Thank you for standing by and welcome to the Opland Software 3rd Quarter 2025 Earnings Call. At this time, all participants are in a 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 simultaneously webcast at investor.oplandsoftware.com and a replay will be available there for 12 months. By now, everyone should have access to the third quarter 2025 earnings release, which was distributed today at 8.05 a.m. Central 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.

Thank you and welcome to our Q3 2025 earnings call. I'm joined today by Mike Hill, our CFO. On today's call, I will start with our Q3 review, and following that, Mike's going to provide some detail on the numbers and guidance. After that, we'll open up for Q&A, but before we get started, Mike, could you read the Safe Harbor statement, please?

You bet, Jack. During today's call, we will include statements that are considered forward-looking within the meanings of 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 we do not intend or undertake any duty to release publicly any updates revisions to any forward liquid statements on this call often will refer to non-gap financial measures that when used in combination with gap results provide upland management with additional analytical tools to understand its operations Outland 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. With that, I'll turn the call back over to Jack.

All right, thanks, Mike. So the headlines in Q3, we beat our revenue guidance midpoint, and we met our adjusted EBITDA guidance midpoint. Our Q3 core organic growth rate was 3%. Q3 adjusted EBITDA was 16 million, which resulted in adjusted EBITDA margin of 32 percent, and free cash flow for the quarter was 6.7 million. We welcomed 97 new customers in the quarter, including 14 major customers. We also expanded relationships with 168 existing customers, 13 of which were major expansions. The new and expanded relationships continue to be spread across our AI-powered product portfolio. As we announced previously, in Q3, we successfully refinanced our debt, which moved the maturity of the debt out of six years to July of 2031. We also added a $30 million revolver, so really puts us in a place with well-restructured debt and ample liquidity. Our net debt leverage is now down to 3.8x, and we are on track to achieving our net leverage goal of 3.7x by the end of the year. And we plan, of course, to use our ongoing free cash flow generation to continue to delever our balance sheet in 2026 and beyond. On the product front in Q3, we earned 49 badges in G2's fall 2025 market reports, reflecting strong momentum across our portfolio. I'd note that Upland Write Answers and Upland BA Insight are now available in the AWS Marketplace with BA Insight featured in the new AI Agents and Tools category. This expanded presence makes it easier for customers to discover and purchase and deploy these AI solutions, simplifying the purchasing process and accelerating enterprise AI adoption. We were also recognized in Forrester's Customer Service Solutions Landscape, their Q3 2025 report. That study highlights leading vendors who are advancing customer service operations, and we believe that our inclusion reflects the impact of products like Upland Write Answers in helping companies resolve issues faster, improving agent productivity, and delivering more consistent, high-quality customer support. And, of course, positioning products like Up and Right Answers as a key enabling technology in these broader, authentic AI customer service deployments. And, again, across the product suite, we continue to deliver innovation that boosts productivity, data intelligence, and customer outcomes. Interfax added AI features to improve the discovery of fax content. Adestra rolled out enhanced bot click detection and a Razor's Edge NXT integration. And SecondStreet introduced a QR code generator to extend its competitions platform. On the sales, on the booking side, we also closed a number of attractive deals this quarter, but two new major AI deals that I would highlight. The first was a $2 million multi-year agreement with a Fortune 100 tech company, which adopted RightAnswers as the foundation for an intelligent, generative answer engine for all employees, integrating AWS Bedrock AI and S3 to reduce support costs and drive self-service. Another one I'd highlight is a $1 million multi-year deal with a global pharmaceutical company that selected our AWS bedrock-powered VA Insight platform to replace a legacy enterprise search system, thereby cutting costs and approving search accuracy and governance. And again, these are the results of the work we've done over the past couple of years in AI enabling the portfolio. And we're seeing some of our products really getting slotted in as enabling tech for these broader enterprise AI implementations. So we see that as something to really look at in terms of whether the plan is working. And again, these are early green shoots, but meaningful ones. So in summary, our Q3 results report, reported results support and illustrate the dramatic improvements we've made in the business. We streamlined our product portfolio with a focus on markets where we can drive growth and profitability. We're generating positive core organic growth and now look, quarterly results will fluctuate as they have in the past, but the long-term trend reflects progress. As I've described, we're seeing big new customer wins, validating our product market fit and validating our AI product strategies. Now we just need to continue to stack these wins going forward. Our adjusted EBITDA margins have dramatically expanded. We continue to see strong free cash flow. Mike's going to talk a little bit more about this but with a target of around 20 million this year and increasing next year and again we've strengthened our balance sheet by paying down debt extending the maturity of our debt by six years lowering our debt leverage and with uh forecasted continuing de-leveraging and again we've boosted our liquidity with the new revolver so with that i'm going to turn the call back over to mike all right thank you jack and i think jack covered a lot of these points on the financials for the quarter so i'll just make a few additional comments here on the income statement for uh for q3 revenues were as expected when taking into consideration

