Blackbaud (BLKB) 29 Oct 192019 Q3 Earnings call transcript

Good day, and welcome to the Blackbaud Q3 2019 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mark Furlong. Please go ahead, sir.

Good morning, everyone. on quarter us earnings joining for Blackbaud's XXXX third call. Thanks four-point and will in and our review we operational the strategy. our of performance Today, our financial results on provide context growth commentary

CEO; and for the will call open then Vice Mike President Blackbaud's Joining me your make and CFO. prepared today Boor, Mike on Tony and we line questions. will Gianoni, up are Blackbaud's the and Tony President and Executive comments

how risks contain those specified, for Please that XX-K measures on and to information only note to comments statements to a on are uncertainties of financial that we those we from SEC today to more cause our non-GAAP materially both call. of forward-looking combination our that projected. results internally actual Unless business. filings Form and other will We could non-GAAP subject our measure refer most GAAP refer differ otherwise recent Please risks. believe and this representative measures more

measures is and Please GAAP from issued and presentation GAAP detailed of note reconciliation release that non-GAAP the available measures. our A press website. our schedule substitution a should not as Relations in night a or supplemental we considered results for available is isolation non-GAAP in last in be on more financial Investor

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call Mike. the turn over to I'll that, With

thanks for Thanks Mark. today. our joining morning, everyone call Good and

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and cloud automate that built business these needs. specific vertical purpose solve we solutions business we customers to The serve operations solutions their integrated build require

XX Blackbaud denominations. of of than the Churches product technology extraordinary industry. more Blackbaud and This of half we innovation more year sizes, availability XX Church markets, Management, and representing Church transforming for in U.S. the all congregations innovation which now announcing pace across is serve the spanning our broker announced we many general updates of than already of landscape. in the one of our different just all states Among is Management, Within plans Church

industry cloud environment methodologies. We built standard through of and our a combination an rapid of innovation architecture modern

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markets, selling milestone on overall in products executives ASPs, and have large be the transformation for customer, our expanding sales in to more that complete, our total process an as and the foundation people largely for the year focus now we for higher lifetime laying local and we vertical, solution a driving several by know, opportunity enabling sales last more important years successful. increased customer organizing This to our value. leading across structural marks market you As spent scale account and the is

margin. sales productivity. adjustable better investing leads effort This our and into improving overall marketing cover changes extends our structural increased an and the areas us, sales is where efficiently necessary number the large resources behind on focus organization of just technology the to in beyond With like we’re drive quality

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product Our development. expand stands in to total internal currently active we through at addressable market over billion remain $XX opportunities the of and acquisitions camp our and evaluation further

infrastructure drive strategic operating initiative alignment. efficiency This success. long-term effort and execute as operational model focus in efficiency spans entire organization and more investments, position through creates productivity us the towards to consistency the and final on we how a is business to initiatives, strengthen to continuous scalable organization that we Our

continue in modern significant selling reduce in partnerships to building effectively as we driving the shift and includes cloud continuing to We've implement out we solutions, partner which solutions. order which of as the grow for we In solutions. company, needed progress our example, a forward a services, program been look as ecosystem, of this implementation to For effort building XXXX. our our we've hours made to now are from scale is cloud XXXX a integration out one-time portfolio and away

strategic XXXX. innovations heading pleased the We're and our quarter to greater deliver we're fourth focused Overall, against for third customers. into strengthening to our on through quarter and business plan, our which our the enabling is momentum I am execution of maintaining execute continuing with the us

to in before the it over call now I'll turn to open performance we financial greater Q&A. our detail up Tony? for cover Tony

everyone. morning, Good Mike. Thanks

release your can on so the QX detail financial Today the Please I'll our get and press we refer website on investor posted highlights full key focus to of for yesterday’s to performance. questions. materials our

the anticipate increased that XXXX. an growth We over three first organic the through end and of revenue recurring basis. performance X.X% and solid X.X% Recurring quarters of on year posted for of revenue XXXX the QX carrying

