Good day and welcome to Blackbaud’s fourth quarter and fiscal year 2024 earnings conference call. Today’s conference is being recorded. I’ll now turn the conference over to Tom Barth, Investor Relations. Please go ahead, sir.

Good morning everyone. Thank you for joining us on Blackbaud’s fourth quarter and full year 2024 earnings call. Joining me on the call today are Mike Gianoni, Blackbaud’s CEO, President and Vice Chairman, and Tony Boor, Blackbaud’s Executive Vice President and Chief Financial Officer. Mike and Tony will make prepared remarks, 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. The discussion today will focus on non-GAAP results. Please refer to our press release and the investor materials posted to our website for the full details on our financial performance, including GAAP results as well as full year guidance. 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 substitute for GAAP measures. With that, let me turn the call over to you, Mike.

Thank you Tom. Good morning everyone. Before I dive into our results, I wanted to quickly touch on Everfi. We closed the divestiture of Everfi business on December 31. As you know, Everfi was dilutive to both our revenue growth and profitability in 2024. We’re pleased to advance into the new year with this deal closed and are looking forward to focusing on what we do best. Heading into 2025, we are concentrating on our core Blackbaud business, and our financial guidance and go-forward results will not include Everfi. Turning to the rest of the business, I wanted to express how pleased I am with the progress Blackbaud has made over the past five years and highlight some key achievements from the past year. In 2024, we extended our position as a market leader providing the most comprehensive suite of purpose-built and mission critical software and services to the social impact sector. We continued to invest aggressively in innovation and partnered with our extensive developer network to help our customers raise more money while enhancing and streamlining their operations. Our solutions allow customers to spend more time focusing on what matters to them, making a concrete difference to their vital social impact work. We remain the premier software partner across the social impact space. Our market leading innovation is a competitive differentiator and continues to drive sales. In 2024, we saw significant improvement in new logo wins while also deepening our existing relationships with our list of approximately 40,000 customers. Last quarter, I highlighted several wins in the higher ed vertical. In this quarter, I’ll give you more in the K-12 education vertical, including Notre Dame High School, American Heritage Schools, and San Diego Jewish Academy. These institutions, like those in higher ed and our other verticals, valued our end-to-end…

Thanks Mike. I’m also pleased with our ’24 results and our financial progression over these last five years, and I’m excited about the opportunities in front of us. We remain committed to providing investors an attractive financial model balanced between growth in revenues, earnings and cash flows, along with a prudent and purposeful capital allocation strategy. Mike walked through our 2024 full year results, which tell a strong story of improving top line growth and dramatically improved profitability and cash flows since 2020; but to reiterate, full year 2024 organic revenues were up 5.2% to $1.155 billion, adjusted EBITDA of $389 million was up $32 million with approximately a point and a half improvement to margins. Everfi was approximately a two percentage point drag on total revenue growth for the year. Our ability to grow revenue and EBITDA margin speaks to the power of our five-point operating plan which positively impacted earnings per share and adjusted free cash flows. Non-GAAP EPS increased to $4.07 compared to $3.98 last year. Adjusted free cash flow was $245 million, up from $214 million last year, representing an adjusted free cash flow margin of 21.2% compared to 19.3% in 2023. This increase is despite the negative impact of approximately $20 million in additional interest expense associated with our share repurchase program in ’24, and approximately a $25 million increase in cash taxes due to improved profitability and a correspondingly higher cash tax rate. Our robust free cash flow gives us confidence to continue investment in a number of critical areas, like product innovation and stock repurchases. We bought back 10% of the common stock outstanding as of the end of ’24, and if you include the net share settlement on employee stock comp, that figure rises to 11%. Before I provide 2025 guidance, I…

Thank you. [Operator instructions] We will now take our first question from Brian Peterson with Raymond James. Please go ahead, sir.

Hi gentlemen, thanks for taking the question. I appreciate all the commentary here. I know you guys mentioned maybe pivoting some of the go-to-market resources away from the migrations and towards net new, so if we think about where you guys have the biggest opportunity or maybe end markets where you think you can make the most progress in 2025, what does that look like, and what does that TAM or opportunity look like beyond the 40,000 customers that you have today?

