Good day and welcome to Blackbaud's Q1 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. Thanks for joining us on Blackbaud's first quarter 2022 earnings call. Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO, and Tony Boor Blackbaud's Executive Vice President and CFO. Mike and Tony will make prepared comments and then we will open up the line for your questions. Please note that our comments today contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our most recent Form 10-K and other SEC filings for more information on those risks. We believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure our business unless otherwise specified we will refer only to non-GAAP financial measures on this call. Please note that non-GAAP financial measures should not be considered in isolation from or as a substitution for GAAP measures. A reconciliation of GAAP and non-GAAP results is available in the press release we issued last night, and a more detailed supplemental schedule is available in our presentation on our Investor Relations website. Before I turn the call over to Mike, I'll briefly mentioned that notice of our 2022 Annual Meeting of Stockholders and Proxy statement were filed on April 19th and our annual meeting materials were posted to our Investor Relations website the same day. And during the second quarter, our team will be attending the Needham 17th Annual Technology and Media Conference, May 16th and 19th virtually. The JPMorgan 50th Annual Global Technology Media and Communications Conference on May 24th, the Baird Global Consumer Technology and Services Conference on June 6th and the Stifel Cross Sector Insight Conference on June 7th. We will also be participating in virtual investor meetings hosted by Raymond James on May 10th and 11th. As a reminder, we are also available at ir@blackbaud.com, if you'd like to connect during the quarter. With that, I'll turn the call over to you, Mike.

Thanks, Steve. Welcome everyone and thank you for joining us on the call today. The first quarter was a strong start to the year. Two months ago, we provided our 2022 financial guidance that call for total revenue growth of approximately 17% at the midpoint of our guidance range, a significant acceleration in organic revenue growth to approximately 5% and nearly 30% on Rule of 40 at constant currency. We are tracking well to this guidance and remain confident in our full-year outlook. In the first quarter, we had total revenue growth of 17.3% and our organic reoccurring revenue grew 6.6%, which was largely driven by the strength in our transactional volumes and continued growth in our contractual reoccurring revenues. It's really great to see this return to growth in Q1. Our adjusted EBITDA margin was 22.2%, inclusive of anticipated spend that carried over from last year and we achieved 28% on Rule of 40 in constant currency. A key point here, we outperformed our internal plans on each of these key metrics during the quarter. In just a few months since our acquisition of EVERFI, we've made significant progress on our integration efforts focusing initially on systems and team integration, as well as synergy execution, cross-selling plans with YourCause are underway and we recently began marketing the products together. This acquisition advances our position as a leader in the rapidly evolving ESG and corporate social responsibility spaces with over half of our addressable opportunity now in the corporate sector. Last month, we recognized financial literacy month, which raises awareness and promotes financial understanding and preparedness. As young people move toward financial independence, it's critically important they understand the most basic in foundational financial lessons and EVERFI helps fulfill this need. As companies continue to invest more in these types…

Thanks, Mike. Good morning, everyone. Today, I'll cover our results for the first quarter and review our outlook for the full-year 2022 before opening up the line for questions. Please refer to yesterday's press release and the investor materials posted to our website for the full details of our Q1 2022 financial performance. We started the year with total revenue of $257 million, representing total revenue growth of 17% versus the prior year quarter. Organic recurring revenue grew 6.6%, which is a solid start to the year and has us on track to achieve our full-year revenue guidance. We posted solid growth in both contractual recurring revenue and transactional revenue for several quarters in a row and as expected that continued in the first quarter. In fact, we exceeded our own plans for the quarter due largely to elevated transactional volume. One time services and other revenue was roughly 100 basis point drag on our total revenue growth in the quarter. As a reminder, we are guiding for one-time services to have a minimal impact on full-year 2022 total revenue growth. EVERFI's total revenue was in line with what we had assumed in our guidance contributing approximately $27 million in the quarter. Moving to earnings. Our first quarter gross margin was 58.5%. We generated adjusted EBITDA of $57 million, representing an adjusted EBITDA margin of 22.2% and diluted earnings per share of $0.57. As expected and as we discussed when we issued our guidance in February, our profitability to start the year reflects the addition of EVERFI and incremental spend in areas like innovation, security, and go to market that was originally planned to occur in 2021, but pushed into 2022. Our plan continues to call for a meaningful improvement in profitability as we progress through this year. And again,…

Thank you. [Operator Instructions] We will now take our first question from the line of Parker Lane with Stifel. Please proceed with your question.

