Earnings call transcript: Upland Software misses Q2 2025 forecasts

Upland Software’s recent earnings call revealed a challenging quarter, with the company reporting lower-than-expected earnings per share (EPS) and revenue for Q2 2025. The EPS was $0.15, falling short of the forecasted $0.1867, a 19.66% negative surprise. Revenue also missed expectations, coming in at $53.38 million compared to the anticipated $59.97 million, a 10.99% shortfall. According to InvestingPro data, the company is currently trading below its Fair Value, with two analysts recently revising their earnings expectations downward. Despite these results, the company’s stock showed resilience, with a slight pre-market increase of 0.48% to $2.11.

Key Takeaways

• Upland Software reported a 19.66% negative EPS surprise for Q2 2025.
• Revenue fell short of expectations by 10.99%.
• The company continues to focus on AI-driven product innovation.
• Upland paid down $18 million in debt, reducing net leverage to 3.9x.
• Despite the earnings miss, the stock price saw a modest pre-market rise.

Company Performance

Upland Software faced a challenging Q2 2025, with revenue declines attributed primarily to divestitures. The company reported a positive adjusted EBITDA of $13.6 million, representing a 25% margin. InvestingPro analysis reveals a concerning current ratio of 0.83, indicating short-term obligations exceed liquid assets. The focus on streamlining operations and enhancing AI-powered products remains central to Upland’s strategy as it navigates a competitive market landscape. Subscribers to InvestingPro can access 8 additional key insights about Upland’s financial health and growth prospects through the comprehensive Pro Research Report.

Financial Highlights

• Revenue: $53.38 million, below the forecast of $59.97 million
• Earnings per share: $0.15, missing the expected $0.1867
• Adjusted EBITDA: $13.6 million (25% margin)
• Free cash flow: $2.7 million, impacted by $7 million in one-time divestiture expenses

Earnings vs. Forecast

Upland Software’s Q2 2025 results showed a significant miss, with EPS at $0.15 against a forecast of $0.1867, reflecting a 19.66% negative surprise. Revenue also underperformed, with actual figures at $53.38 million compared to an expected $59.97 million, a 10.99% shortfall. This performance contrasts with previous quarters where the company had met or exceeded forecasts.

Market Reaction

Despite the earnings miss, Upland Software’s stock showed resilience, experiencing a 0.48% increase in pre-market trading to $2.11. While the stock has seen a significant 50% decline over the past six months, InvestingPro data shows a notable 7.69% return over the last week. This movement places the stock within its 52-week range, which has seen a low of $1.69 and a high of $5.64. The broader market sentiment appears cautiously optimistic, reflecting confidence in the company’s strategic initiatives.

Outlook & Guidance

Looking ahead, Upland Software has provided revenue guidance for Q3 2025, ranging from $46.8 million to $52.8 million, with an adjusted EBITDA of $14.5 million to $17.5 million (32% margin). While the company wasn’t profitable over the last twelve months, InvestingPro analysts anticipate profitability this year with a forecasted EPS of $0.98. For the full year 2025, the company anticipates total revenue between $202 million and $223.8 million and adjusted EBITDA between $55.8 million and $61.8 million. The focus remains on organic growth and leveraging AI technologies.

Executive Commentary

CEO Jack McDonald emphasized, "We have turned the corner here in Q2 and are generating positive core organic growth." He also highlighted the role of AI, stating, "AI can be a tailwind for the business both in terms of a number of our products playing key roles as enabling technologies for larger enterprise AI implementations."

Risks and Challenges

• Continued revenue pressure from divestitures.
• Dependence on successful AI product integration.
• Potential macroeconomic pressures affecting enterprise spending.
• The need to maintain competitive positioning in a rapidly evolving tech landscape.
• Managing debt levels while focusing on organic growth.

Q&A

During the earnings call, analysts inquired about Upland’s refinancing strategy and its focus on organic growth. The company confirmed its commitment to leveraging AI as a business driver and improving marketing and sales strategies.

Full transcript - Upland Software Inc (UPLD) Q2 2025:

Conference Operator: Thank you for standing by, and welcome to the Outland Software Second Quarter twenty twenty five 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 simultaneously webcast at investor.uplandsoftware.com, and a replay will be available there for twelve months. By now, everyone should have access to the second quarter twenty twenty five earnings release, which was distributed today at 08:05 a.

