Upland Software, Inc. Q2 FY2024 earnings call

• Beat Q2 revenue and adjusted EBITDA guidance midpoint. Core bookings exceeded core churn for two quarters, setting up for 3% core organic growth in 2025.
• Q2 adjusted EBITDA was $13.6 million, up sequentially from $13.1 million in Q1. Expected adjusted EBITDA to grow each quarter: $14 million in Q3, $14.9 million in Q4, exiting 2024 at nearly a $60 million adjusted EBITDA run rate.
• Welcomed 155 new customers in Q2, including 17 major customers, and expanded with 275 existing customers. Saw chunkier deals for lead products due to growth investments in pipeline generation, SDR, and sales capacity.
• Earned 56 badges in G2's Summer 2024 market reports across products. AI integrations in solutions like Panveva, Covidien, and others received recognitions. Partnership with Ramot on fax transmission milestone. Release 9.12 of Upland Altify with enhancements.

Total revenue for the second quarter was $69.3 million, a 7% year-over-year decrease. Recurring revenue from subscription and support declined 7% year-over-year to $65.5 million. Provincial license revenue increased to $1.7 million, up from $1.3 million in Q2 2023. Professional services revenue was $2.1 million, a 23% year-over-year decline. Overall gross margin was 70%, product gross margin was 31%, and cash gross margin (including depreciation and amortization) was 75%.

• Q3 2024 expected total revenue: $63.2 million - $69.2 million (subscription and support revenue: $60.1 million - $65.1 million). Adjusted EBITDA expected: $12.5 million - $15.5 million.
• Full-year 2024 expected total revenue: $269.6 million - $281.6 million (subscription and support revenue: $254.1 million - $264.1 million). Adjusted EBITDA expected: $52.6 million - $58.6 million. Target to exit 2024 at nearly $60 million adjusted EBITDA run rate, targeting mid-$60 million in 2025.

• Risks associated with forward-looking statements detailed in SEC filings. - Sunset assets runoff impact on revenue and margins. - Debt refinancing and interest rate risks.

Q: How far through the go-to-market changes is the Company now?

A: About halfway through the process, with lead generation, sales force upgrades, and new sales leadership in place, starting to see fruits of labor.

Q: Pace of roll-off of Sunset assets?

A: In 2024, Sunset asset revenue is ~$30 million; in 2025, ~$17 million; in 2026, ~$8-9 million.

Q: Thoughts on sales cycles?

A: Not seeing lengthening of sales cycles; saw quick $250,000 ARR deals sourced and closed in quarter.

Q: What's driving major account expansions?

A: Driven by new CS leadership, new tech stack in CS, and proactive customer success efforts.

Q: Pace of sales and marketing investments?

A: $19 million annual investment fully deployed; focusing on tuning and efficiency to make investments more productive.

Q: Average deal size increase and traction areas?

A: Seeing chunkier deals, with investment in product marketing, demand gen, and sales leadership driving bigger opportunities, especially in products like RightAnswers and Altify.

Q: Growth mix between expansion and net new revenue?

A: Moving from ~70% expansion to more balanced, targeting ~60-40 mix of new and expansion revenue over the next few years