Q3 2025 Upland Software Inc Earnings Call

Thank you for standing by and welcome to the Upland software. Third quarter 2025 earnings call. At this time, all 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.uplandsoftware.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 all plans 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 and 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 meeting so that 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 help them management.

we do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements

On this call, we will refer to non-GAAP financial measures that, when used in combination with GAAP results, provide Upland management with additional analytical tools to understand its operations.

Upland 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 are 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 an 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 ebit. Da guidance, midpoint our Q3 core organic growth. Rate was 3%.

Q3 adjusted ebitda uh was 16 million which resulted in adjusted Eva margin of 32%.

And free cash flow for the quarter was 6.7 million. We welcome 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 continued to be spread across our AI powered product portfolio.

as we announced previously, uh, in Q3 we successfully refinanced, our debt,

which moved the maturity of the debt of 6 years to July of 2031.

We also added a $30 million revolver, which really puts us in a place with well-structured 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 de-lever, our balance sheet uh in 2026 uh and Beyond.

Fall 2025 market reports uh reflecting strong momentum uh across our portfolio.

I'd note that Upland right answers and Upland ba Insight are now available in the AWS marketplace, with de Insight featured in the new AI agents and tools category.

It's expanded presence. Makes it easier for customers to discover and purchase and deploy. Uh, these AI Solutions, simplifying, the purchasing process and accelerating Enterprise, AI adoption.

We're also recognized in Forester's Customer Service Solutions landscape. Their Q3 2025 report highlights leading vendors who are advancing customer service operations, and we believe that our inclusion reflects the impact of products like Up and Right Answers, which help companies resolve issues faster, improve agent productivity, and deliver more consistent, high-quality customer support. Of course, this positions our products.

uh, like

Up and right answers uh as a key enabling technology in these broader agenda AI uh 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 facts content.

Pedestrian rolled out enhanced bot. Click detection and a Razor's Edge. NXT integration

And Second Street 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 2, 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 right answers 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 1 I'd highlight is a million dollar multi-year deal with a global pharmaceutical company that selected, our AWS Bedrock powered ba Insight platform to replace a legacy Enterprise search system.

Uh thereby cutting costs and approving, search accuracy, uh and governance. And again uh

These are the results of the work. We've done over the past couple of years, in AI enabling the portfolio.

Uh, and we're seeing some of our products really getting slotted in. As enabling tech for these broader Enterprise AI, uh, implementation. So, we see that as something to really look at in terms of whether the plan is working. Uh, and again, these are early green shoots, uh, but meaningful ones.

So in summary our Q3 results report uh 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 if 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 Eva Don 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 majority of our debt by 6 years lowering. Our debt leverage and with uh,

Forecasted continuing deleveraging. 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.

income statement for

Uh, for Q3 revenues were as expected. When taking into consideration, our recent domestic years.

Q3 gross margins increased from Q2 as expected as a result of the higher margins realized in our ongoing product lines.

Are just an ibadan adjusted margin came in as expected with our adjusted margin of 32% up from 21%, from the third quarter of 2024, uh, and we still expect full year adjusted, even up Margin of around 27%.

For the third quarter of 25 Gap property. Cash flow was 6.9 million. Uh, 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 our and on our balance sheet, at the end of Q3, we had outstanding net debt of approximately 217 million factoring in, uh, approximately 23 million of cash on our balance sheet.

Which is about a 3.8 times. Net debt, leverage ratio.

To uh, trailing adjusted ibida. And we're on track to hit our Target of 3.7 times and that debt leverage by year end.

Our guidance, uh, for the quarter ended December, 31st 2025, we expect reported 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%, the midpoint from the quarter ended December, 31st 2024, this year-over-year declines permanently due to the domestic Year's completed earlier this year.

Fourth quarter 2025, adjust the evidence expected to be between 13.8 16.8 million.

Which at the midpoint is a 3% increase as compared to the quarter ended, December 31st 2024.

the fourth quarter adjusted Eva, margin is expected to be 31% at the midpoint, which is 900 basis, point increase from the 22% adjusted, but a margin from the quarter ended December the 1st 2024,

For the full year ending December 31, 2025, we expect reported total revenue to be between $214 million and $220 million, including subscription and support revenue, which will be between $202.5 million and $207.5 million. This represents a decline in total revenue of 21%. At the midpoint for the year ended December 31, 2024, we are experiencing a decline, as I mentioned, primarily due to the divestitures completed earlier this year.

