Blackbaud, Inc.

for agentic AI in the social impact sector to help customers unlock new levels of effectiveness and deeper connections across critical fundraising operations. The customer reaction to these announcements was positive and energetic. We frequently had standing room-only crowds for our demos and Q&A sessions. We know our customers prioritize value, ease of use, and proven outcomes. And we know that the social impact sector as a whole requires solutions that will harness the power of these new technologies to drive their success. Our AI solutions will deliver on both of these fronts. We continue to emphasize our operational rigor to drive increased profitability and strong cash flows. And our Q3 and year-to-date results are a strong testament to that discipline. Additionally, Chad will discuss some investments we've made to support future profitable growth, as well as some cash benefits related to tax changes in the One Big Beautiful Bill. Let me conclude by offering what you can expect from BlackBot in the future. We believe BlackBot is a sound investment choice that has the potential to create substantial shareholder value, a belief that is supported by our strong 2025 year-to-date performance. As a reminder, The framework we're targeting going forward includes mid-single digit plus organic revenue growth, EBITDA growth in excess of revenue growth, double-digit diluted EPS growth, and driving very strong free cash flow to empower a purposeful capital allocation strategy. Our near-term capital allocation priority remains stock repurchase, especially at current valuations. We expect to remain an active purchaser of BlackBot stock in the fourth quarter and beyond. We are increasing our stock repurchase target from 5% to 5.2% to 7% for 2025. Chad will provide more of the specifics on our plans across these metrics in his guidance section. But we look forward to continuing this journey and offering our shareholders increasing value in the coming years. With that, let me turn the call over to Chad.

Thank you, Mike, and good morning, everyone. Blackbaud continues to be well-positioned for long-term success, delivering consistent growth and enviable profitability. As Mike outlined, Blackbaud executed well in the third quarter, a strong follow-on to our Q1 and Q2 performance. We remain committed to providing investors an attractive financial model balance between growth and revenues, earnings, and cash flows along with a prudent and purposeful capital allocation strategy. Mike walked through the high-level Q3 results, which tell a story of consistent mid-single-digit top-line growth, improved profitability, and strong free cash flow. But to reiterate, Q3 organic revenues were up 5.2% to $281 million, a result of solid contractual recurring revenue growth, and continued strength in our transactional recurring revenue lines. Adjusted EBITDA of 100 million was up nearly 5 million with a 220 basis point improvement to margin. Improved revenue and EBITDA margin speaks to the power of the company's five-point operating plan, which continues to positively impact earnings per share. Non-GAAP diluted EPS increased to $1.10 compared to $0.99 last year, an 11% increase year over year. Adjusted free cash flow was $125 million, up from $98 million last year, representing adjusted free cash flow growth of 28% year over year. Our strong free cash flow generation gives us confidence to continue significant investment in a number of critical areas like product innovation, stock repurchase, and debt repayment. In the third quarter, we repurchased approximately 460,000 shares, bringing our year-to-date total through the third quarter to nearly 2 million shares. Including net share settlement of employee stock compensation, this represents approximately 5.2% of the company's common stock outstanding as of December 31st, 2024. This buyback activity continues to demonstrate our strong belief the value of blackbaud and as mike mentioned we expect to be an active purchaser of blackbaud stock in the fourth quarter and into 2026. additionally leverage decreased to 2.4 times in the third quarter compared to 2.7 times last quarter and 2.9 times in q1 before i move to guidance for the remainder of 2025 There are several housekeeping items that I wanted to highlight that may influence our numbers and help you set your models for both the year and upcoming quarters appropriately. Thinking about revenue seasonality, our transactional revenue can create fluctuations from quarter to quarter, with Q4 typically being our highest revenue dollar quarter. Our annual merit increases for employee compensation went into effect on July 1st, so Q3 and Q4 tend to have higher compensation-related costs compared to Q1 and Q2. We continue to analyze the implications of the July tax law changes and believe it will meaningfully reduce cash taxes for the company through 2027. We have updated our 2025 Free Cash Flow Guidance to include the anticipated cash tax benefit for this year, and we'll share more on the estimated benefit to 2026 free cash flow when we provide formal guidance in February. We made a number of meaningful incremental investments in the third quarter, tied to product innovation and future growth drivers, including accelerated investment in the development of our Abjentech AI offerings. We estimate these incremental investments will total approximately $7 million between the third and fourth quarters and are contemplated in our full year 2025 guidance. Finally, the company identified a prior period non-cash error related to the year end 2024 calculation of the valuation allowance in accounting for income taxes. The correction of this, along with other immaterial prior period errors, resulted in immaterial impacts to our previously filed financial statements. Further information can be found in our earnings press release and in our 10Q once it's filed. Moving now to guidance for the remainder of 2025. Our guidance for the year assumes no material changes, positive or negative, in the current macroeconomic landscape. We are reiterating our guidance across all metrics for 2025, with the exception of increased free cash flow, as I noted previously. Regarding revenue, we are projecting revenue in the range of $1,120,000,000 to $1,130,000,000 representing organic growth at the midpoint of approximately 5% on a constant currency basis. Shifting to profitability, We continue to focus on margin expansion opportunities while at the same time making investment in the business in key areas like innovation, artificial intelligence, and cybersecurity. Therefore, we anticipate EBITDA margins of approximately 35.4% to 36.2%. As a reminder, EverFi's contribution to our 2024 EBITDA was approximately 10 million to 15 million. After adjusting for the estimated impact of the EverFi divestiture, the midpoint of our EBITDA margin range implies approximately 7% growth in adjusted EBITDA dollars year over year. With the overall revenue and spend configuration I just outlined, we expect 2025 non-GAAP diluted EPS in the range of $4.30 to $4.50 annually. After adjusting for the estimated impact of EverFi divestiture, the midpoint of our 2025 non-GAAP diluted EPS range implies an approximately 11% growth rate year over year. The combination of higher growth and better margin is expected to result in a rule of 40 at constant currency of 40.5% at the midpoint of guidance for the full year. We continue to focus sharply on driving adjusted free cash flow and returning capital to our shareholders. For the year, we're increasing our adjusted free cash flow guidance to 195 million to 205 million. This increase is directly tied to the anticipated 2025 cash tax savings related to the One Big Beautiful Bill Act and net of the incremental innovation investments mentioned earlier. Now, as we discussed earlier this year, there are approximately 60 million of one-time items in working capital fluctuations negatively impacting our 2025 free cash flow outlook that we do not expect to repeat in 2026. You can find more details on slide 24 of our investor deck. Moving to our capital allocation strategy, we continue to prioritize stock repurchase. In fact, since the fourth quarter of 2023, we have reduced our common stock outstanding by 10%. We estimate that we will end 2025 with a weighted average diluted share count between 48.5 and 49.5 million shares. And to help you with your modeling, when you combine the nearly 2 million shares repurchased year to date with the planned future repurchases for Q4 2025 and 2026, we anticipate a preliminary range of 46.5 to 47.5 million weighted average diluted shares for next year. Regarding longer term plans, we expect to continue to repurchase shares annually beyond 2026, as well as evaluate debt repayment and tuck in M&A. We have a lot to be proud of and a lot more to look forward to in Q4 2025 and beyond. As such, we remain focused on providing enhanced value to our customers and shareholders. At this time, I'll ask the operator, let's open up the line for questions. Operator?

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 are using speakerphone, please make sure your mute function is off to allow your signal to reach our equipment. Again, as a reminder, please press star one to ask a question. and please limit yourself to one question. Our first question is from Brian Peterson with Raymond James. Please proceed.