Blackbaud, Inc.

Good day and welcome to Blackboard's second quarter 2023 earnings call. Today's conference is being recorded. I'll now turn the conference over to Kevin Mooney. Please go ahead, sir.

Good morning, everyone. Thank you for joining us on Blackboard's second quarter 2023 earnings call. Joining me on the call today are Mike Giannone, Blackboard's president and CEO, and Tony Bohr, Blackboard's executive vice president and CFO. Mike and Tony will make prepared comments and then we'll open the line for your questions. Please note that our comments today contain certain forward-looking statements subject to risk 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 of 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 substitution for GAAP measures. Before I turn the call over to Mike, I'll briefly mention that our investor relations team will be participating in investor meetings with Stifel in New York City on August 14th and attending the Three-Part Advisors Midwest Ideas Conference in Chicago on August 23rd. With that, I'll turn the call over to you, Mike.

Thank you for joining our call. I'm pleased to share that we're making measurable progress on the five-point operating plan we introduced in May. With this plan, We essentially have a one-two punch. The first is the margin expansion that we began to realize in the second quarter. And the second punch is a new layer of revenue driven by our modernized approach to renewal pricing that will accelerate revenue growth in the second half and will have good margin flow through. Accordingly, we're confident in the delivery of our increased financial guidance for the year. That strong operational execution produced solid financial results in the quarter. As expected, the cost actions completed in previous quarters drove a substantial increase in adjusted EBITDA. Additionally, our modernized approach to renewal pricing and multi-year customer contracts continues to perform very well. Recall that our heaviest months for renewals are June, July, and December. June and July are now completed and we will begin to see revenue build in the second half and subsequently in future years. From a numbers perspective, we reported total revenue of $271 million, which was up 3.2 percent year-over-year on an organic constant currency basis. Reoccurring revenue is now 97 percent of total revenue and grew faster at 4.8 percent on a constant currency basis. Adjusted EBITDA at constant currency was 89 million, which was up a very meaningful 17 million, or 24 percent, over the second quarter of last year. That represented an adjusted EBITDA margin of 32.9 percent at constant currency, which was an increase of 5.9 percentage points above the second quarter of 2022. Taking things together, rule of 40 at constant currency was just over 36 percent for the quarter, just over a four percentage point increase year over year and five points higher sequentially. And we had another good quarter for cash flow production with adjusted free cash flow of 44 million. Now turning to our operating plan, which focuses on five key drivers. One, product innovation and delivery that provides more value to our customers with continuous improvements sourced from internal development in a vibrant ecosystem. Two, bookings growth and acceleration that results from improving sales channel efficiency. Three, transactional revenue optimization and expansion. Four, a modernized approach to pricing and multi-year customer contracts that reflect the value of the services we provide. With 97 percent of our revenue recurring, This is secure and predictable revenue. And five, keen attention on cost management. I'm excited about the significant progress we're making in each of these areas. I'll provide an update on product delivery and innovation, as well as our modernized pricing initiative. I'll also share examples about the enthusiasm we're seeing from our customers, which is driving numerous new wins and cross-selling success. Then Tony will cover the upside being realized from bookings, transactional revenues, and cost management, as well as a deeper review of the second quarter financial results. Product is core at BlackBot, and we strive to bring increased value to our customers through their software subscriptions with improved and innovative capabilities. For example, we recently released a new next generation donation form in Raises Edge NXT with a goal of increasing the conversion rate in donations our customers raise. We match the new donation form with Prospect Insights, which utilizes AI to identify and qualify candidates for major gifts. It's still early days. However, the results are promising. Many customers are raising more money, and that fuels the delivery of their missions and revenue growth for us. I'd like to drill into this example a bit more illustrate the power of our suite. We think it's unmatched in our space and it's a strong competitive differentiator. After using our next generation donation form and Prospect Insights, donations can be processed via our credit card processing service Blackbaud Merchant Services. Those donations then get recorded in our fund accounting system Financial Edge NXT and are logged into Razor's Edge NXT and our donor management system of record. All of this is enabled seamlessly and automatically. This has great value for our customers, as it not only maximizes their fundraising, but also minimizes their back office and administrative workloads. A great example of this is Martlets, a UK-based hospice provider. With their previous technology solution, donation processing required five to six distinct steps. Now donation batches are processed with a single click. That includes sending each donor an automatically generated thank you message. In their own words, quote, Blackbaud frees up time for our team to love our supporters more. And that enables their scarce