represented to see of third XX% in shift quarter. revenue revenue a recurring mix the total in continue healthy We as

plan one As now an for you focus compensation salespeople puts on bookings. have increased our driving revenue that know, we global recurring

to focus best we towards opportunities Through our bookings to the business ARR continue economics. sales bucket, on ARR incenting within the prioritizing with programs, our optimize effectiveness mix offerings of shift the and further mix ultimately to

the decline X% year-over-year XXXX, roughly and declined is the to QX and XXXX. services long-run. decline XX%. to only I'll anticipate you revenue represented last healthy our XX% and million other versus of first one-time XXXX, still we the remind other the quarter, to of that accelerate other nearly full-year compared rate XXXX the and for XX% the Through is for XX% $X in year-to-date of year, one-time which three a which and of services total declined services revenue One-time quarters declined mix

operating an our of We generated $X.XX. margin representing profitability, share to income Turning margin per third diluted $XX XX.X%. was of of gross quarter XX.X%, and operating million, earnings

we're operating opportunities to for created faith and Our third in hosting. is and bring footprints, margin to new our entirely our in tremendous R&D verticals. selling of higher investments inclusive third-party product performance delivering The shift investments quarter new making expand strategic value to education market, customers further the our are existing our we've and solutions

in the our the continue are through selling planning investments future Mike third-party ability position footprint, investments and to seen improving growth. we've increase marketing and We're scale, including sales traction high partners. of The year. our partner mentioned, drive these to building our out the network, And to early end as implementation us

to full-year XX.X%. quarters XX.X% three margin within land to our operating positioned behind we're guidance With of us, for

costs partner the low-end our pace guidance anticipating investments with our margin. in for range towards coming the operating our Given incremental and we're of planned growth of program, associated of

track was full-year guidance deliver Moving of million flow cash QX $XXX to to balance statement puts million. our the of on $XX us which $XXX our to million cash sheet, free flow

We and the strategy continue global $XX in investments making move infrastructure, investment capitalized our necessary to innovation our to $X CapEx associated support and primarily in and amounting million cloud for with infrastructure million to development. software workplace

cash quarter, During out million paid $XXX million debt. $X the net to shareholders with in dividends we in and ended

X.X under for than X.X calls end a at strategy debt-to-EBITDA less and we the of stood QX, at capital of times. times just ratio Our

against strengthen capital strategic return is capital a with continue the strategy full-year disciplined and scalability. business our shareholders, approach and summary, we reiterate our drive We're And balance maintain guidance. growth to continue we plan, profitability. to execute our sheet, improved In on will to to investments financial to deployment growth strong create balance maintaining allowing our and us executing that which

open up to With would that, questions. like your I line for the

[Operator you. Thank Instructions].

We question from our from Peterson Brian will first go now James. Raymond take ahead. Please

on Congrats gentlemen. the Thanks quarter.

you quarter So so maybe the so in some anything maybe are on investments? structural or Curious on fourth we far hiring any hiring. you're plans looks make what we magnitude about sales the you changes the far should just year. the think start-off sales can where and the of this your terms through commentary It of marketing like or XXXX, as expect of in

Yes, Mike, it’s -- we continue Brian.

hire in that's toward toward moving going continue if the is of to little like to be kind But hiring continue going same hiring the We and year model, plan We're move it to you plan. will. for forward, going It's sales a while. a last. this more model to lumpy was continuous continuous a a so

architecture. Got build Mike, you're faith-based know follow-up, new potentially versus buy? offering available, with looking it. now at on And the some generally a any curious guys. Thanks, markets I versus appetite maybe the SKY just how in

Yes, sure.

