Blackbaud, Inc.

Good day, and welcome to Blackbaud's fourth quarter 2021 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 fourth quarter and full year 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. Hello. 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 mention that during the first quarter, our team will be participating in virtual investor meetings hosted by Stiefel on March 2nd, and we will attend the Raymond James 43rd Annual Institutional Investors Conference in Orlando on March 8th and 9th. Please reach out to ir at blackbaud.com if you're interested in connecting at these events. 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 fourth quarter was a strong finish to what was a very successful year for Blackbaud and our customers on a much improved market backdrop. Our organic reoccurring revenue grew 4%. Our adjusted EBITDA margin was 24.5%, and we generated nearly $30 million in free cash flow, which was up roughly 20% over Q4 2020. We finished the year with total revenue of $928 million, exceeding not just our best estimate heading into the year, but also our original upside scenario. Adjusted EBITDA margin for the full year was 26.5% and 150 basis points above our original best estimate. And free cash flow was 162 million, which marks one of our best free cash flow years ever. Just over a year ago, we laid out the roadmap for our journey to achieving Rule 40. and we're already pacing ahead of our own expectations. We ended 2021 at 27% on a rule of 40 basis at constant currency, a full two percentage points higher than our near-term expectations. But what has me really excited is what's on the horizon. We have solid visibility into what should be another strong year in 2022, further acceleration on a rule of 40 basis. The midpoint of our financial guidance ranges for this year calls for total revenue growth of approximately 17 percent, inclusive of our recent acquisition of EverFi, a significant acceleration in organic revenue growth to approximately 5 percent and nearly 30 percent on a rule of 40, which is roughly 250 basis point improvement year-over-year in constant currency. Combined with our 2021 performance, That equates to roughly five percentage points of improvement on a rule of 40 relative to our expectations in just two years since laying out our long-term aspirational goals. Given our strong performance and our acquisition of EverFi at the end of last year, we're also pulling forward our timeline to achieve our long-term aspirational goals. We expect to achieve our original mid-term goal of mid single digit organic revenue growth this year in 2022, which is a big acceleration in revenue growth and several years ahead of schedule. Additionally, we have heightened confidence that our original aspirational goal for mid to high single digit organic revenue growth annually is now well within reach. With a guidance of roughly 30% on a rule of 40 in 2022, and our accelerated expectations for future top-line and adjusted EBITDA growth, we have lined the site into our ability to continue to improve on the Rule 40 going forward. While the pandemic, inflation, and the current labor market are certainly topics that we continue to monitor, we are very encouraged by the near-term and long-term growth opportunities in front of us. Tony will cover our financials and our 2022 outlook in more detail shortly. Our performance for the quarter and the full year is a direct result of our successful execution against the growth and margin drivers we laid out at our investor session in March of 2021. As expected, our revenue performance accelerated in the second half of 2021 as our near-term growth drivers started to take hold with bookings improving year-over-year, pricing initiatives underway, and in-person events beginning to return. And we're confident this momentum is sustainable. Our end markets are taking the lessons learned during the pandemic and looking forward with a digital-first mindset and their technology strategy at the forefront. I'll highlight one example of many. Phillips Exeter Academy, an independent high school with a centuries-old tradition of academic excellence, recently selected Blackbaud Education Management and Razor's Edge NXT to serve as core systems in support of a multi-year effort to build a best-of-breed set of cloud solutions. Their evaluation for education management alone included over 700 individual requirements and a comprehensive vendor review with BlackBot emerging as a clear leader. Differentiated by our modern cloud architecture, the extensibility of our best-in-class solutions, our growing partner ecosystem, our vast user community, and our commitment to customer success. We are uniquely positioned to serve as a key technology partner for our customers, and we gained momentum in 2021 with fantastic wins at organizations like the LSU Foundation, Adrian College, American Museum of Natural History, International Fund for Animal Welfare, National Parks Foundation, Alzheimer's Association, and Del Monte, just to name a few. Not only is our go-to-market motion picking up steam, but we're executing a strategy that enables us to gain efficiencies at the same time. In 2021, we drove a substantial increase in sales rep productivity while significantly improving our CAC payback period. As I said on our Q3 call, I believe we are at an inflection point for our market and our company, and there's no shortage of growth opportunities ahead. We continue to drive industry leading innovation, customer success, security, and cloud infrastructure. I could take up the entire call highlighting examples of the innovation and determination I've seen from our teams. To highlight just a few, we released an entirely new experience for all of our Blackbaud grant making customers. Also, we're transforming the entire accounts receivable experience on Financial Edge NXT. We brought JustGiving to new global markets, delivered secure contactless payment capabilities to arts and cultural organizations, and rolled out the availability of Giving Checkout in the U.S. as an easy-to-add, simple-to-use donation button that can be used