Thank you for standing by and welcome to the Upland Software First Quarter 2025 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions that will be given at that time. The conference call will be recorded and simultaneously webcast at investor.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 Upland's website. I'd now like to turn the call over to Jack McDonald, Chairman and CEO of Upland 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, would 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 gap results provide Upland management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-gap measures to the most comparable gap 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-gap financial measures to their directly comparable gap 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 percent 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 percent. Now, that's up a little bit from the 20 percent 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 cash flow came in at 7.9 million, which was higher than expected. On the go-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 increasing 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 fax service. AI knowledge management solutions, Upland Write Answers, 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 chatbots, AI agents, and CRMs. With the power of 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 margin, 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 of debt paydowns 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 going to 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 go-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 margins should continue to trend up in future quarters by a few hundred basis 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 19% 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 for a full year adjusted EBITDA margin of 27%. On to cash flow for the first quarter 2025, as Jack mentioned, GAP operating cash flow was $8.3 million, pre-cash flow 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 C-1, our gross debt was approximately $259 million. Our variable to fixed interest rate swaps effectively fixed the interest rate at 5.4% on approximately $217 million of our outstanding debt as of March 31, 2025. The remaining $43 million of our outstanding debt floats at an interest rate of SOFR plus 385 basis points, which was 8.2% at March 31, 2025. We plan to continue paying down debt with our excess cash flow 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 in, we divested our mobile messaging product lines. This disaster 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 30, 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% at the midpoint from the quarter into 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 to 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 30, 2024 a year ago. For the full year ending December 31, 2025, we expect reported total revenue to be between $209.5 to $227.5 million, including subscription support revenue between $197.5 and $212.5 million for a decline in total revenue of 20% at the midpoint from the year into 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 into December 31, 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 of 2024. And 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. You terminated your chief sales officer in April. How should we view go-to-market strategy going forward? Yeah, we've

made a ton of progress on go-to-market strategy, and the divestitures that I noted during the prepared remarks are a part of that. We've focused the business on markets where we've got the strongest competitive advantage, higher growth rates, and higher margins. So we're seeing growth have turned positive here in Q2 at 2% and then increasing in the second half of the year. As a part of those divestitures and focusing the business, we have realigned sales with our general managers of our product groups. And so do not need a centralized management for the sales function. and we are excited about that motion it's one that we think is going to provide more focus on individual products which is where we succeed and it's also a more efficient motion thank you

and then you've now completed three diversity shares in 2025 should we expect additional deals

as you guys streamline towards growth nothing material at this point we have completed substantially the repositioning of the business, and we look at a core business today. We look at core revenue of about $194 million, a core organic growth rate of between 2% and 3% this year with very strong gross margins, 27% EBITDA increasing as we move through the year and a substantially de-levered business. And the markets we're focused in today are stickier, so we see a net dollar retention rate moving up here to 99%. So we love the product focus, the blue chip customer base, and we've got, again, a strong and growing market opportunity. So I think it's a significant turn for the business. It's one that we've been working on for the past couple of years. And of course, more to come as we report quarter by quarter from here.

Thank you so much.

Your next question comes from DJ Hines with Canaccord. Please go ahead.

Hey, guys. Nice to see the improving outlook over the balance of the year. I'll aim this one at Mike, but Jack would love to get your thoughts. Mike, 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?