M. Central Time. If you have not received the release, it is 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.

Jack McDonald, Chairman and CEO, Upland Software: Thank you, and welcome to our Q2 twenty twenty five earnings call. I’m joined by Mike Hill, our CFO. On today’s call, I will start with a Q2 review. And following that, Mike will provide some detail on the q two numbers and our guidance, and then we’ll open it up for q and a. But before we get started, Mike will read the safe harbor statement.

Mike Hill, CFO, Upland Software: Alright. 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.

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 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 unavailable at this time without unreasonable effort. With that, I’ll turn the call back over to Jack.

Jack McDonald, Chairman and CEO, Upland Software: All right. Thanks, Mike. Here are the headlines. In Q2, we beat our revenue and adjusted EBITDA guidance midpoints. Significantly, we returned to positive core organic growth, so we’re starting to see the benefits of our focused growth strategy, zeroing in on markets where we’ve got the strongest competitive advantage, higher margins, and largest growth opportunities.

Now as a part of that, we have divested a number of assets over the last year, eighteen months. And so if you look at our year over year declines in total and recurring revenue, those declines were primarily due to the divestitures that we’ve completed to streamline and to focus our business. But the growth rate of our retained core assets has turned positive, so that’s a meaningful milestone for the business. Q two twenty twenty five adjusted EBITDA of 13,600,000.0 resulted in adjusted EBITDA margin of 25%. Now that’s a 500 basis point increase over our adjusted EBITDA margin of 20% in 2024.

So as we have divested assets as a part of our growth strategy and focused our business, we have divested our lowest margin assets, and now we’re starting to see adjusted EBITDA margins come up as a result, and Mike will talk about this in the guidance, but we see adjusted EBITDA margins moving to north of 30% in Q3. Free cash flow for the second quarter remained strong at $2,700,000 and that was burdened by about $7,000,000 of onetime divestiture related expenses. Those onetime divestiture related expenses were mostly related to the termination of a legacy vendor outsourcing contract for r and d that we no longer needed now with the streamline business and our India center of excellence being fully up and running. Terminating that contract cost us a little cash upfront, but it is one of the factors that is driving the improvement in our go forward margins that I just referenced here in Q2 and Q3 and going forward. We welcomed 100 new customers to Upland in the second quarter, including 12 new major customers.

We also expanded relationships with two sixty three existing customers, 28 of which were major expansions. These new and expanded relationships continue to be well distributed across our AI powered product portfolio. So it’s been a good first half twenty twenty five with increased core organic growth and adjusted EBITDA margin expansion. And as I say, we expect these trends to continue and accelerate through the 2025. On the product front in Q2, I’d note that we earned 68 badges in G2’s summer twenty twenty five reports, reflecting strong performance across the product portfolio.

Our AI powered knowledge management solutions, Upland PanViva and Upland Right Answers, continue to receive multiple badges. Upland BA Insight, our AI enablement solution, increased its recognition this quarter, while Upland Cupidion, our AI powered RFP response software, also maintained strong momentum in the reports. Upland continues to drive innovation across the portfolio with recent product enhancements. Upland Interfax accelerated a major release focused on new PCI compliance efforts, while Upland Panviva unveiled enhancements, including digital orchestrate Orchestrator and integration with Microsoft Copilot Studio. Upland Adestra introduced AI powered subject line updates, launched integrations with Salesforce and Shopify, and is seeing strong momentum with Adestra audiences.

Meanwhile, Upland Ingenious integration with ServiceNow launched, and Upland RO Innovation announced two new AI enhancements for sales, win content generation and summarization. So AI, enablement, AI innovation, across the product portfolio. We’re proud to be included in the 2025 Gartner Market Guide for Customer Service Knowledge Management Systems. We believe Upland’s continued recognition in this guide underscores our commitment to delivering AI driven knowledge management solutions that empower customer service teams with fast, accurate information to improve customer experiences. Subsequent to the end of q two, we successfully completed the refinancing of our debt, extending the maturity to July 2031.

