Blackbaud (BLKB) 2 Nov 222022 Q3 Earnings call transcript

Good day, and welcome to Blackbaud's Q3 2022 Earnings Call. Today's conference is being recorded. I'll now turn the conference over to Steve Hufford. Please go ahead, sir.

Good morning, everyone. us Third joining Call. XXXX for you on Quarter Blackbaud's Earnings Thank

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

to results on subject our for projected. uncertainties that and note our that risks those XX-K Form comments Please recent more from cause most today to actual and to Please filings materially contain refer those forward-looking statements SEC differ could other risks. information

believe measures how GAAP and we on this We refer otherwise non-GAAP of our of measure will representative Unless call. business. more a that internally specified, combination non-GAAP measures to both we are only

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

today. both profitability. in already on to mid-XXs initiatives XX a the anticipate you And by XX% performance currency strong place and morning, of for Rule year Steve. and we've to Thanks, and exceed expectation financial step-level taken on the the or now XX% year, performance Rule our a expect joining We which our roughly actions based XX saying guidance in quarter. the open thank of everyone, on we us call we constant growth next Good acceleration had very increases I'll drive call basis. for a to meet into

and XX%, organic currency at our the in at on trend year. constant well and also roughly growing margin adjusted Turning roughly the go first XX% achieved quarter. revenue we've of X positioned revenue mid-single XX% constant of our very currency revenue growth Rule through leaves of only to EBITDA constant the the organic with in quarter. the at to We X%, had recurring Year-to-date, quarter consistently continues us which at our quarters in to was XX digits, growth the total year, X% currency. stands Combined, X

our the remain resilience that We and detail. customer confident to momentum renewals Tony our strength which underpinned shortly. carry some into expecting we're pricing in exceed underway, in on continued year initiatives the recent and markets, cover of wins, meet by end will or guidance XXXX, for several which touch And financial more I in will

at Next mid-XXs on currency targeting XX of XX%. organic combination the and growth approaching year, of constant an adjusted a Rule mid-single-digit margin EBITDA we're through revenue

mid-single-digit a business in which already the suggests underlying line, the solid On several the underway trends We're revenue provide top should as also revenue baseline. durability. pricing layering are additional and initiatives, in growth organic multiyear

pricing provide has as the as And product revenue as and digits profit well. as note, benefit high XX XXXX. approach upside Rule follows the innovation, we productivity single further through to much a advancements our sales customer programs success into I'll upside in double on continued the

Turning to profitability.

rebalance go-forward costs strategic basis. focus prudent rate in margin into operating more expect high which We've steps year reduced initiatives, XXXX, as several as a overhead. add step positions a infrastructure reduce we priorities, align XXXX, to as taken workforce workforce of open margin difficult including to of workforce better the on expansion XXXX, significantly already scaling structure a week. including of our level our our as decision our of visibility to continued several actions run last well points well very have reduce have elimination our executed And to in these the given been intensified the to we've improvement on entering and We pricing this actions

our while high that here year is a that provide Rule the next initiatives towards of on and the initiatives in intend So combination noble we visibility our key XXXX. end QX by actions taken achieving XXXX based in of of our future control have the call And is multiyear XX full well to practice, nature towards we XX year upside financial of to within point on our Rule accelerated place these of are February, manage. provides performance as guidance

Blackbaud. availability team institutionalized provide and To now we on steering of for impact context general are early recently, we eTapestry the Edge cover dedicated management customers we have and the with until at We cover that recently sponsorship, Canada. seeing committee price and of U.S. announced some Most donor pricing and further a the initiatives Raiser's in wasn't pricing, it NXT complete executive effect. and taking

supporters pricing give no As yes cover for specific cover reminder, or transaction. widely a costs in cover to a the online And available Complete donor option is market checkout their organization's the enabling simple and of is cover contribute that and And to new cost model processing Blackbaud. toward supporters processing the and is to we can the transaction. unique that choose at

see in for we offerings have model for This we Also, and to University high and financial are greater here now. while Blackbaud revenue win-win, up for benefits cover, to their a management initiatives more customers, to customers. have dollars after that the drive a growth competitive our testing of a are is giving while customers. important price seeing others Indiana Complete means It's benefit. multiyear gets thousands both model, new for both raised in U.S. These away the successful adopting students. profit, in Manchester customer, growth pricing a costs expect from increased to reduce take us model and in customers our that adoption. both our very assistance change and nature, which us efforts been our it's at and additional changes pricing for simply our we our has and fundraising is fantastic already revenue drive some is One What's model practices, for level for business which just and new in play our several something