Full year, 2025 adjusted Eva is expected to be between 56.5 and 59.5 million, which is the midpoint is an increase of 4% from the year end of December. 31st, 2024 full year. Adjusted Eva down margin is expected to be 27% of the midpoint, which is a 700 basis. Point increase from the 20% adjusted, Eva margin uh for 2024.

Now, additionally, I'll note that we lowered the midpoint uh for our full year. 2025 total revenue and adjusted Eva 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 portfolio. Our product portfolio is now much more focused around CA the KCM Market. Our core organic growth rate is in a positive multi-year uptrend from negative -2% to years ago to negative 1% last year to now around positive 1% this year. Uh, and we are targeting 3%, next year, and 5% plus thereafter.

Uh, big new customer wins a validated. Our product Market have validated our product Market fit in several key markets. And those major wins have validated our product AI strategy,

Our adjusted Uber down 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 year. And when we zoom out we see adjusted, our margins expanding further from 20 last year, in 2024, to our guidance midpoint, uh, this year of 27% to a target of 29% plus next year uh Target of 31% Plus in 2027. And then of course, our long-term uh, upperi model, Target of 32%.

Cash flows, remain strong, as we continue to Target around 20 million dollars in free cash flow this year, as I mentioned, and we're targeting an increase of about 10% next year. So targeting around 22 million in free cash flow next year.

uh, added 3, 30 million dollar, undrawn revolver, providing us with ample liquidity,

And we are a 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.

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Head on our first question comes from the line of scottburg with any, your line is open.

hi, Jack and Mike thanks for taking my questions here, I guess I I got a couple

you guys had a a much better core organic growth quarter here, uh, as you called out. Um, I think Jack mentioned, you know, targeting 3%, next year, or 5% next year, maybe it was Mike. I apologize. I didn't write down who it was but um, tell me 1 quarter is never quite a trend. I guess, what do you see in the current sales pipelines in the opportunities that you're working? You know, that gives you confidence that uh, those targets look, uh, you know, reasonable to achieve over the next year or 2

Yeah, I think you're right. 1 quarter doesn't make a trend. Uh and of course, as I indicated, um, you know, things will bounce around quarter to quarter, uh but it's Mike pointed out uh the long-term Trend uh is positive right in 23, we were negative uh 2%, 24, negative 1% uh for full year 25. Uh

Looking at positive 1% and then again targeting uh, 3%. Yeah, for a full year uh, 26. So I think the overall trend is good, uh, the

Green shoots that, we're seeing that give us, uh, confidence in that Outlook are some of the larger deals. I talked about for a number of years that we were not getting those larger deals. Uh 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 few parts of enabling Tech. And these broader Enterprise Ai implementations and driving Partnerships with, uh, you know, some of the biggest players in the market, the Microsoft and Amazon to the world. Uh, we're starting to see some of these Google. We're starting to see some of these larger, uh, opportunities. So I mentioned, uh, you know, a 2 million dollar, multi-year deal and uh, uh, for a Fortune 100

Tech company Dollar multi-year Deal, uh, for a major pharmaceutical company. Uh, it's, it's

The.

Opportunities in the pipeline for those larger deals, uh, that give us, uh,

Uh, optimism as we go into next year.

Thanks, Jack. Helpful there. And then, um,

I, I guess I wanted to

Um ask clarification on the on the fourth quarter guys. Mike you mentioned um licensed Revenue. Um it's going to be down about 800%. 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 is under thousand is uh professional license uh, Revenue that we had originally uh

Projected forecasted that doesn't look like it's going to happen. So uh 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 ibida. So um that's why I subscription support Revenue. Uh guidance midpoint Remains the Same

Alpha mic and I'll just sneak 1 last 1 in here is is on the quarter. Can you change to, you know, gross, you know, Revenue retention Trends or or maybe Nets, you know that help Drive the the 3% growth number,

% here this year. So, um, 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. Uh, congrats on the nice quarter seems like pretty down the middle print. Good to see the improved and growth of margins and Jack of of Mike, appreciate that out your comments. Um,

Jack maybe just 1 for you. As 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, you know, more than the other.

