Blackbaud, Inc.

Good day and welcome to Blackbaud's second quarter 2021 earnings call. Today's conference is being recorded. I'll now turn the conference over to Steve Hufford, Director of Investor Relations at Blackbaud. Please go ahead, sir.

Good morning, everyone. Thanks for joining us on Blackbaud's second quarter 2021 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. A more detailed supplemental schedule is available in our presentation on the investor relations website. Before I turn the call over to Mike, I'll remind you that a recording of our investor session held in March and the full presentation are available on our investor relations website. I'll also mention that during the third quarter, our team will be virtually attending the Oppenheimer 24th Annual Technology Internet and Communications Conference and Jeffrey's Virtual Software Conference. and we will be participating in virtual non-deal roadshows with investors both domestically and abroad. If you're interested in connecting at one of these events, please email ir at blackbaud.com. With that, I'll turn the call over to you, Mike.

Thank you, Steve. Good morning, everyone. Thank you for joining our call today. Blackbaud had another strong quarter as our markets progressed toward a post-pandemic recovery, and the shift to a digital-first world continues to accelerate. We have so much to be excited about as a company, and given our strong performance through the first half, we're well positioned for success as you look ahead to the second half of this year and to the next several years. Tony will cover the financials in more detail shortly, but the trends through the first half combined with our latest financial outlook suggest we could exceed our best estimate revenue scenario laid out on our Q4 earnings call with our upside scenarios continuing to look more likely. You've heard me say in the past, the events that have taken place over the last year and a half will be catalysts for the industry to adopt digital capabilities and move even faster towards modern purpose-built cloud solutions. With the first half behind us, I believe we're seeing this take hold, and I'm increasingly bullish on the outlook for our market, our customers, and our company as we move through 2021. We continue to believe Blackbaud stock is undervalued, given our outlook, and thus we continued our share buyback program in the second quarter. The impact of the pandemic manifested itself in different ways across the broker markets we serve, but we're now seeing encouraging signs of recovery across the board. In fact, 2020 was the highest year of U.S. charitable giving on record, growing to over $470 billion, according to GivingUSA. In addition to record levels of giving overall, the percentage of giving done online grew by 40% year-over-year, and the total industry went from 9% to 13%. This is a trend we believe is here to stay. We're also beginning to see the return of physical events for our customers, with more organizations planning for in-person events during the second half of 2021, a great example is our arts and cultural vertical, where zoos, museums, and other cultural organizations were challenged with lost revenue from the absence of in-person attendance and events last year. But we can see in the data that admissions and associated payments volume are now on the rise. And in our K-12 vertical, schools are planning for the upcoming school year, having navigated from virtual to hybrid, and now in-person learning and fundraising. Last month, we again virtually hosted thousands of registrants at our annual tech conference for K-12 private schools. The event featured innovation updates and deep dives around the Blackbud education management platform, as well as best practice and thought leadership sessions across all areas of school management. We remain very well positioned as a leader in the K-12 market, and overall, as the best long-term partner for socially good organizations across all the markets we serve. Turning to the quarter, I'll provide a few updates in the context of our four-point strategy. I'll start with our strategy to delight customers with innovative cloud solutions. Since the pandemic began last year, we've been quick to reprioritize and expedite product enhancements to support our customers' changing needs as they adopt to operate more digitally. For example, I mentioned we're seeing arts and cultural organizations begin to open the doors. As they reopen, maintaining high standards for the safety and security of their patrons is a top priority. So just a few weeks ago, we announced the general availability of Payment Terminal. This solution allows organizations to receive secure contactless chip and tap payments for tickets and donations through Blackbaud Altru and Blackbaud Merchant Services. Not only does this minimize staff handling of credit cards during point sale, but enables them to process payments three times faster than with a magnetic swipe device and protects their constituents and organization from credit card fraud with EMV certified card readers that offer end-to-end encryption. During the second quarter, we also announced general availability of Blackbaud peer-to-peer fundraising powered by JustGiving in Australia, New Zealand, and Canada. JustGiving has already proven to be a game changer for organizations across the globe looking to raise more funds digitally, and we're thrilled to bring this turnkey solution to even more organizations with no subscription fees