Now recent highlights. shifting to operational a few

make our conference, thousands X our in customers innovative that ago, customers and was We again customers of bbcon to attended. solutions. we delighting to hosted virtually continue free strides weeks with that annual cloud offered prospective and

future maps. We updates also covered held road that product our product recent update briefings and

to together During the purpose-built outcomes. customers essential their in the their to conference, more audience solutions and shared ultimately teams data how bring we driving their managing capabilities productive, act motivating our making our

provided of create across available at at allow are or National to moment's visualizations going $XXX from in to less year new to of nearly a fundraising fiscal CRM the them example, where than metrics that and the transparency Carolina North levels key Parks establish and notice million For focus insights the annual and increase. connecting last Foundation Hill, is manual in in a X.X-fold on intervention without million data growth a their University Blackbaud implementation $XXX resulting Chapel of plans, organization the year,

I'm for excited we're customers their and supporters. our about driving the outcomes

a with and to September, our customers create for helping we Quality new initiative in also diversity students on Center the accounting our attract school EVERFI In platform. to high the corporate education for our greater continue representation announced Audit partnership impact We profession.

course schools date, NFL the X.X Character activated the our their We we and by also reached sponsorship students. over the XX,XXX national over powered of on million school playbook . renewed with EVERFI To course have partnership

Virginia expanded and course their sponsorship schools. high HCA across Carolina, all enterprise-size extend of Healthcare are to understanding mental And EVERFI California, partnership ARR substantial North for wellness with us. their the deals EVERFI These

acquired prepare we activity-based initially engage divestitures, a nonprofits Blackbaud near-term engagement for intuitive supporters create the to not our in and Team of app material tied we and acquisitions is for that way specific Kilter filter place. which Kilter engagement of is their new can customers. was big runs it deal and recent they walks, date Raiser their or rides gamified to fundraising to opportunities and expanding financials, to serve with types aren't totally but Shifting with existing to our an will leverage August, a many by

will health across remote provide wellness workforces. YourCause as platform unique a role more companies CSRconnect active solution also and a take in distributed and pursuits employees' employers their Kilter with for supporting

FIMS continued efforts our and NPact NXT products in DonorCentral quarter, to optimization. immaterial products result channel portfolio are the our partner, which our divested of fairly simply around the also for We us and

Lastly, to few our before against call of Tony, remind I turn the I'd to you positioning like view macro factors. Blackbaud's briefly a on

remain people culture quartz' and stay we clearly having we employment, sought-out the and named remote continue workers the recently First, in destination for a Best XXXX. Companies been ranking for on of focused our to

interest low refinanced XXXX of to rate limited rising We and in took of our debt interest we advantage the some exposure while environment. our rates

market the be On ultimate downturns, the our us and potential in resilient test of customers. the have and our to was inflation topic company the proven including recession, past for and pandemic. This our

From our we of is a footprint, in size some the currency and limited our have perspective, international given place. exposure hedging

of results in current and scalability durability Our strong the operating outlook our the clearly our revenue demonstrate environment. model year-to-date in and macro

guidance to our year, improvement deliver expectation confident XX%. a to to enhanced a full plans positioned And XXXX In value. we next exceed we mid-XXs in XX third for outlook had step-level summary, to currency of a roughly very in constant over We're expect our year. the which the achieve meet of solid place Rule at shareholder or remain significant modestly and our is with quarter

before to Tony? the I'll up call over that, it Tony open With we turn Q&A. for

remainder website year cover financial the full press before and the questions. Please our Thanks, I'll morning, the for investor XXXX Mike. for everyone. the opening quarter for and Good to third yesterday's the to refer our for of the Today, of up QX details posted materials performance. release review outlook our line our results

