Blackbaud, Inc.

Good day and welcome to Blackbaud's second quarter 2026 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.

Good morning, everyone. Thank you for joining us on Blackbaud's second quarter 2026 earnings call. Joining me on the call today are Mike Gianoni, Blackbaud's chief executive officer, president and vice chairman, and Chad Anderson, Blackbaud's Executive Vice President and Chief Financial Officer. 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. Today's discussion will focus on non-GAAP results. Please refer to our press release and investor materials posted to our website for full details on our financial performance, including GAAP results, full year guidance, and long-term aspirational goals. We believe that a combination of GAAP and non-GAAP measures provide a more representative view of how we 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. We have also provided a slide presentation with supplemental data and additional highlights and financial metrics. The earnings release, supplemental tables, and presentation are available in the investor relations section of our website on blackbaud.com. And with that, let me turn the call over to you, Mike.

Thank you, Tom. Good morning, everyone. We appreciate you joining today. We delivered another quarter of solid execution against our operating plan with a continued focus on efficiency and a rapidly accelerating pace of product innovation. We achieved our planned revenue and other financial targets for the quarter. As you saw in our press release, we pointed investors to the high end of our full-year financial guidance ranges. which does not include any meaningful revenue contribution from our five new AI products launched or announced this year. AI enablement remains central to our success both in terms of the capabilities we're delivering to customers and in the way Blackbaud is operating. Our first agentic products moved from launch into real customer results which is reinforcing our confidence in both our strategy and the opportunity ahead. We continue to invest aggressively in innovation to produce meaningful product enhancements and new solutions throughout our portfolio, including generative and agentic AI capabilities. Our products enable our customers to dramatically improve engagement levels, raise more money, and lead their organizations while increasing operational efficiency, ultimately allowing them to spend more time executing on their missions and Les Time on administrative tasks. No company can better help customers deliver on their meaningful missions than Blackbaud. Blackbaud brings nearly 45 years of specialized domain expertise, serving as the system of record for our customers with deeply embedded workflows purpose-built for the social impact sector. At the same time, we have continued to invest heavily in cybersecurity and AI governance to help protect our customers' data and provide a framework for our AI solutions to use that data responsibly. These are some of our customers' largest concerns, and we have addressed them head on. A significant number of organizations in our vertical markets have limited IT resources and face turnover and staffing shortages. We win because our solutions are intuitive, require fewer complex customizations and integrations, and many more. Just a few years ago, more than half of our renewal volume was from customers on one-year contracts. This quarter, we again saw a healthy mix of new customer logo wins and cross-sales of additional solutions to our existing customers. Several of our new logo wins were competitive displacements across multiple verticals. New logos this quarter included Nelson University, which selected Razor's Edge NXT together for their analytics capabilities, and the East Hampton Historical Society, which chose Razor's Edge NXT to modernize its fundraising. Additionally, we continue to see great momentum in upselling with our development agent with cross-sells in our higher ed and nonprofit verticals. We also had several notable wins that were competitive takeaways and returning customers. Jacksonville Zoo moved to Raiders Edge NXT and Prospect Insights, displacing an incumbent point solution and returning to Blackbaud after several years away. And the Center for Autism Services Alberta selected Financial Edge NXT, a competitive takeaway from a horizontal accounting provider and another returning customer. These wins reflect the strength of purpose-built, connected solutions over fragmented, generic alternatives and the value of our solutions in meeting our customers' ambitious goals. We are more confident than ever that AI strengthens our ability to deliver differentiated solutions and drive future growth, as well as improving how we run Blackbaud. Our first agentic AI offering, the Fundraising Development Agent, launched into general availability ahead of schedule earlier this year, and we are now seeing genuine, measurable results and return on investment from our customers. The development agent identifies potential and dormant donors who are not in a major gift officer's portfolio and executes personalized, brand-aligned, multi-touch engagement sequences under human supervision. Early results are compelling. In production, the agent is generating a reply rate that's significantly above the industry average, a message open rate metric meaningfully above industry benchmarks, and an average attributable gift size well above industry norms. Importantly, customers are engaging a broader donor base without adding headcount. And a development agent is just the first of many ways we expect to add value for customers. Over the last few weeks, we announced four additional Agents for Good solutions planned for the coming months, each embedded directly in the solutions our customers already use every day. The Data Health Agent, which will run autonomously within our fundraising solutions to identify duplicate entries, confirm contact information, resolve constituent life changes, helping development offices run more curated and targeted campaigns. This agent will free up customer resources as most customers have data health assigned to staff. The admissions agent, which will enable any independent K-12 school to offer the high-touch personalized admissions experience that previously only the most well-resourced institutions could achieve. The digital marketing agent, which