now. to place those right vertical both education market looking platform to given availability, not lot both today, of going engineering Management We're management are every well. month, contributing So customers in have a the now new platform in the in execute a quite and to we the build all that engineering the because base in SKY every engineers implementation Church better are faith-based, is system. general and gets and and solution just higher-ed quarter enough

build think and in tuck-in demonstrated for the vertical the But as versus buy, this in also your looking That sense build the question are are a out engineering marketplace. with position we makes in of in faith-based still was sort We're to we related now, just stronger to we're I much acquired. markets and platform in market, opportunities. versus to always

We will from go Stifel. ahead. question our from Please take next Roderick now Tom

line Your is open.

been you Matt the a following-up curious just fourth and Thanks organic look from the the out the more opportunity my products in quarter like this the revenue at for Tom. on of of significant we into higher-ed more where sort as market. and and out look of what the your I some versus can those flow of Tony, contribution? you K-XX penetration for hi, What years. into higher-ed build on next expecting? Yes, questions. the waterfall of can on [ph] in build Church Bentley doing into kind as ramp-up in for couple each terms be you've something taking adjacent last Management guess market historical products How the pretty model are and how out importantly that little question quickly

Yes, Matt, you follow to. it’s if want Mike, Tony

higher-ed faith and but a that So not different, are the in build out little different.

very platform, our to So It's it we up took K-XX moved going operating and been whole if you will, higher-ed. that’s that and than well. is K-XX successful for the program

market, platform. extension the In a the presence and connected financials in had an we net did to this Church is build we on and engineering faith-based already the fundraising Management, But of faith-based that. new market in

general both. So Church will the we're of Management gone in We platform. in we've financials selling fundraising to build, announced we're to market, those from implementing faith-based. for availability Both over just and operating side the continue

weeks mentioned Church implementation bbcon investor right we our of our session platform. on XX have couple ago, now in the in customers over I conference at

the platforms. we We every in every of sell years those reoccurring continue subsequent build day, to those continued week, moving revenue And forward. build from that platforms anticipate

Now, both and for we're pleased launches it in and those happen. with reception that while does take presence the to the markets. But those a

question. waterfall follow-up I'll maybe on your Matt, And

job markets. the at sales a that footprint think One, Church higher-ed think of of those new base general awareness in build a products, team built I done ahead so se, both further and bit good our those said, and getting new take out time of markets. as there. in little entrance the per those it'll of a We've to announced We just, both and I availability Mike little both marketing of investment good and Church,

traction of will a G-aid more territories, return some cetera we'll marketing those, although small on bookings, a good building our both kind base and start as and ramp sales with those both into go revenue. that and of et sales and of both into investments is to expect pipeline, of get We what those bookings bookings, as as continue of XXXX, investments then XXXX. startups into turning ultimately think we And and see revenue align into in very marketing in that'll we both

question James now take ahead. will go from Please We Inc. our from Rutherford next Stephens,

some thanks. us headwinds give main Mike, right, in drivers I hey Hey, row, how year-over-year in idea of enumerate here three persist? a some dig the the of the to long you All bit. you quarters for for questions. just these gross little Tony margins Tony, seen this thanks have taking was an might and believe. Can hoping I on a compression

Sure.

the a least future continue our now, which margins one our we've to is couple foreseeable think going down one's for as data push centers for -- to to is of migrate move the the the for this largest; into cloud. That all out about of been I on colo talking at cloud. the we years

the we of factors to as issues things have make But out the There's just a we some And NXT those and as will it on transition, you'll centers other networks you free-up that free-up those themselves, costs. products, get and those others, slew data of rigs old we complicating we deal with. complete out and then turn of have and as colos, get off rewrites of costs. that some licensing

pressure see lighten expect starting we'll this two at of the after least it three or that. with So to increased next kind I'd years

innovation amortization, amortization years, done last hitting of that increasing. things just the The software over other the few us is amount is are the two with we've all

till next the putting couple will plateaus. and of a bit years little for of that's pressure well, as So that that continue downward

recently the partner the is margins partners utilizing and last pressure our in can some more pressure quarters. And we has networks as build-out that you quarter, And couple then on gross implementation the which to in from will there in fully, some of we we actually have third-parties, started started great for those see one-time put near-term other long-term more the using margins.

