Blackbaud : Q4 2020 Blackbaud, Inc. Earnings Conference Call - Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

BLKB.OQ - Q4 2020 Blackbaud Inc Earnings Call

EVENT DATE/TIME: FEBRUARY 09, 2021 / 1:00PM GMT

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CORPORATE PARTICIPANTS

Anthony W. Boor Blackbaud, Inc. - Executive VP of Finance & Administration and CFO Mark Furlong Blackbaud, Inc. - Director of IR

Michael P. Gianoni Blackbaud, Inc. - President, CEO & Director

CONFERENCE CALL PARTICIPANTS

Brian Christopher Peterson Raymond James & Associates, Inc., Research Division - Senior Research Associate Matthew David VanVliet BTIG, LLC, Research Division - VP & Application Software Analyst

Rishi Nitya Jaluria D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst Robert Cooney Oliver Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst Ryan Michael MacDonald Needham & Company, LLC, Research Division - Senior Analyst

Ryan Patrick MacWilliams Stephens Inc., Research Division - Research Analyst

Thomas Michael Roderick Stifel, Nicolaus & Company, Incorporated, Research Division - MD

PRESENTATION

Operator

Good day, and welcome to Blackbaud's Fourth Quarter and Full Year 2020 Earnings Call. Today's conference is being recorded.

Now I'll turn the conference over to Mark Furlong. Please go ahead, sir.

Mark Furlong - Blackbaud, Inc. - Director of IR

Good morning, everyone. Thanks for joining us on Blackbaud's Fourth Quarter and Full Year 2020 Earnings Call.

Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO; and Tony Boor, Blackbaud's Executive Vice President and CFO. Mike and Tony will make prepared comments, and then we will open up the line for your questions.

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.

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 substitution for GAAP measures. A reconciliation of GAAP and non-GAAP results is available in the press release we issued last night and a more detailed supplemental schedule is available in our presentation on our Investor Relations website.

Before I turn the call over to Mike, please note, Blackbaud will host a virtual investor session on March 25, and we invite members of the investment community to register for the event by visiting our Investor Relations website. I'll also mention that during the first quarter of 2021, our team will be virtually attending Raymond James' 42nd Annual Institutional Investor Conference.

With that, I'll turn the call over to Mike.

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Michael P. Gianoni - Blackbaud, Inc. - President, CEO & Director

Thanks, Mark. Good morning, everyone. Thanks for joining our call today. Q4 was a very solid quarter and a strong finish to what has been a unique year to say the least. As we discussed during our December event, where we outlined our long-term goals and strategic outlook, our pivot to place a greater emphasis on profitability positions us for significant improvement on the Rule of 40 as we exit the pandemic, including a return to a sustainable revenue growth rate in the mid-single digits or greater.

Our results are a solid early indicator that over time, the Rule of 40 is within our reach. We achieved 30 on the Rule of 40 for the fourth quarter and we were within 10 basis points of the Rule of 40 in the month of December as our organic revenue growth rate strengthened toward the end of the quarter. Without a doubt, this past year has tested the industry and underscored the resiliency of our customers and our market as they serve such a critical role in solving the challenges we face as a society.

2020 put a spotlight on the need for digital capabilities as social good organizations were forced to quickly pivot their own operations to ensure they continue to deliver on their missions in this environment. For example, while the shift to online and virtual fundraising has been reshaping the landscape in this market for many years, that shift has rapidly accelerated. In 2020, we saw over 20% year-over-year growth in online giving with more than 1/4 of donations made on a mobile device, and end of the year giving grew nearly 30% year-over-year. For more than 2 decades, less than 10% of giving has been done online. But this grew to 13% last year and now mirrors the digital adoption experience in online retail sales. This is a significant milestone for online giving.

The current environment is not just causing a shift to a digital-first mindset within our customer base, but also a shift in how donors, students, employees and others expect to engage with social good organizations going forward. This is an acceleration of a long-term transformation that we believe will drive significant demand for cloud software solutions in the upcoming quarters and years.

Looking ahead, the progress being made to distribute COVID vaccines bodes well for the return of in-person events this year. And I'm increasingly bullish on the outlook for our market, our customers and our company as we move through 2021.

I'd like to make a point to say thank you to our employees for stepping up in a big way this year to support each other, our customers, our communities and Blackbaud. We know that 9 out of 10 employees say Blackbaud's mission and the customers we serve was important to their decision to join the company and perhaps more than ever that unmatched commitment to the social good community was on display in 2020. We've given back to the entire social good community through hundreds of free resources, philanthropic gifts, service on boards and more. Looking back at the last year, I'm incredibly proud of our achievements as a company.