We had significant interest from multiple high quality lenders, and we are pleased to be partnered with private credit direct lender, SoundPoint Capital Management. After extensive lender due diligence, SoundPoint validated our AI focused products. And as a part of that refinancing transaction, we paid down an additional $18,000,000 of debt principal and established a new $30,000,000 revolving credit facility further strengthening our balance sheet, enhancing liquidity, and supporting our growth strategy. So to recap, we’ve made some dramatic improvements in the business over the past twelve to eighteen months. We have streamlined our product portfolio with a focus on markets where we can drive consistent growth and higher margins and profitability.

We are AI enabling our product portfolio. Our adjusted EBITDA margins are expanding dramatically. We have turned the corner here in Q2 and are generating positive core organic growth. And we’ve strengthened our balance sheet by paying down $242,000,000 of debt since the beginning of last year and now extending the majority of our debt by six years, through our refinancing. And we continue to lower our debt leverage and, again, see that deleveraging continuing into the future, and we have boosted our liquidity with our new revolver.

So with that, I am going to turn the call back over to Mike.

Mike Hill, CFO, Upland Software: All right. Thank you, Jack. I think that Jack covered most of the points on the financials for the quarter, I’ll just make a few additional comments here. For the Q2 income statement, revenues were as expected when taking into consideration our recent divestitures. Q2 gross margins increased from Q1 as expected as a result of higher margins realized on our ongoing product lines.

Our adjusted EBITDA and EBITDA margin came in as expected with our adjusted EBITDA margin of 25%, up from 20% from the 2024. We see adjusted EBITDA margin expanding to over 30% in the 2025 for a full year adjusted EBITDA margin of around 27%. For cash flow for the 2025, GAAP operating cash flow was $3,300,000 and free cash flow was $2,700,000 Our Q2 operating and free cash flow included around $7,000,000 of one time divestiture related expenses without which our GAAP operating and our free cash flow would have been greater. In addition, we had some one time leasehold improvements, capital expenditures during Q2 as a result of our corporate headquarters office move, and we expect the CapEx to reduce back down to normal levels here in Q3 and going forward. Our full year 2025 target free cash flow is around $20,000,000 On the balance sheet, at the end of Q2, we had outstanding net debt of approximately $217,000,000 factoring in the approximately $41,000,000 of cash on our balance sheet.

At the end of Q2, our gross debt was approximately $258,000,000 As mentioned earlier, we successfully refinanced all of our outstanding debt on July 25. In connection with this refinancing, we paid down an additional $18,000,000 of outstanding debt. So after this refinancing, our total outstanding debt is $240,000,000 compared to the $294,000,000 as of the end of last year, 12/31/2024. And now our net leverage after refinancing is about 3.9 times. Our cash balance after the refinancing is approximately $26,000,000 Given the normal puts and takes of collections and payables during the remainder of Q3, we’re projecting our cash balance at the end of Q3 to be around $18,000,000 The cash balance plus our new $30,000,000 undrawn revolver gives us ample liquidity.

Now for guidance. Our core organic growth outlook is projected to improve to approximately 3% in the 2025. That growth rate assumes that we continue to have no macro disruptions from the tariffs. For the quarter ending 09/30/2025, we expect reported total revenue to be between $46,800,000 and $52,800,000 including subscription and support revenue between 44,600,000.0 and $49,600,000 for decline in total revenue of 25% at the midpoint from the quarter ended 09/30/2024. Now this year over year decline is primarily due to divestitures completed to streamline and focus our business.

Third quarter twenty twenty five adjusted EBITDA is expected to be between 14,500,000.0 and $17,500,000 which at the midpoint is a 14% increase as compared to the quarter ended 09/30/2024. Third quarter twenty twenty five adjusted EBITDA margin is expected to be 32% at the midpoint, which is an 1,100 basis point increase from the 21% adjusted EBITDA margin for the quarter ended 09/30/2024. For the full year ending 12/31/2025, we expect reported total revenue to be between 2 and $11,800,000 and $223,800,000 including subscription and support revenue between $20,210,000,000 dollars for a decline in total revenue of 21% at the midpoint from the year ended 12/31/2024. Now again, this year over year decline is primarily due to the divestitures completed to streamline and focus our business. Full year 2025 adjusted EBITDA is expected to be between $55,800,000 and $61,800,000 which at the midpoint is an increase of 6% from last year.