a their on look on trust and foreseeable work that's start a three We models; can are pressure some for that at something determine margin -- as got moving for to paper, of front, potentially target be but But that we've the to will the that those those of little major at on with drivers continue well. future. they'll we will that we shifting least partners as the bit

then there. margin generally would helpful whether that Thank it's business you. And and follow-up the a affecting, it, question Got is on that payments gross that's line as well? payments to is doing the affecting if be and mix business towards that if how

No, now. right not is Payments in expectations. right with running kind line of

a we Giving more for robust track. recall from year-end year. this You that's built wild always into We're pieces. is a payments that well. of things, kind tool right happens card. those Tuesday, those business coming all forecasting Tax season, worked on Christmas And what much really last year, reform Obviously, around

happens mix but The track yet to the right not has we're with what expectations. in here quarter on see of still year-to-date, kind So fourth changed significantly.

So the not that's on margins. having an impact really gross

take Rob Oliver from question will our Baird. We next now from

is Your open. Please go line ahead.

way one to differentiators from Oliver top Blackbaud about tools marketing fundraising to larger a a ability on all I Lemenager end-to-end speaking the for of question to down financial payments, morning. nice Matt of it’s funnel, for and edge. deals; nonprofit I Great, had guess the this Rob is of go to the around

the I how come. looks quarter large So the wondering year, that's fourth even prime larger of perhaps deals larger have to us tracked and pipeline deals. those importance -- time this guess how if qualitatively if the just you for deals If can it's I'm the for update

deals, even it's if any larger around Just qualitatively? update

sure, Mike. Yes, it’s

in market back, universities with universities quite platform. few universities. releases with continuing to K-XX we've schools. portfolio the in new large with a the in expanded A deals deals deals the large our markets. lot gotten and education large I and we've well of had mentioned going the We earnings K-XX private And I've we've now includes mentioned with management of press are large do different some got on calls

So larger we're University ASP servicing just as the not with the And deals, is foundation. opportunity the it's happened school, University there. and well, because market the the whole

that is typically hundreds in time. same the of happening the market one opportunity sold contracts we’ve faith-based sign the where as churches in The seeing sometimes a cover tens where to at we're or or well, schools

in deals medium international so And including and we're seeing multiple business well. our in large as marketplaces,

from We will our now next Rishi Davidson. take D.A. question Jaluria from

Please open. go is line Your ahead.

round place Hey, you're kind in suite systems? higher-ed product come of questions. And of my start be Is for two and are XX to understand us maybe maybe portfolio, successful on combination everything developed side, of getting point solutions first of perspective internally areas or broader Is solutions in now kind or more replacing? the these portfolio to it that and want follow-up. out taking a still you there everything? help does to deployments, got wanted the that product a is higher-ed the is ones, of all home-grown when like it from it acquired, a what have that kind there guys, or one be can products thanks I've in Couple portfolio that that different pieces it higher-ed you you're in

Mike. is this Sure,

to presence in operating we've student of that's higher-ed, where a and higher-ed story fundraising So of the system. quite classroom we the of information have a in and side scheduling student in in management, a now enrollment K-XX repeat scholarship school big been the expanded and and for foundation sort that financials in us successful and now and

it's So whole portfolio. a

that and are with several major smaller university, of them. are of the starting departments So we thousand universities, there covers most

of fundraising them, financial footprint. have lot also or in opportunities we we cross-sell And because have a a

well, education in higher two for tuition and which over in taken product advanced the it a because starting we've and higher-ed pretty is is also And us years. market. been to for years product that's market going that universities out we're added smaller includes for capabilities as so The same the new that with management again of market. we're K-XX the lot And is

level, some type some solutions looks standpoint, well. the we competitive out been K-XX. like macro There's there competitors a point as mostly what From see doing we've it lot at again, legacy home-grown installations. a license in And

think new that and maybe then sort going Church of the Thanks. curve, product seen side, that it, And what least to that's expectations very just look the be a helpful. the I this on this one Management just opportunity understand but at adoptions is Got your the Thanks of incremental of like, your when top-line? in I've organic clearly market after looks Mike. to long bigger understand time. will this ramp kind I want is adoption we and big expect maybe expectations could for to an a