or sub-costs. We have a unique approach with the JustGiving pricing structure, away from the fixed platform fee to a voluntary contribution model, a true win-win for us and our customers. We've made tremendous progress globalizing our products in recent years, And JustGiving is yet another example of this. Additionally, your cause is poised for globalization as we look to capture a tremendous international opportunity with forthcoming market launches in Canada, the UK, and Australia. The return of mass participation events alongside the market launch investments we've made in the US, Canada, and Australia, plus further pricing innovation, have us optimistic that we'll see strong, sustained growth in our international markets in the short, medium, and long term. And as I said before, our ability to drive innovation is no longer just about Blackbaud's engineering efforts, as we continue to build out our partner programs. Just last month, we hosted our annual developers conference, where attendance was up 50% year over year, and our investments and support for open APIs resonated with customers and partners alike. Our vision is to power a community of developers and partners who are passionate about social good to create amazing new capabilities that evolve as the needs of their organizations evolve. And we're just beginning to scratch the surface of what's possible here. Next, I'll cover our strategy focused on employees, culture, and ESG initiatives. This year marks Blackbaud's 40th anniversary, and since day one, our focus has been on building a better world. We just capped off a month-long celebration with our employees, some of whom have been around to watch our business grow from just one product to providing purpose-built solutions to the entire social good industry. And as we reflect on this milestone, we remain steadfast in our commitment to enable our customers to drive more social good, to support our communities both inside and outside of work, and to celebrate our people to which we owe our success. Our company is made up of employees from all over the world who come from diverse backgrounds and experiences, and we're thrilled to celebrate these differences and unique contributions through honoring celebrations and observances that reflect equality, justice, and further promote a higher purpose to help good take over. In June alone, we honored Pride Month and Juneteenth. Our strong corporate culture enables us to retain and attract top talent around the globe which is even more critical in today's environment. And we're building on this strength with recent hires and the creation of new roles focused on establishing new pipelines of talent, including outreach to diverse campus programs, HBCUs, and national diverse organizations. In Q2, we also furthered our efforts to create a best-in-class candidate and employee experience with the launch of our new careers site. This enables us to lift our social presence and visibility, create personalized experiences for candidates via AI, reduce the time to apply by half, and accept applications start to finish, all from a mobile device. It also enables us to leverage data analytics to better understand the talent marketplace and inform future investments. This is a big step, especially when combined with our workforce strategy, both key parts of our internal digital-first approach. This brings me to our strategy to lead with world-class teams and operations. As I've said, this expands upon our previous strategy to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40. In support of our strategy, during the second quarter, we merged our enterprise market group and general market group to create one U.S. market group, reporting to Kevin Gregoire, who many of you heard from at investor session in March. We did this to better align our resources toward customer retention and growth. We have a strong executive team. We're all incredibly capable leaders, delivering on our mission and executing on our strategy. As part of this recent change, Kevin Mooney, who previously led our general markets group, is now focusing on M&A as Executive Vice President of Strategy and Business Development. Which brings me to our strategy to expand our total addressable market by acquiring, building, and partnering into near adjacent markets and expanding within our existing markets. We have a strong historical track record of driving inorganic revenue growth through M&A, with last year being an exception given our primary focus was on our employees, our customers, in preserving liquidity during the pandemic. We are now actively evaluating opportunities as acquisitions remain an important element of our growth strategy going forward. I'll remind you that with the combination of organic growth and M&A, we have a history of double-digit revenue growth. I'll summarize by reiterating that I continue to be bullish about the opportunity ahead of us. The market is showing signs of strength, and organizations are planning for post-pandemic recovery. We continue to make investments in key areas like digital marketing, innovation, security, and customer success as we look to extend our leadership position. We have our sights set on a substantial opportunity ahead of us to drive meaningful acceleration and financial performance in the context of the Rule of 40. Blackbaud is well positioned to capture the organic and inorganic growth opportunities in front of us. Overall, we had a solid first half, and I'm excited about the coming quarters