Yes. Hi, good morning. Thanks for taking the question. Mike, you mentioned that you recently began sort of co-marketing YourCause and EVERFI together, curious to hear the initial feedback on those efforts. And anything you're hearing from the existing YourCause customer base around their potential to EVERFI over the course of 2022 or beyond?

Yes. Thanks, Parker. Yes, we started to do that in the first quarter as planned. It's the same buyer, a same target customer. We don't have a lot of overlap in existing customers, so there is the nice cross-sell opportunity as well. So it's early days on that. But for us, it’s -- with EVERFI, we've got a much bigger footprint in that space of corporate buyers that are focused on ESG and corporate social responsibility. So we're super excited about the go-to-market opportunity. It was part of the synergy case with that acquisition.

Yes. Got it. Okay, and then the integration between Blackbaud Merchant Services and some of these more online Giving channels like PayPal and Venmo, can you give us a sense of how many Blackbaud products actually support those channels today? And then when you will sort of achieve international availability and support for those channels? Thanks.

Yes, lot of our product support those channels today. It's all about customer choice that partnership. So those products PayPal, Venmo, others, Blackbaud Merchant Services are all out in the marketplace and we've been hearing for a while that customers want those choices. So we made that investment. We think it's a great opening of new opportunities for us and for customers to offer that given the popularity of those platforms. So we're super excited about that partnership rolling out. And that work has been going on for a while and we're happy to be able announce that finally in the first quarter.

Got it. Appreciate the feedback. Thanks again.

Yes. You're welcome.

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

Yes, thanks very much, and good morning. Mike, can you just talk about some of the puts and takes on the organic contractual business right now sort of what's working on that side, some of the -- what you see in the pipeline. Just kind of interested in what you're seeing on that front?

Yes, well -- we're at a point where a lot of the buying behavior looks a lot post-pandemic, kind of, buying behavior these days, so our opportunities in our vertical markets from non-profit to K-12 pipeline looks pretty solid across the portfolio in the organic contractual business. And I'll add that even the transactional side of the business has picked up to and platforms like JustGiving and markets like arts and cultural being fully open is helping both sides on the organic contractual and the transaction business as well. So we see a healthy market, we see good pipeline build and big opportunities and we've spent a lot of time in the last 18-months or so, really improving our CAC as well, which we're seeing that productivity come to fruition. So we're pretty happy about the first quarter's results and the opportunity for the rest of the year as well, that’s why we're keeping our guidance intact, we feel pretty good about 2022 guidance all around.

Thanks, that's helpful and then just one follow-up, obviously a lot of macro cross currents right now inflation and things that would maybe be counter balancing some of the opportunity coming out of the pandemic. How do you see that impacting your discussions with customers if at all right now? Could you just give us some sense of what you're seeing in terms of whether or not some of these inflation, et cetera is having an impact on some of your customers buying decisions or thought process around that? Thanks.

Yes, Kirk, we haven't seen that impacting buying decisions. Obviously, it's a big conversation. A lot of folks like us are driving price increases, we see that in the payments world with some of the folks that are in the payments marketplace and a few of our other platforms, we've talked about our pricing initiatives over the last year, we laid out multiple pricing opportunities and initiatives to either catch up to the market or rollout new models that are actually favorable for our customers, as well based on how those models work and we don't see anything that changing. And so we still have the same pricing opportunities, which drive both our top and bottom line. So, we haven't seen the impact of inflation per se in our buying behavior across our markets. We do see transactions growing based on activity, the giving market super healthy grew a lot last year, so that drives our transaction side of our business quite well and we're seeing that in markets in the U.S. like non-profit and arts and cultural and we're seeing it as I've just mentioned on the JustGiving platform as well.

Thanks, Mike. Appreciate it.

Yes, you bet.

Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Good morning, gentlemen. Thanks for taking the questions. So, Mike, first off, it's great to hear the impact what you guys are doing the odds to help Ukraine situation, but I'm curious how big of an impact has that had on transaction volumes and I realize events are coming back, but I'm just -- we did see a big pick up in, kind of, the transaction volumes this quarter. I'm curious how sustainable you think that is?