Sure.

for that than that So again, the components operating full-cloud It's a XX of more denominations. across it's across the that Church. goes marketplace

sizes, big to We've talking it's a it. So of it scales priced We're all market. churches up.

So is assembly sort scales institution an based also scales when it of churches. that many talk up on an we down of size, and to it institution

integrated is have a center app new that that’s secure Mobile also a the standpoint market tied from donations core We a for which offerings global mobile mobile SKY in capabilities. app, into Mission, are

excited So little solutions so the marketplace. been space we're contracts time. are opinion the about on single-point in replacing a a in long with innovations And haven’t in or In dozen cloud. we a single modern signing, log we're really this any our

and build customers; lot a we have live to in build. And have continue just this We implementation. will

that the in time, on stage customers well but had long financial in new space. for fundraising the and we're We efforts a known have We've marketplace. not marketing that are that

spend and so And some there about digital conferences, a year-ago. happening got in we've lead areas which footprint gen like marketing we and started

with it we're by there's right modern high and a scalable platform. runway here referenceable cloud So customers think we quality long doing building a

will Needham now Please from go We question ahead. Ryan MacDonald from our take next & Co.

maturing in Thanks Mike the Yes, Or you of Mike, -- international the their customers you. taking there good pull this are market expansion quicker are perhaps of area expand one for YourCause the questions. that where and this to drivers expected? first just of an was? Can domestic the number morning area? is you Is I about you my a guess talk than internationally wanting what think efforts for opportunities to Tony.

Sure.

So completed to that the and that acquisition was continues grow YourCause It nicely. remained excited business. super and space January about we

sign up and of a adding We backlog headcount to continue driving, to lot regions. that implementations it’s sales in big customers, we're we're a geographic

is sort of expansion just the next natural step. The international

platforms have got footprints. But are companies. Fortune already our already the international. are over We We've customers large international, customers XXX international XXX that on platform

so need international that they And support.

both been sort driving we've in So and functionality model localization of market. here a through partners product

really and I UK, of a customers think Trust called organically, on Charities Canada, CanadaHelps.org, couple expanding a we a solid combination in sort in of partners. of One partner footprint. a mentioned it's the and of and in sort new our international internationally, India helping GiveIndia, have perspective focus our large and large customers

for follow-up And a it. then quick Tony. Got just

during into the reps for a half to sense XXXX. that of sales reps year? and perhaps the on sales for be that less full-quarter than what you as Can what give expectations were like of on next quota mentioned looks percent on reps that progression ramping a bbcon full the You will that are direct are full productivity us

session into we roles of Yes, Ryan. going account at associate We year, that the bag overlay exec last reallocated big and about made change, talked a is full into carrying roles. this in which investor organizational kind sales the January; of lot

change another But a also the do And at at to attrition both salesperson lose team. the I look we anticipated so they organization? Do what have higher we territory going for change into large this And or much overall of they the so, attrition roles? did and workforce, year reallocation with we the of lot would employee, external. attrition, that created look territory that

have line we in tracked productive with they new expectations. then those that less in And We've that were full-time sales reps we because equivalent or right reps is what their what significantly kind productive call is re-ramping fully in of resulted territory. role new

largely It quota. to it the the in from the other mid-year. those on changes to some months between have had on nine all of probably six role, that changes XX the months, takes full We outside somewhere we to attrition part resulted year; ramp takes of first those would depending made kind

nice look transition So increase through I'd year see when you a probably XX it that will transition you month of FTEs this expect before whole, through six significant that we exiting we the to period. pretty to quarter when think in nine continues first at we had get all this the the about in year productive

internally for And by to we So behind should create to time that we've be than able year don't disruption pretty normal to. make to more get trying we to good this sure then we I we're us. any all of just this we're have trying our absolutely we been going the to of job which control with the really loss compared third-parties, dealing think had last obviously, which QX do to the peers. organizational a employees change attrition, then And big of