human resources to spend more time on their mission and with donors. Another example of the power of this suite is a win this past quarter with Grace School in Houston, Texas. After a recent strategic planning meeting, this private space-based K-8 school realized their data was disconnected and had limited decision making. They wanted a connected system, not just for convenience, but because they see the power in the outcomes that connected data can drive. Our solution included five major components for managing the life cycle of the student, from enrollment to learning management, student information, fundraising, and financial management. We also have a number of new product innovations that are underway. In early June, we announced additions to our Intelligence for Good products week. That announcement outlined initiatives and investments that we plan to implement over the next several quarters to make artificial intelligence more accessible, powerful, and responsible across the social impact sector. Much has been said of AI lately, but AI is not new to us. For years, Blackbaud has been using AI-enabled capabilities in our analytics offerings. That said, we're expanding our strategy into next-generation and generative AI technology that addresses specific challenges related to fundraising, stewardship, corporate impact, and education needs. we'll be rolling out an extensive new set of capabilities across our product portfolio. For example, AI for peer-to-peer fundraisers, AI for donor stewardship, and AI for corporate impact. And these are only a few of the capabilities we have planned. In July, we announced our newest cohort of participants in our Socially Good Startup program. This program, which was launched in 2020, is designed to help new companies with creative solutions launch successfully. This year's cohort is focused on using generative AI to increase impact for nonprofits and companies. This cohort includes 10 startups that provide AI solutions for grant writing, purpose-built marketing, prospect outreach and strategy, major gift administration, and content creation, to name just a few. Also, at the beginning of June, We hosted our annual developers conference with nearly 10,000 third-party developers registered and almost 4,000 customers using a third-party app. Our developer community is an important component of our ecosystem. And looking more broadly at our ecosystem beyond software development and AI, we're also focusing more energy on our partner network through the Blackbaud marketplace. This is a great way to extend our joint capabilities leverage our extensive customer base and distribution, and enter into revenue share agreements. Last but not least, we recently announced that we made a small but strategic investment in Momentum, a leading AI-focused Blackbaud partner and graduate of our Socially Good Startup program. Our investment in Momentum allows us to accelerate product delivery and embed AI capabilities in solutions like RE-NXT to optimize fundraising, and stewardship processes. So as you can see, there's plenty underway on the product side of our business. We look forward to sharing more about these exciting developments during our product update briefings in October, at our BPCON user conference, and during future quarterly earnings calls. I'd now like to spend a bit of time updating you on the progress we've made on our initiative to modernize our pricing and contract terms. The effort is maturing nicely and is well on its way. We have already renewed customer contracts dated through mid-September, have notified customers with December 2023 contract renewals, and in some cases are already working larger strategic accounts with renewal dates into the first half of 2024. The vast majority of customers are opting for the three-year contract option. It is higher than we expected when we launched the program late last year. And obviously, it improves future revenue security and predictability. The pricing aspect of the program is performing equally well. For software subscriptions we renewed in the second quarter, the first year subscription price increase is up from what we experienced in the first quarter. These multi-year contracts include annual price escalations. Please keep in mind as we reported on our last call that our heaviest months for renewals are June, July, and December. So while the June and July renewals are now completed and the December renewals are largely notified, the revenue impact has yet to be recognized in a meaningful way. Before I turn the call over to Tony, I'd like to spend some time talking about the commitment we make every day to our employees and our customers. We're committed to strengthening the impact we make through the way we operate our business, setting the very highest standards. We continue to be the leader in helping individual change makers, universities, schools, nonprofits, charities, and companies around the world drive impact for their causes. To give you a sense of the impact our business has, over $100 billion are donated, granted, or invested through our systems every year. 60,000 teachers reached 3.4 million students with critical skills learning through EverFi's learning modules. 900,000 individual change makers were enabled on JustGiving that benefited 23,000 charities. And employees on our Your Cause platform volunteered a remarkable 12 million hours last year alone. It's that kind of impact that drives our employees and our company. And most importantly, none of this could be achievable without our exceptional team members who deliver impact every day for our customers. I personally want to thank them for the hard work, the dedication, and the passion they bring to the job every day. It's their efforts that enable the strong execution on the operating plan that we've reviewed with you today. With that, I'll turn the call over to Tony.

