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spk10: Good day and welcome to the BlackBod Inc. Second Quarter 2024 Earnings Conference Call. Today's conference is being recorded. I'll now turn the conference over to Tom Barth, Head of Investor Relations. Please go ahead, sir.
spk03: Good morning, everyone. Thank you for joining us on BlackBod Second Quarter 2024 Earnings Call. I'm Tom Barth, the new Head of Investor Relations here at BlackBod. I'm very excited to have recently joined the BlackBod team. I likely know a lot of you, but I look forward to working with all of you. Joining me on the call today is Mike Giannone, BlackBod CEO, President and Vice Chairman, and Tony Bohr, BlackBod's Executive Vice President and CFO. Mike and Tony will make prepared remarks and then we will open up the line for your questions. Please note that our comments today contain 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 forms for more information on those risks. The discussion today will focus on non-GAP results. Please refer to our press release and the investor materials posted to our website for the full details on our financial performance, including GAP results, as well as full-year guidance. We believe that a combination of both GAP and non-GAP measures are more representative of how we internally measure our business. Unless otherwise specified, we will refer only to non-GAP financial measures on this call. Please note that non-GAP financial measures should not be considered in isolation from or as a substitute for GAP measures. And with that, I'll turn the call over to you, Mike.
spk14: Thank you, Tom, and good morning, everyone. Before I talk about our second quarter, I'd like to highlight how far our company has come these past several years by executing on our five-point operating plan. We've extended our position as the world's leading provider of software to power social impact through product innovation to better serve the very specific needs of nonprofit customers, successfully implemented key revenue initiatives to enhance the predictability of our growth, all while maintaining key attention to cost management and cash flow. As a result of this work, we've accelerated our revenue growth, significantly improved our adjusted EBITDA margin, driven sustained double-digit non-GAP EPS growth, and generated significant free cash flow, which we have used to fuel a material stock repurchase program that was recently expanded and replenished to $800 million. Our progress is also evident in our strong second quarter results. Organic revenue growth for the quarter was approximately 7%, significantly accelerating from the .8% growth in the second quarter of 2023. Total revenue growth was strong, growing 8%, excluding the negative revenue growth impact of Everfi. Our adjusted EBITDA margin was 36%, up nearly 300 basis points year over year. And our non-GAP earnings per share was $1.08, up 10% year over year, which does not yet reflect the full benefit of the $200 million ASR, the final piece of which will settle later this year, but does reflect a higher tax rate. These results are a direct result of our continued focus and execution against our strategy and operating plan we have detailed in previous quarters, and they highlight the leverage and strength of our technology, franchise, and financial model. While our record of performance is exciting, we're just getting started. The company is approaching another inflection point. In addition to improving our operations and go to market capabilities, we have successfully addressed and closed the book on many of the challenges the company faced over the past few years, allowing us to now focus primarily on the tremendous growth and value creation opportunities ahead in the near, mid, and long term. We believe BlackBot is a compelling investment with multiple opportunities for strong shareholder returns. First, as an industry leader with the most comprehensive set of purpose-built and mission-critical software and services, we have an inherent ability to penetrate even further into a rich market opportunity. Second, the leverage of our financial model allows us to continue to aggressively invest in innovation, which provides great value for our customers and enhances our ability to attract new customers. Third, we generate strong cash flows and are committed to discipline, value maximizing capital returns. We believe that at current valuations, BlackBot's undervalued, and we plan to be aggressive in the repurchase of our stock to improve shareholder value. I'd like to comment on the first two drivers, and Tony will speak to the third, as well as dive into our results and guidance. We have a rich market opportunity in front of us, strengthened by our innovation. US charitable giving in 2023 was over $500 billion, of which roughly 100 billion is donated, granted, and invested through our BlackBot platforms globally. In our social sector, we continue to primarily focus on mid-size and enterprise nonprofits, and as a market leader, we continue to see great opportunities to land new logos, as well expand our offerings to our existing customers. And we appreciate that our customers have choices too. For decades, we have enjoyed being the market leader with strong brand recognition and unmatched breadth and depth of our product capabilities, but we're not relying on the success of our past. We continue to invest aggressively in innovation and partner with our developer network through APIs to produce continuous product enhancements throughout our portfolio, including generative