Blackbaud, Inc.

Good day and welcome to Blackbaud's Q2 2022 earnings call. Today's conference is being recorded. I'll now turn the conference over to Steve Hubbard. Please go ahead, sir.

Good morning, everyone. Thank you for joining us on Blackbaud's second quarter 2022 earnings call. Joining me on the call today are Mike Giannone, Blackbaud's president and CEO, and Tony Boer, 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 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 Third quarter, our team will be attending the Oppenheimer Technology, Internet, and Communications Conference on August 10th and the Midwest Ideas Conference on August 25th. In addition, we will be participating in virtual investor meetings hosted by Baird on August 16th. As a reminder, we're also available at ir.blackbond.com if you'd like to connect during the quarter. With that, I'll turn the call over to you, Mike.

Thank you, Steve. Morning, everyone. Thank you for joining us on the call today. Before I turn to the business and operational highlights for the quarter, I'd like to briefly address the current economic landscape and our view on Blackbaud's positioning against five macro factors and how this impacts our outlook for the second half of the year. First, we remain focused on attracting, hiring, and retaining top talent. We've enhanced our capabilities to attract and hire in a competitive environment. and we clearly remain a sought-out destination. We consistently have over 100,000 applicants for a few hundred job openings. Given the macro environment, we have cut back our hiring plans and have reduced staff in our one-time services revenue area. Second, Blackbaud has no downside exposure to the conflict in Ukraine. Humanitarian organizations are leveraging our digital technology to engage supporters and raise funds for those affected by the conflict. Third, in terms of the rising interest rate environment, I'll remind you that we took the prudent step to refinance our debt in 2020 and took advantage of the low interest rate environment to hedge some of our exposure to rising interest rates. Fourth, On the topic of inflation and entering a technical recession, we look back at the impact on our markets and company in past recessions, and the impact has been minimal. For example, Black Lodge revenue continued to grow through the 2008 to 2010 timeframe at a time when our reoccurring revenue was a much smaller percentage of total revenue. Today, we stand at roughly 95% reoccurring revenue on a much larger base. And looking at the broader market, there has been little long-term impact of philanthropy during past recessions. The big test of resiliency for our company and our end markets was the pandemic, and both fared pretty well. We remain consistent in our approach to running the business with a long-term mindset and thoughtful execution of our strategy with a track record of balancing sustainable growth and strong profitability. And fifth, from a currency perspective, our exposure is limited given the size of our international footprint. However, we are revising our forward outlook and guidance slightly to account for the impact that we expect in the second half of the year, which Tony will cover in more detail. Now onto our business results. We had a strong second quarter to close out the first half of the year, which paced ahead of our internal plan. We achieved 32 percent on Rule of 40 at constant currency, which paced above the midpoint of our original full-year guidance expectation of roughly 30 percent for the full year. We had total revenue growth of 15 percent, inclusive of EverFi, and our organic reoccurring revenue grew 5 percent, which was largely driven by the continued growth in our transactional revenues and contractual reoccurring revenues. Through the first half of the year, our organic reoccurring revenue growth stands at 6%, and our adjusted EBITDA margin was 24.5% year-to-date, which sits at the high end of our original full-year guidance range of 24.5%. In short, the business performed extremely well in the first half of the year. Now shifting to our operating performance. We're executing a strategy focused on driving significant improvements as we progress on our journey to achieving Rule 40. To start, we recently announced a series of strategic organizational updates to streamline our business operations and become even more customer-centric. I appointed Kevin Gregoire into the new role of EVP and Chief Operating Officer, and he now oversees functions spanning from products and technology to customer success and retention. Bringing these functions under one leader will ensure consistency in our approach to the customer experience. In support of this, we also named Chris Singh as the company's first Chief Customer Officer to serve in a central position focused on delivering a best-in-class experience for our customers. Next, David Benjamin was appointed to the new role of EDP and Chief Commercial Officer, overseeing the company's global sales efforts in addition to his responsibilities for the International Markets Group and JustGiving. This change will further streamline and simplify our go-to-market efforts to maximize our outcomes as a global company. Also, Tom Davidson, who is a reminder, is the founder and CEO of EverFi, will now have executive responsibility for our Your Cause business in addition to EverFi. To align our Your Cause and EverFi offerings to continue our investment in being the partner of choice for corporations focused on social responsibility and impact. Finally, I'd like to take a moment to highlight our recent appointment of Deneen DeFior to BlackLodge Board of Directors. Deneen, who is currently Vice President and Global Chief Information Security Officer for United Airlines, brings over 20 years of experience in tech and cybersecurity and will be a great addition to our board. All really great leadership changes for the company. Also in the second quarter, we exited our first colo data center with more scheduled to close in the coming quarters. This shift to third party cloud infrastructure enables us to deliver secure, stable, modernized, and affordable solutions to our customers while reducing our operating costs. We still have a lot of work to do, but we continue to make significant progress as we accelerate our move to third-party cloud data center environments. Lastly, I'm inspired by the innovations our teams are driving as we've seen the Sky platform become a reality. We are transforming and accelerating how our customers connect with their users and donors, offering breakthrough improvements to accomplish outcomes and track results. In June, we announced the launch of Prospect Insights, a new software tool within Razor's Edge NXT that automates in-app intelligence related to major giving likelihood and capacity and then prescribes actions related to portfolio management and solicitation. For growing organizations that need to prioritize major giving prospects, Prospect Insight offers multi-dimensional fundraising insights and actions within their existing software. Also in June, we held our annual developer conference, highlighting the low-code movement in accessible technology. Nearly 90% of attendees left the conference feeling that Blackbaud empowers customers to improve usage and experience with Blackbaud solutions. With more than 7,200 third-party sky developers now registered in our program, an increase of over 40% year-over-year, we are enabling even more customers, partners, and consultants to take advantage of efficiencies in low-code or no-code technologies. Another way we are expanding our ecosystem of good is through our social good startup program, which supports early-stage software companies focused on solving problems that matter to the social good community. Since launching in 2019, we have supported 33 startups. And just last month, we welcomed an additional six companies to our July 2022 cohort. We are excited to start working with these founders to design a unique plan that addresses their goals for growth and provides curated access to Blackbaud resources to continue their innovation efforts. And within the last two weeks, We hosted both Blackbaud's K-12 Conference, which brought together thousands of experts and peers in the private school sector for engaging sessions with outcomes-based content, as well as EverFi's LearnOn Conference, which brought together more than 7,000 K-12 educators, largely from the public sector, to collaborate on innovative education strategies grounded in whole child learning. And lastly, as we continue to advance our position as a leader in the rapidly evolving ESG and corporate social responsibility spaces, EverFi continues to be at the forefront. For example, EverFi is the founding partner of the Fortune Impact Initiative, which will be held in Atlanta later this year, bringing together senior ESG leaders from the Fortune 1000 as they look to advance their ESG and CSR efforts. In summary, we've had an outstanding first half of the year and are taking a prudent approach to our outlook for the second half of 2022. We are uniquely positioned as a market leader in our space. We continue to monitor the macro environment and remain confident in our core business, as well as our ability to execute our incremental program initiatives already underway as we look to balance operating discipline with strategic investments to drive sustainable growth. Looking to the rest of the year, aside from unfavorable movement in foreign exchange rates, our revenue and profitability outlook would fall within our original guidance ranges. Our operational execution is sound, and we're confident in Blackbaud's positioning to drive accelerated growth and meaningful margin expansion over the next several years. With that, I'll turn the call over to Tony before we open it up for Q&A. Tony?