our recent divestitures q3 gross margins increased from q2 as expected as a result of the higher margins realized in our ongoing product lines our adjusted ebitda and adjusted ebitda margin came in is expected with our adjusted EBITDA margin of 32 percent up from 21 percent from the third quarter of 2024 and we still expect a full year adjusted EBITDA margin of around 27 percent for the third quarter of 25 gap operating cash flow with 6.9 million and as jack mentioned free cash flow with 6.7 million our full year 2025 target free cash flow remains at around 20 million our and on our balance sheet at the end of q3 we had outstanding net debt of approximately 217 million factoring in approximately 23 million of cash on our balance sheet which is about a 3.8 times net debt leverage ratio to trailing adjusted EBITDA. And we're on track to hit our target of 3.7 times net debt leverage by year end. For guidance, for the quarter end of December 31st, 2025, we expect reporting total revenue to be between 46.4 and 52.4 million, including subscription and support revenue between 44.1 and 49.1 million. For a decline in total revenue of 27% at the midpoint from the quarter into December 31st, 2024. This year-over-year declines permanently due to the divestitures completed earlier this year. Fourth quarter 2025 adjusted EBITDA is expected to be between 13.8 and 16.8 million, which at the midpoint is a 3% increase as compared to the quarter into December 31st, 2024. Fourth quarter adjusted EBITDA margin is expected to be 31% at the midpoint, which is 900 basis point increase from the 22% adjusted EBITDA margin for the quarter ended december 31st 2024 for the full year ending december 31st 25 we expect reported total revenue to be between 214 and 220 million including subscription and support revenue between 202.5 and 207.5 million for a decline in total revenue of 21 at the midpoint from the year ended december 31st 2024. this year we are declined as i mentioned is primarily due to the divestitures completed earlier this year. Full year 2025 adjusted EBITDA is expected to be between 56.5 and 59.5 million, which at the midpoint is an increase of 4% from the year into December 31st, 2024. Full year adjusted EBITDA margin is expected to be 27% of the midpoint, which is a 700 basis point increase from the 20% adjusted EBITDA margin for 2024. Now, additionally, I'll note that we lowered the midpoint for our full year 2025 total revenue and adjusted EBITDA guidance ranges by $800,000, primarily as a result of lower forecasted perpetual license revenue. But I'll point out that the midpoint of our subscription support revenue guidance range remains unchanged. So to recap, our product portfolio is now much more focused around the kcm market our core organic growth rate is in a positive multi-year uptrend from negative two percent two years ago to negative one percent last year to now around positive one percent this year and we are targeting three percent next year and five percent plus thereafter big new customer wins have validated our product mark have validated our product market fit in several key markets and those major wins have validated our product ai strategy Our adjusted EBITDA margin is in a significant multi-year expansion trend to over 30% here in Q3, noting that our margins are always highest in the back half of each calendar And when we zoom out, we see adjusted EBITDA margins expanding further from 20% last year in 2024 to our guidance midpoint this year of 27% to a target of 29% plus next year, target of 31 percent plus in 2027, and then, of course, our long-term operating model target of 32 percent. Cash flows remain strong as we continue to target around $20 million of free cash flow this year, as I mentioned, and we're targeting an increase of about 10 percent next year, so targeting around $22 million of free cash flow next year. We have significantly strengthened our balance sheet, improved our liquidity, paying down $242 million of debt since the beginning of last year, refinanced our debt, extended the maturity by six years out to July 2031, added $30 million undrawn revolver, providing us with ample liquidity, and we are forecasting continued deleveraging with our free cash flow generation. So with that, I'll pass the call back to Jack. All right. Thank you, Mike.

