Thank you for standing by, and welcome to the Upland Software 4th Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions for that will be given at that time. The conference call will be recorded and simultaneous the webcast at investor.uplandsoftware.com, and a replay will be available there for 12 months. By now, everyone should have access to the fourth quarter 2024 earnings release, which was distributed today at 9.05 a.m. Eastern Time. If you have not received the 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. Please go ahead, sir.

Well, thank you and welcome to our Q4 2024 earnings call. I'm joined today by Mike Hill, our CFO. I'll start the call with some review of Q4, and Mike's going to provide some additional detail on those numbers, and he'll also go through our guidance for Q1 and for the full year 2025. After that, we'll open the call up for Q&A, but before we get started, Mike will read the safe harbor statement.

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 publicly 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, and 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, 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 2024, an improvement from 95% in the prior year, and we're targeting continued improvement for 2025. Q4 adjusted EBITDA was $14.9 million, which was up sequentially from Q3 and continued our growth in each quarter in 2024. Q4 free cash flow came in stronger than expected at 9 million, which brought our full year 2024 free cash flow to 23.4 million. We welcomed 110 new customers to Upland in Q4, which includes 21 new major customers, and we expanded relationships with 291 existing customers, including 42 major expansions. On the product front in Q4, I'd note that we earned 76 badges in the G2 Winter 2025 market reports, which was up from the prior year. Right Answers and Panviva continued to earn many badges. BA Insight and Cubidian 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, and the strength and partnership positions Interfax as a go-to cloud fax solution for Konica Minolta's extensive multi-channel customer base across North America. Upland was also recognized in the IDC Marketscape Worldwide Digital Facts 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 to 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 million, 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've paid down debt by $33 million to date here in 2025. Now, that's in addition to $189 million 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 percent 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, the 2.5 percent is, from our 2024 average quarterly growth rate of negative 1 percent. 350 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 EBITDA margins in 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.

Well, 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 and growth margins stayed constant for the quarter. Adjusted EBITDA margin improved to 22% in Q4, up from 19% in Q4 of 2023. As you can see, adjusted EBITDA grew sequentially across 2024, starting with 13.1 million in Q1, 13.6 in Q2, 14 million in Q3, and as Jack said, 14.9 million in Q4. For the fourth quarter of 2024 gap operating cash flow was 9.3 million and free cash flow was 9 million bringing our full year 2024 free cash flow to 23.4 million now as a reminder our gap operating cash flow and free cash flow in the prior year 2023 was benefited by the 20.5 million dollar one-time cash gain from the sale of half of our interest rate swaps now also note that we are targeting full-year 2025 free cash flow in the range of $20 to $25 million. On the balance sheet, after about $33 million of additional paydowns year-to-date in 2025, our gross debt currently sits at about $261 million, almost all of which is hedged to effectively lock the interest rate at 5.4 percent. Cash flow permitting, we plan to continue paying down debt by up to $2 million per month. As we discussed on past calls, our outlook for 2025 continues to reflect the previously announced runoff of sunset asset revenue, causing our top line to continue to decline. That said, our core organic revenue growth outlook is projected to improve to approximately 2.5 percent 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 million, but are projected to have no material impact on our 2025 adjusted EBITDA. For the quarter ending March 31st, 2025, we expect reported total revenue to be between $59 and $65 million, including subscription and support revenue between $56.4 and $61.4 million, for a decline in total revenue of 12 percent at the midpoint from the quarter ended March 31st, 2024. First quarter 2025 adjusted EBITDA is expected to be between 11.2 and 14.2 million for an adjusted EBITDA margin of 20 percent at the midpoint. This adjusted EBITDA guidance at the midpoint is a decrease of three percent from the quarter ended March 31st, 2024. Now I will note that the first quarter calendar quarter of the year is always more heavily burdened by U.S. payroll taxes compared to quarters later in the calendar year, as well as this first quarter of 2025 was burdened additionally by continued costs related to those divested assets, where those costs would have been removed earlier had we not divested For the full year ending December 31, 2025, we expect reported total revenue to be between $231.5 and $255.5 million, including subscription and support revenue between $218 and $238 million, for a decline in total revenue of 11% at the midpoint for the year ended December 31st, 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 $65.5 million 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 December 31st, 2024. And with that, I'll turn the call back over to Jack.

Thanks, Mike.

We are now ready to open the call up for Q&A.

