Blackbaud, Inc.

Good day and welcome to Blackbaud's fourth quarter and full year 2020 earnings call. Today's conference is being recorded. Now I'll turn the conference over to Mark Furlong. Please go ahead, sir.

Good morning, everyone. Thanks for joining us on Blackbaud's fourth quarter and full year 2020 earnings call. Joining me on the call today are Mike Giannone, Blackbaud's President and CEO, and Tony Bohr, 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, please note Blackbaud will host a virtual investor session on March 25th, and we invite members of the investment community to register for the event by visiting our investor relations website. I'll also mention that during the first quarter of 2021, our team will be virtually attending Raymond James' 42nd Annual Institutional Investor Conference. With that, I'll turn the call over to Mike.

Thanks, Mark. Good morning, everyone. Thanks for joining our call today. Q4 was a very solid quarter and a strong finish to what has been a unique year, to say the least. As we discussed during our December event, where we outlined our long-term goals and strategic outlook, our pivot to place a greater emphasis on profitability positions us for significant improvement on the Rule of 40 as we exit the pandemic, including a return to a sustainable revenue growth rate in the mid-single digits or greater. Our results are a solid early indicator that over time, the Rule of 40 is within our reach. We achieved 30 on the Rule of 40 for the fourth quarter, and we were within 10 basis points of the Rule of 40 in the month of December as our organic revenue growth rate strengthened toward the end of the quarter. Without a doubt, this past year has tested the industry and underscored the resiliency of our customers and our market as they serve such a critical role in solving the challenges we face as a society. 2020 put a spotlight on the need for digital capabilities as social good organizations were forced to quickly pivot their own operations to ensure they continue to deliver on their missions in this environment. For example, while the shift to online and virtual fundraising has been reshaping the landscape in this market for many years, that shift has rapidly accelerated. In 2020, We saw over 20% year-over-year growth in online giving with more than a quarter of donations made on a mobile device, and end-of-year giving grew nearly 30% year-over-year. For more than two decades, less than 10% of giving has been done online, but this grew to 13% last year and now mirrors the digital adoption experience in online retail sales. This is a significant milestone for online giving. The current environment is not just causing a shift to a digital-first mindset within our customer base, but also a shift in how donors, students, employees, and others expect to engage with social good organizations going forward. This is an acceleration of a long-term transformation that we believe will drive significant demand for cloud software solutions in the upcoming quarters and years. Looking ahead, the progress being made to distribute COVID vaccines bodes well for the return of in-person events this year. And I'm increasingly bullish on the outlook for our market, our customers, and our company as we move through 2021. I'd like to make a point to say thank you to our employees for stepping up in a big way this year to support each other, our customers, our communities, and Blackbaud. We know that nine out of 10 employees say Blackbaud's mission and the customers we serve was important to their decision to join the company. And perhaps more than ever, that unmatched commitment to the socially good community was on display in 2020. We've given back to the entire socially good community through hundreds of free resources, philanthropic gifts, service on boards, and more. Looking back at the last year, I'm incredibly proud of our achievements as a company. After a solid start to the year in 2020, we shifted quickly in response to the pandemic and took early action to ensure our business continuity while remaining hyper-focused on protecting the welfare of employees, supporting our customers, and delivering increased value to our shareholders. After transitioning our global workforce to a remote operation in a matter of days, without business disruption, we recognized our employees would need our support as all of our personal and professional lives began to overlap. We provided additional financial support to all employees earning less than $75,000, launched the Blackbaud After School Program to support employees globally who are balancing work and childcare, offered a one-time technology stipend to support home office needs, increased professional development training opportunities, and introduced many more resources focused on maintaining physical, mental, and social well-being while working in a virtual environment. Although we suspended our company-funded 401 match program as part of our cash conservation measures in response to the pandemic, we've been able to fully reinstate that program, and our strong finish to the year enabled us to fund a discretionary match for participating employees late in the fourth quarter. Our people are essential to our success, and we have an unwavering commitment to build on our strong culture by creating employee experiences and programs that further develop and attract the best talent, as well as promote a diverse and inclusive environment. In 2020, we hired a head of diversity and inclusion, recognizing that now more than ever, The topic of equality needs a strong, unified voice at Blackbaud. We continually seek diverse talent to join and lead our company, as well as serve on our board of directors, and this is not new for us. We have strong gender diversity within our company, with approximately half of our employees being female, but we recognize we can always do better. Blackbaud supports greater diversity in the tech industry as a whole, and we will continue to push for progress because with more inclusion, we can drive greater social good and financial results. I believe when our leadership and workforce reflects the diversity of our customers and their communities, it enhances the way we connect. Taking a step back, we know the investment community increasingly values ESG and social impact, and it's clear to me Blackbud has a tremendous opportunity to build on its already strong reputation as a leader in sustainability and social responsibility. We've created a formal program committed to advancing our ESG efforts, beginning with the adoption of SASB standards and participating in the UN Global Compact. At Blackbaud, driving social impact isn't a side project, it's our business. All of our software solutions enable social impact. We're proud to be a