Let's open the call up now for Q&A.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And our first question comes from the line of Scott Berg with Needham.

Your line open hi jack and mike thanks for taking my questions here i guess i i got a couple you know you you guys had a much better core organic growth quarter here uh as you called out um i think jack mentioned you know targeting three percent next year five percent next year maybe it was mike i apologize i didn't write down who it was but um tell me one quarter is never quite a trend i guess what do you see in the current sales pipelines and the opportunities that you're working that gives you confidence that those targets look reasonable to achieve over the next year or two.

Yeah, I think you're right. One quarter doesn't make a trend. And, of course, as I indicated, things will bounce around quarter to quarter. But as Mike pointed out, the long-term trend is positive, right? In 23, we were negative 2 percent. In 24, negative 1 percent. For full year, 25. looking at positive 1% and then again targeting 3% for full year 26. So I think the overall trend is good. The green shoots that we're seeing that give us confidence in that outlook are some of the larger deals I talked about. For a number of years, we were not getting those larger deals and now with the work that's been done to ai enable the product portfolio and to position some of our core knowledge and content management products as key parts of enabling tech in these broader enterprise ai implementations and driving partnerships with uh you know some of the biggest players in the market the microsoft and amazon's of the world uh we're starting to see some of these in Google. We're starting to see some of these larger opportunities. So I mentioned, you know, a $2 million multi-year deal for a Fortune 100 tech company, $1 million multi-year deal for a major pharmaceutical company. It's the opportunities in the pipeline for those larger deals that give us optimism as we go into next year.

Thanks, Jack. Got helpful there. And then I guess I wanted to ask clarification on the fourth quarter guidance. Mike, you mentioned license revenue. It's going to be down about $800,000 in the quarter than prior expectations.

Is that a deal that just flips subscription and you won't take the revenue in the quarter, or is that something that moved out just maybe help understand what that movement you know is is you know relating to yeah most of that 800 000 is uh professional license uh revenue that we had originally uh projected forecasted that doesn't look like it's going to happen so that's just pure license revenue uh scott now there's a small bit of professional services uh revenue as well that that won't show up uh either to kind of you know combine to make that 800 000 and of course that falls to the bottom line on ebitda so um that's why a subscription support revenue uh guidance

midpoint remains the same helpful mike and i'll just sneak one last one in here is on the quarter any change to you know gross you know revenue retention trends or or maybe nets that help drive the 3% growth number?

So we don't report on net dollar retention rates during the year. That's a year-end metric. We did see excluding the divestitures. That was 99% at the end of last year, at the end of 2024. And we're targeting to remain in the upper 90% here this year. So I think those trends are sort of, you know, intact and consistent.

Excellent. Thanks for taking my questions, gentlemen.

Our next question comes from the line of DJ Hines with Canaccord. Your line is open.

Hey, thank you guys. Congrats on the next quarter. It seems like pretty down the middle print. Good to see the improving growth in margins. And Jack or Mike, appreciate your comments. Jack, maybe just one for you. If you look at the opportunity and think about the growth matrix going forward, how much should come from installed base versus net new? And I guess the follow-up to that is, like, does the presence of a couple of these key products in the AWS marketplace help with either of those efforts more than the other?

So in terms of growth from the installed base versus net new, if you look at our net dollar retention rates over the past few years, they've trended up. from low to mid nineties to upper nineties. And so that's providing a solid foundation for growth. And now we just need to stack some of these growth deals with new customers on top of that to get to growth targets. And so as we look at where that's gonna come from, It's really around our knowledge and content management product portfolio, which is roughly 75% of our revenue. And products like the ones we've talked about, Right Answers, BA Insight, Panfiba, UBIDIEN, Interfax, and others will play a key part in that.