Hey Brian, it’s Mike. Thanks for the question. We started this a while ago. Last year, it really ramped up to have a bigger focus on net new logos because the migrations from a few of our platforms to the new cloud solutions are largely behind us now, which is good news, and our new logo production last year grew quite nice in the back half of the year. Just to be clear, we expect bookings to go up this year in total over last year, it’s just that we’re more focused on new logos and of course we’re still focused on back to base cross-selling as well. We do a lot of land and expand. I mentioned in my prepared remarks a couple of K-12 large wins. We’re doing well across the board in K-12, arts and cultural, non-profit. YourCause business, great opportunities and pipeline in new logos there as well. Again, we started this shift a while ago because we’ve been working on migrations for several years, and we saw the tail of that, if you will, and it’s gone well. We’re pleased with the new logo results last year and look forward to it this year.

Great, appreciate the commentary, Mike. Tony, I know you mentioned that you weren’t assuming any viral giving in the 2025 guide. If we look back historically, what is the mix of viral giving versus what you’d say is more, I guess recurring, and have you seen any giving that, let’s say, viral associated with some of the events in California this year? Thanks guys.

Yes Brian, good question, thank you. The viral, as you’ve seen in the numbers, can be very volatile. In ’23, we had an extremely high year from a viral perspective. Q3 and Q4 especially that year made for a really tough compare for the ’24 year - I think we were up 13.2% in Q4 of ’23 on the payments and transactions side of the business, largely because of viral events. Last year, we really saw next to no viral events come through our channels and systems, and so we just had a big whipsaw year-over-year and hence the really tough compare that we saw for transactions in Q4 of ’24. They can run from, as we saw in last year, next to nothing, so I could tell you, you could be as low as zero to as high as something that’s in the $10 million to $15 million a year range, is what we’ve seen in my tenure here, so a lot of volatility. Then for the wildfires, we did see a little bit that’s incorporated into our guide, but it was south of a million dollars of impact.

Thanks Tony.

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

Great, thank you. Good morning. My first one was, Mike and Tony, as you guys contemplated the guidance for ’25, I’d be curious just to hear your view on what you’re hearing from your customer base relative to some of the potential impact around changes in federal dollar allocation. I know many of your customers, whether they be foundations, hospitals, universities are recipients of federal grants, but we’d just be curious to know how they’re thinking about that and how you guys are thinking about that potential impact in your guidance for this year; and then I have one follow-up.

Yes, sure Rob. We’re hearing about that a little bit. We don’t see any impact yet for us. Just to be clear, we’re not involved in that funding system at all. Our platforms are for driving donations through individual donors, if you will. We’re not involved in federal--that workflow of cash, if you will. For us, our customers will likely need what we focus on best, which is to drive more of their revenue through donations using our platforms. It’s early days there, but we haven’t seen much of that yet in the marketplace, and we’ve got such a wide variety of customers too that some are not involved in those fundings and some are more so than others, like K-12 schools versus some of the foundations for example.

Got it, okay. Helpful. Then Tony, if you could just walk through--I know you guys had a slide on this as well, but on that free cash flow guide, definitely weaker than we expected, and I understand that there are a lot of moving parts with Everfi and you walked through some of the cost initiatives. But if you could just help maybe rank order some of those impacts on the free cash flow for us and some of the decisions around the spending, that would be helpful. Thanks.

Yes, happy to, Rob. Like I said, there’s a slide in the deck that you can look at, that will provide this same information for everybody. We’re going from a year of 245 at the midpoint of the guide on free cash flows to 190 for 2025. We had a $28 million hit this year for one-times for the buyout of that Washington DC lease that we acquired as part of Everfi, going on four years ago now, so paid $28 million for a lease release on that facility. The remaining lease, as I said in my prepared comments, would have cost us $42 million, so a nice pick-up from that perspective over the next few years, and then the annualized savings on that, we believe is about $3 million to $3.5 million a year that will come out of the P&L and cash flow going forward. Then we have a new India location - you know, we’ve had hundreds of engineers in India for several years, but those have typically been through third party contractors, and we’re just going to bring those folks in-house as actual employees. India is a great opportunity for talent. It’s getting really tough to find good trained, educated talent around the world. India is one of the few countries that has an excess, and so we’re going to be investing more fully in India over the next couple of years because of the scarcity of talent. That’s about a $5 million usage. Interest expense is the other big one, Rob. As you know, we bought back about 11% of our stock last year - that was an incremental $20 million of interest. Obviously, that carries over into this year with that amount of debt and that related interest expense, and then we expect about another incremental $11 million this year because we are planning on buying back 3% to 5%, as we said in the prepared comments, of our stock again this year. The gross amount of interest impact is $30 million to $31 million overall. Now, we have had obviously some good free cash flow generation and paid down debt to offset that, so the net impact, I think year-on-year is about 11, and then we have some working capital changes because of big vendor payments and timing. There was some of the Everfi divestiture cost that washed through the free cash flow this and then a few other ancillary puts and takes, but those are the big nuts - the $28 million for the lease buyout, the India investment, and then largely the interest expense and a little bit of working capital.