year. us another we well as strong had the quarter, We of the head leaving final positioned quarter into

was million, revenue revenue in revenue for versus Third quarter at quarter quarter. prior roughly year. foreign representing currency $XXX revenue recurring of X% $X was growth for growth currency XX% constant at after million. Organic of impacts Organic constant the adjusting currency the total approximately X% total grew

year. and rates improve of positive continued growth early multiyear a to which contractual seeing last our associated to we're Also traction, tough quarter gain is towards was the revenue Transactional Our despite with very a versus combination. initiatives continue revenue the contract positive customer compare terms. pricing third shift renewal continued

online our fee we and to supported anticipated, our in positive make declined a quarter for shared the growth total is by Onetime Mike basis forward. shift have cover point revenue be tailwinds continued pricing initiatives to we the going like in was revenue our service a models as XXX headway year-over-year. very is on another payments towards giving our and drag earlier, X% growth that revenue donations, This continue potential that X on

Moving to earnings.

generated adjusted representing an diluted of XX.X% We earnings XX%. Our and was quarter EBITDA $XX share third margin of gross of margin per adjusted EBITDA million, $X.XX.

Our early year-to-date above which including of XX.X% some XX.X%, XX% of the of eliminating slowing seeing in are expectation adjusted our and we benefits roles. EBITDA original from is QX, pace hiring cost margin the taken our actions of open to reflects

make initiatives an on to costs scaling and our our resulting continue key priorities, progress improved resources operating aligning to structure. margin in We pricing, better strategic like infrastructure

That sheet. balance brings me to the cash flow and statement

flow cash QX, had the $XX of QX highest collections cash the company free quarter XX%, that from fact largely our margin third of flow adjusted collection cash our represented rate Our adjusted history. with and into driven in in we an million by the approximately pulling free paired was timing

which free adjusted our with with generated We million, in midpoint the debt quarter of $XXX exceeds ended Year-to-date, cash an million $XXX year flow range. full net the borrowing of $XXX capacity. guidance million we of additional

rapidly debt-to-EBITDA aggregate Canadian And foreign deleveraging now reduced estimate. X.Xx near loss ratio impact we've quarter, put our focused term. to in British that the we in certain QX, we security on and the to we reasonably in approximately incident and minimize recorded to the $X we dollar hedges believe Also Through contingencies the the place related in versus for exchange million can pound. we liabilities remain

this the items, for incident-related we recorded have a to possible not security at we're estimate other time. as loss are there liability unable which reasonably Though

and which XX-Q, upcoming available more yesterday's refer For days. coming press be information, release in our please to will

divestitures. at further outlook Turning guidance XXXX rates, billion movements or bookings well the to as year the of midpoint to recent $X.XX exchange from our continued billion believe we for of EVERFI revenue slightly despite a $X.XX as perspective, we unfavorable in in range above our foreign softness will our end

QX fourth further additional to To expected, quarter. high bookings going date, to on we've recorded are roughly negative in with $X in and impacts FX giving. see have been some account our drive the growth we've bolster than depending revenue in ramping the for declines in taken FX quarter be as I'll payments performance revenue you, million action we executive and revenue rates with sales bookings seasonal to transactional revenue expected management tends variability remind could EVERFI now fourth staffed to vacancies and lighter decisive which year-to-date year-end forward. while fully And turn, fill to future

Shifting profitability. margin full to expect guidance XX.X% currency now to end excluding of XX% EBITDA the year to impacts. to We of adjusted exceed for our modestly points XX.X% roughly XX basis top of range XX.X% when or

cost is by of the actions This driven our this improved we in are acceleration back expectation taking half the of year.

our efficiencies scalability make in create in drive efforts to products our infrastructure. We additional to our and also continue to progress and in go-to-market

year anticipate visibility XX% full adjusted XXXX, constant XX% views revenue and currency. currency approaching call look remainder achieving now mid-single-digit high basis. for for a Rule And the to we as ahead Turning to with and early margin the our an year, EBITDA on the the roughly of at for of we growth XX constant

