Upland Software (UPLD) FY Conference Summary Company Overview - Upland Software has undergone a significant business transformation over the last eighteen months, focusing on divesting underperforming assets and concentrating on markets with strong competitive advantages, high margins, and growth rates [4][20] - The company has built an offshore development center in India to enhance product innovation and has AI-enabled its product portfolio [4][6] Financial Performance - Upland has repaid $242 million of debt since the beginning of the previous year, reducing net debt leverage to 3.9 times, with a target of 3.7 times by year-end [5] - Adjusted EBITDA margins have improved from 20% last year to 27% this year, with expectations to exceed 30% in the back half of the year [6][24] - The company reported approximately $200 million in annual total core revenue, growing at over 2.5% in the latter half of the year [7][19] - 93% of Upland's revenue is recurring, with a net dollar retention rate of 99% [9][15] Market Position and Growth - Upland operates in an $11 billion market that is growing at 15% annually [7][16] - The company aims for long-term organic growth in the mid to upper single digits [17][31] - Upland's products are highly rated and serve a diverse range of industries, including technology, financial services, healthcare, and manufacturing [16] Product and Customer Insights - Upland's AI-powered knowledge and content management software provides real ROI for enterprise customers [6][11] - Notable customer success stories include significant cost savings achieved through Upland's products, such as a global payroll processor saving $4 million annually and a top-tier US bank saving $6 million [12][13] - The average annual recurring revenue (ARR) for Upland's 1,100 enterprise accounts is approximately $137,000, representing nearly 90% of recurring revenue [15] Strategic Focus - The company is shifting from an acquisition-driven growth model to a focus on organic growth and product improvement [30][31] - Upland is enhancing its sales strategy by moving back to a field sales model, hiring salespeople with niche market experience [35][36] - Marketing efforts have been centralized while also incorporating digital marketing strategies to improve lead generation [38] Debt Refinancing and Future Outlook - Upland has successfully refinanced its debt, extending maturity by six years and adding a $30 million undrawn revolver for liquidity [5][41] - The management team is focused on maintaining a simple, product-driven business model while continuing to pay down debt [31][32] - The company anticipates that reported numbers will improve as divestitures and sunset assets are behind them, leading to increased visibility and interest from investors [45]

Financial Data and Key Metrics Changes - The company reported a good Q4 2024, beating recurring revenue expectations and meeting adjusted EBITDA guidance midpoint [7] - Core organic growth in Q4 was flat, but the company is guiding for 2.5% core organic growth in 2025, representing a significant turnaround from a negative 1% average quarterly growth rate in 2024 [7][14] - Adjusted EBITDA margins are expected to increase by 400 basis points in 2025, from 20% in 2024 to 24% in 2025 [14] - The net dollar retention rate improved to 96% at the end of 2024, up from 95% in the prior year [8] - Q4 adjusted EBITDA was $14.9 million, showing sequential growth from Q3 [8][17] - Free cash flow for Q4 was $9 million, contributing to a total of $23.4 million for the full year 2024 [8][18] Business Line Data and Key Metrics Changes - The company welcomed 110 new customers in Q4, including 21 major customers, and expanded relationships with 291 existing customers, including 42 major expansions [9] - The company earned 76 badges in the G2 Winner 2025 Market Reports, indicating strong product performance [9] - AI-enabled solutions have been integrated into 80% of the core content and knowledge management product portfolio, enhancing product capabilities [28] Market Data and Key Metrics Changes - The company divested two non-strategic underperforming product lines, which lowered the 2025 revenue guidance by about $18 million but had no impact on adjusted EBITDA [11][20] - The divestitures are expected to simplify the business and improve core organic growth rates [12] Company Strategy and Development Direction - The company is focusing on AI-enabled solutions to improve knowledge sharing and business outcomes, which is seen as central to future growth [11][32] - The strategy includes enhancing product offerings and improving sales capabilities, particularly through investments in AI technologies [28][42] - The company aims to improve net dollar retention rates to closer to 98% by the end of 2025 [52] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the improving organic growth outlook and the positive momentum in adjusted EBITDA margins [7][14] - The company is targeting full-year 2025 free cash flow in the range of $20 million to $25 million [18] - Management acknowledged the challenges posed by U.S. payroll taxes and costs related to divested assets in Q1 2025 [22] Other Important Information - The company plans to continue paying down debt, having already reduced it by $33 million in 2025, in addition to $189 million in 2024 [13][19] - The gross debt currently stands at approximately $261 million, with most of it hedged to lock the interest rate at 5.4% [19] Q&A Session Summary Question: Can you talk about the AI strategy at Upland? - The company has invested in AI, enabling 80% of its core content and knowledge management products, and sees strong enterprise search use cases for its products [28][32] Question: What is the status of the asset unwind strategy? - The company expects a decline in Sunset asset revenues from $32 million in 2024 to about $14 million in 2025, and then down to around $6 million in 2026 [34] Question: Can you provide insights on the major account expansions and net dollar retention? - The improvement in net dollar retention is driven by better gross dollar retention rates, with a goal to reach 98% by the end of 2025 [52] Question: What is the guidance for Q1 revenue? - The company expects reported total revenue for Q1 2025 to be between $59 million and $65 million, reflecting some lumpiness in perpetual license and professional services revenue [21][46]