If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Again, to ask a question, press star, followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. Thank you. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of DJ Hines with Canaccord. 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 and BA insights. Obviously, knowledge management and 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?

Yeah, 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, you know, if you look at products like BA Insight, we see a very attractive – there's always been a strong enterprise search use case for BA Insight, which is now AI-enabled. But BA Insight itself is an AI enablement platform that connects 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 strategies. 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 contextual knowledge to customer service reps. Qubidian, we have rolled out AI Assist, which is an AI-powered tool for automating RFP and proposal responses, and that integrates with both OpenAI and with IBM Watson. And we're starting to see, you know, as you look at it, some pretty substantial sales opportunities around, you know, those products. So in Q4, for example, for Qvidian, for 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 and RFP proposal automation platform. So really starting to see some traction there. And, of 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 the 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, three years.

Yeah, perfect. That's helpful, Collar. Mike, maybe a follow-up for you. Just where are we in the asset unwind strategy? How much recurring revenue do you think there still is left to come out of the model? And then maybe a follow-up to that. like the $18 million that was divested this year, like what were the net proceeds to Upland for those businesses?

Yeah, the sale prices were about $10 million. And as far as the decline in the sunset asset revenues, we went from about $32 million last year in 2024. It'll be about $14 million this year in 2025. And then looking at 2026, it's probably down to around $6 million 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 Sanry with Craig Hallam. Please go ahead.

Great. Thanks. Hey, guys. A couple for me. Mike, just to follow up on that last one, just to be clear, you said $10 million for the businesses. That's $10 in total, not $10 per. Okay, got it. So high level, just maybe, Jack, on the HGGC, $150 million convert preferred that they did in July of 2022. 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 flyby, a very brief history lesson on what's going on with go-to-market, where we were, where we are, or what you think we're going to do this year?

Yeah, so, right, I guess the finger roll on that would be, you know, what have we done since the HGDC investment? So, you know, one, we've sold and or sunset non-core products, right, to further focus our product portfolio. As I mentioned a minute ago, we've built out that efficient India-based software development function, and we have made a significant investment in products, both in terms of performance capabilities and cloud ops, as well as, as I mentioned, incorporating AI into 80% of our content and 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 front line 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 with cash flow and the benefit of that capital raise is we've paid down $261 million 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 million a month. and then into, what, 26, latter 26 from November August, you've got the debt coming due. So obviously, presumably, you end up with a higher rate and maybe you delay the renewal. Just how do you think about the timing of taking out the existing debt?

Yeah, 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 that cash flow and using it to pay down principal. So, you know, we'll look to get the debt refi towards the second half of this year. And, you know, rates will be a little bit higher, but we'll also be looking at a lower principal amount. So that'll be somewhat offset by, you know, the lower principal amount.

Yeah, got it. And maybe one last in terms of the guide for Q1 59 to 65 on the revenues, particularly wide range given this late in the quarter. I mean, maybe you have something to do.

The divestor's not sure. just the width of the guidance and thoughts why so wide yeah uh jeff we've you know kept it fairly consistent on the width of the guidance range and it's a little bit late in the quarter but you know we've still got the perpetual license revenue and professional services revenue that's you know sometimes lumpy so we're just we're just keeping it consistent with that uh with that wider range yeah okay um i think that's it for me appreciate it thanks guys thanks your last question comes from the line of alex clarr with raymond james please go ahead great thank you um mike or jack

just um wanted to go into some of the nice major account expansion that you had this quarter so a couple questions here on on core net dollar retention improving just some more color on what you saw on some of the different components that have built up to that blended 96 number how was gross retention versus expansion and and then even with expansion any help kind of between pricing versus some of the cross fell up so yeah so the 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, you know, get that net dollar retention rate closer to 98% as we exit 2025.

Okay, great. And then, Mike, maybe one for you. Oh, sorry. Were you going to add on there? I apologize.

I was going to say in terms of the expansion amounts in there, you know, our core motion there is really pure expansion, growing seats, growing users. But we are seeing now with the AI-enabled products like Qubitian 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 outside the U.S., I know some of that's in the Sunset asset, but that's 2.5% core growth. Is that a constant currency figure? Is that all in and any help on kind of how much FX is impacting the outlook?

Yeah, I don't think there's much of an FX impact there, Alex. So, yeah.

Okay, great. Thank you.

That 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 you, and 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.