Yes, Brian, I'd say that we always -- there's always something going on. If you could just go back over the years that drives transactional improvement in revenue growth and we see the impact of just museums and performing arts centers opening again and selling tickets and things. We see some fundraising in the Ukraine, I wouldn't say that what you see from the Ukraine standpoint as material for us given the size of our business, but it's a pickup in that area. We saw in the last two years a pickup in food bank fundraising in the U.S. giving public school closures, because of COVID. So if you just go back over time, I guess, fortunately and unfortunately there's always something going on in the world a natural disaster, then those things are given the size of our business and our transaction business, so that not really material at the Blackbaud level. It was a pickup, but I wouldn't look at it as being material for us at the total revenue level per se.

Understood. Mike, maybe a higher level question, but if you look at CSR and ESG, it's interesting kind of looking at the slides, you know, that's more than half your TAM now you have sub-5% penetration there versus some of your other end products in markets that are little higher. How do we think about the investment philosophy there, and what sort of required from a kind of a product in the go-to-market perspective versus what you have today?

Yes, so big ad with EVERFI right, in that space and they cover financial services quite well and just other corporations quite well. If you go on their website, you can see a list of very well-known companies and sports institutions that our customers. So for us that was a big ad there, we started with the YourCause acquisition in 2019 and adding EVERFI and there's a big opportunity, it’s a big spend where we're selling to the global 4,000 or so institutions that a big IT spend. And the interesting opportunity there is the growing importance of ESG at the Board level, you see a lot of public companies adding ESG oversight in their governance committees at the board. You see a lot of CEOs are driving ESG initiatives for lots of reasons and some reasons it's to drive their ability to improve their brand and give back, another reason that companies are driving that is kind of the war for talent and employees are requiring the company's be good stewards of giving back. And so there is a massive push around ESG and we happen to have platforms, SaaS products that allow our customers and prospective customers to meet their ESG initiatives at the Board and Management level. So big opportunity for us more to do there. You know, there is more there in organic R&D, might be more there from an M&A standpoint, we're really looking at that market, the EVERFI executive team bring a lot of experience in the space, lot of enterprise capabilities, they bring in that space, lot of knowledge, lot of great relationships in that space combined with YourCause, it's just an exciting opportunity for us, it fits right well with our culture and kind of what we do in the markets we serve. So we're super excited about that, it doubled our TAM, so for us early days right, it's been a quarter, but I think a long runway for Blackbaud and EVERFI to really drive that opportunity.

Good to hear. Thanks, Mike.

Yes. You're welcome.

Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.

Hey, Mike. Hey, Tony. Thanks for taking the questions here. Just a couple from me, first question. Sure, it sounds like pretty nice performance in a very, very nice metrics here 70% total growth, organic growth of about 6%. It sounds like the economy appears to be opening up. You guys had some really good comments to that. You outperformed on the internal plan, so kind of a question on the guide here, why not raise the full-year growth guide. I mean is there something that you're seeing from a metrics or maybe an end market perspective that's holding you back a little bit there?

Hi Koji, this is Tony. Good to talk to you this morning. No, just it's one quarter end on the year and as you know, we gave a guidance range of I think $20 million this year on the total revenue side. So it's early yet, we feel really good to carry the strength we had from '21 into '22, and to beat kind of across the board on our numbers. So it does give us obviously more confidence on the year to start that strong. The other thing that seem really impressive to me is that most all of that over performance was really on the core Blackbaud business. We've not yet really seen the positive impact that EVERFI will have on the business. So EVERFI was actually just slightly dilutive to our recurring revenue growth, they were a bit accretive on the one-time, but all of that 6% to 6.6% organic recurring revenue growth is really driven by the core Blackbaud business, which as Mike was just talking as EVERFI starts to ramp up when we start to see the impact of that should be really positive on the long-term for the business.

Got it, got it. Thanks for that. And my follow-up question here, kind of, on the M&A front, how are you guys thinking about your M&A strategy, just given kind of the current market environment that's going on. Thanks for taking my question guys.