After a solid start to the year in 2020, we shifted quickly in response to the pandemic and took early action to ensure our business continuity while remaining hyper-focused on protecting the welfare of employees, supporting our customers and delivering increased value to our shareholders. After transitioning our global workforce to a remote operation in a matter of days without business disruption, we recognized our employees would be our support as all of our personal and professional lives begin to overlap. We provided additional financial support to all employees earning less than $75,000, launched the Blackbaud after-school program to support employees globally who are balancing work and child care, offered a onetime technology stipend to support home office needs, increased professional development training opportunities and introduced many more resources focused on maintaining physical, mental and social wellbeing, while working in a virtual environment.

Although we suspended our company-funded 401(k) match program as part of our cash conservation measures in response to the pandemic, we've been able to fully reinstate that program and our strong finish to the year enabled us to fund a discretionary match for participating employees late in the fourth quarter. Our people are essential to our success, and we have an unwavering commitment to build on our strong culture by creating employee experiences and programs and further develop and attract the best talent as well as promote a diverse and inclusive environment.

In 2020, we hired a Head of Diversity and Inclusion, recognizing that now, more than ever, the topic of equality needs a strong unified voice at Blackbaud. We continually seek diverse talent to join and lead our company as well as serve on our Board of Directors, and this is not new for us. We have strong gender diversity within our company, with approximately half of our employees being female, but we recognize we can always do better. Blackbaud supports greater diversity in the tech industry as a whole. And we will continue to push for progress because with more

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inclusion, we can drive greater social good and financial results. I believe when our leadership and workforce reflects the diversity of our customers and their communities, it enhances the way we connect.

Taking a step back, we know the investment community increasingly values ESG and social impact. And it's clear to me, Blackbaud has a tremendous opportunity to build on it's already strong reputation as a leader in sustainability and social responsibility. We've created a formal program committed to advancing our ESG efforts, beginning with the adoption of SASB standards and participating in the UN Global Compact. At Blackbaud, driving social impact isn't a side project, it's our business. All of our software solutions enable social impacts. We're proud to be a proof point that it's possible to provide exceptional products, generate shareholder value and do good in the world. By keeping mission aligned, we built not just a successful business model, but an innovation engine that's played a role in driving advances on social issues of every kind.

Turing to our customers. We've been agile as an organization with a relentless focus on driving value and outcomes. Our deep expertise in each of our vertical markets positioned us to respond quickly to the unique challenges facing our customers as a result of the pandemic. We announced free universal access to our entire e-learning curriculum, created webinars with thousands of customers attending, introduced new pricing and financing offers based on the changing needs of our customers and launch new innovation, helping them more aggressively move to digital capabilities. We were quick to expedite product enhancements to support our customers' changing needs. A few of these innovations include fitness tracking integration and Blackbaud's peer-to-peer fundraising portfolio, a new virtual prayer wall that enables congregants at faith organizations to share and respond to prayer request online, text messaging capabilities for scholarship directors and higher education institutions to ensure no funds were going unutilized and the expansion of the global capabilities of YourCause, making it easier for companies to bring employees across geographies together in support of causes around the world.

This industry has been undergoing a digital transformation in which we have been the global leader and that has accelerated as the pandemic has highlighted how modern, scalable and secure cloud systems are now a required standard.

In 2020, we showed why we continue to be the trusted leader in this space. Customers around the world leveraged our solutions to effectively fundraise for COVID-19 research in essential equipment, including vaccine development, low-cost ventilator production and methods to treat the virus and slow it's spread.

Food banks relied on our solutions to manage the rapid influx of donations needed to keep up with massive surges in demand. In fact, we processed over 350% more online donations for these customers in 2020 than in 2019. JustGiving power the largest individual led online product fundraising campaign in history. And during Giving Tuesday, in Q4, our platforms process record-setting levels of transactions, enabled over 138 million e-mails to be delivered in a single day. Our scalable platforms enable events like this to happen.

We also recently updated the Blackbaud Marketplace, offering curated third-party apps, enabling organizations of all types and sizes to discover new ways to amplify their impact by enhancing their best-of-breed Blackbaud solutions with specialized capabilities. A few partner solution examples include connecting the bidders at a fundraising auction, texting volunteers about an upcoming event, tracking branded merchandise purchased in an online store or automating outreach to donors eligible for a matching gift. And the number of apps listed in the Blackbaud marketplace nearly doubled in 2020, progressing our strategy to build a robust partner ecosystem.

We are steadfast in our commitment to innovation to enable the success of our customers, which is why we're accelerating investments in areas like R&D, security, customer success and the shift to third-party cloud service providers.

While we're well underway in our efforts centered around delighting our customers with industry-leading cloud solutions, we're also further optimizing our go-to-market model in driving operational scale and efficiency, all while enhancing the future of work at Blackbaud for employees and delivering increased value for our shareholders.

We've taken lessons learned throughout 2020 and reevaluated elements of our go-to-market strategy with a digital-first mindset, and we have a significant opportunity to leverage the investments into digital to reduce our customer acquisition costs and increase our sales velocity, ultimately driving a more scalable and cost-effective, go-to-market model.

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