by any nonprofit organization. The ecosystem we're building in the market with offerings like Giving Checkout, JustGiving, and the global network of nonprofits, charities, and NGOs receiving funds through our year cost solution is impressive and I believe underappreciated. There are over 150,000 organizations across the globe receiving funds thanks to a Blackbaud solution. We're committed to giving customers the flexibility to benefit not just from Blackbaud's innovation, but also from the Blackbaud marketplace and our rapidly growing developer community with more tools than ever to create new capabilities that extend Blackbaud solutions, we now have over 6,000 non-Blackbaud developers registered in our ecosystem, and we're driving substantial growth in the Blackbaud marketplace. We've enabled roughly 6,500 organizations to find a curated app that helps them work smarter, and the number of apps available is growing rapidly, increasing nearly 90% in the last year alone. I'm really excited about the network effect we are creating here as we help our customers drive more impact. It's clear the vision of the Sky platform that we laid out several years ago is becoming a reality. The innovation we're driving in our products and our architecture results in greater scalability and a lower cost operating structure. For example, we're well underway on a multi-year journey to shift toward third party cloud infrastructure providers. And by the second half of this year, we expect to begin exiting some of our co-load data centers. This shift reduces our operating costs while enhancing our ability to deliver secure, stable, modernized, and affordable solutions for our customers. Another core component of our four-point strategy is expanding our addressable market. We closed out the year in a big way with the acquisition of EverFi on December 31st. As a reminder, we hosted a call on January 4th with EverFi's founder and CEO, Tom Davidson, where we covered an overview of EverFi and the transaction details. The transcript of that call and accompanying presentation are available on our investor relations website. In short, EverFi's shared mission-driven culture, world-class team, industry-leading impact as a service cloud platform, large addressable market, and high-growth reoccurring revenue model check all the boxes that we look for in a high-quality acquisition. This acquisition advances our position as a leader in the rapidly evolving ESG and corporate social responsibility spaces and adds roughly $10 billion in TAM, which doubles our total addressable market opportunity to $20 billion. Also significant, over half of our addressable opportunity is now in the corporate sector. As companies continue to invest more in programs, to give back to their communities. Together, Blackbaud and EverFi will be a leading partner to help them drive meaningful social impact across a large span of technology-enabled program areas, from community education to volunteering to grant-making and philanthropy. We're also going to aggressively pursue what we believe to be a substantial revenue synergies in the form of cross-selling and up-selling, given the complementary product offerings with our Your Cost solutions and minimal customer overlap. EverFi's financial profile is highly attractive and will be immediately accretive to our revenue growth, adding an estimated $120 million in 2022 revenue. They're also profitable with a sub-5 percent EBITDA margin in 2021 that we conservatively expect to be closer to 10 percent now just a couple of months post-close, and there are significant upside potential throughout this year and going forward. The combination of sustainable double-digit revenue growth and improved margin profile as we complete future integration work means EverFi should be accretive to Blackbaud's Rule of 40 in the coming years. This acquisition, combined with our recent company performance and our updated outlook, allows us to significantly pull forward our timeline for achieving our long-term goal of mid- to high-single-digit organic revenue growth for being a few years out to now beginning this year in 2022. I'm very confident that the combination of Blackbaud and EverFi adds tremendous value to a very large and rapidly growing market, which will accelerate our growth, pull our long-term financial goals forward, and create value for our customers and our shareholders. 2021 was also a big year for our own internal ESG efforts as well. We formalized our ESG program joined the UN Global Compact, advanced our voluntary ESG reporting, and we're actively pursuing carbon neutrality. Our focus on employees, culture, and ESG initiatives have been in our DNA since the company was founded 40 years ago. And it's a big advantage as we look to attract and retain top talent, which is even more critical in today's environment. We're thrilled to be included among America's top companies as a corporate social responsibility and ESG leader with external recognition such as the U.S. Chamber of Commerce Foundation's Citizen Award and Newsweek's list of America's most responsible companies and Forbes, America's best employers list for mid-sized companies. Blackbaud is a unique company showing that it's possible to provide exceptional products, generate shareholder value, and do good in the world. By staying mission aligned, we built not just a successful business model, but an innovation engine that has played a role in driving advances on social issues of every kind. In summary, I believe 2021 was a turning point for our market and our company. We're carrying a lot of momentum into 2022, and we just layered on a tremendous acquisition in EverFi. I believe our plan to accelerate progress towards achieving Rule 40 by balancing sustainable mid-to-high single-digit organic revenue growth and meaningful margin expansion over the next few years is a winning combination for Blackbaud and our shareholders. Our teams are executing at a high level, and I'm confident we're well-positioned to capture the opportunities in front of us. With that, I'll turn the call over to Tony before we open it up for Q&A. Tony?