AI capabilities, which in turn enable our customers to raise more money while increasing operational efficiency, ultimately allowing them to spend more time executing on their charitable missions and less time on administrative tasks. We're a natural choice for customers and new prospects alike. The alternative for our customers is a disjointed competitive landscape where we believe no company offers the combined breadth and depth of our capabilities. These include smaller, disparate point solutions that address only single aspects of the complex, comprehensive technology needs of a nonprofit, or larger horizontal software companies that lack depth of nonprofit-specific functionality. It often require complex, expensive customization and potentially additional vendors to meet customer needs. Moving to our business results. Our social sector is our largest revenue segment, representing 88% of total revenue in the quarter. The social sector is performing extremely well. Social sector revenue grew .5% -over-year in the second quarter, a dramatic acceleration compared to the 2% growth rate in the second quarter of 2023. The social sector has proven to be very resilient as demonstrated due to the last several downturns in the COVID-19 pandemic. And we have great confidence in the long-term trajectory of this business. In our corporate sector, performance has been impacted by Everfi, which despite being only 8% of total company revenues has been a drag on growth. Everfi has unique and valuable assets, including a comprehensive catalog of content, great customer relationships, and a deep talent pool. However, Everfi has faced a number of external challenges, as you know, and while we have taken decisive actions, including changes to corporate sector leadership and divestiture of non-recurring components of the business, Everfi continues to be a drag on BlockBot's overall strong performance. Accordingly, we are actively considering a range of strategic alternatives for Everfi, one of which includes a potential divestiture of the business. This work is in early stages, and Everfi remains well-positioned to support its customers. We will continue to update you as progress is made on this initiative. Before turning to Tony, I wanna reinforce the meaningful progress we've made over these past several years to bolster our foundation for success. Our operating plan continues to drive top and bottom line growth, as well as strong cash flows. We remain committed to repurchasing as much as 10% of our outstanding shares in 2024. Our near, mid, and long-term future is bright. I'll come back after Tony in a few minutes with some closing thoughts, and then we'll take your questions. Tony?
spk17: Thanks, Mike. I'm very pleased with our continued progress and remain excited about the road in front of us. The execution on our strategy and operating plan is visible in our positive top and bottom line financial results. Looking to those second quarter results, total revenue was $287 million, up 6% year over year, and almost 7% on an organic basis. Our social sector, which represents the lion's share of BlackBod's revenue at 88%, continues to perform particularly well with revenue growth of 8.5%. Within the social sector, contractual recurring revenue grew .5% year over year, while our transactional recurring revenue in the social sector was up 8.2%. The corporate sector, which represented approximately 12% of total revenue in the quarter, declined .2% and continues to be weighed down by underperformance at Everfi. Recall, Everfi only represents 8% of the company's total revenues, and our results reflect the divestiture of Everfi UK that was completed in March of this year. We expect headwinds at Everfi to continue, and as Mike said earlier, we're pursuing strategic alternatives for this business. Moving to below the revenue line, we're also pleased with the outcome of our continued cost management initiatives that drove a 290 basis point year over year improvement in our second quarter, adjusted even to a margin of 35.7%. We overachieved on our rule of 40 goal for the quarter with a result of 42.4%, and are well on our way to our rule of 40 goal for the full year of 24. We generated 36 million of adjusted free cash flow in the second quarter, taken together with the strong adjusted free cash flow generation in the first quarter of 53 million. Our first half adjusted free cash flow is up approximately 50% compared to the first half of 2023. Our robust free cash flow gives us confidence to continue investment in a number of critical areas like product innovation and stock repurchases. In addition to our previously announced ASR, we plan to be aggressive in repurchasing our stock at the current valuations. As recently announced, the board of directors has reauthorized, expanded, and replenished the company's existing stock repurchase program, raising the total capacity from 500 million to 800 million available for repurchases of the company's common stock. We believe there's no better use of capital than investing back into the business through product innovation and returning capital shareholders around these valuation levels. Before I talk about annual guidance, I'd like to highlight several items for you to think about which may help in developing your views for the remainder of the year and into 2025. Regarding revenue, in addition to the continued anticipated headwinds at Everfi, we cannot predict whether there will be any viral charitable giving events in 2024 like the ones we benefited from in 23. And if there aren't, this creates a