Yeah, DJ, it's Jack. I'll take that one. And narrowing in, focusing on where we have the strongest competitive advantage, the highest growth, the highest margin, is driving the bulk of that improvement. So that's the answer to the first part of the question. But I would say part of this growth plan over the past couple of years has been building a centralized digital marketing capability and we have seen real progress there and if you look at our business over the past six or eight quarters when we look at internal KPIs around marketing sourced bookings it has been a stair-step function up quarter by quarter in terms of increased marketing source bookings and these are the basics that we put in place around organic SEO, around intent data, the investments we've made in our sales development reps, the investments we've made in product marketing. And I would say the final piece of that is what we've done on the product side. Over the past couple of years, we've completed the build-out of our India Offshore Development Center. And using that capability, as well as the talented developers we've got around the world, we have made substantial investments in and improvements to our products, performance, capabilities, but we've also been AI enabling our products. And we're starting to see the benefits of that in terms of booking. So right here in the first quarter. I think about one important sale we made, half a million dollars plus in ARR to a major tech company that was doing a substantial enterprise LLM and the customer implementation around customer support. And this is a business that has got tens of millions of customer touches a year well-known blue chip company and that kind of implementation is pulling forward products like upland right answers which provide the knowledge bases the trusted secure auditable knowledge bases that are needed and that these enterprise llms are trained on. So again, this is just one example of how the product innovation is driving this growth. That deal was a marketing-sourced booking. So it's an example as well of the progress we've had in building a demand gen. And again, when you now focus the business on those highest margin, highest growth, highest renewal rate products. When you take your NDRR from the mid-90s to the high 90s, up to 99%, it provides a much more solid platform for organic growth. So we are targeting some increases through the back half of the year and then even higher next

year. Sorry. No, it makes sense. It's a helpful explanation and nice to see the progress. Thank

Your final question comes from Jeff Benry with Craig Hallam. Please go ahead.

Great, thanks. Hey, Jack, Mike, a couple of quick ones. Just on the India, if you'd revisit that, just refresh me. I think you said that played out over a few years. When was the full build out completed? When have we started to see the benefits of that increased productivity for the dollar rolling into the product? So just trying to get a little better sense of the timing there.

Yeah, full build out completed at the end of last year. And if you look at our spend, our R&D spend as a percentage of revenue, that will stay relatively constant here in the mid-teens, but the degree of throughput that we're getting for that is increasing substantially.

That's helpful. And, Mike, on the free cash flow, if I have it right, I think you were looking for $23 million last quarter. You bumped it down to $20 million, and I think you called on the slideshow there was a $5 million, I think it was a one-timer related to a divestiture. Just reconcile the changes in the free cash flow outlook there, and if I have that $5 million correct.

Yeah, you do, Jeff. And so $20 million of free cash flow this year before that $5 million. So we've got these one-time costs that are really divestiture-related expenses as we, you know, restructure the business here around the divestitures. So from a cash flow standpoint, yeah, $20 million. If we ignore that $5 million, you know, additional bullet here in Q2.

Okay. And just back, a follow-up on just the prior questions around pipeline and visibility. Jack, any other commentary about the visibility into that top line acceleration? And specifically speaking to maybe, you know, 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.

Yeah, so a couple things on visibility and, you know, some basics here. It's a strong visibility business in the sense that 93% of our revenue is recurring. Net dollar retention rate pro forma for those divestitures, Jeff, is now up to 99%. You know, our average contract term is up to two years now. And our average customer lifetime, if you look at the, you know, the core business today is up over eight years, close to nine years. So those are all positives. Pipeline build has continued to strengthen quarter by quarter over the last six to eight quarters. coverage ratios are decent. You always want them to be better. We have a pretty good degree of confidence here that we're going to beat the 2% in the second half of the year and get closer to three. And then we're looking at our internal forecasts are showing something north of 4% next year. Now, obviously, we've got to execute to get that done. But if you look at this business over the past few years, that's a real turn from where we were. And, again, it's married to EBITDA margins that are going to be closing in on 30% here in the second half of the year and as we move forward in the next year. So Upland as a business has not seen that sort of rule of mid-30s territory in quite some time. So we view that as a positive.

Yep, yep, understood. And one last then on the debt, real nice progress. In terms of paying down the debt, going forward, the thought still targeting paying down $2 million a month? I think that was what you commented previously, although we've had some lump sums in between here and there.

Yes, we have had some lump sums. But yes, cash flow dependent, that is the target going forward.

Yeah, got it. Thanks so much. All right.

There are no further questions at this time. I will now turn the call back over to Jack McDonald

for closing remarks. Okay, thank you very much. Sorry for that telephone line interruption in the middle there. We appreciate the questions, and we will see you on our next earnings call.

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