Thanks, Mike. Good morning, everyone. Second quarter financial results were solid and in line with the increased guidance we announced on last quarter's call. The benefit of cost actions we've been taking began to be realized this quarter, which drove a significant improvement in adjusted EBITDA both sequentially and over last year's second quarter. And the operational progress we are making, including our modernized pricing, is leading to impressive bookings and cross-sells and has positioned us well for accelerating revenue growth through the remainder of the year and into the next. For the second quarter, LACBOD reported revenue of $271 million, representing organic revenue growth of 3.2% at constant currency. Organic recurring revenue grew 4.8% at constant currency, and non-strategic one-time services revenue declined by $4 million compared to the second quarter of last year. From a booking standpoint, we signed several notable enterprise-level contracts during the quarter. Recent examples include EverFi's previously announced contract with the Medical University of South Carolina to provide preventative behavioral health to K-12 students, as well as its expansion with J.P. Morgan UK for STEM training. And we secured a multi-year renewal and cross-sell by adding Blackbaud Mergent Services to the ALS Association's peer-to-peer solution. Transactional revenue optimization and expansion is another key business driver in our five-point operating plan. Transactions performed well this quarter, growing in the high single digits year over year. As a reminder, transactional revenues are included in the recurring revenue line. Each of the three revenue streams of transactional revenue performed well and grew in the quarter, driven by tuition management as enrollment continues to trend upward. We saw continued strong performance in the JustGiving business, and began to see positive impacts from the rate change we implemented in January on Blackbaud Merchant Services. As I mentioned earlier, our cost management program began producing sustainable results this quarter based on actions we've previously taken. As expected, cost items are more immediately impactful to the P&L than our pricing actions. Pricing actions build each month as renewals occur. For the second quarter, total costs were down $14 million year-on-year on higher revenues. That's good performance and represents a 6% cost reduction from a year ago, and it shows the leverage that's inherent in our business. It's our intention to keep a tight hold on costs going forward. While we may have some expense growth owing to inflationary pressures, we are managing headcount, our largest expense, tightly and will continue to scrutinize all other costs on an ongoing basis. Adjusted EBITDA and constant currency was $89 million for the quarter, which was $17 million higher than the second quarter of 2022 and represents a 24% growth rate. The adjusted EBITDA margin at constant currency of 32.9% was an improvement of 5.9 percentage points over the 27% recorded last year. Taken together, rule of 40 at constant currency was 36% for the quarter, up over four points from last year and over five points sequentially. So we're tracking well against our commitment to be at a rule of 40 run rate by year end. During the quarter, we recorded an additional non-cash expense of $19.8 million to raise our aggregate liabilities for certain probable loss contingencies related to the security incident to $50 million. We're in active discussions with the attorneys general to settle that matter at a hopeful resolution in the near future. We had another solid quarter of adjusted free cash flow production and are on track to attain our increased guidance range of $190 million to $210 million for the year. For the second quarter, adjusted free cash flow was $44 million. Higher profitability and good cash collections, self-funded higher cash taxes, which were up from last year due to increased tax rates in the U.K., changes in deductibility of software development costs here in the U.S. for federal tax purposes, and conclusion of tax attributes that were utilized in prior periods, all of which were already considered in our guidance range. We ended the quarter with $818 million of net debt and a debt-to-evento ratio of 2.7 times. Turning to the remainder of 2023, we are reiterating the full-year financial guidance, which we increased in Q1. we anticipate annual 2023 revenues of $1,095,000,000 to $1,125,000,000. Adjusted EBITDA margin of 30.5% to 31.5%. Rule of 40 at constant currency of 34.8% to 38.6%, a nearly seven and a half point improvement year over year at the midpoint. And adjusted free cash flow of $190 million to $210 million. The midpoint of our free cash flow guidance is substantially higher than last year and represents approximately $3.75 per share, which at current share price is a free cash flow yield of approximately 5%. We intend to use this year's free cash flow to retire debt and drive to our 2.0 debt to EBITDA target. As free cash flow per share grows into 2024, we believe it will present a great value creation opportunity for our shareholders. As we head into next year, we'll provide more guidance on our go forward capital allocation and capital return strategy. So to conclude our prepared comments, we're pleased by the progress we made during the second quarter. Our five point plan is driving strong results. We've started realizing cost benefits and margin improvements. and set up well for increasing revenue gains and have strong cash flows. With that, operator, please open the lines for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, as a reminder, please press star 1 to ask a question, and please number yourself to one question plus a follow-up to allow us to facilitate as many questions as possible. We will now take our first question from Brian Peterson with Raymond James.