proof point that it's possible to provide exceptional products, generate shareholder value, and do good in the world. By keeping mission aligned, we've built not just a successful business model, but an innovation engine that's played a role in driving advances on social issues of every kind. Turning to our customers, we've been agile as an organization with a relentless focus on driving value and outcomes. Our deep expertise in each of our vertical markets positioned us to respond quickly to the unique challenges facing our customers as a result of the pandemic. We announced free universal access to our entire e-learning curriculum, created webinars with thousands of customers attending, introduced new pricing and financing offers based on the changing needs of our customers, and launched new innovation, helping them more aggressively move to digital capabilities. we were quick to expedite product enhancements to support our customers' changing needs. A few of these innovations include fitness tracking integration in Blackbaud's peer-to-peer fundraising portfolio, a new virtual prayer wall that enables congregants and faith organizations to share and respond to prayer requests online, text messaging capabilities for scholarship directors at higher education institutions to ensure no funds were going unutilized, and the expansion of the global capabilities of your cause, making it easier for companies to bring employees across geographies together in support of causes around the world. This industry has been undergoing a digital transformation in which we have been the global leader, and that has accelerated as a pandemic has highlighted how modern, scalable, and secure cloud systems are now a required standard. In 2020, we showed why we continue to be the trusted leader in the space. Customers around the world leveraged our solutions to effectively fundraise for COVID-19 research and essential equipment, including vaccine development, low-cost ventilator production, and methods to treat the virus and slow its spread. Food banks relied on our solutions to manage the rapid influx of donations needed to keep up with massive surges in demand. In fact, We processed over 350% more online donations for these customers in 2020 than in 2019. JustGiving powered the largest individual-led online crowd fundraising campaign in history. And during Giving Tuesday in Q4, our platforms processed record-setting levels of transactions and enabled over 138 million emails to be delivered in a single day. Our scalable platforms enable events like this to happen. We also recently updated the Blackbaud marketplace, offering curated third-party apps, enabling organizations of all types and sizes to discover new ways to amplify their impact by enhancing their best-of-breed Blackbaud solutions with specialized capabilities. A few partner solution examples include connecting the bidders at a fundraising auction texting volunteers about an upcoming event, tracking branded merchandise purchased in an online store, or automating outreach to donors eligible for a matching gift. And the number of apps listed in the Blackbaud marketplace nearly doubled in 2020, progressing our strategy to build a robust partner ecosystem. We are steadfast in our commitment to innovation to enable the success of our customers. which is why we're accelerating investments in areas like R&D, security, customer success, and the shift to third-party cloud service providers. While we're well underway in our efforts centered around delighting our customers with industry-leading cloud solutions, we're also further optimizing our go-to-market model and driving operational scale and efficiency all while enhancing the future of work at Blackbaud for employees and delivering increased value for our shareholders. We've taken lessons learned throughout 2020 and reevaluated elements of our go-to-market strategy with a digital-first mindset. And we have a significant opportunity to leverage the investments into digital to reduce our customer acquisition costs and increase our sales velocity, ultimately driving a more scalable and cost-effective go-to-market model. We've also adjusted our own workforce strategy to provide more flexibility for employees to work remotely going forward. This not only enhances the positive employee experience we want everyone to have at Blackbaud, but also expands our access to a larger and more diverse talent pool, empowering our leaders to make decisions based on skills and business need rather than location. This created an opportunity within our real estate strategy as we completed the optimization of our footprint, right-sizing and exiting certain offices around the world. And with existing offices, we shifted toward more collaborative workspaces for when we return. Looking ahead to 2021 and the next several years, very optimistic about the opportunity in front of us. The market has once again proven to be more resilient than many expected, and we continue to believe the durability of our customer base is significantly underestimated. In 2020, our renewal rates trended ahead of plan for the year. Our customer retention rate increased from 92% to 93%. And despite the challenges faced last year, our customer count increased and remains above 45,000 customers. I've occasionally been asked how many of our customers go out of business each year. So I'll address that by saying It is an immaterial amount and significantly less than 1% in terms of both revenue and customer count. In fact, we saw fewer customers close their doors in 2020 compared to 2019. And we expect the resiliency of our customers to continue into 2021. As the vaccine rollout continues, we believe physical events will start to come back and we're already hearing from customers that they're planning for this to happen this year. As you know, We have near-term variability in our revenue outlook, driven mostly by the subset of our transactional revenues tied to events in a somewhat tougher selling environment. We have high confidence in our ability to drive meaningful acceleration in our financial performance post-pandemic, inclusive of a sustainable organic growth rate in the mid-single digits or greater. Our view is this is not fully reflected in our valuation, and therefore, Under our recently expanded share repurchase program, we purchased approximately 1.2 million shares of our common stock outstanding in the months of December and January. We made great progress last year moving toward the Rule of 40. We are already underway executing against the strategic plan that will move us further toward a long-term aspirational goal of achieving the Rule of 40. We have a lot to be excited about as a company in 2021. With that, I'll turn the call over to Tony before we open it up for Q&A. Tony?