will help plan campaigns intelligently from selecting the right audience to generating tailored content to optimizing outreach across channels in real time. And the accounts payable agent, Financial Edge NXT's first autonomous AI agent which will work alongside finance teams to improve their own efficiencies to include being able to automate invoice intake and optimize payments. Alongside these agents, we're advancing a reimagined cloud-native AI-first connected platform, a single operating system for social impact that connects every product, learns from every interaction, and gets smarter over time, all while keeping humans firmly in control. We'll unveil the full details of this connected system along with additional product news at BBCon 2026 in Columbus, Ohio at the end of September. We're excited about what's ahead. I also wanted to highlight some innovations specific to our K-12 vertical. Within K-12, we previewed the admissions agent at our 2026 user conference and introduced a wave of embedded AI across our total school solution, including predictive candidate insights, new enrollment contracts capabilities, and Student Success Insights that help schools proactively support at-risk students. Also embedded is Blackbaud AI Chat that helps administrators quickly ask questions of their data, get insights in plain language, and take action directly within the solution, as well as a common records engine that syncs data in real time across our student information and fundraising systems. Breaking Down Silos Between Departments, and offering our customers the capability to integrate various systems. Our competitive differentiation is clear and widening. Our strength comes from combining proprietary data, one of the most robust sets of social impact data, processed and secured in real time, with the sector's richest social impact signal graph, deep embedded sector context, and purpose-built governance. Native integrations across systems of record, engagement, financial accounting, transaction processing, and intelligence, further strengthening that advantage. Our agents stand apart precisely because they're embedded in the solutions customers already trust, reducing the data gaps and security risk created by bolt-on tools. We're also seeing continued momentum in customer adoption. Usage of AI-powered workflows has expanded meaningfully over the past several quarters, and more than half of our Rages Edge NXT customers use machine learning-enabled donor prospecting, generating tens of billions of predictions annually that live and aggregate within our systems, creating a self-improving feedback loop that generates better fundraising outcomes across our customer base. We also believe trust is critical to organizations allowing intelligent systems to act on their behalf. Our customers trust in us as their partner, trust in our solutions that they are used to, trust in the data, and trust in our security are advantages for both our customers and for Blackbaud. Trust matters as AI usage increases. Recent research from the Blackbaud Institute shows that AI is now common across the social impact sector. Yet most organizations are held back by a gap between adoption and effective use. We're helping close that gap in two ways, by delivering trusted, transformational AI capabilities inside the tools our customers already use and through the AI Coalition for Social Impact, which recently launched a free product-agnostic AI tool for Social Impact Certification Program to help professionals adopt AI effectively and responsibly. Now turning to how we use AI internally, we continue to identify, experiment, and scale solutions across engineering, sales and marketing, customer success, and the back office to improve speed and operational efficiency. Our engineering teams use leading generative AI tools such as Microsoft GitHub Copilot, Anthropic Cloud, and other approved solutions to accelerate development, reduce time to remediate software issues, and increase throughput on new product delivery. We're also applying AI to better qualify inbound interest, support sales development, and improve customer support. I believe our past performance is compelling. In addition to improving our operations, go-to-market capabilities and Pace of Innovation, we are focused on the value creation opportunities ahead in the near, mid and long term, both operationally and financially. As a reminder, from 2026 through 2030, we are targeting double-digit annual EPS growth driven by the following. Organic total revenue growth of 4% to 6% annually with potential upside based on viral events and new product launches such as our agents for Good Catalog. Adjusted EBITDA growth of 6% to 8% annually while expanding our adjusted EBITDA margin to 40% plus. Slide 24 in our investor deck provides more detail on the planned initiatives to drive continued margin expansion, most of which are already underway. We expect this improvement in EBITDA to continue to translate to strong free cash flow growth We plan to use our very strong cash flows to drive purposeful capital allocation strategy with consistent stock repurchases as a core tenant. We expect to deploy 50% or more of our cumulative free cash flow generated between 2026 and 2030 towards stock repurchases and continue to reduce our common stock outstanding. This is a continuation of our significant stock repurchase program over the last couple of years. in which we have reduced common stock outstanding by approximately 15% since the fourth quarter of 2023. In the more near term, as we stated in our earnings press release today, we are pointing investors to the high end of our original FY26 guide across revenue, adjusted EBITDA, EPS, and free cash flow. Chad will provide more detail and color in a minute. To conclude, we believe Blackbaud is a compelling investment with multiple opportunities for strong shareholder returns. From an operating, financial, and strategic perspective, we are pleased to be carrying real momentum into the second half of the year and the years ahead. We look forward to our continued journey. I also would like to thank the entire Blackbaud team for their continued strong efforts in having Blackbaud named to Time's list of America's best companies in 2026, and a job well done. I'd like to turn it over to Chad to walk through our second quarter results and our guide for the remainder of 2026.