more difficult compare for the second half of 24. Second, as a reminder, our modernized approach to contract renewals is expected to generate sustained revenue growth for the business. In summary, we are moving our customers to a standard three-year contract, which is new for us. And we are following industry norms by implementing annual price escalators within those multi-year contracts, which is also new for us. You can refer to our investor deck for additional information on this program. Additionally, here are some bottom line items. During each third quarter, the company implements its annual employee-wide merit increase, which causes margins and cash to dip slightly. We plan to continue to maintain tight controls on costs and headcount, but there may be quarter to quarter fluctuations with the timing of attrition and hiring as we continue to invest in the business. Next, our business has some degree of seasonality with our second and fourth quarters typically outperforming the first and third quarters. As far as quarterly pacing, as I mentioned earlier, our third quarter is expected to be a difficult compare over Q3 of 2023, due to the increased levels of viral charitable giving events last year. Of course, we could see some of these events reoccur. Lastly, regarding our accelerated stock repurchase, or ASR, this program had an initial delivery of 2.1 million shares in March, and we currently expect an incremental delivery of more than 500,000 additional shares at settlement later this year. Turning to guidance, we are reiterating our full-year guidance ranges across all metrics. The core social sector continues to perform well and is tracking the plan. However, due to underperformance at Everfi, we currently anticipate being towards the low end of our revenue guidance range. At the same time, we anticipate being at the high end of our adjusted EBITDA margin guidance range due to our strong profitability performance year to date and continued focus on cost management. We have a lot to be proud of in the first half of 24. We continue to execute on our operating plan to drive strong top and bottom line results in our revenue and cash flows. We're especially pleased with the performance of our core social sector and have confidence in its ability to produce profitable growth going forward. We remain focused on providing enhanced value to our customers and our shareholders. We also, as Mike discussed, are committed to removing the negative impact of Everfi, which we believe will accrue value to the benefit of our shareholders. Let me turn it back to Mike for a quick comment, and then we'll open up the line for questions.
spk14: We know that our revenue growth and margins have improved dramatically over the last couple of years, including this quarter. We feel that much of this success, including high single digit revenue growth in our core social sector, expanding EBITDA margin, and strong free cash flow, seems to be undervalued by the investment community. Therefore, we will continue to aggressively invest in the repurchase of our shares. Our proven operating plan is driving tremendous results, and we believe BlackBodge near, mid, and long-term future is bright. Thank you, and we look forward to your questions. Operator?
spk10: Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, as a reminder, please press star one to ask a question and limit yourself to one question plus a follow-up to allow us to facilitate as many questions as possible. Our first question is coming from Brian Peterson of Raymond James. Please go ahead.
spk18: Thanks, guys, for taking the question. So, Mike, I'd love to get an update on how the bookings environment looks on the social side. How does the health of that business look? And as we're thinking about the lower end of the growth outlook for the year, is that solely related to what's going on with EverFi? Just want to get an update on the health of the social side of the business.
spk14: Yeah, sure, Brian. Bookings are doing fine on the social side of the business, which is pretty much the whole company minus EverFi. New logos are good, up. Sales productivity is up. And the revenue drag is fully related to EverFi. I'll just point out, just said this in the prepared remarks, but Q2, the social sector is about 90% of the company. Last year's Q2 grew at 2%. This year, 8.5%. Massive improvement in the business. And we've got plans for EverFi, as I mentioned, to improve the business, including a potential sale.
spk18: It may be a good follow-up on that. Just to understand EverFi, or even looking at the corporate segment in general, how could we think about the margin profile of that business relative to the social side? Anything you can share there, Tony?
spk17: Yeah, the EverFi business, first one thing, Brian, I want to clarify on the revenue outlook. The other upside for us for the back half is if we see some charitable viral events. As you guys recall, and we talked about in the prepared comments, we'll have a tough compare this year. We had a really good Q3 and Q4 last year. There were several very large charitable viral events. Our forecast right now would not incorporate any of those, but that would provide some upside if we see some of those. From an EverFi overall profitability and contribution, it is very dilutive on both the growth front and on the EBITDA front. So there's a lot of work for us to do on that. We've got quite a few different plans in place. As Mike stated, we've made management changes already, and we'll keep you guys updated as we make progress on those efforts.