So I productivity productive in a as much year we think reps XXXX and well for bode attrition lower than overall we'll well. see this saw should which

up market that, just add to not we're Yes. either. new vertical a standing I'll

was So the faith-based recent the created most market. one we

et arts in markets. back no had and the you And go five If to and organized cultural we K-XX, faith-based are cetera vertical years they're vertical markets, today, foundations, dedicated higher-ed, markets. our healthcare, to sales today,

in those happen markets. productivity with and are is into you the our disruption they build it's are go competitive. different, seen more presence presence And move And we some a and we ability different But tenure of is we've muscle the different, have But Conferences go when markets, sales each all what you and up bigger they're settle when significant in get lot markets. market, as around. market different. become some in deals folks very productivity a those in to language competitors caused see up, it they those

So to are is and that to add not we're Tony what We're stood the into have a on markets market. said settling local we up. currently in standing new already up we

now Evercore. question will our Materne Kirk take next from from We

go ahead. open. Your Please line is

the in for to year, into this a was of the I productive? in been in a I'll because of moving just reps. they the if meaning of Tony seats even to next sort expectations follow-up or have to question of they're hope reps, you year is lot pipeline you guess you're been thanks. terms going pipeline Yes, of at in fact in line with build kind it that have sales on out meaning months. going It Maybe six I a just need start pipeline productive sort about with there or be of pipeline nine seeing last reps call sales investments there's least investment matching the you the up put for has months know a obviously six guys parts lot called actually build obviously what that

measure process metrics. investor Are -- it. that Yes, about measure as is we've to pretty kind Kirk pipeline up moving question we this Are doing pipeline But we really we've bit really different ramp of is deals, think And a a well. of talking around to getting many close? closing productivity they in that they the leads maybe sessions well. got robust we been build; at building, we've all I little got good those generated across seen pipeline

have a been for the a that in was couple the soft; waiting areas faith market. of just been little There's bit product release one

that availability, will we have believe we general that significantly market Now increase there. traction

kind launch, which availability we again That we never was one they of created the the the to track then our ramping I other prospect performance. based ramps didn't historical of upon of be that prior for new largely that, But were product, would the see significantly. we which think with And that telesales. market what pick-up role, they a faith-based of expectations, And I and that because time in were kind else, a a would because areas we've expect was right market little have rep. general having tougher had built everywhere we'll

And been we those line backwards have with if so have go we ramping had in would to wouldn't expectations.

suite appreciate Mike focusing of have now, kind of Church I into just pretty of broad versus guess I And thought color. Management That’s of suite helpful. year, just what's the then next you maybe sort head products, already. your just on the M&A on you’ve process obviously as products a you’ve you

service at someone's new adding obviously from I perspective, from a perspective, you're TAM products bag. but imagine be guys sales times there disruptive You to added can

of process So I how as of guess are head thought these kind XXXX? kind that just you balancing you days into

I our part IP still which standing there's to that up came, of have market in Sure. We expansion strategy. market. more a in. is spend that Since every do our a the in TAM vertical don't vertical It's been without to XXX% key markets, opportunity new of we're cover

given us. be know, happened we vertical and transactions objectives. all of -- active the our companies an we're that's for that to something software so and learn involved in can in for the just in opportunity look and represents TAM and software we're acquirer to we're required It's that the we ultimately so something world. People expand it's still actively vertical it continue that's us not hit will and markets So in

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