Great, thanks very much.

Our next question comes from Parker Lane with Stifel. Please proceed with your question.

Hi guys, thanks for taking the question. Looking at the Rule of 45 target here for 2030, can you just talk about how you intend to achieve that, particularly on the bottom line? Is that going to be a relatively balanced mix of cost savings across a number of different initiatives, or is there some low-hanging fruit that can help you get there a little faster?

Yes, I’ll start with that, Parker - it’s Mike. It’s sort of a mix there, too. We still have a couple of data centers to get behind us, we’ve closed most of them over the years, so that will help. We believe that with the mid single-digit revenue growth, more of that will convert. We’re getting more scale out of the business by far than we ever have. A quick example - in my decade here, when I started, we were half a billion in revenue with 3,000 employees, and now we’re $1.1 billion with 2,600 employees, so we’re getting a lot more scale out of the business and we expect that to continue in the future. Also, there will be some labor arbitrage with the India effort that Tony mentioned as well, which is going to take a little time to really come online, so we’ve got a lot of opportunities in driving the top line at mid single digits and just really focused on the operations of the business. As I mentioned in my prepared remarks, there’s been a lot of really interesting things going on internally with AI driving productivity across sales and engineering and other areas, so we’ve got several initiatives underway, Parker, that are going to drive that, so we feel pretty confident around all of those, because we’ve got some pretty good results. When we started the big push on Rule of 40, we did a huge jump in EBITDA - I think in 18 months, it went up, like 10 points roughly, so I think there’s great opportunity here to keep driving that forward and get to the Rule of 45.

Parker, I’d just add a couple of things. One, we don’t expect this to be linear in getting to that Rule of 45. Some of the things Mike talked about, like getting out of the data centers, the cloud migration, we’ll get out of Citrix costs and a bunch of other things as we turn off those old versions of RE and FE, etc. Some of the things will be a little later staged and will have some stair-step impacts throughout that march towards that Rule of 45 over the next few years.

Got it. Appreciate the feedback, guys. Thanks.

Sure.

As a reminder, if you would like to ask a question, please press star, one on your telephone keypad. Our next question comes from Kirk Materne with Evercore. Please proceed with your question.

Yes, hi guys. Mike, maybe just to start with you, obviously you guys have a great treasure trove of data within this industry, and I was just wondering how that’s impacting your development opportunities around AI, what you think you can bring to bear with AI for some of your customers. Can you just jump into that a little bit and maybe how that factors into your growth opportunities or your incremental cross-sell expansion opportunity with your existing customers? Thanks.

Yes, great question. We have a ton going on there, lots of exciting things with machine learning and AI. We’ve got embedded AI now, and I said this in my prepared remarks, in our Raiser’s Edge NXT product that over 5,000 customers have adopted that, and it’s still early days with that. It’s driving some step-level changes that we measure, that our customers are achieving related to conversion rates, increased donations by donor, revenue insights. We also are moving to more advanced stages with what we’re calling Blackbaud Copilot, which is the next generation, if you will. It’s in one of our products now, called Blackbaud Impact Edge, and it’s coming out in Raiser’s Edge NXT and Financial Edge NXT soon. It allows customers to interact with their data with natural language questions, which I think is going to be a game-changer for them to be able to really improve their business and drive revenue. It’s also going to do things like simplify fund accounting by combining automation and personalization. These things are coming out as we speak. Many others have been introduced over the last year or so. Today, the current AI capabilities are in the base products, and we have these advanced capabilities coming out, so we are looking at new opportunities to monetize advanced AI in our solutions. Those are not out yet, pricing, but working on those, so that’s something that will come in the future.

Great, thanks Mike.

Sure.

There are no further questions at this time, so I’d now like to turn the floor back over to Tom Barth for closing comments.

All right, thank you Maria. Thank you everyone for joining us today. We will be attending a number of investor events in February and March, to include several conferences which are listed on our Investor Relations site. We hope to see you then and to be speaking with you very soon. Thank you and have a nice day.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.