Yes, we're still active Koji. I mean, we're very active related to making sure we understand what's going on in the marketplace. Given our history of acquisitions we are a natural buyer in the markets that we serve. So we remain active in the space. We're doing a lot more in the corporation's in ESG space with EVERFI coming in. It opens a whole new world from an opportunity standpoint, whether it's organic R&D build or M&A. We've historically, I think, have done a super good job in integration and deleveraging, which we're doing. Tony mentioned that in his prepared remarks, we're at our 3.6% debt to EBITA now, we will delever and you just, if you look at our presentation deck, in the last eight years of M&A we delever. We've got a lot of capacity, it's an important part of our strategy. So, we will remain active, we will remain in the market across all of our verticals around what's going on there. We've got a really big reach into the smaller start-ups to the bigger companies and so remains a big part of what we do. But also having said that, we're hedged down on EVERFI integration. We've had a really good quarter around integrating the corporate functions, which we started out of the gate, but M&A is a core tenant of driving the business forward for us.

Great color. Thanks, guys, thanks for taking my questions, appreciate it.

Thanks Koji.

Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.

Great. Thanks, good morning guys. Appreciate it. Just a couple of Mike, one for you to start, you guys had talked last year about some of the organic growth drivers in the business and a pricing was one of them, you alluded to it a little bit earlier, I think in response to Kirk's question, but I wanted to dive in on that a little bit. I think some of the initiatives you guys talked about we're bring some of the European based pricing to the US and that there were other drivers as well. Can you talk about the contribution of pricing to the organic uplift that you guys are seeing and showing, which is off to a great start this year? How those prices are going to be rolling it is it upon renewal or is it across the board and in any other color there would be appreciated. And then I have a quick follow-up for Tony.

Hey, Rob happy too. We don't break out that stuff on a per-item basis, but we laid out multiple price initiatives in our investor call and so the categories are laid out in that deck. But I could tell you we're executing on all of them and they are different ones too, so some are at the transaction level, some are catching up the competition in some of our platforms, where we got a little bit behind and are executing those. And lastly, some are model changes, we implemented a model change JustGiving a couple of years ago and we tested it for a long time and implemented across the whole platform and it's proven to be very beneficial for us and for our customers it's a win-win model change. And we're bringing that model change from that platform into the U.S.; for that, it's early days, and so we've got a couple of years of implementing and realizing these pricing changes, some more done right away. And we're going to get full-year effect of those this year, some are model changes, which is going to take a little bit of time to get adoption in the marketplace, but all of those price initiatives that we laid out, we are implementing across the board, and it's going quite well, we're not losing customers over it, as in most cases it's either beneficial to customers or it's catch up to what's going on in the marketplace as well.

Okay, great, that's helpful, Mike. Thanks, and then, Tony. One for you, just we were seeing some industries that had put off some cloud-related work during the pandemic start to pick up on that. And I'd just be curious are you guys seeing some of your non-profit customers obviously where we're not investing heavily through that period, it certainly seems from your numbers and commentary that is improving, and so just curious what that means for their cloud plans, what you're hearing in customer conversations? And then more do you specifically -- what that means relative to your both gross and operating margin targets for the year? And whether you see any more rapid move off of Colo or anything else that could impact that mix? Thanks, Tony.

Yes. Thanks, Rob. We are seeing a lot of focus on cloud, cyber, obviously you see it in the news every day is a big focus, including for the non-profit space and then obviously with so much of our TAM moving into the corporate side has been and will continue to be a big investment area for all our corporate customers. So, I think that's certainly a long-term big driver for us Rob. As we continue to shift all of our stuff to the public cloud, as well for lots of different benefits, a lot of which are security-related for us and our customers will continue to be a driver, our customer base is pleased with those efforts in the moves that we've made on those fronts. The Colo side as we said I think may have spoken about that in the Q4 call, but this year will be the first year we actually start shutting down some of the Colo data centers that will be a multi-year process, some of our data centers are very large, and we've got to move a lot of customers, a lot of products out of those, but we will start seeing some of the early benefits of shutting down Colo data centers this year starting to impact our margins to the positive and that's been a big drag, that's been a material drag on gross profit and gross margins over the last few years with all the duplicative costs. So, we're finally to that point, you will start seeing those will -- as we get better line of sight to the impact on those, I imagine we will discuss those more fully on upcoming earnings releases as those become more visible. But we're finally to that point, we should start seeing some nice positive impact rolling into our gross profits over '23, '24, '25 kind of time frames. And that's kind of part of the drivers that help us get to that acceleration on the Rule of 40, we're targeting that 30% range for this year, which is I think 250 basis points over last year, which we over performed last year to plan. So very positive 33 and that obviously sets us up very well to get to that mid-term target of 35% of a Rule of 40 and then if we can continue to -- with the contributions of EVERFI and some of the pricing and other sales productivity initiatives and the margin of the Colo expect or should allow us to get to that Rule of 40 in the not too distant future. So, we feel really positive about where we're headed at this point.