Thanks, gentlemen. Congrats on the quarter. So I wanted to hit on the pricing success that you guys have had. I know it's a key topic. You know, I'd love to understand, you know, what the feedback has been from customers, you know, anything on retention and how that's trended versus your expectations, any color you can provide there.

Yeah, sure. Good morning. This is Mike. Program's going really well. You know, we launched this last year, and it started to go into effect in March. You know, customer retention and renewals are right where we thought they would be. Most customers are opting for a three-year contract, which started in March. So we are, you know, pretty deep into the program. We're only renewing about 35% of the total this year, and of that, about 70% of that is already done. And so the new pricing eventually takes effect in the second half of this year. So we didn't get really much revenue in Q2. It builds in Q3 and Q4, just go forward. But it's going well.

No, that's great to hear, Mike. And maybe just a higher level on AI. You know, I'd be curious, when you talk to your customers, how are they thinking about leveraging generative AI? And what do you think the early use cases will be kind of across the nonprofit landscape?

The early use cases for customers and our platforms are around marketing messaging, which we have a lot of folks that, you know, use our platforms, outreach to donors as an example. And there's a lot of efficiency and opportunity using generative AI. For that, it's part of the investment we made in that company I mentioned in my prepared remarks. So that really is the first early use case, is market and donor messaging and outreach.

Thanks, Mike. You're welcome.

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

Great. Hi, thanks, guys. Good morning. Mike, another one on the price increases, a follow-up for you. So, appreciate that color with 35% of the total I think you set up this year and 70% of that done. So, can you just talk a little bit? I know we didn't see much of an impact, at least in the numbers in Q2 from that. Is that because deals were back-end loaded in June, as they tend to be in software, and And then can you also talk a little bit about the pricing uplift that you're getting relative to expectations? Obviously, we've got a ramp in revenue growth in the back half of the year, so just want to get comfortable with your feeling relative to that. And then I had a quick follow-up for Tony.

Sure. So the program, again, started last year, but the contract renewal started in March. So you know, with the fact that we're a reoccurring, you know, rattleable rev-rec business, it ramps up, and it takes a while. So, you're right, we didn't get much of an impact at all in Q2, and it'll start to ramp in Q3 and Q4. We added a slide to our investor deck. It's slide number 21, and it does a good job in showing just the 2023, so 35 percent of the total, just how that ramps this year, quarter by quarter. And then, obviously, you know, we get a full-year effect of just that 35 percent next year. But then, of course, next year, we're going to renew another 30 percent on top of that 35, and it keeps rolling every single year. We're getting the pricing we anticipated. You know, we improved our or increased our guidance, and we're confident in that. And so just, you know, doing the math, first half to second half of this year, it shows a nice ramp up in organic growth. And so I think we've really proven in the quarter the margin opportunity is starting to happen. And this contract renewals and realizing the pricing will also drive margin because a lot of it falls through. So we think we're going to have a really nice, you know, growth in Q3 and Q4. It's a great setup for future years as well. And again, we're getting the pricing we anticipated and programs going just really well.