So, in terms of growth, uh, from the installed base versus Net new, you know, if you look at our net dollar retention rates, uh, over the past few years, they've trended up.

From, uh, low to mid-90s to, uh, upper 90s. And so, uh, that's providing, uh, a solid foundation for growth. And now we just need to, you know, stack some of these.

Uh, growth deals with new customers on top of that, uh, to get to, uh, growth targets. Uh, and so,

As we look at where that's going to come from.

uh, it's really around our

Knowledge and content management product portfolio, which you know, is roughly 75% of our revenue.

And products uh like the 1. We've talked about right answers that ba insight and Viva videon interfax and others, uh will play a key part in it.

and then the follow up just on, on AWS the marketplace, like is that

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. Uh, and so, um,

So it's positive on both fronts there. And then, there are broader Partnerships right with some of these major players where, you know, it's, it's folks are going in and doing these agentic, uh, you know, Enterprise AI, implementations, uh, having, you know, uh, a knowledge solution, uh, that is auditable, uh, and reliable and not prone to Hallucination, is is key.

So some of these sort of headless Knowledge Management opportunities, you know, where we are part of a broader Enterprise AI implementation. I think that's, that's going to be, uh, a promising area for us, uh, over the next couple years here.

Yeah, great. All right. Uh thank you guys. Nice to see all the progress.

And our last question comes from the line of Jeff vanrai with Craig Hall. Your line is open.

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

yeah, I think what's uh,

what's working is?

Upgrading the sales force, uh, bringing in more, uh, expert domain sellers, uh, on the field side.

uh, what's working is uh

The SEO strategy that we began rolling out a few years ago. So we're getting higher quality leads.

Uh, into uh, the hands of those sales people and our SDR team. Uh, has been doing a nice job there, uh, what's working in early stages, but we're starting to see some promising results from uh is the use of intent data.

uh, from platforms, like 6 cents to, uh,

You know, refine uh, our outbound, uh, motions and frankly it impacts, our inbound motions, as well. Uh, to really focus in on prospects that are in the market. Uh, actively looking for Solutions.

Prize.

Uh, AI implementation. So I think those are all, you know, green shoots on the demand gen and sales side. Uh, you know, it's not going to be perfect every quarter, and we've got sales cycles to deal with, uh, and all of that. So, as I mentioned before, you know, it'll bounce around quarter to quarter, but I think the long-term trend here, as we talked about, is positive.

And and maybe just a similar question on 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, you know? How do you feel about the pace of new product? Introductions kind of any any call outs there in terms of trend. Um, you know, that that gives you some measurables around how quickly you're innovating versus maybe, what you were a year or 2 uh, year or 2 ago. Got it. It's a dramatic Improvement, a dramatic Improvement. It really started with the uh, center of excellence in India. Uh, as a core for our development effort. Obviously our development efforts are broader than that. We've got

Uh, onshore teams as well as offshore teams in India and elsewhere. But

uh, 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, uh, AI into the product portfolio, uh, and smartly Andy 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. Uh, it's it's been a steady improvement over the past.

Uh, 3 or 4 years. I give Dan dolman uh and his team to answer our chief product and operating officer and his team, a tremendous amount of uh, credit there and uh,

You know, it's been steady progress, 1 foot in front of the other. And now we look back, uh, you know, on what's been done over the past 3 or 4 years and it's really starting to bear fruit, uh, and, and we're seeing it frankly, again, in in, uh, getting a shot at these larger deals and starting again, the land these million-dollar deals, multi-million dollar, multi-year deals, uh, which we, you know, frankly hadn't seen for a while. So,

Uh yeah, that's the picture there.

Good. Um and and maybe the last, if I can sneak the last 1 in here on, uh, on the Perpetual reduction was that, uh, 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 was it a competitive deal and you just lost. If so why, I know that's maybe 5 questions but if you could tackle that, that's great. Yeah, yeah.

It wasn't just 1 customer, it would just, uh, the Perpetual license Revenue. Um, we typically have a Q4 uptick, we just didn't see it this year. And, um, it's really, uh,

you know, it's not some big story or some big, uh, you know, Target that went away. Um, so it's just a little bit less on the, on the purple license side.

Got it. Okay, great, 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 MacDonald for closing remarks.

Okay. Well thank you so much. Uh we look forward to seeing you uh on the next earnings call.

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