And then a follow up just on AWS, the marketplace, like, is that a tool that's more powerful for making it easier for existing customers to buy more? Or is it like a discoverability that may help with landing new customers?

Yeah, it's a little bit of both. And so it's positive on both fronts there. And then there are broader partnerships with some of these major players where as folks are going in and doing these agentic enterprise AI implementations, having a knowledge solution that is auditable and reliable and not prone to hallucination is key. So some of these sort of headless knowledge management opportunities where we are part of a broader enterprise AI implementation, I think that's going to be a promising area for us over the next couple of years here. Yeah, great.

Thank you, guys. Nice to see all the progress.

And our last question comes from the line of Jeff Van Rie with Craig Hallu. Your line is open.

Great, thanks. Thanks for taking the questions. Jack, on the sales and sales execution, you guys are constantly trying to refine the process. Just maybe spend a second there. What's working? What's not? How are you tweaking the process at this point?

I think what's working is upgrading the sales force, bringing in more expert domain sellers on the field side. What's working is the SEO strategy that we began rolling out a few years ago, so we're getting higher quality leads into the hands of those salespeople, and our SDR team has been doing a nice job there. What's working in early stages, but we're starting to see some promising results from, is the use of intent data from platforms like Sixth Sense to, you know, refine our outbound motions. And frankly, it impacts our inbound motions as well to really focus in on prospects that are in the market, actively looking for solutions. I'd say what's working is the investments that we're starting to make in channel, and specifically in working more closely with larger partners like Amazon and Google and Microsoft to play our role in some of these larger enterprise AI implementations. So I think those are all green shoots on the demand gen and sales side. It's not going to be perfect every quarter, and we've got sales cycles to deal with and all of that. So as I mentioned before, it'll bounce around quarter to quarter. But I think the long-term trend here, as we talked about, is positive.

And maybe just a similar question on the development side. Obviously, with the remaining portfolio trying to drive up those retention numbers, you want to stay on the leading edge of innovation. How do you feel about the pace of new product introductions? Any call-outs there in terms of trend that gives you some measurables around how quickly you're innovating versus maybe what you were a year or two ago? It's a dramatic improvement.

A dramatic improvement. It really started with the center of excellence in India. As a core for our development effort, obviously our development efforts are broader than that. We've got onshore teams as well as offshore teams in India and elsewhere, but the work that's been done across the board in terms of solidifying the foundations, increasing uptime and availability and reliability of the products in terms of introducing AI into the product portfolio. uh and smartly and efficiently ai enabling these products uh where it makes sense in terms of the partnership with product management to make sure we're prioritizing uh the right uh items in the roadmap uh to to meet the demands both of existing customers and of uh new prospects It's been a steady improvement over the past three or four years. I give Dan Dutman and his team, Dan's our chief product and operating officer, and his team a tremendous amount of credit there. And, you know, it's been steady progress one foot in front of the other. And now we look back, you know, on what's been done over the past three or four years, and it's really starting to bear fruit. And we're seeing it, frankly, again, in getting a shot at these larger deals and starting again to land these million-dollar deals, multi-million-dollar, multi-year deals, which we, frankly, hadn't seen for a while. So, yeah, that's the picture there.

Good. And maybe last, if I can sneak the last one in here on the perpetual reduction. Was that, presumably, as a new customer, and is that an instance where that revenue is gone or just pushed out? If it's gone, was it a competitive deal and you just lost? If so, why? I know that's maybe five questions, but if you can tackle that, that's great.

Yeah, it wasn't just one customer. It was just the perpetual license revenue. We typically have a Q4 uptick. We just didn't see it this year. And it's really, you know, it's not some big story or some big, you know, target that went away. So it's just a little bit less on the license side.

Got it. Well, good to see the progress, guys. Thanks so much. Thank you.

That concludes the question and answer session. I would like to turn the call back over to Jack McDonald for closing remarks.

Okay. Well, thank you so much. We look forward to seeing you on the next earnings call.

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