Great. Thanks, Mike. I appreciate that. And then, Tony, one for you, and it sounds like we're going to get more color on this in late summer, fall, but when you look at you know, you guys bringing your debt ratio down nicely here. You also have some unknowns in terms of cash on the liability side from the breach. But when you look at the capital allocation strategy, like looking out at some of the, you know, say privates out there, we're starting to see a break in the in the M&A market a little bit here. Do valuations look more reasonable to you? And it's been a little while since you guys made an acquisition, so we're kind of getting into the zone here where that might happen again. So any color there would be appreciated. Thank you.

Yeah, Rob, like you said, the cash flow is looking really good. Collections have been strong. Overall looks very positive, obviously, with the increase guide that we gave last quarter on track on that front. The debt pay down, assuming we don't have any material settlement, we'd expect to be close to two times leverage by the end of the year, which is kind of, as you know, our optimal level. So, that opens us back up to start looking at more acquisition opportunities, reinstating potentially stock buyback. Really, between the EverFi acquisition now, it's been about paying down the debt and getting that leverage profile down. So, We'll be in good shape. I do think the market is opening up. I think valuations have improved a bit from the highs that they were at. So I'm sure Mr. Mooney and team will be actively engaged looking at the market for new opportunities as well.

Great. Thanks again.

Thanks, Rob.

Our next question comes from the line of Parker Lane with Stiefel. Please proceed with your question.

Yeah, hi, guys. Thanks for taking the question. First one for you, Tony. When we look at the recurring gross margin improvement here, very solid year over year, quarter over quarter, just wondering if you could unpack that a little bit and help us understand how much of that is the result of pricing versus IT consolidation versus any other initiatives you've put in place to improve that. And then as we look forward, do you think this is a sustainable level that we should build off of, or should there be some variation along the way?

Yeah, Parker, that's a good question. We haven't seen a significant impact from the pricing yet. And when you refer to that new chart and investor deck, that'll help you get to those numbers. But we've seen a, you know, a small impact in Q2. That's going to grow substantially in Q3, Q4, as you'll see in that new chart. And then by Q1, we're getting a full quarter impact of that pricing. So that will have some ongoing improvement to the gross margin and overall margins. Because a lot of that will fall through. The bigger drivers of the gross margin improvement we've seen thus far is closing four Colo data centers last year, accelerating our move to the cloud. We renegotiated, because of moving to the cloud, renegotiated those key contracts with Microsoft and AWS and got some more favorable pricing on those cloud environments. And then obviously the cost actions we took late last year in Q1 this year, you know, largely related to headcount and other cost items are having that positive impact. The one wild card to your kind of follow-up on the sustainability, the one wild card, as you know, that we always have to look at is what happens on the transaction side. So should transaction volumes grow? or shrink significantly in the future. That would have an impact on the gross margins, obviously, because the BVMS business obviously has a much different margin profile than does our, you know, subscription business. That would be the one wildcard is the sustainability. But within the true contractual recurring revenue, I would expect This is a point that we'll see improvement upon, not go backwards from, as the margin expansion from pricing comes into play. We've got a couple more colo data centers to close and some other things that will help the cost structure as well.

Got it. The second one is for Mike. Mike, when you look at the corporate vertical, you obviously got deeper in there last year with the EverFi acquisition. Just curious if you could assess the health of the demand environment around corporate right now, what you're seeing out there. And, you know, if you feel like some of those challenges that you face from a sales standpoint, I know there's somewhat of a reorganization there last year. If that's all in the rearview mirror and it's all systems go now, just what are you seeing on that corporate side of things?