Great. Appreciate all that color. Thanks a lot. Tony. Thanks, Mike.

You're welcome.

And our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question.

Yes. Good morning guys, thanks for taking my question. I guess first on a nice start to the year on the transactional component, wanted to dig in a little bit more around what you're seeing, not just the return of in-person events and sort of what's on the platform there. But also supporting the -- I guess the ongoing thesis that a lot of these organizations will run maybe interim, virtual events or more smaller events after they've sort of picked up that skill set through the pandemic. I just wanted to see kind of the total volume of both in person and virtual events going on in the platform and how you're expecting that to play out through the rest of the year?

Yes, Matt, it's Mike. It’s still a mix, but you're right in the fact that our customers learned a lot about virtual events, the online events are growing and our customers are -- some of them are going to live in a hybrid world will do in-person and virtual events, they won't just have a binary switch back to in-person only. And I think that's healthy, because it improves their reach. But we are seeing in-person events pick up the. The galas, the runs and walks and rides. The major marathons around the world, we're seeing all that stuff come back. And so I think it's healthy for our customers and for Blackbaud that it's going to be a mix and the virtual’s will continue while the in-person ones come back, in some of the institutions like schools and performing arts centers, who drive a lot of in-person events are coming back full time as well. And so it's healthy for our customers for their ability to drive revenue and for us.

And Matt this is Tony, I'll just add that, what I've seen at least in some that I participated on is that it's not just an in-person, but they're also utilizing virtual in conjunction with an in-person. So one recent one, I just had a ball, we went to here in Charleston. The auction portion was opened up virtually to everybody, who wanted to participate, not just the 400 folks in the room. So I think you're going to see a combination of those, which helps drive more overall giving for those events. And then also keep in mind that just online giving as a percentage last year jumped up significantly, we're seeing those percentages hold. So where we've historically seen online giving less than 10% in that 9% or 10% range, we're now up in those low-teens. And so we're continuing to see that trend hold as well, which is positive.

All right, very helpful. And then, Tony as we look at kind of the expected costs in the plan not only around the sort of blocking, tackling integration of EVERFI, but as you look to cross sell that and sort of more holistically combine it with YourCause, is there a possibility that you sort of accelerate or pull forward some of those costs if the success is pretty apparent and you start seeing that pick up, how should we think about the total cost base built out in the plan for ’22 and then how that might impact not only topline, but especially the model going into '23?

Yes, Matt. I think it's good question, the Q1 run rate for sales and marketing and R&D and G&A is a pretty good run rate, I think for the '22 year, in that we would have some cost synergies built in later in the year as we get things integrated as EVERFI into the back end of the business as Mike spoke to and we spoke to in our prepared comments. But those would be offset with some planned increases and go-to-market and potentially R&D areas, but I think that run rate you saw in Q1 for all those line items below gross margin are good run rates largely for the year. I would expect as we continue to find and define new opportunity, especially joint opportunities between the core of Blackbaud business and EVERFI, you could see increased R&D and sales and marketing go-to-market efforts, probably more so weighted towards '23, '24 at this point than in '22. But I do expect as we see heightened opportunities that it would be a worthwhile investment and good return.

All right, very helpful. Thank you.

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

Thank you, operator. I'll close by reiterating the first quarter was a strong start to the year. We outperformed our internal plans on growth, profitability, and adjusted free cash flow during the quarter. We're executing well against our plan moving quickly to integrate EVERFI and remain confident in our full-year outlook with solid visibility into the remainder of 2022 and beyond. The midpoint of our financial guidance ranges for this year calls for total revenue growth of approximately 17%, inclusive of our recent acquisition of EVERFI, a significant acceleration in organic revenue growth to approximately 5% and nearly 30% on a Rule of 40, which is roughly a 250 basis point improvement year-over-year at constant currency. By balancing sustainable mid to high single-digit organic revenue growth and meaningful margin expansion over the next few years, we believe we can drive significant value for our customers, employees and shareholders. Thanks everyone.

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.