We step workforce our in level open and margin of the have good recent positions. next to sight year, the very given improvement reduction EBITDA of elimination line

rate in taken We $XX fund those future areas to with and planned actions investments will to cybersecurity run underway our offsets million some like reduce and we've expect approximately the innovation. already million, $XX cost cost by

and through costs, our pricing initiatives much And we beyond and reduce of upside that to opportunity see falling overhead in margin. with further scale execute to XXXX infrastructure

to the flow. coming We range cash high year. in full million million our flow to or end above modestly at anticipate $XXX free cash for adjusted $XXX moving the of Lastly,

a I cash of due from $XXX pull included As mentioned million to performance, stand earlier, we forward at year-to-date collections substantial which strong QX. QX

of and pretax weren't Our year also that full million targeted employee in severance guidance between in $X result workforce costs as contemplated expectations reduction. our include $X incurring previously million a

collections also We and QX lighter in shift bookings. expected experienced QX to tax than cash a payments from EVERFI from

related reminder, a net flow free as disclosed spent incident. adjusted be our ongoing of cash litigation to guidance reimbursements cash insurance for And to previously excludes our security of

related million year most a the legal Our for cash recent of security outlay fees to $XX for ongoing net to million is expectation the $XX incident.

had a of quarter we third achieving Rule summary, on In solid currency. at XX% XX constant a

to performance we as cash year XXXX have execution to strong XX, strategic our well which modestly us Our meet XXXX, our revenue, to or is and against leaves initiatives, high ahead exceed across spanning look full mid-XXs achieve positioned visibility And substantial on we profitability acceleration. of year-over-year guidance. the a Rule

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

Instructions] [Operator And of question line from our [indiscernible] comes the first

two, that reduction at should impact point the And expect most basis for achieving is largest XXX year, the you the that. about XXX point next that going reduction talked response step-up about on rebalance in that improvement. adjusted we in Thinking then looking basis the [indiscernible] have you and workforce to to EBITDA that

first some feedback. -- first the catch question. I part there's didn't your didn't I of Yes. catch the

way. by part this second the Mike, The is --

you the repeat the and those pricing like reductions. we've on and completed yes, underway. cost significant to answer I have reductions didn't question. will your Can But second several that? things sorry, see of is though, also hear of I'm question. cost We'll some The first the second initiatives impact, a sales part improved already impact part, your the part productivity

Yes.

impacted or The the really rebalance types sides just on roles. are the what most first of workforce of focused either areas part was particular the being by business

elimination open Yes. workforce X area as had positions on reduction in both future We some particular, and Not actually. well.

but conservative area no that the remaining the stood particular X of on business, just cost list. we're out So on side

company. follow-up of obviously the maybe talked then 'XX, do back resiliency And resiliency in newer that X the the about and through business you quick EVERFI, business Got on in the COVID financial EVERFI, see much asset a crisis through it. in 'XX. How particular? you to

of that provide And soon comes some improve. just Can of a that context the sales it lower result is or when now execution will turnover rates more little the bookings, lighter there? right you to

model [indiscernible] Yes, line. that One sales, mentioned slow turnover, of beginning the than higher There’s a is a the like is of resiliency to in the we’ve year. and the a We customer The Blackbaud. revenue revenue there’s see with there recurring couple things previously. of base business business expected sure. that lot sales start the

happened space now We’re a the staffed what’s the that away, deals given had couple marketplace. in in coming by fully that way. digital secondly, went And currency of we the enterprise into year basically

the year. fully as in the So some my those deals, in closing remarks. I deals to some in of we’re happen that expected larger prepared nice But didn’t we of staffed beginning mentioned happen

comes of line Matt question the next BTIG. from VanVliet Our with

of Church have areas And of coming wonder on that terms could we if of Management what do the you the some those update sort of you'll product, I years? product expect sort expand new in success kind progressing? most of get to landing the that's where and other deals? how an of in

that. take Yes, again. Mike Matt, It's I'll

that in portfolio been So really in we're not gone particular, we've the years. has of there, selling faith-based over marketplace, a that The Church still that got Management, product things selling we've well. in

a product it line a bit that So of struggle. was Yes,

platform get to core core to on space. payments to and our into back Church early in we've space. really and developed and financials that couple pretty that school market also looked in market focus looked product the faith-based We're solutions fundraising a stage its and And a core ago, years we but that strong in cross-selling we've away walked brought had have from and there. of partners add So in we're systems, partner our that the K-XX

having maybe market little cycles, is into running be we're some other countercyclical? And of that to a more you you seeing looking market sales at there? education Or much like longer the in or general, Or the then are are proving business? areas in success it. Got K-XX the