spk04: Thanks,
spk10: Tony. Thank you. The next question is coming from Rob Oliver of Baird. Please go ahead.
spk02: Great, thank you guys. Good morning, and I apologize for any background noise. Mike, my first question is for you. Just in light of the announcement regarding EverFi and the potential strategic alternative considerations, I was wondering if you could just talk to your general view about the corporate sector, the corporate part of the business. Is that still an important part of the business for BlackBot? Why do you need to be in it? At all? And talk about your philosophy on whether you should remain there. And then I just had a question follow up for Tony as well.
spk14: Yeah, sure, Rob. The corporate sector includes several platforms, predominantly EverFi and Eurcoz. Eurcoz is doing really well. It's actually a creative to the company's growth. The drag part of it is Eurcoz. Eurcoz has a very large global footprint that's connected to global nonprofits and connects us to corporations that donate to nonprofits. So it is a part of our ecosystem. And again, that platform's doing really well, growing nicely and expanding internationally. So I do think it's an important sector. It is connected to the nonprofit sector through companies on the Eurcoz side. And again, we said this a few times, EverFi is 8% of the company. Rest of the company is doing really well.
spk02: Great, okay. Thank you, I appreciate that. And then Tony, you talked about migrating your customers towards three year renewals, three year contracts on the social side of the business. And it does seem like that's been going well. You can certainly see it in the growth rate. I'd be curious, I know there was a cohort, and I've asked you this question before, there was a cohort of customers that took one year renewals and not three. And you did call out some potential for concern that we need to get through that cohort. Where are we in that cohort now, if you can give us an update, that would be great. Thank you.
spk17: Yeah, Rob, thanks for the question. We, as you know, started this program late Q1 of last year. So we have come up on a good chunk of those initial contracts where customers may have chosen a one year versus a multi-year agreement. That's what we were keeping an eye on. The good news is that our renewal rates have fared very well. Overall, our gross dollar retention number, which we now disclose publicly, you can see held steady at 90% for the company. It's pulled down a little bit by Everfi, but overall we held constant at 90% gross dollar renewal year over year, which is very positive considering all the efforts on the contractual front.
spk14: Yeah, hey Rob, I'll just add something too, just for clarification. So this program's been going on for a while now, it's just part of the business. It includes moving customers to three year contracts for your question. Also includes annual price escalators, which we've never had before. And these will continue. When these three year contracts renew, we will also have annual price escalators and call it years four, five, and six, if you will. The program doesn't end after the initial three years. It continues.
spk04: Great, thank you guys. Thanks, Rob.
spk10: Thank you. The next question is coming from Matt Van Vliet of BTIG. Please go ahead.
spk06: Yeah, good morning. Thanks for taking the question. I guess as you've gotten through a lot of the summer here and headed into the beginning of the next school year, wonder if you could just give us a little bit of color on how the K through 12 business is doing, and in particular, any areas of that portfolio that seem to be outperforming.
spk14: Yeah, thanks Matt. K through 12 business is doing really well. We've got some very good leaders in there in sales and product and engineering. Great market presence. We made an equity investment in a partner company to help with that portfolio that we announced a little while back, which is a K through 12 website marketing and admissions set of capabilities. It's just additive to our platform. So we're doing really well there of the platform that runs the schools, to fundraising, financials, and the tuition management. Having a great year and lots of growth opportunities.
spk06: Okay, and then just following up on the EverFi headwind here, if you'd at least try to quantify how much of the forward outlook being at the lower end is due to ongoing maybe churn or at least down sells at customers versus an underperformance on new bookings. Just curious on sort of where you're feeling the brunt of it today.
spk14: Yeah, sure thing. Again, it's 8% of the company to be clear. It's predominantly in bookings, and the revenue drag on the company is EverFi. The rest of the business, 90% or so in Q2 just grew 8.5%.
spk05: All right, thank you. You're welcome. Beth.
spk10: Thank you, the next question is coming from Parker Lane of FIFO, please go ahead.
spk07: Thanks, guys, I appreciate you taking the questions. Mike, you mentioned the company reaching another inflection point as a result of you putting a lot of the challenges of recent years in the rear view mirror. Can you just sort of rehash what some of those challenges, the most notable challenges were and how it sets up the company? How does it set the company up for sustainable growth going forward?
