Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Blackbaud Inc (BLKB, Financial) reported strong organic revenue growth of approximately 7% for the quarter, significantly up from 2.8% in the same quarter of 2023.
- The company's adjusted EBITDA margin improved to 36%, up nearly 300 basis points year over year.
- Non-GAAP earnings per share increased by 10% year over year to $1.08.
- The social sector, which represents 88% of total revenue, grew by 8.5% year over year.
- Blackbaud Inc (BLKB) has a robust stock repurchase program, recently expanded to $800 million, indicating strong confidence in its valuation and future prospects.
Negative Points
- EVERFI, which represents 8% of total company revenues, continues to be a drag on overall growth, with the corporate sector declining by 9.2% year over year.
- The company faces potential headwinds from the lack of viral charitable giving events in 2024, which could impact revenue comparisons in the second half of the year.
- The annual employee-wide merit increase in the third quarter is expected to cause a slight dip in margins and cash flow.
- The transition to three-year contracts with annual price escalators is still ongoing, and there is some uncertainty regarding customer acceptance and renewal rates.
- Despite strong performance metrics, management believes that the company's success is undervalued by the investment community, indicating potential market perception issues.
Q & A Highlights
Highlights from Blackbaud Inc (BLKB) Q2 2024 Earnings Call
Q: Mike, I would 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.
A: 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, product 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.
Q: And maybe 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?
A: The EVERFI business, well, 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 prepared comments. We had a -- 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.
Q: 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 Blackbaud? 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 -- a follow-up for Tony as well.
A: Sure. The corporate sector includes several platforms, predominantly, EVERFI and YourCause. YourCause business is doing really well. It's actually accretive to the company's growth. The drag part of it is EVERFI. YourCause has a very large global footprint that's connected to global non-profits and connects us to corporations that donate to non-profits. 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 non-profit sector through companies on the YourCause side. And again, we said this a few times, EVERFI is 8% of the company. Rest of the company's doing really well.
Q: Tony, just -- 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.
A: Rob, thanks for the question. We 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.
Q: I guess as you've gotten through a lot of the summer here and headed into the beginning of the next school year, I wonder if you could just give us a little bit of color on how the K-12 business is doing -- and in particular, any areas of that portfolio that seem to be outperforming.
A: Yeah. Thanks, Matt. K-12 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-12 website, marketing and admissions set of capabilities that'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.
Q: Could you 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 sell to customers versus an underperformance on new bookings? Just curious on sort of where you're feeling brunt of it today.
A: 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%.
Q: 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 rearview mirror. Can you just sort of rehash what some of those challenges -- the most notable challenges were and how it sets the company up for a sustainable growth going forward?
A: Yeah, you bet. So, we put in this 5-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.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