We’ve big we’re that No, We’ve that got market, all doing IT and got Yes. the in well presence spend of the fine. a markets K-XX doing the covers really schools. strong market. those almost a in in portfolio

sell great products there. well. a We to of there still continue as lot There’s opportunity cross-sell

has come portfolio, strong in year-to-date platform management, typically add we or whether then products financials school product upfront the and sell been couple and will or fundraising in can it’s or the fact, tuition tuition modules, a management the really Given we of year. this and back

next Evercore of Kirk Our the ISI. line comes Materne from with question

Peter on Kirk. if asking just maybe can actually you. is Mike, for Burkly to This I by X start

little You about a these are just the to on are transactional there the opportunities pricing business? the pricing talked side actions as bit. related pricing I'm the subscription on Or curious, well? side largely of

related pricing I subscription here cover Yes, like Peter, of are whole the actually. some both of the and talked Complete about on And X a slew of my underway. laid it's and a out. to get And I bunch talked about tracks cover. work products whole transaction these. these that donor mentioned, on our investor of going kind of and products, in new We've remarks, there's side prepared these There's

most have So a well. think of And you 'XX opportunities as rolling over going be X and will could and it forward in past in new the subscription, -- transactions significantly the products than of out also. X next we on in of years couple these terms

but up 'XX. really 'XX in we'll ramp 'XX, will some happen So it see in and

'XX for quick maybe one here. I look early Tony, a Okay. the you, into and just appreciate

items that of about they EBITDA growth just any call together. kind if out it from cash if thinking specifically or relates year a to perspective unique should next as should growth you'd be flow curious that flow we there's Just

Yes.

CapEx to more less wise. our one will settled cash cash anything and lot GAAP now looking we're It's this year. in security free CapEx flow. the would be cloud, of profitability wildcard EBITDA more at spend big have third-party next of that cash probably versus see just wild most adjusted flow would on planned I infrastructure on to say very legal a improvement all profitability we but carry those the flow fall investments That probably improvement any wouldn't our big hard think year actions predict get moving the surges we're should goes make to should flow, so the to through side through. flow be planned what free The next. outside on versus free largely on because I there card will adjusted. expect into free incident of X where that regular cash the I that

Brian And Peterson our next James. with question comes from the of Raymond line

to outlook, you quarter of typically getting the on curious, gives anticipate, I'd first at most is just visibility So guide just love I'm on any point? expect but And we there. the it. macro. love kind seeing I'd the we're outlook market what I that know what get to this that more hear earlier you're X thoughts maybe than than resilient to growth Mike, to get that or a people this revenue

take those. I'll sure. Yes,

slow So side a productivity again, from have Blackbaud couple revenue come but the of things. We're growth on it'll a standpoint, sales in there. nicely confidence EVERFI up back, start a I

productivity Blackbaud sales core of That's sort going well X is of sort So thing. side. on

initiatives management control. these Secondly, are pricing under

Those are revenue of And growth Rule profitability. of get that. XX, control. will a drive management you on under We the do when double those kind right, and organic

those. feel and executing we in So confident

are those of What revenue question? other organic the your was growth. to both So contributing of part

the environment and on anything... macro Just

Yes.

grew and 'XX. resilient and went through different Blackbaud So company we donation performance now. of our are very in We marketplace, looked that, And back at a the customers, our we're business. company very a 'XX, trends, back business kind

