UPLD Q3 Deep Dive: AI-Driven Deal Momentum Amid Declining Revenue and Focused Portfolio

Cloud software provider Upland Software (NASDAQ:UPLD) beat Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 24.2% year on year to $50.53 million. On the other hand, next quarter’s revenue guidance of $49.4 million was less impressive, coming in 2.7% below analysts’ estimates. Its non-GAAP profit of $0.30 per share was 73.1% above analysts’ consensus estimates.

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StockStory’s Take

Upland Software’s third quarter was marked by a sharp year-on-year revenue decline, reflecting the impact of earlier divestitures, yet the company reported results slightly ahead of Wall Street’s revenue expectations. Management attributed the quarter’s performance to progress in core organic growth, strong adjusted EBITDA margins, and new large-scale customer wins in its AI-powered product suite. CEO Jack McDonald pointed specifically to multimillion-dollar agreements with major technology and pharmaceutical companies and highlighted early signs that Upland’s intensified focus on enterprise AI adoption and product innovation is yielding results.

Looking ahead, Upland Software’s guidance reflects a cautious outlook, with revenue expectations for the next quarter falling below analyst consensus. Management emphasized ongoing investment in product development and AI integration, while also noting the influence of lower perpetual license revenue on forecasts. CFO Michael Hill stated, “Our product portfolio is now much more focused around the KCM [Knowledge and Content Management] market,” and reiterated that future growth will rely on expanding large deals and maintaining high customer retention, even as the company faces headwinds from recent divestitures.

Key Insights from Management’s Remarks

Management credited the quarter’s operational improvements and focused product strategy for driving margin expansion and core deal momentum, despite the revenue decline from divestitures.

• Enterprise AI deal traction: Upland closed two significant multiyear agreements—one with a Fortune 100 technology company and another with a global pharmaceutical firm—leveraging its AI-enabled RightAnswers and BA Insight platforms. These deals validate management’s emphasis on embedding AI into core offerings and partnering with leading cloud providers to support large-scale enterprise deployments.
• Product portfolio streamlining: The company continued to rationalize its product suite, centering future investment and go-to-market efforts on knowledge and content management (KCM) solutions, which now represent approximately 75% of revenue. This focus is intended to drive both profitability and customer value.
• Channel and marketplace expansion: Upland broadened its presence in the AWS Marketplace, making several products—including BA Insight and RightAnswers—more accessible to enterprise buyers. Management believes this move will facilitate both new customer acquisition and expansion within its existing base.
• Sales force and go-to-market evolution: Renewed investments in sales talent, search engine optimization (SEO), and data-driven targeting (such as using 6sense intent data) were highlighted as contributors to improved lead quality and early-stage demand generation. Management views these steps as critical for building a sustainable pipeline for large deals.
• Operational discipline and margin gains: Adjusted EBITDA margin reached 32% for the quarter, supported by higher-margin product lines and ongoing cost control. Management reiterated plans to use free cash flow to continue deleveraging and strengthen the balance sheet, as seen in the recent refinancing and leverage reduction milestones.

Drivers of Future Performance

Upland’s outlook is shaped by its ongoing shift to AI-driven products, tighter portfolio focus, and margin expansion through operational discipline.

• AI product adoption and partnerships: The company expects its knowledge and content management offerings, especially those integrated with AI capabilities, to be key drivers of future growth. Management pointed to growing opportunities in large enterprise deals and deeper collaborations with major cloud providers such as Amazon and Microsoft.
• Portfolio concentration and retention: With a more concentrated product set following divestitures, management believes growth will increasingly depend on both expanding within its installed customer base and winning new large accounts. High net dollar retention (targeting upper 90%) is viewed as essential for supporting this strategy.
• Revenue headwinds from license model: Lower perpetual license revenue is expected to create near-term headwinds, particularly in upcoming quarters. Management acknowledged that future growth will rely more heavily on subscription and support revenue, with perpetual license sales becoming less significant over time.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be watching (1) the pace of AI product adoption among large enterprise customers, (2) the impact of further product portfolio streamlining on both growth and margins, and (3) the success of new sales strategies and channel partnerships in driving large-deal momentum. Additionally, the company’s ability to sustain high customer retention and manage the transition away from perpetual license revenue will be critical signposts for ongoing performance.

Upland Software currently trades at $1.90, in line with $1.90 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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