Full year adjusted EBITDA margin is expected to be 27% at the midpoint, which is a 700 basis point increase from the 20% adjusted EBITDA margin, again for last year. Additionally, I will note that we did lower the midpoint of our full year 2025 total revenue and adjusted EBITDA guidance ranges by 700,000 as a result really as a result of just lower forecasted professional services revenue. So the midpoint of our subscription support revenue guidance range remains unchanged. And with that, I’ll pass the call back to Jack.

Jack McDonald, Chairman and CEO, Upland Software: Alright. Thanks, Mike. So that really concludes the call, the prepared comments. If there are any questions, we’d be happy to take them.

Conference Operator: We will now begin the question and answer session. And your first question comes from the line of Scott Berg with Needham. Scott, please go ahead.

Scott Berg, Analyst, Needham: Hi, Jack and Mike. Thanks for taking my questions today. Both of them, I guess, kind of surround the refinancing in the quarter, And then I’ve got probably one quick one on the core business. On the refinance, guess, first of all, why is private credit the right option versus maybe the other facilities that were out there? And then as you think about excess cash flow over the next, I don’t know, couple of years, do you save and reserve those for M and A?

Or is the plan to probably use those to further pay down the debts?

Mike Hill, CFO, Upland Software: Yes. So Scott, me take that first one. So regarding private credit, you know, our previous credit facility was a term loan d financing. And given that we’ve paid down so much debt, again, paid down $242,000,000 of debt since the beginning of last year. This current current term facility at 240,000,000, it’s just really below the size range, for the TLD market credit market.

So it made sense for us to move to private credit, and we’re excited and and, feel great about our new partnership here with SoundPoint.

Jack McDonald, Chairman and CEO, Upland Software: And, Scott, there was a I think a second part of your question on capital allocation. And cash flow, is gonna be directed toward, deleveraging. We don’t anticipate, m and a, at, at this point.

Scott Berg, Analyst, Needham: Okay. Fair enough. And then, I guess, follow-up question is on the core business here going forward. You’re projecting 3% growth in the second half, which obviously is great news. But how do we think about maybe the products or part of the portfolio that is selling well today in this macro?

You guys have obviously made a lot of changes in the product and the go to market, but what’s been most exciting that you’re kinda looking at in the second half? Thanks.

Jack McDonald, Chairman and CEO, Upland Software: We’ve streamlined our business around knowledge and content management, and we are AI enabling our portfolio. And we are seeing opportunities in large enterprises as our products, become an integral part of larger enterprise LLM implementations. So we’re seeing headless knowledge management opportunities for products like Upland Right Answers. Upland BAI Insight provides core connectors to enterprise data systems, which are a necessary part of large enterprise AI implementations. We’re also seeing demand for upgrades for our RFP, automation product, Qvidien, with our new AI assist capability.

So, we think AI can be a tailwind for the business both in terms of a number of our products playing key roles as enabling technologies for larger enterprise AI implementations, and the fact that we are improving and innovating our products across the board with AI, creating upsell and expansion opportunities within the existing customer base.

Scott Berg, Analyst, Needham: Very helpful. Thanks, Chad, and thanks for taking my questions.

Conference Operator: And your next question comes from the line of D. J. Hynes with Canaccord. D. J, please go ahead.

D.J. Hynes, Analyst, Canaccord: Hey, Jack. Hey, Mike. Scott hit on a couple of the topics I was going ask about, but I wanted to just put a finer point on your comments around M and A. It was unclear to me if that was a near term comment or if we look out a year from now, of dust has settled in the divestitures, the business is obviously in a much better spot, organically growing, nicely profitable. Is there a future in which you resume M and A activity, or is this is this gonna be a kind of a perpetually, you know, organic growth story?

Jack McDonald, Chairman and CEO, Upland Software: I think it’s a near term comment. I think we are focused on driving organic growth, AI enabling the portfolio, and continuing to delever here over the next year. But as you say, when the dust settles from all of that, if we see attractive opportunities, then we would look at them and you know, together with our, capital partners. And it is possible that we could look at m and a. I don’t see it for this year, but as you say, it’s possible a year or so out once the dust settles.

Conference Operator: Yes. Okay. Makes sense.