XX% And now. First at much 'XX larger. 'XX. revenue back of and We all, in not were recurring we're secondly, we're

back well business model more we're then. in a now company back were times we did tough The So then. macros of resilient pretty than

resilient. business. any customers We we see customers that. was see market COVID. not for And didn't biggest go of test are did the our So The very of out

we're that inflationary recessionary any and well quite times for this potential prepared So us. happen in period of front

products that, not base, forward, record. our They're we're looking really systems look good shape sticky we think are again, related discretionary. and to I backwards of And customer in

the being and a resilient pretty this We in business debt in feel 'XX. we recapitalized business environment. our good macro refinanced about So

rates So we there. really have good

So about that. good we pretty feel

totality if but big maybe And Mike. a XXXX effort, I is those of into of would love multiyear your kind just you the of terms that on the model over the said initiatives I evolution? the to how in a pricing that time. all think benefits, I have, how of about in get it's know follow-up, thoughts fold you just arc will

Yes.

those broken ‘XX. one level but haven’t and We specifically, another ‘XX a ‘XX in out change then in see step you’ll in and somewhat more

So catch-ups, where standpoint, are – you but are step-level of will going a we’re these a market ‘XX first also be a where we because of and will, of change lot of these. some from kind too. if initiation on And

We’re a couple a areas. little of behind in

it’s like pricing I a going we’re see to change think, you’ll in standpoint. ‘XX. from So But overextending be a not step ourselves,

And from line Patrick Schulz question of our final comes the with Baird.

your the for are capital too, And too? assumptions especially net as flow environment? should about leverage guess, step-up what you you of continues alluded for revenue down? So your for free And And thinking organic on kind that and organic with to of for function operating growth in revenue margins. growth, providing the But margins. your to really priorities we a cash appreciate in last come improves, top we more the that, as I be about addition just allocation, thinking be step-up macro 'XX guys function to XXXX additional regarding color how question should macro

Yes.

Rule is mid-XXs talked getting 'XX, pretty a XX. we to to getting or a about EBITDA up big change. so, on talked We for So of about which XX the

initiatives. thinking too, those bookings I mentioned, kind of gives growth, high So a multiyear initiatives pricing of confidence picture of pricing what customer mentioned, around performance because effect. renewals organic that high, and frankly, we're also as retention, a you and I have is

as compounding well, they're that. So just mention to

getting we into pretty 'XX. feel visibility So earlier that good about

Tony we're Azure, footprint think AWS have a CapEx. part was our we as that big pretty second from but centers to in I your moving data mentioned well. on mostly

-- future. CapEx we of data the We're it's going earlier year, this reduce announced to forward So one going we centers. also in requirements our our closed smaller

as that, We including well. have continue do to plans year to next

So run well. and that reduces cost requirements it reduces CapEx, our as rate for

obviously, can just more a fully. maybe strong And delever allocation, free love would to then Patrick, capital bit I that Tony. From cash a this, flow end

just So over Xx. we're down to

post at acquisitions. taken I the table. just think turn we're X.X off We've half nearly a

optimal is Xx debt Our leverage. X.Xx to levels somewhere around

we with kilter. I'd small to deleverage. So acquisition like Obviously, the did

So market. in we're that still acquisition

We've board or the as And then of well. couple divestitures buyback refilled done obviously, a the pool. reapproved

So valuations have we today's And liquidity kind at more lot still million. we where something us, we'd more down $XXX as that's closely available paid at especially have obviously, debt to it get are. and look of

customer And quick the to helpful. any product, Very know you then are X against pushback multiyear I it's react just How have that? that? follow-up customers with pricing seeing but initiatives. a

rates are up nothing No, our retention no, renewal This is actually Mike. some significant. we initiated nicely. have not. past months, XX and We’ve already in But the

seeing any negative So effects that. not we’re of

end And have over the session. And the back turn I'll we of to remarks. question-and-answer Mike now the Gianoni with reached closing call

quarter Rule at over currency mid-XXs you saying year next XX had all Tony this you. which value. plans meet step-level XXXX year place and outlook We constant the that the updating just to on we to and in XX%. is shareholder next to a a with our Thank expectation remain call. I’ll positioned third enhanced confident look I by significant deliver improvement everyone. our our around full forward guidance we’re in our of achieve of in the or exceed modestly and Thanks, close expect solid for to financial year, target really

this And today's concludes conference.

your You you lines Thank at may time. for disconnect this your participation.