Yeah, year-to-date bookings are pretty good. Still a lot of interest out there. We've got a good pipeline. I announced a couple of deals in the last two quarters in these calls. Medical University of South Carolina, Center for Audit Quality, Microsoft. A lot of good deals that we've closed year to date. The organization changes, to your point, were complete last year. And overall, at the company level, you know, year-to-date bookings are pretty good. We're seeing the growth year-to-date across the whole, you know, product portfolio pretty well. And so, the exciting part of that, of what we're doing, is this sort of new layer of organic revenue with this contract and pricing, which those slides, kind of slide 20 in the deck. The investor deck shows that, and 21 just does the example for this year. It's sort of a whole new layer of revenue that we have not yet experienced, and we will start to see it, to Tony's point in mind earlier, you know, Q3 and Q4 this year, given our increased guide. But remember, that's only a small part of it, too, because, again, 35 percent of the contracts are renewing this year, and in Q3 and Q4, we're willing to get a partial impact of those. And so, you know, we'll get a full-year effect of those next year, But the next year, we're going to renew, on top of that, another 30% of the contract. So this multi-year program then just restarts again in 2026. So that, on top of good year-to-date bookings, is just a new layer of organic revenue growth. That's pretty exciting. Try more margin improvement as well.

Yeah, understood. Thanks again for taking the questions, guys.

Sure.

Thanks, Parker.

The next question is from the line of Kirk Matern with Evercore ISI. Please proceed with your question.

Yeah, thanks very much. Congrats on the results, guys. Mike, I was wondering if you could just talk about the opportunity for cross-sells as the renewal portfolio comes up. Obviously, just getting the pricing on the renewals is obviously job one, but just thoughts on the opportunity to cross-sell and up-sell other solutions as part of that process, if that's sort of the order of the day, or is that something you think of as more of like a 24-25 opportunity?

Yeah, no, we constantly do that. We've got sales folks focused on cross-sell and new logo folks. And so that's a part of renewals, and it's a part of just sort of base assignments, job assignments around cross-selling into the existing base. And we've got a lot of opportunity. The other thing that's driving that is innovation and As we continue to drive the integration of our platforms and making better user experiences on key products like Razor's Edge NXT, Financial Edge NXT, and our payments processing, that drives cross-sell opportunities. So cross-selling is still a big opportunity for us across the board in the corporate sector as well.

Okay. And then, Tony, just on the sort of leverage in the business, I was just kind of curious, can you talk a little bit about sort of any incremental costs around, you know, Gen AI, if every company has to sort of, you know, sort of evolve their platform to, you know, incorporate that? You know, just any thoughts in terms of, is there any incremental offsets, I guess, to some of the base benefits you're getting from, you know, some of the cost actions you guys have taken already? Thanks.

Thanks, Bert. Not significantly overall. So we certainly reallocate, I would say, and revisit our allocation of our investment in R&D quite often on a regular basis. And so I think it's more of a reallocation of the total investment because, as you know, we spend a good chunk of our overall dollars on R&D and innovation. So any place that we've had an increase in the last couple of years in over the last few years, frankly, has been the move to the cloud. So we've had a lot of redundant costs as we still pay for the COLO data centers and pay to move to the cloud, and then also we're paying for the new cloud environments. And then the other place is we've made a lot of investments in cyber, as every company is doing, and we continue to do that. That's probably one of the few places in the business that we're seeing an increasing expense overall.

Thank you. Our next question is from the line of George McGeehan with Bank of America. Pleased to see you. It's your question.

Hi. Thanks for taking my question. You know, if you could kind of comment on, you know, the recently announced changes to the partner program and, you know, kind of what your long-term expectations are for the contribution from that channel.

Yeah, sure. This is Mike. So we have a new leader that's running that program as of kind of mid-year last year. And we're really driving a couple of components there. You know, we've got this social, what we call social good startup program, which basically creates new partners. And then we have new partners coming in of all types. They're either, you know, development companies, software companies, services, businesses. And we've got a much higher focus on this partner ecosystem. And then we combine that with the developer network. I talked about the fact that we've got over 10,000 registered developers in that program. If you go back just four or five years, there were maybe 500. Now there's over 10,000. And so we're focused on what we call the Blackboard ecosystem, where it's partners. And these are, again, software companies, systems integrators, professional services firms. It's a developer network. That's important for us. And so we're building this ecosystem because, frankly, it helps our customers, and it helps us. Our solutions are stickier, if you will. They're expanded through the partner network, and we're looking to drive shared revenue and some more organic growth through these partnerships.