spk14: Yeah, you bet. We put in this five point operating plan, which was queued up to go, then COVID showed up. So we tabled it for a while. And we've executed on a lot of parts of that plan. We've closed data centers, we've implemented new list prices, we've implemented a new contract renewal program. We're driving a lot of innovation. So all that's coming to fruition. That's why the base company grew from two to eight and a half percent this past quarter. The other things that are predominantly behind us now, we had a security incident many years ago, we had some legal issues with that. And those are pretty much all behind us now. We announced settlement with California, for example. And in fact, yesterday, we concluded the class action matter, which is now over as well. So that's also behind us. Those things are a distraction for management. And we have those behind us. So lots of good things happening related to, if you look at things like just free cashflow this year, year to date, we're up 50% year over year, free cashflow. The EBITDA is about 36% in the quarter. I've mentioned revenue growth a couple of times. So all the key metrics are really coming together well from a growth standpoint and margin expansion.
spk07: Yeah, very helpful. And then Tony, on the viral charitable giving, I understand you have a very tough comp. Can you just talk about the visibility you have into those campaigns? I know they kind of are related to specific events that are typically unforeseeable. So how do you consider that in your guidance for the balance of the year?
spk17: Yeah, we currently, Parker, would not include any charitable viral events in our forecast. And so that's in the comment I made earlier on one of the earlier questions was, if we do see some of those in the second half, that would provide some upside on the revenue guide from where we currently think we may be towards the low end due to Epiphy. The visibility is tough, as you can imagine, because a lot of those are kind of just surprises and they could be weather related or unfortunate things like wars. But there's a lot of other types of charitable viral events, races and walks and things that may come up that we have a little more visibility into. Typically the ones that really drives things like last year were unforeseen again events. And we'll just have to wait and see what the second half brings. We didn't have anything meaningful in the first half at all.
spk13: All right,
spk14: thanks again, Gert. The point we made though is that those represent some upside for the second half of this year, not downside, there was some upside. You know, the drag in the revenue again is ever fine.
spk08: Got it, thanks Mike. You're welcome. Thanks, Mark.
spk10: Thank you, the next question is coming from Kirk Maturdy of Evercore ISI, please go ahead.
spk20: I, yeah, thanks guys, appreciate the time. Mike or Tony, can you just talk about sort of the, the new contract cycle for you all? I mean, I think there was supposed to be, you know, roughly 30% this year and then the balances in the next couple of years. I guess, how's that going or any clients coming to you and wanting to sort of renew earlier, talk about sort of shifting over to different contract terms earlier? Just give us an update on that.
spk14: Yeah, it's going well, Kirk. You know, we've got some slides on this in the IR deck to try to explain it. It's going well, it's just a core part of the company now. We'll be done with about 65% of those available by the end of this year. And the program is going, you know, as planned. There's been no changes. Pretty much the bulk of the customers are signing up for three-year contracts. As we get through this, we have, you know, significantly less and less one-year contracts. We'll have some small amount of customers remaining on one-year contracts because they're mandated to have only a one-year contract, which is fine. But in the main, we'll be a pretty much a three-year contract company that renews about 30 to 35% of them every year. So in 18 months or so, we'll start the cycle again and we'll renew those for three-year contracts with annual price escalators. So all in all, it's going really well.
spk20: Okay, great. And then Tony, sorry if you touched upon this, I jumped out a little bit late, but on the divestiture of Everfi's non-recurring business in the UK, I assume that's a very small part of the drag. I think the bigger part of the drag in corporate is just softer bookings and retention. Is that the way to think about it?
spk17: Correct, yeah, that was a single -a-dollar business that we divested up in the UK. And our organic numbers would adjust for that.
spk19: Okay, that's great. I appreciate it, thanks guys.
spk10: You're welcome. Thank you. At this time, I'd like to turn the floor back over to Mr. Barth for closing comments.
spk03: Thank you, Donna, and thank you everyone for joining us today. In August and September, we will be attending a number of investor events, include several investor conferences, which are now listed on our investor relations site. We look forward to speaking with you soon and have a nice day.
spk10: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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