D.J. Hynes, Analyst, Canaccord: And then, Jack, I’d love to just kind of hear broadly how you feel about the demand environment, kind of what you’re seeing from a pipeline build perspective with some of the marketing enhancements you’ve made to the business.

Jack McDonald, Chairman and CEO, Upland Software: Demand environment seems fine. As I say, we’ve, I think, positioned the product so that AI can be a tailwind for us. We continue an investment in demand gen, and we are seeing increasing if you look at the business over the last five quarters, increases in marketing sourced bookings, so both our outbound and inbound efforts. We’ve recently rolled out intent data to supplement the books of business that our outbound SDRs are using, and so we are optimistic about the potential for that new technology to increase our pipeline generation. So that’s the basic picture as we stand here today.

D.J. Hynes, Analyst, Canaccord: Yeah. That’s great. Well, congrats on all the progress. Clearly, a cleaner and better picture emerging here.

Conference Operator: Thank you. And your next question comes from the line of Jeff Van Rhee with Craig Hallum Capital Group. Jeff, please go ahead.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Great, thanks. A couple for you, Mike, and then one for you, Jack. Just Mike, on free cash flow, I think the previous guide had been 15,000,000 so you’re bumping it up here. Just walk me through what drove the change, kind of what were the puts and takes that that that impacted that number?

Mike Hill, CFO, Upland Software: Yeah, Jeff. No problem. Yeah. So we had a little bit less divestiture related expenses than we were previously forecasting, one. Two is, we did sell our swaps, here in q three, and so, we got a little bit more cash on the sale of those swaps in conjunction with the refi.

And then, three is that, the tax cash taxes, that we were asking to be around 10,000,000 this year are probably gonna be less than 9,000,000 as a result of the new, tax legislation, in the new bill. So so, anyway, three sort of reasons why we were able to go ahead and raise the free cash flow outlook this year.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Great. Thanks for that. That’s helpful. And then on the sequentials, I know you were running off the tail of the divested revenue, I believe, in Q2. How much of the revenue in Q2?

What was the divested how do I frame that? What was the revenue from those businesses that have been divested in Q2?

Mike Hill, CFO, Upland Software: It was about 4,000,000 to $5,000,000 there, Jeff.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Okay. Got it. Helpful. And then, Jack,

Mike Hill, CFO, Upland Software: just curious back to the

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: prior question kind of the sales org and maybe just a little more thoughts of expansion around what’s working, what’s not, puts and takes on sales organization, opportunities to further enhance top line organic growth? Is it really centered around, as you were talking about, top of funnel sort of sales process optimization execution? Where does product innovation fall in the sort of the priority list of opportunities to accelerate top line growth? Just, you know, ultimately, what’s gonna drive that top line growth acceleration?

Jack McDonald, Chairman and CEO, Upland Software: Yeah. So we’ve done a ton of work over the past year, eighteen months to AI enable the product portfolio, particularly those key growth products that we think are gonna drive organic growth for us going forward. So I think from a product perspective, we’re in pretty good shape. Now look. Obviously, we’re constantly innovating and moving the portfolio forward.

But as it relates to near term core organic growth, I think we’ve got a competitive set of products with which we can win in the marketplace, and the actions we’ve taken to streamline and focus the business further support that. In terms of where we need to execute and, frankly, where we can execute better, again, on pipeline generation, we’ve made big progress, and we’re seeing that in increases in marketing source bookings. But, you know, frankly, I think we could be doing better on our outbound efforts. So our our inbound efforts, good. All the the investments we made around SEO optimization and online presence helping that.

I think continuing to fine tune our outbound lead gen efforts using intent data, I think, will be important for us. Around sales execution, the theme over the last six months, nine months has been hiring in more domain expert sellers. And so we’ve added a significant number of new salespeople that have come out of direct competitors with, you know, a number of years of experience under their belt and really invigorating the Salesforce with that kind of domain expert talent. That would be my answer.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Great. Very helpful. Thank you.

Conference Operator: Jack McDonald’s for closing remarks. Jack?

Jack McDonald, Chairman and CEO, Upland Software: Okay. Thank you very much for your questions, and we look forward to seeing you on our next earnings call. Thanks very much.

Conference Operator: That concludes today’s conference call. You may now disconnect.

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