Thank you.

As a reminder, if you'd like to ask a question today, you may press star 1 from your telephone keypad. The next question is from the line of Matt VanVleet with BTIG. Please proceed with your question.

Good morning, guys. Thanks for taking the question. I guess first on the education space, just curious maybe if you could dive in a little bit there and seeing this being kind of the key selling season, especially on the upsell, cross-sell side of it, what you're seeing there, how much appetite is there from your schools to continue to sort of use more of the platform as you've made some additions from a product standpoint?

I mentioned one school in my prepared remarks. This is actually a pretty heavy implementation season because the schools need to get ready for the fall. So we see a higher selling season sort of earlier in the year, and the spring-summer is like implementation time to get the schools ready. Good cross-sell opportunities there. The K-12 space that we're in, it's really our widest product portfolio. So there's quite a few products that we sell there from tuition management to financials to fundraising to running the school, SIS, student enrollment systems. And we typically will go in in a new logo and provide a platform. It might start with the school operating system, SIS and school admissions and things, or it might start with fundraising. But then we have a lot of opportunity to keep going back and adding to that, which happens quite often. So, yeah, that business is doing well. We get a really good footprint there, a good partner network there as well. And so, yeah, it's been a really good environment for us. The payment side of that, which is the tuition management, that platform has been really strong for us year to date this year.

Matt, we're seeing good continued increase in enrollment as well in the school space, which is really helping on the tuition side.

Okay, great. Thank you. And then, Mike, you talked about even starting to discuss with larger enterprise-level customers on the renewals for early next year. Curious in what their feedback is in terms of the level of price increases. Are you seeing or hearing much pushback as they look at that three-year option versus one year? I'm just curious what the feedback is on some of those very large customers.

Yeah, no, we're not. I mean, you have to remember, too, that we're not alone there. What I mean by that is these enterprise customers have, you know, lots of software providers. It could be SAP or Oracle or Microsoft and others, Workday and others. And so we're not necessarily alone there in – basically requiring multi-year contracts and price increases. So that's kind of one point. The other point is we are a system of record. So the solutions we provide for the mid-tier and enterprise is a system of record. We're the revenue generator for those foundations, if you will. So it's not a discretionary choice for them. So we're a core system of record. We have great long-term relationships. And, you know, those contract renewals of customers of all sizes are going to plan and going, you know, quite well. And the way the process works, as I mentioned in my prepared remarks, you know, we've already notified the customers through the end of this year and we've already completed, you know, pretty much the end of July and most of August and a big part of September and October is already complete. So our visibility to these renewals and our visibility to organic revenue growth has never been this strong because we've got this future view of renewed contracts and price increase in organic growth, which is awesome. And so the enterprise customers, you know, we're dealing with some of those discussions right now because they're into next year because we notify, you know, quite far in advance. It's all going really well.

All right, great. Thank you.

Yep, you're welcome.

Thank you. At this time, we've reached the end of our question and answer session, and I'll turn the call back to Mike Giannone for closing remarks.

Thank you, operator. Thanks, everyone who joined the call today. In summary, we had a solid second quarter, and we are successfully executing our five-point plan. We're innovating products, driving bookings, optimizing transactional revenue, modernizing contractual pricing, and tightening cost management. Our operating plan has, in effect, a one-two punch. The cost initiatives are the first and have started to produce improved margins in the second quarter. And the second punch is the progress we're making on the renewal side of the business that will accelerate revenue growth in the third and fourth quarters. By the fourth quarter this year, we expect to achieve organic revenue growth in the high single digits, as well as rule 40. well ahead of our prior target of 2025. And looking ahead to 2024, we expect to continue growing revenue and expanding margin to achieve Rule of 40 for the full year. I'm incredibly proud of the progress our team members have made, and I'm confident that we will continue to build on our momentum and drive strong, sustainable growth and value creation for shareholders. Thank you.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.