a brief fly by, very brief history lesson on what's going on with go to market where we were, where we are, what you think we're going to do this year? [indiscernible] right, I guess the finger roll on that would be what have we done since the investment. So [indiscernible] Right, to further focus our product portfolio. As I mentioned a minute ago, we've built out that efficient India based software development function Upland we have made a significant investment in products, both in terms of performance, as well as as I mentioned incorporating AI into 80% of our content knowledge management products, 60% of our digital marketing. Products. Significantly, we've built a modern demand gen a modern digital marketing function to generate demand and build sales pipeline.

We've upgraded our sales talent and particularly at the frontline where it matters the most by hiring more domain expert account execs.

Important as we look to bring these new AI enabled products to market. So I would say those are the headlines Jeff. As a result of all that, as I say, core organic growth rate, net renewal rates are improving. We're seeing also some expansion in margins. And the other thing we've done done with cash flow and the benefit of those of that capital raise is we've paid down $21,000,000 of debt since the HDGC investment. And on the debt, how do you think about timing? I mean, obviously, it sounds like you're going to chip away. I think you said maybe up to $2,000,000 a month.

And then into what twenty six, latter twenty six from November, August, you've got the debt coming due. So obviously, presumably, you end up with a higher rate maybe a delay of the renewal. Just how do you think about the timing of taking out the existing debt Yes, I mean you hit it. We've got a very attractive locked rate with our swaps under this facility. So we're not in a huge rush because we're enjoying cash flow and using it to pay down principal. We'll look to get the debt refi towards the second half of this year. And rates will be a little bit higher, but we'll also be principal amount. So that will be somewhat offset by the lower [indiscernible] Got it. And maybe one last, in terms of the guide for Q1, fifty nine sixty five on the revenues, particularly wide range given this late in the quarter. I mean, maybe you have something to do with the divestiture is not sure, just the width of the guidance and thoughts why so wide?

Yes, Jeff, we've kept it fairly consistent on the width of the guidance range Upland it's a little bit later in the quarter, but we've still got that perpetual license revenue and professional services revenue that's sometimes lumpy. So we're just keeping it consistent with that wider range. Yes.

Okay. I think that's it for me. Appreciate it. Thanks guys. Thanks.

Your last question comes from the line of Alex Kfar with Raymond James. Please go ahead.

Great. Thank you. Mike or Jack, just wanted to go into some of the nice major account expansion that you had this quarter. So a couple of questions here on core net dollar retention improving. Just some more color on what you saw on some of the different components that built up to that blended 96% number, how was gross retention versus expansion? And then even with expansion, any help kind of between pricing versus some of the cross sell up? So Yes. So I think the key story on the net dollar retention rate improvement has been an improvement in gross dollar retention rate. Which has really been driven by the investments we've made in product, and the divestitures and focusing our product portfolio on our strongest products, which have the best renewal rates. Our goal as we look out into 2025 is to get that net dollar retention rate closer to 98%. As we exit 2025.

Okay, great.

And then Mike, maybe one for you. What are you going to add on there? I apologize. I was going to say in terms of the expansion amounts in there, Our core motion there is is really pure expansion growing seats growing users, But we are seeing now with the AI enabled products like Qubidion AI Assist the opportunity to go back into a substantial customer base and upsell AI capabilities. So as we look into 2025, looking to see some additional upsell opportunities driven by AI. Okay, perfect.

Mike, on FX, 30% of revenue out of The U. S, I know some of that's in the Sunfid asset, but that 2.5% core growth, is that a constant currency figure? Is that all in? Any help on kind of how much FX is impacting the outlook?

Yes, I don't think there's much of an FX impact there, Alex. So [indiscernible] Okay, great. Thank you both. Thank you. [indiscernible] concludes our question and answer session. I will now turn the call back over to Jack McDonald for closing remarks. Please go ahead.

All right. Thank Upland we look forward to seeing you on our next earnings call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.