Blackbaud, Inc.

Good day, and welcome to Blackbaud's fourth quarter and fiscal year 2024 earnings conference call. Today's conference is being recorded. I'll now turn the conference over to Tom Barth. Please go ahead, sir.

Good morning, everyone. Thank you for joining us on Blackbaud's fourth quarter and full year 2024 earnings call. Joining me on the call today are Mike Giannone, Blackbaud's CEO, President, and Vice Chairman, and Tony Bohr, Blackbaud's Executive Vice President and Chief Financial Officer. Mike and Tony will make prepared remarks, and then we will open up your 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 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 on 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 substitute for GAAP measures. And with that, let me turn the call over to you, Mike.

Thank you, Tom. Good morning, everyone. Before I dive into our results, I want to quickly touch on EverFi. We closed the divestiture of EverFi business on December 31st. As you know, EverFi was dilutive to both our revenue growth and profitability in 2024. We're pleased to advance into the new year with this deal closed and are looking forward to focusing on what we do best. Heading into 2025, we are concentrating on our core Blackbaud business, and our financial guidance and go-forward results will not include EverFi. Turning to the rest of the business, I want to express how pleased I am with the progress Blackbaud has made over the past five years and highlight some key achievements from the past year. In 2024, we extended our position as the market leader, providing the most comprehensive suite of purpose-built and mission-critical software and services to the social impact sector. We continue to invest aggressively in innovation and partner with our extensive developer network to help our customers raise more money while enhancing and streamlining their operations. Our solutions allow customers to spend more time focusing on what matters to them making a concrete difference through their vital social impact work. We remain the premier software partner across the social impact space. Our market leading innovation is a competitive differentiator and continues to drive sales. In 2024, we saw significant improvement in new logo wins, while also deepening our existing relationships with our list of approximately 40,000 customers. Last quarter, I highlighted several wins in the higher ed vertical. In this quarter, I'll give you more in the K-12 education vertical, including Notre Dame High School, American Heritage Schools, and San Diego Jewish Academy. These institutions, like those in higher ed and our other verticals, valued our end-to-end workflow and innovation. We continue to be very focused on new logo growth across all of our industry verticals, and are supporting this initiative through enhancements in sales and marketing programs. Let me spend a minute on some of our key AI initiatives. Blackbaud's Intelligence for Good program integrates several machine learning and AI capabilities that help our customers streamline workflows, enhance efficiency, and achieve better outcomes. The machine learning features that focus on better prospecting have been adopted by over 5,000 Razor's Edge NXT customers. We've introduced generative AI features across multiple products, mainly for composing outreach communication. But in the current quarter, we'll be releasing BlackBaud Copilot, which provides contextual responses to questions and drives actions. Copilot is an industry-leading innovation that only we could deliver, thanks to our access to years of social-good-centric benchmark data. And like the rest of the software industry, we have started experimentation with agentic AI, and the prospects across social, corporate, and education sectors are encouraging. We're also leveraging AI to transform the way we work, cultivating opportunities that allow us to improve efficiencies. We continue to identify, experiment, and scale a range of successful solutions across marketing, customer success, and engineering, to be an active innovator through applied AI. So when our customers or our own employees ask me if AI can help them, it's not a question of can, it does. Now turning to our 2024 financial results. For the full year 2024, Blackbaud produced revenue of $1,155,000,000, an adjusted EBITDA margin of nearly 34%, non-GAAP diluted earnings per share, of $4.07, and a Rule of 40 score of approximately 39%. Revenues in our social sector grew 7% despite a strong FY23 comparison. And within social, contractual recurring revenue, the company's largest revenue line was up 8%. Our second largest revenue line of social transactional recurring revenue grew 6%. Gross dollar retention, driven by the value our customers see using our solutions, was approximately 92% excluding EverFi. Our adjusted free cash flow remained extremely strong at approximately $245 million, or 21% of revenue, up from 19% in 2023. Our strong adjusted free cash flow gives us great confidence in continuing to invest in innovation and as well as fuel our ongoing stock repurchase program. For 2024, the company bought back 10% of the common stock outstanding. And if you include the net share settlement on employee stock comp, the figure rises to 11%. In 2025, we intend to continue to aggressively repurchase between 3% to 5% of our outstanding shares. Our 2024 results are a reflection of our successful work in solidifying Blackbaud's attractive financial model over the past five years. Our revenue, margins, cash flows, and Rule of 40 have improved significantly since 2020. I'd like to spend a minute outlining that success for you. Our organic growth rate in 2020 was 1.2 percent. In 2024, it was 5.2 percent. Our EBITDA margin in 2020 was 26.5 percent. In 2024, it was 33.7 percent. Our adjusted free cash flow margin in 2020 was 8.3 percent. In 2024, it was 21.2 percent. And rule of 40 in 2020 was 27.7 percent. In 2024, it was 38.9 percent. This success is a result of a proven operating plan continuous product innovation, refinement of our go-to-market programs, a focus on efficiencies and effectiveness, and a steadfast dedication to not only powering social impact, but centering it in all we do with both our customers and employees. Blackbaud's multi-year trajectory will also be built on these tenets. And when combined with our future opportunities, we see a clear path to becoming a Rule of 45 company by 2030. Let me conclude with why Blackbaud continues to be a sound investment choice that we believe should create substantial shareholder value. Regarding organic revenue, you can expect mid-single-digit organic revenue growth plus, driven by visible and full reoccurring revenue streams targeting both new logos and the expansion of our installed base empowered by innovation. You can continue to expect a strong focus on costs employee productivity to improve EBITDA. Additionally, our very strong free cash flow will drive a purposeful capital allocation strategy in 2025 and beyond, with a plan to buy back between 3 and 5 percent of common stock outstanding in 2025. We look forward to our continued journey and offering our shareholders increasing value in the coming years as we make progress against our Rule of 45 ambition by 2030. And as always, we thank our employees around the world for their commitment and dedication to make BlackBud such a great company. With that, let me turn the call over to Tony.